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Capital Drilling Ltd: DEEP DIVE
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Capital Drilling clinches new contracts and key renewals following strong first half

Since its first half results in August, the drilling services firm has secured two key contract extensions as well as a new delineation drilling contract in Côte d'Ivoire
Drilling rig
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Capital operates 14 drilling rigs at the Sukari gold mine in Egypt, run by FTSE 250 miner Centamin

Capital Drilling Limited (LON:CAPD) has secured a new contract award as well as the extension of other key deals following on from a strong performance in the first half of the year.

In December, the drilling services provider extended its contract with global gold miner AngloGold Ashanti Limited (NYSE:AU) for its Geita mine in Tanzania.

READ: Capital Drilling extends Geita contract with Anglo Gold Ashanti

Under the contract Capital will continue underground exploration and grade control drilling, under a sub-contract to a five-year master agreement which currently runs to December 2020. It has operated at the Geita mine since 2006.

The extension followed another important win in October with a big gold player, FTSE 250 mining firm Centamin PLC (LON:CEY).

READ: Capital Drilling lands contract renewal for Centamin’s Sukari mine

Capital currently operates a fleet of 14 drilling rigs at Centamin’s flagship Sukari gold mine in Egypt, where they provide blast hole and grade control drilling services for the open pit operation, with the extension ensuring these rigs will be active at the site until at least 2023.

"Capital Drilling has been working with Centamin for fourteen years and we are delighted to continue this relationship as the demand for our services continues,” said Jamie Boyton, Capital Drilling chairman.

“This contract extension is a testament to the Group's solid operational performance and provides stability in operations to support our ongoing investment, in what is one of the highest quality and long-life gold mines globally," he said.

New contract in Côte d'Ivoire

Both renewals were preceded by some new business for the firm in the form of a delineation drilling contract in Côte d'Ivoire with Canadian miner Sama Resources Inc (CVE:SME).

Capital said the contract will initially utilise two diamond drill rigs, sourced from the group's base in Yamoussoukro, which was established in first-half of 2018.

READ: Capital Drilling awarded a delineation drilling contract at Sama Resources property in Côte d'Ivoire

The initial programme includes 6,000 metres of diamond core drilling, targeting semi-massive and massive polymetallic sulphide targets for Nickel-Copper-Cobalt-Palladium.

The Sama contract is Capital’s first in the country following its strategic expansion into the West African region, where it now has 31 rigs or a third of its fleet.

The group also operates a delineation drilling contract in Mali for Hummingbird Resources PLC (LON:HUM).

Strong first half and early second half performance

In its results for the first half of the year in August, Capital reported improved underlying earnings (EBTIDA) of US$12.5mln, up 7.8% on the prior year, as margins increased to 22.9% due to better cost management. Similarly, net profit rose 7.7% to US$2.8mln.

Revenues were US$54.5mln, down 4.6% against the 2017 comparative, although this was mainly due to lower fleet utilisation amid a relocation of assets to West Africa.

READ: Capital Drilling boasts strong first-half performance

Per share earnings increased 5% to 2 US cents, and the company is increasing its half year dividend by 20% to 0.6 US cent per share.

Results following these for the three months to September showed that revenues in that period had increased 12% to US$31mln compared to the previous quarter and by 3% year-on-year.

READ: Capital Drilling encouraged by pick up in West African activity

With shares trading at around 40p as of 10 January, Capital Drilling carries a market cap of £54.3mln.

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