Capital Limited (CAPD) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to Capital Limited H1 2023 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, and welcome to everyone to Capital Limited's first half results call. Thank you very much for dialing in. I'm joined today by Peter Stokes, who is the company's CEO; Rick Robson, our company's CFO; and Conor Rowley, Head of Corporate Development. All 3 are in London. I'm dialing in from Australia. And the 3 gentlemen are going to be actually, after today, marketing the company in the first half results in London for the balance of the week. It's been obviously another very busy period for Capital and a very pleasing first half. We achieved a number of strategic contract wins and delivered another very solid set of numbers. Today, I'm actually going to be handing over to Peter to lead the call. Peter, obviously joined us as CEO in October last year. And we transitioned myself out of the role following the release of the full year results. So on that note, I will hand over to Peter, who will take us through the results today. Thank you very much.

Thanks, Jamie, and welcome, everyone, to the call. I'd like to just take you through at a high level the financials for the first half, and we -- and these are relative to H1 of '22. So some really solid improvements across a number of areas. And as Jamie said, some very important contract wins in the first half of the year. So on a revenue basis, $154.3 million, up some almost 12% on H1 '22. The adjusted EBITDA number continues to improve, up another 10% on H1 '22. So really positive number there as well. And we talked on the full year results about the adjusted EBITDA concept to take into account the leasing on the Chrysos laboratory units. And as we continue to grow that business rapidly, that was an important change to better reflect the bottom line in the business. Cash from operations was also up 9.5% on H1 and we've held the dividend flat at $1.3 per share, same as H1 of '22. And we will -- we've maintained revenue guidance of $320 million, $340 million for the full year. And you'll see, as we go through the results, that's well and truly achievable. Thanks Conor. Just at a summary level, continued strong returns 23% ROCE net debt has increased, but that's on the back of funding through the business, the mining contract that we'll talk about at Ivindo in a bit more detail. We provided some results on through around that announcement on that project is now in ramp-up stage and starting to deliver both on drilling and mining. Shareholder equity is up some 5% at $245 million, and the investment portfolio pleasingly has continued to improve, and I think -- and as we go through it in a bit more detail, demonstrate how those investments are starting to move through the mining cycle from some early stage exploration into either near producing or producing operations. So on the highlights for the half, drilling is at target utilization at 75%. We talked at the full year results about having a utilization of our drilling around 75%. It's probably slightly down where we may have been with a couple of contracts that have either been a bit slower than planned to start up some interruption, which we'll talk around on the Sudan project. But I'm very comfortable with where we are on utilization are now getting target. We've also added in the last quarter a couple of new contracts or more on the exploration side, but near mine is kind of contracts as well. We're very pleased to hit one second major mining contract, which is now well underway in Gabon for and with Ivindo and that will deliver around $30 million annual revenue a year, and we're starting to see opportunities for that to grow, as well as we take on other services and additional work as the clients looking to ramp that up more quickly. The labs continue to roll out both labs that we're doing across the business and importantly, a number of new Chrysos units as well in some -- both in new geographies, but also a strong pipeline of those to go forward and continue on the planned 21 units by the end of next year. The innovation business is starting to see some fruit as well. The first of the Mine Power Solutions, solar system has been rolled out in Mali on one of our operations there, and is really starting to show benefits of having the solar diesel combination, both improving ESG outcomes and saving fuel as well. And we're really putting a focus across our African business to drive the apprenticeship and Competency Academy that we established in Tanzania and starting to see opportunities for that much more broadly across Africa and into some of our new project areas like Gabon, Pakistan and other places where we think we can do that drive there as well. Rick will go into more detail around the increased revolving credit facility. But that's, in summary, been expanded from $25 million to $50 million. And really pleasingly, we continue on a very strong track record to improve our safety outcomes by some 20% again year-to-date, a big focus for us in the business and particularly as we start to move into some new geographies, making sure jurisdictions, making sure that we are driving the same safety outcomes across our business and setting world-class standards wherever we operate. As we've talked about previously, we have a very strong focus on high-quality assets and customers wherever we work. So importantly, we look for high-quality blue chip customers and a number of those are listed on the right-hand side, the likes of Barrick, BHP, Fortescue, AngloGold Ashanti, B2, Centamin and predicted some of