Capital Limited (CAPD) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to Capital Limited FY 2022 Results. [Operator Instructions] I would like to remind everyone that this call is being recorded. I will now hand over to Jamie Boyton, Executive Chairman of Capital Limited. Please go ahead.

Thank you very much for the introduction. And welcome, everyone, to Capital Limited's 2022 Results Call and Presentation. Quite a few people joining me today. Obviously, myself, Chairman of Capital. We've got Peter Stokes on the line, our recently appointed CEO. Rick Robson has joined us. Rick's been with us a number of years, but was recently promoted to the role of CFO. And we have Conor Rowley, who handles Investor Relations and manages our corporate development function. And we're all here in London just about to kick off in a couple of days of investor meetings. So we'll move into the results. Starting with a couple of slides just to give an overview of the numbers and some of the highlights. And obviously, another very strong year of revenue growth or Capital with revenue number up 28% to $290.3 million. So very pleasing revenue growth. Let me put some context around this. We experienced 68% revenue growth in 2021 and 18% revenue growth in 2020. So the company really is on a very strong growth trajectory, which will be borne out in some of the last slides. That flowed through to a 19% increase in adjusted EBITDA to $86.4 million, a record adjusted NPAT of $42.5 million. That's effective with the operating -- the net profit to the operating business. And very pleasingly, a very significant lift in our cash from operations, which were up 68% to $69.8 million. So on all metrics, a really solid set of numbers. Today, we've released guidance for the 2023 year. As you could see there, it's $320 million to $340 million. So in the midpoint of that range, another 14% growth this year. And we'll go into some recent contract wins, which will help with that in 2023. Moving on to Slide 4. I won't talk to all the numbers. A lot will be covered when we move into the financial section with Rick Robson. I think the one thing I'd really like to highlight here is the outstanding return on capital employed number of 25.9%. And we have said this in a number of recent presentations around the half year and previous full years that we've had a significant increase in revenue and a significant increase in the capital that we've invested in our business, both our traditional drilling business but also into the mining, into [ electric ] and the labs business over the last couple of years. So that a lot of capital has gone into the business. But the -- really showing the strength of this business model, the rapid turnaround to generate very strong return on capital, leveraging the existing customer base and its existing infrastructure, that is a number that we're obviously very, very proud of. Moving on to Slide 5, the investment proposition. The strategy of the company is maintaining consistency. We are a premium provider and the -- predominantly in the African continent. We'll be expanding within the MENA region and into Canada through our labs business. We work on a partnership model looking for long-term partnership with our customers. As I flagged earlier, best-in-class both returns and margins. We've been running return on capital north of 20% now for 5-odd years and EBITDA margins elevated 25% to 30% range is where we're guiding, but we are running at about 30% EBITDA margins. We have a Tier 1 portfolio client list with the likes of AngloGold Ashanti, Barrick, B2Gold, Centamin, Kinross are really aiming at premier end of the market. We'll go into some more slides in a bit more detail on that. We're increasing our exposure to the energy transition, which is particularly pleasing. We've now commenced contracts on copper deposits, graphite, lithium, nickel. We continue to have a heightened focus on developing our local workforce and developing our local communities. We have over 90% of our workforce, which is over 2,500 people now at nationals. And we're very focused on training and development of these people who run the business on the ground. I'm particularly pleased again with our peer-leading safety record. So that table you can see there in the bottom left, the dark blue, that's Capital against our peers. So to have taken on board more than 1,000 new staff, enter new business streams, such as earth moving in a material way, rapid expansion of the business to continue to deliver these safety metrics, safety performance, again, is something that we're particularly proud of. We'll move on to Slide 6. What we've done is the traditional map just to explain our operations, but we've actually split it to highlight the growth in both the [indiscernible]. As you can see, these are the gold projects that we're working on across Africa. The names are household brands, top tier of the market. We're currently active on 4 of the top 10 gold mines in Africa. What I think is particularly standout point here is when you look at places like Sukari, we've been there since 2005; North Mara, since 2008; Geita, since 2006. So some very long-term relationships here. And in recent times, we've added some absolutely Tier 1 assets, including Kibali, which is Africa's biggest mine; Fekola, which is Africa's third biggest mine. And we obviously have some exposure to some of emerging top-tier assets such as Meyas Sand, which is owned by Perseus; and Bankan, which is owned by Predictive. So the portfolio of gold projects on which we operate is really first class. Moving on to Slide 7. What we put in here is the -- our increasing exposure to the non-gold and particularly battery metal exposure. So today, we're pleased to announce 2 new contracts: one in the battery metal space at the Reko Diq project in Pakistan with Barrick. This is a project we operated on way back pre-IPOs, 2006, '07 and '08, one of the world's largest undeveloped copper gold project. So we're very excited to be going back to work there. We're