Capital Drilling Limited (CAPD: LN), a leading mining services company focused on the African markets, today announces its full year results for the year ended 31 December 2019
FULL YEAR FINANCIAL RESULTS (UNAUDITED) FOR THE YEAR ENDED 31 DECEMBER 2019*
| 2019 | 2018 | |
| Average Fleet Size (No. of drill rigs) | 92 | 93 |
| Fleet Utilisation (%) | 54 | 51 |
| ARPOR ($) | 176,000 | 194,000 |
| Operational Capex(2) ($ m) | 19.8 | 11.9 |
| Revenue ($ m) | 114.8 | 116.0 |
| EBITDA(1) ($ m) | 27.3 | 28.3 |
| EBIT(1) ($ m) | 16.6 | 14.8 |
| Net Profit After Tax ($ m) | 10.4 | 7.7 |
| Cash From Operations(3) ($ m) | 28.7 | 28.2 |
| Earnings per Share | ||
| Basic (cents) | 7.7 | 5.7 |
| Diluted (cents) | 7.6 | 5.7 |
| Final Dividend per Share (cents) | 0.7 | 1.5 |
| Net Asset Value per Share(1) (cents) | 63.0 | 56.9 |
| Return on Capital Employed (%) | 18.4 | 17.2 |
| Return on Total Assets (%) | 13.0 | 13.7 |
| Net Cash(1) ($ m) | 4.4 | 10.9 |
| Net Cash/Equity (%) | 5.2 | 14.1 |
*All amounts are in USD unless otherwise stated
(1) EBITDA, EBIT, Net Asset Value per share and Net Cash are non-IFRS financial measures and should not be used in isolation or as a substitute for Capital Drilling Limited financial results presented in accordance with IFRS
(2) 2018 Reported operational capex $11.9 million, restated in 2019 to US$14.1 million for IAS 16 adjustment, refer Notes 7 and 14
(3) 2018 Reported Cash from Operations $28.2 million, restated in 2019 to $30.4 million for IAS 16 adjustment, refer Notes 11 and 14
Financial Overview
· FY2019 revenue of $114.8 million, in line with guidance of $110 – $120 million;
· Strong year end net cash position ($4.4 million), despite significant capital expenditure focussed on building the growth platform for 2020 and 2021;
· $19.8 million operational capex on new rigs and Heavy Mining Equipment (HME) to support long-term contracts and facilitate our entry into new business streams, increasing our service offering and earnings potential;
· Significant increase in profitability and continued strong balance sheet;
– Net Profit After Tax up 34% to $10.4 million (2018: $7.7 million);
– Basic earnings per share up 35% to 7.7c versus 2018: 5.7c (fully diluted 7.6c vs 5.7c, up 33%)
– EBITDA down 4% to $27.3 million (2018: $28.3 million);
– EBIT up 12% to $16.6 million (2018: $14.8 million);
· Operating Cash Flows marginally higher (1.7%) to $28.7 million (2018: $28.2 million), driven by unprecedented levels of fleet redeployment and new contract commencements;
· Final Dividend of US0.7cps, (2018: US1.5cps) to be paid on 4 May 2020 which, together with the interim dividend of US0.7cps brings total dividends declared for 2019 of US1.4cps (2018: US2.1cps).
Operational and Strategic Review
· Outstanding safety performance – 12-month rolling All Injury Frequency Rate (AIFR) result of 0.14, significantly below industry standards and a record for the Group;
· Achieved a number of world class safety records including:
– Mwanza Facility (Tanzania) achieved 11 years LTI free in January;
– Sukari Gold Mine (Egypt) achieved two years LTI free in January;
– North Mara Gold Mine (Tanzania) achieved three years LTI free in March;
– Geita Gold Mine (Tanzania) achieved two years LTI free in March;
– Tasiast Gold Mine (Mauritania) achieved two years LTI free in June; and
– Syama Gold Mine (Mali) achieved three years LTI free in June.