our newer opportunities there, including Kabanga Nickel, which is also a large BHP investment, Leo Lithium and others. Over the last several years, we have started to diversify our portfolio, from a very strong gold focus, to much more into the battery transition metals and really pleasingly being awarded the early drilling at Reko Diq, one of the -- what will become one of the largest copper gold mines in the world is really pleasing. We're seeing some significant opportunities continuing to grow at the likes of Kabanga Nickel in Tanzania, and also Ivindo, our first iron ore project down in Gabon Fortescue and a world-class deposit. So it see a long-term opportunity in a number of these assets. Projects like Reko Diq, a 30- or 40-year mine life. Ivindo is similar and then we worked at a number of the largest gold mines in Africa, including the largest at Kibali, the third largest at Fekola, Sukari in the top 10, Geita is #7. There are a number of other projects, Bougouni, Bulyanhulu, North Mara for Barrick as well. So where we're working on these large projects, we're very focused on longevity of the project as well as the quality of the asset and the engagement with the customer and building deep relationships with those customers. We've got a very strong track record of continued repeat revenues or rolling over the contracts at the end return, and we expect to continue to do that across the business. The Labs business is also growing really significantly now 27 laboratories around the world, a number of those marked in green Chrysos units. We're well and truly on our path of rolling out the Chrysos units. We'll talk a bit more in detail about that. We're seeing a lot of opportunity from the Labs business into drilling and drilling into the Laboratory business, the real synergies across the 2 businesses that have grown pretty dramatically. The Labs business is still on track to hit the very large increase in revenue that we had targeted for that business. The franchises that we're putting into other places of feeding our multi-element laboratory in Langley. And as we continue to grow, we'll look for another multi-element lab, more probably in the Middle East, that sort of in the next 6 or 12 months, we're starting to really look at that as well. Our customers like Barrick are committing to using Chrysos as their base assay methodology for all gold and copper assets. We continue to put a lot of customers through testing, demonstrating the Chrysos capability, the quick turnaround, the low ESG footprint and the robustness at much larger sampling sizes is going through Chrysos. And the list of customers on the side -- on the right-hand side are really a who's in that mining space, both across Canada now in Labs, but particularly, where historically, we've been stronger in Africa. I think the presence that we're now building in Canada is giving us the ability to build a footprint out in the Americas and really take a strong position in that market, both in Canada and down into North -- the rest of North America and down into South America over time. The macro environment is still very supportive of increased exploration. And while exploration -- pure exploration work is less part, a smaller part of what we do in drilling, it's still an important part of what we do. Our large customers like Barrick, AngloGold Ashanti and others are very actively looking for their next deposits. And when you listen to people like Mark Bristow from Barrick, that as a company, they're very focused on exploration as well as continuing to add resource to their current ore bodies. So there will be continued focus on both, and we're seeing still more upside in that. But at the junior end of the market where we're less focused. We're seeing some challenges, particularly on the junior market is struggling to get funding, but where we're focused on the large end of town, large projects, we're starting, we continue to see very steady demand. In fact, increasing across many of our assets as key customers look to replenish their ore bodies. Our drilling, more broadly, being focused on mining, some 85% is either online underground surplus or near mine mineralization definition that while expansion continues to underpin a core part of the business, we still see rapid growth in some sectors, and that's part of our move into some areas like copper, lithium, nickel, where they are on the back foot trying to catch up to demand in those particularly battery-related segments. And interestingly, the Fortescue project, Ivindo in Gabon is a key first step into that mine into the iron ore markets at really significant scale. And many of you would have heard about the Singida project for real over there as well. And there are a number of opportunities to leverage capability that we're building on the ground in Gabon into a broader iron ore segment, as that starts to open up. The really positive thing about some of those in Africa is that they have very high grade and basically unexploited assay leases that will continue to grow over a very long period of time. In the end of year results and the next one, so that we really play to our integrated provider. And I think there's some really great examples of how that works. As an example, the recent work we won with Ivindo started with drilling. So near-body, near-mine resource definition, metallurgical drilling and the like to really start to open up that asset. Shortly thereafter, we announced the contract around mining, and that's a really significant project as a start-up for Ivindo and we're working with them on laboratories both in country and