also working at Kabanga Nickel, which is the project that is being earned into by the world's largest mining company, BHP. They're now at 17% of that project. Again, that's a global top 5 undeveloped nickel sulfide deposit. The Goulamina mine owned by Leo Lithium, again, we're talking of top 4 undeveloped global mine for spodumene in the lithium space. So these are absolutely top-tier, long-mine-life assets owned by high-quality companies that are going to give us a solid growing path moving forward. Then the final one today, obviously, we announced a contract with Fortescue, FMG, out of Australia; the Belinga Iron Ore project in Gabon, which is kicking off with 3, 4 rigs going in there. So rapid kickoff and, again, absolutely large-scale iron ore projects. So very pleased that we're building this diversification outside gold, and we're continuing with the strategy on Tier 1 large-scale assets. Moving on to Slide 8. We've put this slide in here today just to really get some context around MSALABS, which is still a young, rapidly growing business. And Rick can talk to revenue guidance a little later. But the footprint of this business is growing exponentially. So this -- just it's a little messy, but the point is there's a very rapidly growing network of laboratories around the globe. The most recent we've added a franchise in Kazakhstan. We've commissioned Chrysos units at Kibali in the DRC, Chrysos unit in Prince George in -- just near Langley, you can see there in British Columbia. So really starting to get some critical mess in terms of labs and lab network. And on the right-hand side, we've included the customer base with MSALABS. And the names again speak for themselves, Agnico Eagle, B2Gold, Barrick, so absolutely top-tier customers. For a young business to have that sort of customer base, we're really quite excited about the trajectory this business is on. We'll move on to Slide 9. There's a couple of things we want to, again, just to reiterate the thematic that we talked about for quite some time, which is the demand drivers that impact us as a service provider to mining and exploration companies. And the first one is focusing on the sort of diversification of our revenue growth. And as you can see, as we've added these services, one of the critiques we often get is our exposure to gold. But as you can see, probably best even in the bottom of the chart, the gold price has been pretty much steady now since 2020. It's certainly been strong in recent weeks, but to say the least, there's some volatility in the capital markets and commodity markets. But the gold price has been relatively steady for the last 2 years, and our revenue growth has really kicked into gear. And that is obviously up 115% in 2020, and that is being driven by not only strong demand in our drilling business, but the diversification of our service offering, which is really, really somewhat decoupling us from the cycle, so to speak, as we add more services to the existing platform. On to Slide 10. And here we go into the exploration activity. And the point we make here is that despite the exploration cycle, the top-left chart is looking at the global exploration spend as tracked against the annualized middle index. And you can see that the last time the cycle peaked over $20 billion of exploration spend. This is a good lead indicator for obvious demand, particularly in the laboratories business and in the drilling business. And the cycle obviously troughed in 2016 and is a fairly deep trough cycle. It has gradually improved since 2016. You can see it's still well off its size in 2012. And this is a noninflationary, I might add, well at the time in 2012. So we continue to believe, and we're reading the commentary of certainly the customer base that there is still a lot of activity yet to come through in exploration spend. Down the bottom, we actually put some new tables in here. The one on the bottom left, again, dealing with the gold exposure is just to give some context of the significance of gold in exploration spend. You can see it's over 50% of the global industry for exploration spend, primarily is the nature of the function of the ore bodies. They require a lot more drilling than, say, an iron ore deposit. But what is also encouraging to see in that top chart next to that is whilst the growth year-on-year in exploration spending, gold has still been the largest growth, there is a lot of growth starting to come through copper, in nickel and in lithium. And this is really starting to -- is part of the structural shift into battery metals. And this is a recently new phenomenon and really driving another very significant potential area of growth for our services in the years ahead. Moving this thematic from exploration into mining, which obviously affects, again, our drilling business, our laboratory business and in this case, the mining business. These 3 charts tell a very significant story. The top one being the CapEx of the top global mines, which you can see from the previous peak, it's down 52% from the previous peak. So again, whilst the cycle has bottomed in 2016, there has not been a significant increase in CapEx for expansions and for new projects. And the chart in the bottom left tells that story with a CapEx to depreciation at 30-year low. So effectively, when you look at those numbers, that's telling us that the industry is really spending CapEx, sustaining CapEx, not growth CapEx. So we are very positive when you look into the market to see the number of companies going through their pre-feasibility studies, their definitive feasibility studies through the banking. There is a very -- a growing opportunity set in front of us of emerging mines. And when you read a lot of the industry research, whether it'd be Baker research or consulting franchise with McKenzie, the amount of mines that need to be developed to meet this demand coming through for battery metals is for the energy transition. We really are just at the start of that cycle. So we're very positive on the demand across