viewCapital Limited

Capital Limited hugely geared to rising gold price


  • A contractor focused on East and West Africa
  • Uptick in gold price is boosting exploration activity
drill rig

Quick facts: Capital Limited

Price: 64.5 GBX

Market: LSE
Market Cap: £88.35 m

What it does

Capital provides a drilling service including blast hole, delineation, directional, exploration, grade control and underground drilling plus a full range of ancillary services.

Fleet numbers above 90 rigs currently

Africa is the main area Capital operates, with rigs currently in Tanzania, Ivory Coast, Mauritania, Mali and others.

Customers include leading mining groups such as Acacia, Barrick, Glencore and Kinross.

Last year won its first mining services contract - at Allied Gold's Bonikro mine in The Ivory Coast.


How it's doing

Capital had said its business continued to perform strongly in the first half of 2020 despite the coronavirus (COVID-19) pandemic.

The company’s business is focused on African markets and gold mining in particular so the rocketing price of gold has been a boon for the company.

Strong demand for drilling services is anticipated once the West African wet season has passed.

Revenue in the first half of the year rose to US$65.09mln from US$54.83mln the year before.

Profit before tax soared to US$19.13mln from US$7.59mln in the first half of 2019, thanks largely to a US$9.98mln “fair value” gain on investments.

Underlying earnings (EBITDA) rose to US$15.4mln from US$12.7mln the previous year while earnings before interest and tax (EBIT) improved to US$9.6mln from US$7.9mln.


What the boss says: Jamie Boyton, executive chairman

“Our long-term contract portfolio strengthened further with the award of a two-year contract with Hummingbird in Mali. Additionally, we were awarded extensions at three existing long-term contracts with Resolute (Mali), Barrick North Mara (Tanzania) and AngloGold Ashanti (Tanzania), a positive reflection of our performance delivery at these sites”


Inflexion points

  • The gold price has hit a high of more than US$2,000 per ounce
  • Exploration activity picking up as a result
  • Results highly geared to fleet utilisation numbers


What the broker says

Capital is “on the cusp of a meaningful equity re-rating”, analysts at Berenberg wrote in September, with growth potential from its core drilling business and the fledgeling mining services operation.

The German bank issued a note exploring three scenarios: growth in utilisation rates for the drilling business, the winning of two US$40mln-per-year mining contracts; and a ‘dare to dream’ scenario combining both of these scenarios.

A mixture of a high gold price and improving capital markets are “pointing to a repeat of previous cycle highs” for Capital’s drilling business, in which case this could see utilisation rates increase from around 60% closer to 75% with limited capital investment. 

If so, this would results in Berenberg’s revenue forecasts for 2021-22 increasing 24%, underlying profit (EBITDA) by 36% and free cash flow by 61%. 

The broker has a ‘buy’ rating and 93p price target.


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