· Annual rig utilisation of 54% (2018: 51%), with a four-year record result of 56% in Q4 as a result of new contract commencements during the quarter;
· Increased rig fleet from 91 to 99 rigs, acquiring new blast hole, grade control and underground rigs for long-term contracts. Four rigs were commissioned in Q4 2019 and a further 4 rigs to be commissioned in Q1 2020;
· Expanded the Group’s services to incorporate load and haul, enabling Capital Drilling to offer clients a fully integrated mining service;
· Commissioned Capital Mining’s first new Heavy Mining Equipment including three dozers, one grader and one excavator in Q4;
· Commenced first mining services contract at Allied Gold’s Bonikro Gold Mine, Côte d’Ivoire, with current range of services including: exploration, grade control and blast hole drilling; mining equipment hire and service; and management services;
· Robust business development activity resulting in award of 11 previously announced new exploration contracts during 2019, including:
– Allied Gold, Awale Resources and Perseus Mining in Côte d’Ivoire;
– Golden Rim Resources and Arrow Minerals in Burkina Faso;
– Barrick Gold in Saudi Arabia;
– Compass Gold Corp, Desert Gold and Mali Lithium in Mali;
– Centamin in Egypt; and
– Tanga Resources in Namibia.
· Strong performance of the Group’s key long-term contracts, in line with management expectations:
– Geita Gold Mine (AngloGold Ashanti) in Tanzania;
– North Mara Gold Mine (Barrick) in Tanzania;
– Sukari Gold Mine (Centamin) in Egypt;
– Syama Gold Mine (Resolute) in Mali; and
– Tasiast Gold Mine (Kinross) in Mauritania.
· New long term mine site contract wins during 2019 increased the portfolio of long-term contracts to nine:
– Five-year exploration drilling contract with Allied Gold Corp’s Bonikro Gold Mine in Côte d’Ivoire;
– Contract for the provision of equipment hire and maintenance services with Allied Gold Corp’s Bonikro Gold Mine in Côte d’Ivoire, initially until December 2020;
– Three-year on-site laboratory services contract with Kinross’s Tasiast Gold Mine in Mauritania; and
– Two-year underground exploration drilling contract with Barrick’s Jabil Sayid Copper Mine in Saudi Arabia.
· West African growth strategy continues strongly with eight new exploration clients and ongoing fleet mobilisation, growing from 15 rigs in January 2018 to 44 rigs at the end Q1 2020; and
· Full year ARPOR of $176,000 per rig (2018: $194,000), reflecting increased mobilisation of exploration rigs for new contract start-ups.
Post year-end highlights include:
· Notification of the successful award of an exploration contract with Barrick’s Bulyanhulu Gold Mine (Tanzania), which commenced drilling in February 2020:
– Significantly this is Capital Drilling’s third contract with Barrick, following commencement of our recent contract in Saudi Arabia together with ongoing long-term contract at North Mara.
· New contract and contract extension with existing long-term clients including;
– Three-year blast hole and grade control drilling services contract, with additional scope for underground drilling services, at North Mara Gold Mine (Barrick) in Tanzania, until December 2022;
– Extension of underground drilling services at Geita Gold Mine (AngloGold Ashanti) in Tanzania to December 2020; and
· MSALABS has been awarded a six-month contract with Endeavour Mining in Cote d’Ivoire, which commenced in Q1 2020 and a further contract with Tudor Gold, commencing Q2 2020.
Commenting on the results, Jamie Boyton (Executive Chairman) said:
“The performance of Capital Drilling in 2019 was one of significant progress on a number of key aspects of our growth strategy, which saw rig utilisation increase to a four year high, a broadening of our services into load and haul, significant investment into our fleet and operations, and a further consolidation of our leading position in the rapidly growing West African market. The building of this platform for our next phase of growth was achieved alongside our focus on shareholder returns as we continued to reward shareholders with a final dividend as well delivering a 35% increase in earnings per share during this financial year.
Our key metrics remained robust – full year rig utilisation improved to 54% and, with many of the new contracts commencing in Q4, we achieved a four-year record Q4 result of 56%. ARPOR remained solid in spite of the large number of mobilisations and new contract start-ups. Additionally, we finished the year with a strong cash balance, despite an uplift in operational capex to support our expansion into load and haul services and ongoing fleet management expenditure in the second half, ensuring that Capital Drilling continues to offer its clients the most modern rig fleet available in Africa. Most pleasing was our outstanding AIFR result of 0.14, an industry-leading performance and a reflection of our entire Group’s commitment to operating safely.