all aspects of our business. On to Slide 12, reiterating our strategy. We're an integrated provider. We have added a five key pillar. I'll let Peter talk to that in the outlook. Obviously, the drilling business is well established, the leader in Africa; the mining business, a well-established contract at Sukari; an improving tender in pipeline and we've attracted some top talent in that business to take that forward. MSALABS, growing rapidly, as flagged earlier. Obviously, investments continues to be a pillar of our strategy. More recently, we've formalized the -- a fifth pillar, which is Capital innovation. I'll let Peter talk to that later. So if we can move on to Slide 13, please. Our services, again, we're an end-to-end service provider through exploration, development, both production in both surface and underground and processing. And just to reiterate, the model that we work with is to get -- is to be mine site-focused. 87% of our revenue in 2022 was generated from services at the mine site. And typically, we'll start with mine sites with drilling or laboratory activities, build a presence on the mine site and then add services into that infrastructure. So again, that integrated business model is continuing to work very well for us. On to Slide 14. A few slides now just to go through the individual businesses. The drilling business has been exceptionally strong for a number of years now. It really kicked in -- the demand really kicked in, in 2021. The fleet was 79% utilized in 2022, which, as you can see, is really around -- hovering around record levels of utilization. Particularly pleasing those, the -- we have concentrated the fleet. So we made announcements in the second half of last year about portfolio optimization. We made the decision to pull back from some shorter-term contracts and focus on the large contracts with potential to grow. The significant ones, obviously, that we announced in the second half is the Fekola mine, Africa's third largest, where we now currently have about 10 rigs operating. And that transition where we purchased those rigs to the contract is working very well. And then as I flagged earlier, adding companies to the portfolio like Goulamina, Kabanga Nickel, Belinga Iron Ore, Reko Diq. These, again, world-class, large-scale projects that set the time for the business going forward. Drilling cycle is very strong, demand is strong. So it is giving us the ability to be quite selective about what we look at and then maintain that discipline in terms of focusing on the right assets and the right customers. Moving on. The mining business, look, we commenced this contract in 2021. We've onboarded over 400 people. The contract has performed above our expectations, I think also above the clients' expectations. We brought on some very high-quality people. In fact, we hit some production records in the fourth quarter of last year. What this has achieved for us is not only proving that we can do this at a large scale, but obviously, it has opened doors for us in terms of tendering opportunities. I think it's fair to say we would like to see some depth to the portfolio. We are shortlisted on a number of opportunities at the moment. We are very selective about what we're looking at. Obviously, with the Capital commitment and the profile following the customer, that discipline remains in place. But operationally there, I couldn't speak more highly what the team has achieved at Sukari. Moving on to 16. At MSALABS, the sample growth top left tells a pretty clear story. Really rapid ramp-up reflected in the services -- laboratory services revenue on the bottom left. We've obviously already guided this year -- sorry, $40 million to $50 million, but $80 million out to 2025, which is possibly a little conservative. We've made a lot of releases around our strategic move into a partnership with Chrysos. We have now signed up to take onboard 21 of the Chrysos units rolling out to 2025, and that really sort of underpins our guidance. But I think it's important to point out that, that pie chart that Chrysos is only actually 14% of our revenue in 2022 because we're at the very early stages of rolling out those Chrysos units. We'll have a more meaningful impact in the current year, obviously, even more significant impact in 2024. So we're getting growth not only through Chrysos, but throughout the traditional commercial labs as well. And as explained earlier, absolute blue-chip customers. Moving on to Slide 17. Investments, we have been a little less active with new investments over the last few years. The portfolio holdings on the right-hand side. Invested capital now is about $12.5 million. The portfolio value stands under $39 million at the end of 2022. It's been a very powerful business well until you can see in the bottom left of the charts show that we've generated close to $100 million worth of revenue over the last 2 years after the investee companies, which are done on arms like tendering basis. But this was a very powerful talk, particularly when we went into West Africa. With the lack of capital available in the market, we went in with these rigs and reviewed companies, made some initial investments. And what we've done over the last number of years is that really rationalized that portfolio to a number of companies once we think that absolute world-class projects to take into development. The portfolio is concentrated with reholding, specifically Allied, which is co-producing mines in Ivory Coast and Mali and development assets in Ethiopia. Leo Lithium, which I flagged earlier and Predictive, which is the Bankan discovery in Guinea, both of those 2 will be going into production in the next -- over the next 18 months, 2 years. And those 3 mines represent about 80% of the portfolio. So I think what this chart, perhaps, doesn't tell you is that we have concentrated the portfolio down, and we're continuing to add new opportunities. We move on to the next slide into the financial results. This is where I'll sign over to Rick. Thank you very much.

