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Capital Drilling wins first full service mining contract at Allied Gold's Bonikro mine

“Load and haul operations are a natural extension to our existing world-class drilling and maintenance capabilities."

Capital Drilling Ltd -
Load and haul is part of the contract

Capital Drilling PLC (LON:CAPD) has won a five-year contract with Allied Gold Corp to provide a full range of mining services at the Bonikro Gold Mine in The Ivory Coast. 

It is the first time Capital has taken full control of operations at a mine and the deal sees it also taking a 3% stake in Allied through a US$3mln convertible loan.

Contract revenues over the five-year contract term are subject to confirmation of a mine plan, but for 2020 are expected to be between US$25-30mln.

Jamie Boyton, Capital’s chief executive, said: “Load and haul operations are a natural extension to our existing world-class drilling and maintenance capabilities.

“It means we can now offer clients a completely integrated mining service from initial exploration drilling right through to extraction and delivery of ore to the mill.”

Boyton added the investment into Allied Gold also diversifies the group into less cyclical activities, while its pipeline presents 'substantial growth opportunities'.

Allied Gold has agreed US$75mln of funding from Orion Mine Finance and will use this cash both to bolster existing operations and for additional mine acquisitions throughout Africa.

It only recently acquired Bonikro, which started producing gold in 2008 and was operated by Aussie giant Newcrest until 2017.

The mine has historically produced over one million ounces of gold and currently has in-pit resources of about 1.2mln oz.

Production this year is expected to be 120,000 oz.

Capital Drilling will provide Bonikro with drill and blast; load and haul; grade control; and dewatering services.

House broker Peel Hunt said as well as being the first time the company has won an integrated mining services deal, and the third long-term contract win this year, it was the first time the company had won a loading and hauling services contract.

The deal, said analysts, is expected to result in a 20-25% increase above revenues forecast for 2020.

Analysts added: "We see two main benefits. Firstly adding in load and haul allows management to pitch for many more contracts (we estimate ~70% of drill and blast contracts are bundled with load and haul).

"Secondly the client, Allied Gold Corp has other assets it intends to develop as well as an active M&A target list. Solid execution of this contract may lead it to become Allied's contractor of choice, opening up additional chunky contracts over time. Either can create significant revenue upside while adding further to revenue stability over time."

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Price: 62 GBX

Market: LSE
Market Cap: £84.93 m

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