Capital Drilling’s focus on West Africa is a key part of our growth strategy – not only will we see almost half of or rig fleet mobilised in the region, but we have also expanded our offer to include load and haul services, enabling us to provide clients a fully integrated mining solution. This will present larger revenue opportunities across a broader client base while maintaining our exposure to less cyclical, production-based activities. Of significance, during 2019, three of the four new long term contracts added were from West Africa, which has underpinned the quality and stability of our revenue.
We remain committed to our strategy for 2020 and will continue to focus on growth in West Africa, increasing our portfolio of long-term mine-site based contracts, maintaining our position of having the youngest mining fleet in the industry, expanding our mining services portfolio and maintaining strong cash flow generation to support growth initiatives and returns to our shareholders.
The gold price remains highly supportive and is a positive indicator for Capital Drilling with over 90% of revenue from the gold sector. Combined with new tendering opportunities presented by our mining services capabilities, greater West African presence and broader client base, we are uniquely positioned to leverage new opportunities in the year ahead.
The impact of the COVID-19 pandemic on our business remains unquantifiable at this stage, particularly in relation to mobilising our equipment and employees and continuity of supply chain in light of increasing travel bans currently being imposed globally. Capital Drilling will remain vigilant in implementing changes to the operation of our existing robust and flexible business model, however our principal concern remains the wellbeing and safety of our staff. We anticipate exploration activity to soften as juniors find it difficult to access capital markets. Conversely producers are likely to continue to experience increased cash flows from operations. As such, our focus on having a large proportion of our business derived from recurring mine-site revenue, particularly within the gold sector, provides reassurance during this time of uncertainty.
Given the rapidly evolving nature of the COVID-19 outbreak, and the uncertainties associated with it, we remain cautious in providing guidance and will provide an update when the situation stabilises. We are closely monitoring the global environment and its impact on our business and have accordingly taken a prudent approach and reduced our final dividend payment for the 2019 period. In this period of heightened uncertainty we remain confident in our robust operating platform and strong financial position and will keep shareholders fully informed of any changes as they develop.
Results Conference Call
Capital Drilling will host a conference call on Thursday 19 March 2020 at 0830hr (London, UK time) to update investors and analysts on its results. Participants may join the call by dialling one of the following numbers, approximately 10 minutes before the start of the call. Participants may also wish to download the 2019 Results Presentation which is available by clicking http://www.capdrill.com/investors/presentations
Dial in (UK): 0800 358 9473 (For a list if international toll-free dial ins click here)
ID Number: 64085878#
CHAIRMAN’S STATEMENT
Capital Drilling delivered another strong performance in 2019. We continued to successfully execute against our strategy, delivering another outstanding year of safety performance, continuing our successful expansion into West Africa, securing further long-term mine-site based contracts and expanding the Group’s service offering to include load and haul.
As a result of this shift towards becoming a whole-of-mine services provider, we are proposing to rebrand our business from Capital Drilling to Capital Limited during 2020. Accordingly, a resolution is being put to shareholders to approve this change of name at our Annual General Meeting, which we will confirm in due course. Under the rebrand of Capital Limited, Capital Drilling will be retained for all drilling-related activity, while Capital Mining will be used for load and haul services. Our portfolio also includes our well-established downhole survey business, Well Force, our mineral analytic business, MSALABS, and our newly established maintenance services business, Mine Site Maintenance (MSM).
Capital Drilling’s principal commodity exposure of gold continued to be highly supportive during 2019, rallying strongly in the second half of the year, which saw a material positive impact on the operating margins of gold producers This has been beneficial for us, with the majority of our customers being gold producers, with 90% of our revenue being derived from gold mine site services, with the balance coming from exploration. The gold price has continued to strengthen in early 2020 given macro-economic volatility, which is providing a highly positive backdrop for demand over the year ahead.
We have seen profitability increase strongly in 2019 to $10.4 million (2018: $7.7 million), representing a 34% increase. Additionally, and despite substantial operational capex expenditure which grew by over 66% during the year of $19.8 million (2018: $11.9 million, adjusted 2018: $14.1 million), we maintained a strong balance sheet with a net cash at year end of $4.4 million. We continued to generate a strong return on capital, in addition to solid cash generation, allowing continued investment and maintenance of dividend payments for shareholders.