Thanks, Jamie, and good morning, everybody. We'll go straight on to the next slide. So as mentioned already, a strong performance across the 3 operational divisions. Revenue is up $64 million year-on-year or 28%. The growth really driven by our long-term mine site contracts, particularly at Sukari and Geita. But also MSA growths impressed. We're up 70% on MSA year-on-year, which contributed $10 million of growth to the year-on-year numbers. In a business, clearly, we've outlined a lot more to come there. These results introduced a new performance measure for the group. It's the lease adjusted EBITDA. I'll come on to talk about that on the next page. But on a go-forward, that's a metric that we are using in the business to assess performance. So we think it's a metric that we will -- it's relevant to the market to see as well. So we will discuss that and use that as our reporting metric going forward. Overall, these lease adjusted EBITDA margins remain robust. So in 2022, we're circa 30% lease adjusted EBITDA compared to 31 -- 32% in FY '21. On an EBIT basis, reporting 21% for 2022, again, versus 22% or 23% for FY '21. So margins remain robust. As Jamie pointed out, we've got a very strong return on capital employed in the business as well versus -- particularly versus '21 at 22.7%. Next page, please, Conor. So just to talk you through this new performance measure. The traditional EBITDA we report does not include any of the IFRS 16 lease payments, which for us are most notably the minimum lease cost payments to Chrysos. But whilst that's not a significant difference for this reporting year, so for FY '22, it will grow as we roll out the Chrysos units in -- over the coming years. So currently the lease payments for the year of $3.7 million versus our traditional EBITDA of $90 million. So that $3.7 million will increase as we roll out more units in 20 -- this year, '23, '24 and '25. The lease cost is obviously a very key cost of the operation for MSA. And internally, it's a metric -- we look at adjusted EBITDA as a performance metric. And we think that's a much more representative of the underlying profitability of the business and the underlying cash generation of the operating business. So just to cover off how the mechanic works so people can see, it's quite transparent. So we have our traditional EBITDA on the left there of $90.1 million. In the cash flow statement, we have the IFRS 16 lease payments discretely identifiable under the financing activity section. And we're proposing to adjust EBITDA for that -- the lease payments. So in 2022, the $90.1 million traditional EBITDA becomes a lease adjusted EBITDA of $86.4 million. On the balance sheet side of things, with the IFRS 16, we pick up the right-of-use asset and the right-of-use liability. So at the end of 2022, that right-of-use liability is $16 million. And look -- as we report this adjusted EBITDA, you do not need to factor in the lease liability into the net debt of the group. It's an important distinction there. And as I said, look, this is with one on the future of these numbers becoming much more significant to the group as we roll out the 21 units. Next slide, please, Conor. So as Jamie pointed out, we've got consistent strong returns in the group. I think that we presented EBITDA on a lease-adjusted basis of consistency here and the EBIT below that. I think what's clear is that the growth in activity, the focus on the mine sites and the consistency in the operations is really -- has clearly shown that those margins remaining robust in the last couple of years. I think the drilling and mining margins going forward into 2023 will remain strong. We will point out MSALABS will see lower margins in the near term, and primarily that's as a result of the ramp-up of the new laboratories planned for 2023, many of which are commercial labs. So take a little bit longer to ramp up. But overall, we see very strong returns continuing. And we do have those, as we pointed out there, peer-leading returns of over 25% on ROCE basis. Next page. So just covering off the net debt waterfall, so taking us from 31 December '21, on the left there $31.9 million through to the end of December '22. We just unpicked the key components of the bridge there. We've generally shown EBITDA and the lease payments together there just to show you the adjusted EBITDA and the composition. Again, I'll go through that [indiscernible] key components here. Working capital of $25.8 million in the year. So that cash outflow, if you like, $25.8 million in the year primarily reflects inventory build in the business. We had to react to sort of global constraints in the supply chain and -- in order to protect the operations to maintain the consistency and maintain performance. So inventory saw a bit of build there, and we expect that to normalize as we move forward in H1 and H2 this year. Also, the working cap just reflects increased activity, so a little bit of increased receivables, et cetera, as we've grown the business. On the CapEx side, CapEx shown here is all the cash CapEx, any prepayments made against future CapEx, plus includes the OEM finance CapEx. So $57.5 million in total, and I've got a slide on that later. It really reflects the -- obviously, the rig increases that we -- or rig purchases that we made in 2022 with respect to replacement, but also the new contracts that we've now mobilized on. Just to cover off interest, tax payments, the split there is $10 million of tax, $6 million on interest. And at the end there -- or primarily -- since reduced EBITDA to start is noncash items, which primarily our ECL provision for the year and a small write-off that we've had in the year as well. So overall, net debt-to-EBITDA 0.5x. We've got some good flexibility for growth in the business, so a control position for us. Movements on investments. Performance has already been disclosed to the market. And I think important to note that despite the mark-to-market losses for the year, the portfolio is over 200% on its initial investment amount of $12.5 million. In the year, we were a net seller in 2022 with net cash proceeds of $1.6 million. And as I said, the performance and the value of the investments, that's already disclosed in the market. So we're at $38.7 million of investment to the end of December '22. CapEx. So we've shown quite a long length of [ Ishido ] on the CapEx chart, but it's important to show, I think, that the clear correlation with our revenue growth, again, with the CapEx. But also I think pointedly, when the market is contracted and revenue contracted, we were able to show strong discipline and we have a strong ability to put brakes on if required. So I think that's an important point still to -- for people to bear in mind. 2021 and 2020 were a lot higher due to the Sukari rollout, as people will recall. So 2022, $57.5 million, as I mentioned, that's cash expenditure on the CapEx. Any assets that we've financed on OEM plus prepayments against future purchases. It includes the purchase of the 10 rigs that we bought from AMS during the year. So it reflects the full rig purchases that we made over the course of '22. Guidance going forward, $50 million to $60 million on CapEx. The fleet replacement program will continue. We're focusing a lot more on ensuring we have a young and reliable fleet. Higher sustaining CapEx will naturally -- sustaining CapEx will naturally increase as the business growth comes through and the scale of the business increases. And then for 2023, there's a little bit more of a contribution than normal for MSA. We've got some commercial labs ahead of us. Commercial labs are labs that we build. So the CapEx has been factored into the guidance accordingly. Next slide, Conor. On the balance sheet, we've already covered off a decent chunk of this already. We're pointing out conservative gearing, net debt to equity of 20% at the end of '22. So a very conservative position for us. I think it's worth saying that we are focusing or we are in discussions around -- ongoing discussions around debt refinancing with a view to providing more flexibility to fund future growth. So we are -- we have been over the years focused on our relationships with the banks -- with both banks that we work with, but also new potential partners for us as well. And then lastly from me. So we've declared a final div for 2022 of $0.0260 or 8% year-on-year in the final -- actually both on the total 8%. It's 8% higher on the total for 2021 as well. Look, we remain committed to balance sheet discipline here, but we have consistently delivered shareholder value through the years through divs, but also earlier this year through the share buyback. And we've put the key dates on the bottom there for people's information. Thank you. Over to Peter for outlook.

