Capital Limited has never had it so good

Richard Wachman

Mining Journal article
21 September 2021

Capital Limited has never had it so good - Mining Journal (

It seems hardly a day goes by without someone talking up Capital Limited, formerly known as Capital Drilling, an LSE mining services firm with a market value of just £150 million.

But the fog is clearing on this one, and research shows the company, albeit after a long, hard slog, deserves more attention than it's getting.

Accepted, mining services isn't at the sexy end of the sector - Capital's biggest money-spinner is simply hiring out its fleet of about 100-plus drilling rigs to customers clustered primarily in Africa.

But this year something's changed; the business is going gangbusters.

"It hasn't been this good since 2011," said CEO Jamie Boyton. That was about a year after the then-named Capital Drilling floated on the premium segment of the London Stock Exchange, and the shares took off amidst a boom not unlike the one we're seeing today. So, in some ways, Boyton's been here before.

But the business is undergoing radical change. Capital's non-drilling services, once non-existent, or contributing insignificant amounts to turnover, are taking off as never before. So much so that broker Berenberg yesterday published a buy note with a price target of 113p/share, up from about 78p/share, suggesting upside of 45%.

Signs of a change were underlined in December 2020 when a "transformative" deal was disclosed with Centamin's Sukari mine in Egypt. That accord represented Capital's first major foray into ‘contract mining', a deal which didn't just involve drilling, but also a sizeable earth moving mandate, one that has enabled Capital to claim it's the only firm in Africa offering drilling, earth moving and assay services (more on the latter below).

The Sukari transaction was a gamechanger as it would deliver incremental revenues of $235-$260 million over a four-year period, "representing the largest award of new business in the company's history."

If Capital gets another Sukari-type contract in the next nine months (highly likely, say reliable sources), the swing of the needle to the upside would bring about a serious share price re-rating. Securing contract mining deals has happened because Capital has grown its balance sheet amid another market boom. That has allowed net debt to remain at manageable levels and given the company heft to go out and compete for lucrative contract mining deals from one end of Africa to the other.

In essence, though, the guts of the bullish story circulating about Capital is a simple one: cashed-up miners have rushed to drill new projects and expand operations on the back of strong commodities prices. Capital's share price tells the story: at current levels it's at a five-year high; if it gets to Berenberg's target it will exceed the all-time high of about 104p/share in July 2011.

In case we forget, the downturn from 2012-19 was severe, especially in the gold sector where Capital has by far the most exposure. The prolonged slump led to years of underinvestment in exploration, and even now exploration spend in Africa is 50% of what it was 10 years ago, according to Boyton.

But at last, it's picking up, and with some gusto. "On the drilling side we were only 57% utilised this time last year, now it's closer to 80%," said Boyton.

Can it go on? "Well, gold price aside, balance sheets are in good shape. One junior we are dealing with told us 18 months ago it had $8 million in the bank, now they have $30 million. That speaks volumes, so we're very positive."

There's something else - a structural push into battery metals, one that should keep the current cycle going for a couple more years. No wonder Boyton is looking at opportunities in rare earths, nickel, graphite, and copper. Today, Capital's non-gold exposure is about 5%, but analysts believe that figure could jump to 40% in as little as 18 months

Capital will stay primarily Africa-focused, the caveat being "for the right customer and the right opportunity, we keep an open mind".

Contract mining may be the big new thing for Capital, but don't forget assay services, said Berenberg.

The broker's mining analyst Richard Hatch has highlighted Capital's geochemistry business, dubbed MSALABS, which he believes could grow group revenue by around 20%, thanks mainly to the roll-out of a "revolutionary" new product, the Chrysos PhotonAssay process.

Hatch said Capital could easily be a $250 million per annum business before too long. The revenue forecast for this year is between $200-$210 million (up from $115 million in 2019) so that number doesn't look too demanding. And it excludes the possibility of a doubling down of income from contract mining - not as far-fetched as it might sound, if word on the street is to be believed.