Company Announcements

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Capital Limited

("Capital", the "Group" or the "Company")

H1 2024 Results (Unaudited)

Capital Limited (LSE: CAPD), a leading mining services company, today provides its results (unaudited) for the half-year period 1 January to 30 June 2024 (the "Period").

Commenting on the interim results, Peter Stokes, Chief Executive, said:

"Capital in 2024 is undergoing a number of structural transitions that we expect will set up the business for the next wave of growth. We are soon coming to the end of our waste mining contract at Sukari and, while at the end of 2020, this contract was the largest award in the Company's history, once it concludes we will emerge as a much larger business, a credit to the business development success across the rest of the Group.

In addition, we have de-risked the Company through a significantly improved client portfolio, a more diversified service offering and, more recently, a more diversified geographical footprint adding lower-risk jurisdictions, namely USA and Canada, across our drilling and laboratories businesses. This has been made possible by the longstanding relationships we have built over the years with some of the world's leading miners.

Nevertheless, the half has not been without challenges with the ramp-ups of some of our key growth areas, namely Nevada Gold Mines, USA (Barrick-Newmont JV), Belinga, Gabon (majority owned by Fortescue Metals Group) and MSALABS, behind what we would have liked to see, impacting our results today. Despite these delays, we are confident in our ability to deliver the returns that will justify the material investment we have made.

As we look into next year, we expect to maintain the lower end of our targeted 25-30% adjusted EBITDA margins. Successful delivery of these growth projects should drive higher margins at these sites offsetting the impacts from losing economies of scale at Sukari and the anticipated margin dilution from MSALABS as it becomes a larger proportion of the total Group (a business we have guided to target lower adjusted EBITDA margins of 15-20%, albeit alongside lower capital intensity).

We have equally been in a transitionary period from a balance sheet perspective. We were pleased to recently announce the sale of our shareholding in Predictive Discovery, the proceeds of which will be the first major step in reducing our debt levels. We have now also actively begun marketing the sale of the mining fleet at Sukari which will further reduce our debt exposure. This rapid de-gearing will reset the business both by reducing our current level of interest payments and giving the business greater flexibility to move quickly on new opportunities.

We are pleased to announce an interim dividend of 1.3 cents per share, a testament to our commitment to creating value for our shareholders through shareholder returns as well as growth in the broader business.

Financial Highlights

·      H1 2024 revenue of $169.4 million, up 9.8% on H1 2023 ($154.3 million);

-      Full-year revenue guidance remains $355 - $375 million.

·      H1 2024 EBITDA (adjusted for IFRS16 leases and exceptional items) of $42.9 million, a decrease of 2.3% on H1 2023 ($43.9 million) with H1 2024 EBITDA Margin (adjusted for IFRS16 leases and exceptional items) of 25.3% (H1 2023: 28.5%):

-      Capital is undergoing a number of transitions that we expect will set up the business for the next wave of growth, including an expansion into North America. We have seen challenges in H1 2024 with the ramp-ups at Nevada Gold Mines, Belinga and MSALABS being slower than expected adversely impacting the earnings for the Group;

-      Nevertheless, we remain confident in delivering strong returns across this new business and expect to achieve our previously guided 25-30% adjusted EBITDA margins, albeit towards the lower end. This incorporates an improvement in returns across Nevada Gold Mines and Belinga while being cognisant that MSALABS will continue to grow into a more significant proportion of the business and while relatively capital light, is targeting our guided adjusted EBITDA range of 15-20%.

·      H1 2024 Net Profit After Tax (NPAT) (adjusted for investment gain/ loss and exceptional items) of $11.8 million, a decrease of 29.8% on H1 2023 ($16.8 million). This was driven by:

-      reduction in Group EBITDA margin from new business growth, as described above;

-      higher interest costs (~$2 million increase YoY) from funding investment into new growth areas, particularly in the USA, and higher tax expense (~$1 million increase YoY).

·      Exceptional cost of $1.65 million in H1 2024 ($nil in H1 2023 (with certain costs previously capitalised)) relates to the costs expensed in implementing an Enterprise Resource Planning (ERP) system which will provide the business with a strong backbone for continued growth. ERP costs will continue to be incurred until the end of 2025; 

·      H1 2024 Cash from Operations (adjusted for IFRS 16 leases) of $52.3 million a 36.9% increase on H1 2023 ($38.2 million) in part driven by a favourable working capital position at the end of the period, some of which will normalise in H2 2024;

·      H1 2024 Capex of $44.3 million (H1 2023: $36.2 million) including prepayments and assets financed by OEM;

·      In H1 2024 Capital completed a strategic investment in Eco Detection for $6.6 million acquiring a ~22% stake. As part of our strategic investment, Capital has also agreed an exclusive arrangement for the distribution of this technology to the mining industry;

·      The value of the Group's direct investment portfolio increased to $47.8 million (including holding in Predictive Discovery) from $47.2 million at 31 December 2023 (30 June 2023: $42.1 million); 

·      Net debt at H1 2024 of $86.4 million increased 29.9% on H1 2023 ($66.5 million) predominantly in order to fund our material new contracts with Nevada Gold Mines across both drilling and laboratory services;

-      Predictive Discovery Sale: On 14^th August 2024, we announced an agreement to sell our Predictive Discovery holding to Perseus Mining for a total cash consideration of ~$31.2 million which will be used predominantly to reduce debt.