Thanks, Rick. Good morning, everyone, or good afternoon, wherever anyone is. Really delighted to be joining this first call as CEO for the Capital Group. I'm very excited about where -- what I've seen so far in the first few months of the business. I've been around a lot of the operations, met a lot of our customers, and there's a real sense of us being how to continue to grow very strongly on the back of a very good business, very strong safety, strong people, great customer relationships. And as Jamie pointed out earlier, some very long customer relationships and partnerships where we've worked together closely. I'm really happy to be talking through this section about the innovation work stream that we've now launched in the business. If you just go to the next one, Conor. We recently appointed a dedicated head of this innovation group. Capital has always been focused on driving, bringing new technologies, building them, working with various partners to bring new ways of operating to the market. And we thought it was time to now formalize that process and start to really grow that and then feed these opportunities back into the business and/or commercialize where it makes sense. So as we talked earlier, the Chrysos technology is one of those that we've really taken the lead in the market. And as you saw through the results there, it continues to grow very strongly. It's got -- being adopted by most of the large mining -- gold miners around the world now and rapidly rolling out. And we're uniquely placed to do 21 of the first 30 units. It's a fantastic technology that we have been involved is from early on and really got the first mine site lab operating at Bulyanhulu with Barrick. We're really on -- in the technology or innovation front, we're also really looking for how we bring different ways of sustainability into our business. So whether that's the electric mobile rigs that we're running underground to be more efficient. So these are mobile rigs that we can now run in our operations underground, first of those that we brought into Africa. We've got some solar partnership where we are looking for mobile -- to roll out mobile solar plants, particularly on drill rigs camps and other smaller operations where it makes sense. And our Well Force business has started to bring some new technologies for directional drilling to the market. And we'll continue to push in that space where we've got a lot of expertise in -- particularly in the deep drilling space. But I think some of the technologies that we've been involved with there will equally apply across the -- our more mining blast hole in other parts of the business. So we have a formalized funnel that we work our way through our process on the right-hand side on Slide 28. And we'll also continue to bring other offerings where it makes sense. And we get lots of opportunities, but we are very conscious of focusing on the right ones, managing the CapEx. It's not an open budget here that we will just start doing lots of different things because we like to -- but it's very focused around how we drive that in our business. If I just go to the next slide, please, Conor. There's a little bit more about Mine Power Solutions. You see a picture on the right-hand side here of a mobile solar plant. What we're looking to do there is initially for some of our camps that we can use, but we're really looking at how and working with our major OEMs on how we can get to electric drills, not just simply plug-in drills, but battery-powered drills in operations. There's a couple of those in early trials at the moment. But I think it's still got a way to go. But we are certainly part of the mix in developing that technology and then have a great solution here with Mine Power Solutions that we can work together and start to roll these out across particularly, our African business, but we're certainly getting interest elsewhere. Another area that we've been working on is the International Apprenticeship and Competency Academy in Tanzania. This is a fantastic way for us to bring our capability into a place like Tanzania, continue to develop our local employees in formalized training in various different categories. We've been using this for our own people. We have some external customers that have come through, too. We're looking at full apprenticeships to get qualified or skilled operators into the business. And I think, as Jamie alluded to earlier in our Sukari contract, it's very high nationalized workforce there, over 95%. And we've been able to train our operators to be exceptionally good in the way they operate. The productivity levels we are delivering are world-class. And so we want to bring that sort of capability into the other countries that we operate, and it's part of our sustainability approach where we want to get back in the countries that we are working in. And I think this has been very well received in Tanzania, and we look to try and do similar sort of initiatives more broadly in the business. I'll just move on to the last slide of the presentation, which is our outlook and guidance. Jamie alluded to earlier on in the presentation, looking at revenue guidance, $320 million to $340 million for the year. I think we continue to see commodities trading well. Gold, as we talked about before, now over USD 1,900. Again, some of the other commodities have fluctuated a fair bit over the last few days with uncertainty in the markets, but they're generally at very high levels. Gold last year was at an average highest U.S. dollar rate ever and continues to be strong. It had some minor fluctuation towards the back end of last year, but we're very confident around the commodities, the miners that we continue to work with. As Jamie said, too, the mine has had healthy balance sheets, and we're seeing more spend on the right through the cycle. I think for us, one of the things we talked about earlier was that end-to-end solution from drilling to assay labs through to the mining cycle. And we think our unique offering and being able to support our mining customers right through that process really puts us in a very strong position going forward. So we -- the CapEx, we talked about $50 million to $60 million for the year. The MSALABS, continuing -- sort of growing at the significant rate, 70% last year, similar or slightly larger growth for next year, aiming for $40 million to $50 million. And we're working through in our CapEx around the rig replacement, some of the sustaining capital. We continue to ensure we provide the best-quality equipment across the business. We've built a capability up at Sukari around the heavy asset maintenance and have delivered some refurbishments of some of the key equipment up there already this year and extended the life of that equipment for another cycle. That gives us an opportunity to continue to support Sukari, but also take that up into some of the other key operations that we are working on. So just in summary, I think I'm very happy to be part of the Capital team having joined recently. I'm looking forward to a very strong year again this year, building on what we just delivered in '22. And I'll hand back to you, Conor, now so that we can address some of the questions that have come through.