potentially offshore sending samples. So really shows how we can provide a number of different services to key major customers many of our major customers we play across a number of the different parts of the business. Our drilling services that I alluded to, really anti drilling from early exploration as needed near mine ore body definition, grade control surface and underground and then into the mining cycle and drilling where we're doing blast-hole drilling weep holes and grade control in the sites. Our mining fleet -- our drilling fleet, sorry, is 124 rigs. We're working on the -- as we've talked about previously, the capital expenditure continuing to renew fleet as planned, adding some additional drills where we've won further works like Ivindo, and then we continue to stay focused on the mine site-based drilling contracts and with a smaller percentage of our exploration. On our load and haul business, which started in 2019, then rolled it to Sukari the year later through on sentiment where we have a large fleet, which continues to perform exceptionally well. We engage with Sukari regularly. We benchmarked our productivity with them. We're driving a high productivity operation working together with them, both in our cutback and then also drilling down in the current mining areas. Really pleasingly winning the new Ivindo project, which will start off as a really effectively a pioneering fleet starting that ore body that crops out of the surface. We're starting to mine. We're doing drill and blast and starting to move product from that operation that will take on a broader role than we've done previously. We'll do the crushing and screening of that ore body as well as the mining and the near mine drilling. The geochemical part, the MSALABS business provides a full suite of geochemical analysis across multi-elements and then really float through the Langley Lab in Vancouver. And then clearly, our focus on Chrysos units to provide high-speed, quick turnaround accurate large samples for both gold, copper and silver deposits. And so we look, that continues to grow. We've expanded with another 6 units in the first half of this year, and continuing on a path of rapid expansion, and we'll have some further announcements to make on further growth that's coming over the coming weeks. The capital investments part of the business continues to proactively invest in a number of African exploration and mining companies. And as I said previously, we'll come to a bit more detail on this about how some of these investments are moving through the mining cycle. And ultimately, that becomes a point of where we look to exit out of different contracts and then start to reinvest, and we're doing some really interesting work in that space. And it provides a different seat at the table for us when we're talking to our customers. We're -- except we understand that market, we're heavily involved in how that works in that space in Africa and have a good understanding of the different prospectivity around different areas, and continue to focus on where we invest, which is being led by Jamie. In the Capital Innovation, I talked briefly about NPS, our solar solution. We've got a bit more information on that as well. We've put in place a structured process to screen technology. We've been looking at some really interesting technologies too, as additional services that might sit around either our Well Force business or our Chrysos labs business to provide other services as part of being assay analysis and understanding the geology and core of those different operations. Next page. So drilling, I talked about this in a bit of detail before. We still got strong utilization at 75% across the business continues to be a very positive business. We're seeing great opportunities for a number of our current customers and additional ones. We've expanded with a couple of additional Tier 1 contracts, one being the Ivindo project we talked about before. We've now got 2 drills down there. We're looking to add some further drills, and we're drilling the drill blast on site as well. Reko Diq, our first 2 drills will commence during this month. That's been a bit of a slower startup than we'd originally planned, but that will start to ramp up pretty quickly. And the project, as many of you would have seen some significant commitments from Barrick engagement with the government, and we've been involved in part of that in the growth of that project and how -- and we are back there again after having drilled there in 2010. And so where we had 3 years of drilling in Pakistan and ready, the government, we were there recently, the government are very keen for us and others to play a key role in building out a mining segment of global capability. And so part of what capital can bring here is capability on the ground, train the local workforce and take them, bring them to the standards that we'd expect across our business. I talked previously, we've got a strong bias towards mine site drilling, rather than pure exploration. But we do, do some exploration in certain cases. I mean in some cases, we're drilling on the mine and doing explorations. They look to expand ore bodies. And with companies like Barrick, we're working right up and down the value stream for us in exploration. On the right-hand side, the drilling activity broken down a bit further, demonstrating just over 15% in exploration, the rest being mine site services. Drilling activity continues to be quite strong, and different commodities really driving different amounts of focus on gold. Probably down a bit generally, but that's been more