·      Declared an interim dividend of 1.3 cents per share, to be paid on 3 October 2024 to shareholders registered on 30 August 2024.

Operational & Strategic Review 

·      Safety performance remains world-class with a Total Recordable Injury Frequency Rate ("TRIFR") of 1.1 per 1,000,000 hours worked in H1 2024 (H1 2023: 1.03).

Capital Drilling:

·      H1 2024 average rig utilisation was 69%, a decrease of 8.0% on H1 2023 (75%). The decrease was primarily driven by lower utilisation in Q1 2024, which rebounded into Q2 2024 (72%) driven by increased rig counts at Belinga and the beginning of the ramp-up at Nevada Gold Mines. The Group's target average utilisation is ~75%;

·      Total rig count increased to 127 by the end of H1 2024 (H1 2023: 125), with the ramp-up of the new Nevada Gold Mines drilling contract weighted to the second half. Further rigs were purchased in H1 2024 however will only contribute to total rig count once commissioned. We expect to add ~9 further rigs by the end of 2024;

·      Average monthly revenue per operating rig ("ARPOR") was $204,000 in H1 2024, up 8.5% on H1 2023 ($188,000). This strengthening in ARPOR is primarily the result of the ramp-up of high-quality contracts, as well as a continued focus on efficiency at our more established sites.

·      New contract win: 

-      An up to two-year diamond and reverse circulation drilling services contract with Perseus Mining at its new Nyanzaga Project in Tanzania.

·      H1 2024 contract wins (previously announced): 

-      A one-year (with a one-year extension option) grade control drilling services contract with Barrick Gold at its Lumwana Mine in Zambia;

-      A two-year extension of the exploration and delineation drilling contract with Predictive Discovery at its Bankan Gold Project in Guinea;

-      An extension of open pit drilling services at Centamin's Sukari Gold Mine in Egypt for a further 5-years, starting from 1 January 2025;

-      A two-year grade control drilling services contract with Perseus Mining at the Sissingué Gold Mine in Côte d'Ivoire; and

-      Expanded rig count at Belinga in 2024 under our existing three-year reverse circulation and diamond drilling services contract.

*Unaudited numbers

¹ Average revenue per month per operating rig

²Associated revenue refers to revenue generated from complementary services tied to our drilling operations

All amounts are in USD unless otherwise stated

Capital Mining:

·      Sukari waste mining slight extension: Completed the 120Mt waste mining contract at the end of Q2 2024, 6 months ahead of the contract term at Sukari. As a result of this early completion, Centamin has opted to leverage our fleet further and allocated up to a further 10Mt of waste removal that we shall complete over Q3 2024.

-      Capital is now actively marketing a sale of the Sukari mining fleet to occur after the contract at Sukari has been concluded.

·      At Belinga, our contract mining fleet has been successfully mobilised to site. Activities in the first half were primarily focused on drill pad excavation and civils activity to support FMG's near-term focus on resource expansion.

MSALABS:

·      In H1 2024, the business continued to focus on establishing widespread uptake of the PhotonAssay^TM technology and, while the adoption cycle has been slower than expected, engagement with top-tier customers is very strong and underpins a strong long-term outlook;

·      Revenues for the year will be weighted to the latter portion of the year, particularly driven by the ramp-up of our new major contract with Nevada Gold Mines. Despite a slower-than-expected start, construction of the new laboratories in Nevada has commenced with sample processing planned to begin in the second half of the year:

-      MSALABS will deploy three PhotonAssay^TM units in Nevada with fire assay and multi-element assaying capabilities to follow in 2025. The total contract with Nevada Gold Mines is anticipated to generate ~$140 million in revenue over the five-year term, making it the largest award of new business in the history of MSALABS;

·      The three PhotonAssay^TM units in Nevada marked the start of this broader partnership agreement with Barrick Gold, with the potential for a further ten PhotonAssay^TM units deployed across multiple of Barrick's other operations. The fourth unit under this partnership was commissioned this quarter at the Kibali Gold Mine, DRC (the second unit on site);

·      MSALABS possesses the largest international network of Chrysos PhotonAssay^TM technology; and

·      MSALABS's relationship with Chrysos remains strong with the total planned deployment of 21 units.