Thanks. I think we're going to get the moderator.

[Operator Instructions] We will take our first question from Alex Bedwany of Canaccord Genuity.

Just a couple of questions from me. One is on the noncash one-off expenses in admin costs. What was the root cause of those bad debt? Do you think it could get any worse? I assume it's a one-off. And then the second question is, how do you see margins evolving with the pivot to these larger blue-chip contracts? Is it a case of revenue-driven growth? Or do you think that there are synergies on site as well as you expand your operations there?

Shall I take the first one?

Rick, yes. You take the first one, yes.

Yes. So noncash items on the admin expenses there. Yes, so the credit loss provision, we do consider that to be a one-off. As people will probably recall, we don't have -- we haven't had credit loss provisions of that magnitude in the past. It's primarily related to a specific situation which we are trying to manage, we're trying to recover. But we -- nevertheless, we're conservative and provided against it. As for the bad debt write-off, that primarily related to basically a drill for equity initiative that didn't go our way. And so the revenue component, if you like, was written off as was the investment, so relatively small. But yes, because the results were not promising, we decided to terminate and wrote off the exposure.

I think there was a question with margins as well. Was there?

Yes. Sorry, Alex, do you want to repeat the question?

Sure. Yes. So just how do you see margins evolving with this pivot to blue-chip contract? Is it just a revenue growth-driven thing? Or do you think that there are synergies on the site as well?

Look, I'll let Jamie and Peter come in as well, but I think there will always be synergies on site. We've shown that Sukari is a case in point. Once we establish the level of infrastructure that we have there, there was very strong synergies as we went into the broader contract suite across mining. I think there will be similar opportunities, perhaps not to the same degree, but similar opportunities elsewhere. So we will for sure look towards that as we go forward.

Just to add on to that one, too, I think, Alex, probably the other part I alluded to is that synergies across the service lines that we are providing, I think that's -- we're seeing that where we've got labs and drilling and others, we can operate with a common overhead across the group. But also, I think the opportunity where we're at some of these big mining companies is seeing other services. So where we might be doing grade -- or exploration starting to do grade control and/or drill and blast, and Geita is a great example of that with AGA. So your big blue-chip customer, we've been there a long time. They're very comfortable with the services. We have an exceptional safety record and high productivity. And so the customer in that case is seeing some of what they see as -- their noncore services that someone like -- that Capital then can work on. Similarly, we're growing our footprint with Barrick pretty significantly, and a lot of that's more recently been on the assay side of the business. But we're seeing opportunities to grow with some of those customers too to bring the Capital capability into places where it hasn't been before, like back into Reko Diq as we start up that contract, it's a good example.

Your next question is from Andrew Breichmanas of Stifel.

I have 2 kind of areas of questions. The first is on some of the new contracts that you highlighted, specifically on Reko Diq and Barrick, mentioning there's quite a lot of work going on there with the feasibility expected by the end of next year, and they've been talking about evaluating geothermal power and doing some geotechnical work. So I guess the first question is, what's the scope of your contract there? And more generally, what's the approach to mobilizing at these new sites? Will existing rigs be able to be redeployed? Or will they require new equipment purchases?

Peter?

Yes. So Andrew, so Reko Diq, so there are -- you're right, there are a number of different scopes of work that will likely come out of that. Our initial work is around the geotech and potentially some water bore work. So there's some -- there's quite a bit of early works for them to identify their water sources and potentially geothermal for power down the track. We've been working closely with the team at Barrick on exactly what we do. We're redeploying 2 drills down at the moment from the current fleet that makes sense to do the geotech work. The water ball work will be more specialized flip equipment. So we'd likely -- there's some fleet that we could potentially deploy. It just depends on depth and that hasn't been well defined yet. So we'll start to work through that also. I think maybe your earlier question was -- we're still -- we have a number of key people in the business who are all the way back from that time in Pakistan. So we've got some -- still some very strong connections back into Pakistan through the business. And so we are working closely with the Barrick team on how we mobilize timing, where we go -- entry and all of those sort of things, imports and all the other. It's moving at pace now with the approvals. So we need to work closely with Barrick, and that's certainly been the case today.

I think it's interesting, we actually still have staff in Pakistan from 2007. Some of our supply chain staff is still there because we -- and ahead of our job, we actually hired out of Pakistan way back in 2007. So there's a lot of avenue within the team. We've got experience, to Peter's point.