Revenue decreased 1% to $114.8 million (2018: $116.0 million), however second half revenue ($60.0 million) was 9.5% higher than H1 2019 ($54.8 million) as multiple new contract awards, predominantly in West Africa, commenced during the period. Group EBITDA decreased slightly (3.6%) to $27.3 million (2018: $28.3 million), a strong performance in view of the unprecedented levels of asset movements and new contract mobilisations.
Basic Earnings Per Share (EPS) increased to 7.7 cps (2018: 5.7 cps). The material increase in profitability reflects improving profitability at MSA Labs, lower depreciation charges and enhanced tax efficiency.
Improved working capital movements coupled with ongoing financial discipline and tight expenditure controls delivered the outstanding net cash result. Working capital was significantly stronger in the second half following first half outflows associated with asset moves and establishing our West African presence. Net cash as at 31 December was $4.4 million, down from $10.9 million at December 31, 2018, after the payment of $3.0 million in dividends in 2019.
The Board of Directors has declared a final dividend for the 2019 period of 0.7cps ($1.0 million), payable on 4 May 2020. This brings the total dividend declared in 2019 to 1.4c per share. The dividend is a result of our solid financial and operating position, however is marginally lower than dividends declared for 2018 due to the Company’s prudent approach in protecting its strong balance sheet as a result of uncertainty caused by the global COVID-19 outbreak.
STRATEGIC AND OPERATIONAL UPDATE
2019 represented a watershed year for Capital Drilling in terms of activity levels, strategic direction and positioning the Company for future growth.
We have completed an unprecedented number of rig and asset moves to reposition the business geographically. We have maintained our strong presence in East Africa while deploying further assets into the large growth market of West Africa. This region represents approximately 45% of exploration spend across the whole of Africa and the strategic redeployment has enabled us to build a broader service offering across the area. Our rig fleet in West Africa has tripled since January 2018, growing from 15 rigs to 44 at the end of Q1 2020 and our footprint is now well established, with operations in Mauritania, Mali, Côte d’Ivoire, Burkina Faso and Nigeria (through MSALABS).
Our increased presence in West Africa is yielding results, with eight of the 11 new exploration contracts secured during the year coming from the region. They include: Allied Gold, Awale Resources and Perseus Mining in Côte d’Ivoire; Arrow Minerals and Golden Rim Resources in Burkina Faso; and Compass Gold Corp, Desert Gold, and Mali Lithium in Mali. Additional new exploration contracts include: Barrick Gold, Saudi Arabia; Centamin, Egypt; and Tanga Resources, Namibia.
Our focus on long-term mine-site based contracts continued. We were awarded further multi-year contracts, including: Bonikro Gold Mine (Allied Gold Corp) in Côte d’Ivoire; Jabil Sayid Copper Mine (Barrick) in Saudi Arabia (mentioned above) and a new contract for our geochemical laboratory business, MSALABS, at Tasiast Gold Mine (Kinross) in Mauritania.
As we enter 2020, we are encouraged by the award of new contracts and contract extensions with existing long-term customers, including: a three-year blast hole and grade control drilling services contract, with additional scope for underground drilling services at North Mara Gold Mine (Barrick) in Tanzania to December 2022; and an extension of underground drilling services at Geita Gold Mine (AngloGold Ashanti) in Tanzania to December 2020.
Additionally, post year-end we have received notification of the award of an exploration contract with Barrick’s Bulyanhulu Gold Mine (Tanzania), with drilling commencing in February 2020. This is our third contract with Barrick, following commencement of our recent contract in Saudi Arabia, together with the ongoing long-term presence at the North Mara Gold Mine.
Consistent with our strategy to focus on growing our long-term mine-site based portfolio, new rigs were acquired to support these contracts and included blast hole, grade control and underground drilling rigs. As a result, the fleet increased from 91 to 99, with four of the new rigs commissioned in Q1 2020.