Capital Investments:

·      Predictive Discovery Sale: On 14^th August 2024, we announced an agreement to sell our Predictive Discovery holding to Perseus Mining for a total cash consideration of ~$31.2 million. Further details on the agreement with Perseus Mining are available in the separate announcement;

-      Proceeds from the sale will be recycled back into the broader business, predominantly reducing Capital's debt levels.

·      The total value of investments (listed and unlisted) was $47.8 million as at 30 June 2024, up from $47.2 million as at 31 December 2023;

-      The portfolio recorded investment losses (realised and unrealised) of $0.5 million in H1 2024.

Capital Innovation: Strategic Investment in Eco-Detection

·      Capital completed a $6.6 million strategic investment in Eco-Detection, acquiring a ~22% ownership stake in the company;

·      Eco-Detection's Ion-Q platform is the world's first fully autonomous multiparameter laboratory-grade water analysis system. This continuously monitors water quality, transmitting proven laboratory-grade measurements in real-time directly from site, thereby eliminating the need for manual sampling;

·      The cutting-edge technology holds significant growth potential across multiple sectors including the mining industry, by providing critical data for compliance and remediation reporting, monitoring down-hole water quality and delivering real-time contaminant alerts to improve response times to leaching from tailings dams and other storage facilities. Additionally, it can aid community relations through monitoring of the local environment and waterways;

-      As part of our strategic investment, Capital has also agreed an exclusive arrangement for the distribution of this technology to the mining industry.

Outlook

·      Revenue guidance for 2024 remains $355-$375 million;

·      Capital expenditure guidance for 2024 remains $70-$80 million; 

·      Capital Drilling anticipates revenue growth in H2 2024, driven by the ramp-up of operations, particularly at Nevada Gold Mines, as well as the commencement of operations at Lumwana and Nyanzaga; 

·      Capital Mining will benefit from the contract extension at Sukari for up to an additional 10Mt throughout Q3 2024;

·      MSALABS will continue its multi-year laboratory roll-out, with a particular emphasis on deploying Chrysos PhotonAssay^TM units, further supported by our significant contract with Nevada Gold Mines. Guidance for MSALABS remains $50-$60 million for 2024, however, we see some risk to the downside should there be a delay to the ramp-up in H2 2024 of the Nevada Gold Mines contract; and

·      Tendering activity remains robust across the Group with a number of opportunities progressing.

Capital Limited will be hosting a live webcast presentation at 09:00 BST on Thursday 15 August 2024, where questions can be submitted through the platform.

The webcast presentation link:

https://sparklive.lseg.com/CapitalDrillingLtd/events/a8c5b546-f500-4a77-b94d-7830465dd6ab/capital-limited-h1-2024-results

Participants may join the webcast approximately five minutes before the commencement time. A copy of the Company's presentation will be available on www.capdrill.com

- ENDS -

For further information, please visit Capital's website www.capdrill.com or contact:

Capital Limited                                                                     investor@capdrill.com                      

Peter Stokes, Chief Executive Officer                             

Rick Robson, Chief Financial Officer

Conor Rowley, Corporate Development & Investor Relations

Tamesis Partners LLP                                                          +44 20 3882 2868

Charlie Bendon

Richard Greenfield

Stifel Nicolaus Europe Limited                                          +44 20 7710 7600

Ashton Clanfield

Callum Stewart

Rory Blundell

Burson Buchanan                                                 +44 20 7466 5000

Bobby Morse                                                                        capital@buchanan.uk.com

George Pope

About Capital Limited

Capital Limited is a leading mining services company that provides a complete range of drilling, mining, maintenance and geochemical laboratory solutions to customers within the global minerals industry. The Company's services include exploration, delineation and production drilling; load and haul services; maintenance; and geochemical analysis. The Group's corporate headquarters are in the United Kingdom and it has established operations in Canada, Côte d'Ivoire, Democratic Republic of Congo, Egypt, Gabon, Ghana, Guinea, Kenya, Mali, Mauritania, Pakistan, Saudi Arabia, Tanzania, United States of America and Zambia.

INDEPENDENT REVIEW REPORT TO CAPITAL LIMITED

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2024 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2024 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows, and notes to the condensed consolidated interim financial statements.

Basis for conclusion

We conducted our review in accordance with Revised International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE (UK) 2410 (Revised)"). A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

As disclosed in note 1, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting".

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410 (Revised), however future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities of directors

The directors are responsible for preparing the half-yearly financial report in accordance with the

Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

In preparing the half-yearly financial report, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London, UK

14 August 2024

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).