Okay. Great. And if I could just ask on a sort of secondary. Peter, thanks for the introduction to the Capital innovation business. That's great and the potential there looks exciting. But could you maybe speak a little to how collaborative that process can be with your existing customers in terms of evaluating the technologies and assessing the opportunities? And then secondly, what are the metrics or hurdles that you're looking towards in terms of market size or returns in order to progress those opportunities through that funnel that you should?

So I'll answer the first one. We certainly -- we're working with customers closely on things like the Mine Power Solutions. Some of the tools that we're using for drilling, we're often collaborating on how we develop or specific requirements for customers. And so that's -- I guess that will continue to be the case. We've got our well force business that does a lot of the ancillary services around the orientation of drill core and the like and controlling our deep drilling as we talked to the team there. I think there's some more technology that we can do in that one. We're probably -- we haven't yet, Andrew, put the hurdles in of what we'd see for different projects because I think at the moment, they are in all different sizes. We certainly don't want to do things that reduce the overall returns of the business, but we'd be looking to invest in some different technologies, jointly build some of those with partners we've already identified. And so to that end, we will allocate capital to that business and have allocated some this year. But it's -- I think it's -- really starts more get the right projects in and then scale up that we're comfortable that they will deliver for us. Some of them, I think, will be a slower burn, but I think others like the Mine Power Solutions could get some momentum fairly quickly, as could some of the other drill tools if we can start to bring some new capability into the market.

There are no further questions on the conference line. I will now hand over to Conor Rowley, Investors Relations and Corporate Development Manager of Capital Limited, to run through the written questions submitted through the webcast page.

Thanks. Look, I won't cover any questions that have already been answered. But look, I think start with one on MSA. Maybe this one for you, Peter. I mean it's early days with Chrysos in terms of the rollout. Can you give us a sense of what you're seeing in terms of the pipeline and how confident you are in terms of rolling those 21 units out over the next few years?

Yes. Sure, Conor. So I think, certainly, from what I've seen, and I've been to a number of our labs already, the Chrysos units and our non-Chrysos labs also, there is a huge pent-up demand to turn around gold samples more quickly is one key part. The other part is the new technology, which I'm sure a lot of you are aware of, certainly provides a very different sample outcome on repeatability of samples given the size of 500 grams. So typically tend to 15x size of traditional fire assay. And then I think the third part of the Chrysos that is very attractive to both for us and for our customers is the significant reduction in ESG. So around energy use and certainly the waste that comes out of the traditional fire assay. The -- a number of our large customers are now moving their whole business across to -- for gold assays to Chrysos. So if I look at some of the ones that are now mandating, Northern Star is moving that way, Barrick is -- Newmont has started to -- AGA is moving that way as well. So I think there's -- and gold fields also have absolutely mandated. So that starts to build up some real demand. Having 21 of the first 30 units that will be commissioned puts us in a pretty unique position as well. And I think our early mover in some of the key mining districts in Canada places us exceptionally well with 3 labs across the key mining districts in Canada will be out and running by the end of Q1. Two of those are now operating already. And as you see from that list that Jamie talked through on MSA, there are a number of large Canadian mining companies in the Baldor area and towards Timmins that have already either -- already using the labs or are starting to put more samples. And so we see more pent-up demand for those laboratories. And the big one at Kibali will run to be near full with just running Kibali samples given the size. So -- and we see some real opportunities in the other parts of Africa as well alongside some of those large operations, where we are already to either do site-based or commercial labs and continue to grow the business. So I think -- and then we've already got an established lab in [indiscernible] that's starting to really get some demand through as well. So we've got a good spread of the MSALABS across Africa. And so really confident of what I've seen that, that will continue to grow. And the aggressive time lines we've got for growth are definitely achievable. Our biggest -- I think actually the biggest challenge is probably not customer demand. It's more can we mobilize labs, can Chrysos support the labs in the right places and we're working really closely with them. But we're building a team -- an implementation team led by one of our very experienced operators to roll out these labs as we -- as the demand gets locked in.

Brilliant. Thanks. And maybe a similar outlook question on the mining division. I mean you mentioned, Jamie, sort of shortlisted on a couple, but what are you sort of generally -- what are you generally seeing in terms of the tender pipeline in that business?

Yes. So there are a number of tenders, as Jamie alluded to, that we are shortlisted on. So down to the last couple on at least 3 at the moment. So in -- all about one in Africa, one in Canada. So we're looking to really -- hopefully, in the next month or so, we'll have some clarity on those contracts. As we talked about earlier, we've built some very strong capability in the mining place. We've demonstrated that at Sukari. We use Sukari as a site for potential customers to visit, and we've had exceptionally strong feedback. So very confident that we'll get a mining contract in the next couple of months to build on the portfolio. And if we want to grow that in a structured way, it's not -- as Jamie said, this is about finding the right partners that we want to grow. So we're not bidding on every single piece of work that comes up. We're selective where we're bidding and the type of work that we're trying to bid on as well. And in most cases, it's with existing customers that we can grow and where we have good relationships already.

Thanks. I guess just one in terms of this year, I mean, the guidance points to an uplift in the drilling business or without an increase in the rig count. Can you talk about the balance of utilization in ARPOR in the coming year?