than replaced by nickel, copper, lithium and now for our [ iron ore ] as well. I talked about previously the second mining project on the right-hand side here is some of the new equipment we have brought to site. The Ivindo site is quite isolated. So it's a logistics exercise to get our mining equipment out to site. We've moved a fleet of smaller equipment to start the mining operation, excavators, trucks, doses, mine-related drilling to drill and blast and all of the ancillary equipment that goes with that. We're building a workforce on the ground. We're training local governs to our standards, and we started to really drive productivity. Some of you may have seen some of the first shipments that Fortescue had announced first or leading. There's a big focus to really get this mine up and running quickly, and we play a key role in doing that. And also working on how the -- what needs to change the infrastructure in the government. So working with our customer there Fortescue engaging heavily with the government. The contract term is up to 5 years. So -- and we expect that, that will continue to evolve through that period, but a fantastic piece of work for us, working on one of the highest grade ever title, iron ore deposits in the world. And that will continue to ramp up to full production a bit later in the year, as the rest of the equipment arrives. It's a really important part of how our strategies work on -- this is really on the back, as I said earlier, winning the RC and diamond drilling program there, which was for some early work -- early drilling. That continues as they -- as Fortescue build out the definition of a very large some 30-kilometer long strike deposit, which will become a major high-grade iron ore mine over the next coming years. The Sukari contract, as I alluded to before, continues to perform exceptionally well. We continue to either hit or exceed the mining rates that were being tasked with, and that's been very positive and very strong engagement with our customer on that one, and we're continuing to work on reshaping some of that scope of works and continuing to work with them as they build out their mine plans going forward. There's a strong tender pipeline at the moment. There are a number of mining projects, both in various places in Africa and different commodities and different scales, as well as we're starting to look at some opportunities in the Americas. On the laboratories alluded to, we're still on track for guidance of $40 million to $50 million of revenue, very rapid growth in the business. Sample volumes are really exponentially growing across the group, the rollout of the Chrysos units, which can put through 30,000 to 40,000 samples and in some cases, we're running above 40,000 samples a month now, drives a dramatic increase. We're looking now on how we make those units more efficient, how we see them more, I guess, more efficiently and take the sample volumes away. You can imagine when we're putting 40,000 half kilo samples through a facility like this. We need to manage the logistics of getting samples in and out. It's a very different proposition to 50 grand fire assay, when you're doing 10x the volume. Massive benefit for our customers around the ESG reduction through the reduction in energy that's needed on these the chemicals that are not used in this process. And also the much larger sample sizes getting them much more representative sample for, particularly for gold and copper deposits where they can be quite spotty. And the turnaround time of days versus weeks is also very attractive to our major customers, and we have a continuous pipeline of new customers looking to prove up this technology, given the success it's having at the moment. With the rollout we have now, we are the largest user of the Chrysos units globally. Currently, we have the only units of outside of Australia. That will change over the coming months, but we'll still remain the largest user of this laboratory capability for the foreseeable future. As we've stated there, we have 21 units committed out of 25. We're nearly half of the volume of Chrysos at the moment. The lead time is still about 18 months for someone to buy a new lab. So we have a pretty unique position, where we have a pipeline of additional labs that we can start rolling out of the business. On the investments, I alluded to this before, so a really positive quarter again. We've invested net $2.5 million in H1, mainly through some equity raises to some very high-quality companies that we've been working on building up. It's really interesting. They're moving quickly through the value chain at mining. We, as a great exempt, where we got involved in that one in grassroots exploration. It's now built out an ore body build out an ore reserve. And there, we're looking to -- and we've invested in that as it continues to grow. Leo Lithium is just using the process of now moving to its first mining. So they started their DSO and stockpiling that on surface. And then we've got other assets in various places in the investment cycle, allowed many of you would know in bracket there is going to IPO, which we expect sometime later in this quarter. And that will drive a solid return for us in that business. The business continues to deliver very good returns. We've made exceptionally good investments. We continue to show the value of doing this. And as I said previously, it really gives us a lot of insight into the segment, and we become a play, a part of the market that really none of our competitors are doing that. One, there's none of our competitors have the end-to-end mining