Pleasingly, and despite the higher rig count, we achieved a four-year rig utilisation record of 56% in Q4, with a full-year result of 54%, up 3% from 2018 (51%). This is consistent with the large number of new contract wins outlined above, many of which commenced in the last quarter. Full year ARPOR was $176,000 per rig (2018: $194,000), due to increased mobilisation of exploration rigs for the new contract start-ups.
Significantly, we expanded our offer to include load and haul services during 2019. This enables Capital Drilling to offer clients a fully integrated mining services solution and provides the ability to pursue growth opportunities across a broader base of mine-site based clients. Additionally, it offers larger revenue and earnings opportunities with more stable production-based activities that are less exposed to fluctuations in the cycle. We have further strengthened the mining services division with several key appointments to position the division for growth in 2020.
We commenced our first mining services contract at Allied Gold Corp’s Bonikro Gold Mine in Côte d’Ivoire in Q3. To support the contract, we commissioned new equipment to supplement the client’s existing heavy mining equipment fleet in December 2019, including three dozers, one grader and one excavator, together with new production rigs (blast hole and grade control).
SAFETY
At Capital Drilling, we have an uncompromising commitment to the safety of our employees and all others where we work. We expect visible safety leadership at all levels of the business, from the Executive Leadership Team to crews on site. We invest significantly in training programs to ensure our workforce is skilled, competent and can identify and mitigate hazards in the workplace.
We delivered an outstanding 12-month rolling AIFR result of 0.14, a significant reduction on the 2018 performance (0.45). This is also well below industry standards and a record for our company. This outstanding, company-wide performance reflects our team’s commitment to our strong safety culture.
We also achieved a number of site records and safety milestones during 2019 including:
· Mwanza Facility (Tanzania) achieved eleven years LTI free in January;
· Sukari Gold Mine (Egypt) achieved two years LTI free in January;
· North Mara Gold Mine (Tanzania) achieved three years LTI free in March;
· Geita Gold Mine (Tanzania) achieved two years LTI free in March;
· Tasiast Gold Mine (Mauritania) achieved two years LTI free in June; and
· Syama Gold Mine (Mali) achieved three years LTI free in June.
OUTLOOK
At the time of writing, there is widespread global uncertainly associated with the COVID-19 pandemic. Capital Drilling is closely monitoring the situation and adapting its business as required. The safety and wellbeing of our employees is paramount and will remain our first priority.
As we entered 2020 however, the gold price continued to improve with prices nearing ten-year highs. This is driving higher margins for operators which would typically drive increased levels of mining and drilling activity. Further, there remains the fundamental need to replace reserves depleted during the protracted downturn.
The heightened uncertainty as a result of the rapidly evolving nature of the COVID-19 outbreak, together with the impact of individual country’s responses to it, increases the difficulty in predicting the impact on the Group’s 2020 performance. In particular, uncertainty surrounds supply chain disruption and travel bans which have the potential for significant impact for Capital Drilling. Therefore we remain cautious in providing revenue guidance and will provide an update when the situation stabilises. Our Company has also reduced our final dividend to protect the balance sheet during this time of uncertainty and ew will continue to be vigilant in monitoring the impact as a result of the COVID-19 outbreak.
Despite the backdrop of uncertainty caused by COVID-19, we are uniquely well positioned. We continue to generate strong cash from operations, have a robust balance sheet, maintaining a net cash balance at year end. We also have high exposure to recurring revenue streams from mine-site based contracts in the gold sector, from which 90% of our 2019 revenue was derived.
We have now firmly established our footprint in West Africa and can now offer a pan-African service to our customers. The addition of load and haul services to our well-established drilling and mineral analytical services, and our fledgling maintenance services business, provides a comprehensive service solution, and we are pleased to see a significantly increased business development pipeline as a result of these initiatives.
We remain committed to our strategy for 2020 and will continue to focus on growth in West Africa, increasing our portfolio of long-term mine-site based contracts, furthering our expansion into a broader mining services offering while maintaining strong cash flow generation to support growth initiatives and returns to shareholders.
I would like to take this opportunity to thank all our employees, business partners, shareholders, our Board of Directors and other stakeholders for their continued support of our Company.
Jamie Boyton
Executive Chairman
19 March 2020