Yes. So as we talked earlier, the utilization rates are -- have been quite high during last year. We did buy in the last quarter of -- or in the third quarter of last year the AMS business in Fekola. That's provided a couple of extra rigs. So our rig count is 129. We're running through the -- a normal program. This year, we've got quite a bit of sustaining work or refurbishment work on rigs. We've got a number of new rigs coming into the business. We've actually been awarded some more underground work. So some underground rigs coming later in the year that will continue to grow that business. So I think it is -- it's right, it's a balance of the growth in the business, keeping utilization rates up. And our forecasted ARPORs continue to be around the levels that we're operating now in some cases, maybe slightly higher.

Okay. Thanks. Just a couple of, I guess, for Rick, a couple of finance ones. A number of questions are coming on the increase in admin expenses, but I think we've covered that, just told people to look at the noncash adjustments within that. I guess one on CapEx. Can you give us a sense on the split of what's in our CapEx guidance for this year?

Yes. So look, it's primarily on the drilling side of the business with respect to the replacement program that we're running through there, the sustaining CapEx associated with that. MSAs as a contribution by divisions is smaller and say more in the sort of $10 million category for the commercial lab rollout during the course of '23. So -- yes, so primarily rig replacement program with a $10 million MSA contribution.

And there's just one other part is we are continuing to work through the -- our current mining fleet. We have some fleet in addition to what we have at Sukari. So some of the other CapEx is preparing fleet for new projects, but also some of the major CapEx on equipment up at Sukari. We've done a refurbishment of about 2/3 of the truck -- the used part of the truck fleet. And there's other ancillary equipment, so they've got another life in those. So there's a bit in those coming into this year as well.

Thanks. Maybe, Rick, another one for you. Just on -- you mentioned earlier sort of debt refinancing coming this year. I mean how do you think about that now in terms of giving us flexibility and also with interest rates being higher than they were last year?

Yes. Sure. So we -- currently, the position with respect to our debt facilities is such that we're fully drawn on RCF. We have taken asset-backed loan of Macquarie plus some OEM financing as well. So right now, within the actual facilities themselves, there's no additional flexibility there to draw further. So I think we've got one eye on creating flexibility, so looking for Capital business which is very cash generative. So we would expect paydown RCF during the course of the year. But we want to create the flexibility to be able to grow the business and take on bigger contracts or a series of contracts as the year progresses. As we know, when we mobilize on the contracts, CapEx is one thing needs to working capital draw as well. So we want to have the flexibility within the capital structure to be able to deal with that. As for the cost of the debt and additional payments, not much we can do about it, but we're running at sort of all-in 10% cost of debt. We have seen the margins that the lenders are offering us over base. We have seen those margins come down as we just have more deeper relationship with the lenders. But yes, the debt cost is elevated. But I think it's still -- if we have the right contracts and the right growth trajectory, then I think the cost of those funds can be mattered. We can still make a strong return.

Thanks. And one final one, just on MSALABS margins. Is ALS -- something like ALS still a suitable comparison? How do you think about margins in that business?

So looking at MSA, margins in that business on a real near-term basis, as I commented on, the margins will be lower, reflective of the ramp-up profile for this year, particularly across the commercial lab suite. But looking and casting in that sort of wider and looking further field, the margins on that business will be on a Chrysos-led laboratory setup. With a decent level of utilization, I think we can expect lease adjusted margins there on an EBITDA basis of around 20%, which look on a business that outside of the Chrysos lease itself is pretty capital-light. So it doesn't have a notable appreciation cost. So that 20% EBITDA adjusted -- lease adjusted margin is essentially the EBIT margin for that business, which is broadly in line with the rest of the group. I think also, just notably there, because it is a capital-light business, lower capital intensity, what that means is that the business will have much stronger returns as a result. Just doesn't have the capital employed, but it does have a comparable EBIT.

Brilliant. Thanks. I think that is it. So I think we can wrap it up there, if Peter or Jamie, you want to give some final comments. Peter?

Okay, Peter, I'll let you close out...

Okay. Thank you, everyone, for joining. Thanks, Conor, for just -- for facilitating through those questions. Really happy with where we've finished up in '22, I think another exceptionally good year in the market. It demonstrated the underlying capability of the group and the ability to adjust as we need to. I think the -- where we've seen the move towards some of the battery metals during the year, that will continue. There are lots of opportunities. We've built some real capability in that space. Some of the spodumene and others for lithium are certainly challenging to drill, but we've built capability there. And I think we're really confident that we can continue to roll out in other places. We've seen that in a couple of other contracts. And then I think the other area that I'm super excited about is the MSALABS growth. I think we're on a fantastic trajectory. And we'll continue to see that going, as I talked about earlier. And then finally, just really to wrap up the last 2 bits really on the mining business, there are great opportunities in front of us. We're very confident on a couple of those. Looking forward to coming back to the group and being able to share those over the next few months or so. And then really around the innovation, I think, that had really put some focus on an area that Capital has been very good in for a long time, but it now puts some structure and discipline around how we do that, and I'm confident that will drive as well. Thank you all for your time, and thank you for your questions. Look forward to meeting with a number of you over the next week or so and then also talking with you and -- next to our call. Thank you.

Thank you.

Thank you.