services capability and certainly don't have this knowledge and in-depth understanding of the segments and the different types of exploration projects and into mining and producing companies that we're part of. Last page for me around innovation, I alluded to some of these. I think that we -- as we've said previously, Capital has always been a very good company at finding new technologies, bringing them to bear into our business, and there's some great examples. Chrysos is probably the biggest success story around that, but there are many others where we've been early adopters of new capabilities. I'm really pleased to be part of having the mine power solutions, JV with [ Minova ], first units rolling out. That's been very successful. The nLight software that underpins that is really driving a very efficient solar diesel combination for the exploration camp and workshop that we're running for at the moment. We're looking for further sites that will put this technology into and over time. We'll use this for our assay businesses as well as supplementary power. The International Apprenticeship & Competency Academy in Tanzania is really starting to get some good traction now. And I think -- and part of what we're doing, and we've done the health and safety passport for a number of people, now 200 people. And we have a broader offering of apprenticeships and other things that we're starting to look at as well. And I think in a number of the African countries that the governments that we're working with are very keen to build these capabilities so that they can build self-sustaining workforces to support the mining industry growth. And then our Well Force business, which is the downhole tools in the business, we're really looking to broaden that take really with one work there in Gabon and Reko Diq for Pakistan as well. But looking to, as we grow that business for external customers beyond what we already do with the directional drilling, which is pretty much an industry stand that we offer through the Well Force business. On that note, I'll hand over to Rick to go through the detailed financials.

Thanks, Peter, and good morning, everybody. So many of the headlines covered already, but just to raise a couple of points on the slide here. As discussed with a strong performance from the group across all of our key divisions and across all of our key regions as well. So very encouraging to see. EBITDA, we continue consistently use our adjusted measure for EBITDA. So this is EBITDA traditionally rely like adjusted for the cash cost of our IFRS 16 leases for the half, that adjustment was $3.5 million, as we previously alluded to that dollar value, the cash cost of those leases will increase as we really roll out the units, the Chrysos units across the MSALABS business. We've given the context before. We believe the adjusted EBITDA measure is the best way of viewing the profitability of the business. For consistency offer who want to revisit. We've included the slide in the appendix just to cover off the mechanic, if you like, of how to get there. Importantly, we express our margins on that basis as well, i.e., using our adjusted EBITDA metric and good to see those margins held at a consistent level for half-on-half. Things worth mentioning half-on-half thought, NPAT and basically Gustavo have come off. That's primarily a result of the higher debt we've taken on a higher cost of debt that we've taken on as we've grown the business, particularly in view of the Ivindo mining project. So I think overall, as the points made there on the page well positioned for the second half, we've got the outputs coming across the drilling contracts in Ivindo and Reko Diq and importantly, to ramp up the mining contracts, crushing services at Ivindo. Thanks, [ Conor ]. So on the investments, all the headlines have basically been given already. But just to reiterate, we're a net buyer, so we still see opportunity in the market there, a net buyer of $2.5 million in the half. That takes us to a sort of net invested total of $15 million, in the sort of strategic initiative to date. And so far, a very healthy return there on the portfolio of 181%. Giving us a sort of investment value at the 30th of June there of $42 million, which over the half, picked up a small gain of $0.8 million. Thanks, Con. So consistent returns. I've mentioned on margin already. So we're pleased to maintain that margin across the group into this half. And we certainly see that continuing into the second half. And I think on -- just to mention a point on a now on the pace to give a little more context. We're obviously deploying and deploying the units, building labs and ramping those labs as that business really grows. So as expected, we will see lower adjusted EBITDA margins in the near term, as that whole ramp-up takes effect. But we maintain our view that we'll see consistent adjusted EBITDA margins with the broader group, half slightly lower, so we guide roughly to 25% to 30% broader group. So we should probably see margins around 20% adjusted EBITDA, MSA. And importantly, it's on a lower CapEx intensity. So we should see that go through strongly in the ROCE. Looking at the ROCE for the group, for the half, again, a peer-leading return now are broadly consistent with what we've delivered in the recent past. Moving on to the net debt waterfall. This is our sort of the bridge, if you like, from where we started the year at [ $47 million ] net debt to where we finished the half at $66 million net debt. Some key points to highlight. Working cap and CapEx, I'll deal with those sort of together, if you like. So