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Capital gears up for drilling revenue growth in West Africa


The company looks set to continue its growth trend into 2021, having secured key mining service contracts, a majority stake in a laboratory business as well as almost 40 drilling rigs in the high growth region of West Africa.

Capital Limited - Capital Limited gears up for drilling revenue growth in West Africa

Quick facts: Capital Limited


Price: 80 GBX

Market Cap: £152.04 m

Capital Ltd (LON:CAPD) enjoyed strong revenue growth in 2020, during a turbulent year when most peers recorded none or declining revenue.

The company recorded revenue of A$135 million, up 18%, and the drilling side of the business totalled around 87% of group revenue.

Capital chairman Jamie Boyton said: “We were the only drilling company globally that grew its revenue last year.

“This year we have guided the market to revenue of A$185-195 million, that’s a 40% increase in revenue for 2021.

“That growth will be coming from an increase in our rig utilisation, which is really starting show all the sign of the previous 2011-2012 boom conditions.

“Then we’ve also got significant growth coming from our mining business as well.” 

“Broad platform of services”

Boyton said the main differentiating factor from the company’s peers was Capital’s drilling presence in West Africa, its laboratory business and key contract wins for its mining services business.

He said: “Over the last four years we’ve three very key strategic factors, one is that we moved 30 rigs to West Africa so now we’ve got this split of revenue between the three regions of Tanzania, Egypt and Saudi Arabia, and West Africa.

“Number two is that we started to diversify our service offering so we purchased a majority stake in a laboratory business called MSALABS in 2017 and that busines became a positive EBITDA contributor in 2020 and we’re really starting to see growth.

“And then we are growing our mining business and in 2020 we won our biggest ever A$250 million contract in Egypt.

“All our peers are cycle driven drilling companies whereas we have developed this broad platform of services that are really going to kick into gear this year.

“To put this in perspective, last year our non-drilling business was 13% and this year it’s going to move towards 30% of revenue.”

Drill rig utilisation 

Last year the company’s rig utilisation increased to 59% up from 54% with around 100 rigs in three main operating centres - 30 in Tanzania, 30 in the Middle East/north Africa (Egypt and Saudi Arabia) and 40 rigs in West Africa which is dominated by the Ivory Coast and Mali.

Boyton said: “This year we’ve got aggressive rig growth forecast for our preannounced contracts.

“There was 59% utilisation last year, and there’s still a lot of latent capacity within this fleet and certainly all signs in quarter one are pointing positively that those rigs will be coming back to work 

“We’ve got another 13 rigs that are going into contracts in Tanzania and Egypt and then a few more rigs going into Egypt and West Africa – so it’s going to be a big year for rig growth.” 

Contract execution focus

The company recently secured additional mine site contracts, including a four-year waste mining contract with Centamin PLC (LON:CEY) (TSE:CEE) (OTCMKTS:CELTF) (FRA:7CT) at its Sukari Gold Mine in Egypt for its mining division as well as a five-year laboratory services contract with Barrick Gold Corp’s (NYSE:GOLD) (TSE:ABX) (FRA:ABR) Bulyanhulu gold mine in Tanzania. 

Boyton said the focus for the company going forward was contract execution – with the Sukari contract expected to deliver incremental revenues of US$235-$260 million over the four-year period.

He said: “The main focus for us is to make sure we execute on as well as we possibly can on our contracts, continuing to grow the business and to get the rigs back to work.”

West African growth outlook 

Boyton said: “In terms of growth, if you aggregate West Africa as a region for a 10-year period it’s the fourth largest globally for financings for gold companies, it’s the second largest for production of gold, the third largest globally (for 2020) for exploration budgets and it’s the number one region over the last decade for discovery success.

“It’s a growing market and it sits up there with Canada, Australia and the US.” 

In 2020, company revenue was around one-third from Middle East/North Africa, about one-third from Tanzania and a similar amount from West Africa with the balance being from the rest of the world and other services.

Boyton said: “If you go back a few years West Africa was 10-15% of revenue, now it’s a third of the group’s revenue so very pleased with that.”

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Capital Drilling expanding in West Africa and targeting longer-term contracts

Jamie Boyton, executive chairman of Capital Drilling Ltd (LON:CAPD), tells Proactive's Andrew Scott they're continuing to expand their  presence in the West Africa region as an additional 12 rigs arrived in the first quarter of 2018. The 12 new rigs joined 13 already located in Mali and...

on 9/5/18

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