those 2 numbers are reflective of deployment and mobilization on the Ivindo project that has happened to date at the half. I think the interest component is worth noting, as I've mentioned, we're seeing higher interest charges for the debt. And we've obviously taken on more debt to fund that growth. But on a net debt adjusted basis, i.e., adjusted for investments, we have a position of $24 million. So overall, I feel pretty comfortable with where we are at. CapEx for the half, $36 million. Importantly, that's all of our cash expenditure or CapEx, but includes the assets that we debt financed, which is about $6 million in the half. We had previously guidance of $50 million to $60 million, obviously, with the success on the Ivindo mining contract there. We increased our guidance to $65 million to $75 million. So we previously announced that. And that just obviously gives us the delta there is the Ivindo CapEx is the Ivindo deployment. And what we'll see is, obviously, the business here is the higher sustaining CapEx just in respect to that increased scale of growth. But then we'll see the Ivindo project ramp-up and deliver a good run rate in 2024. On to balance sheet. A couple of points already. We increased our RCF from $25 million to $50 million, brought on a second lender. So we now have both Nedbank and Standard Bank as our lenders on the RCF. The RCF is fully drawn at $50 million at the half. And that, again, is reflective of the growth there in business, particularly with Ivindo and the mobilization and deployment into that contract. Taking a step back, that's exactly the rationale if you like, on our part for increasing the size of the RCF was to be able to take on a larger contract, fund the working capital and the investment and then obviously, once it kicks in, have that sort of debt position reduced. So leverage multiple with that in mind, remains pretty modest at 0.74x net debt to trailing EBITDA. So again, to reiterate the comfort factor that we feel in this position. And then to finish off, we maintained our dividend at the improvement of $1.3 per share and again, we'll reiterate our point here remains committed to a disciplined approach. And yes, as I said, we maintain our dividend, and we've got October date penciled in for payment. [Audio Gap] to hand back to Peter for outlook.

Thanks, Rick. So just really to wrap up the presentation. So the diversification that we've got across both mining services and the commodities that we're now focused on really provides a strong outlook for us. We're seeing strong growth in on traditional commodities like nickel, copper and now iron ore and lithium. And so that's really -- I think that's been good, independent of a very, very strong gold price, which was, I think, over the last 12 months, the highest average price it's ever been. So that continues to underpin a key part of what's been happening in the business. The second part of diversity is around the services that we provide, where we uniquely placed having expanded on our initial drilling business, to now include mining and the labs business and provides an end-to-end solution for a number of our big customers. And that example that I talked about, at again, those are not unique, there are other customers that we provide various services at different parts of the value chain or almost end-to-end. And I think that, that continues to provide us opportunities to see both, provide individual services and/or multiple services or one that grows into other parts of our business. So really pleasingly, we expect to continue to see a bit of strong growth that we've shown over the last couple of years, adding another mining contract in the first half, I think really indicates the capability that we've got and we're demonstrating that we're getting to -- we're getting invited on key mining opportunities, both in Africa and now starting to see that in North America as well. So I think really positive looking forward. I think just in summary on the last page, our investment proposition still is very strong. And we're seeing -- we're a premium provider across the technology across the different sectors that we operate in. We have a Tier 1 client base, both in the customers and the assets that we work on. We have an industry-leading safety record, and continue to have a very strong focus on delivering that across the business. And that's why it's a key part of why we won the contracts like the Ivindo contract with Fortescue, who expect a world-class safety outcomes on that world-class asset, really limited options for to bring people in who have got the African experience, as well as can deliver on that safety outcome. So that's a really positive win for us. We still have very strong returns and margins in the business. We're delivering EBITDA margin in the mid- to high 20%, which is exceptionally strong, and that continues to underpin a business and deliver high productivity for our customers, enables us to continue to invest in the equipment that we need to stay at the front -- forefront of technologies and some of the contracts that we're doing. We're driving to another level of capability across our drill rigs with hands-free operation, things which will start to become the standard across our business. We do have a strong exposure to the energy transition. I talked about that in a couple of places with copper. We've been working on graphite deposits as well that I should have mentioned Lithium and nickel. And I think one of the other really important things that we do, is we have a very deep engagement with our local communities. Across the business, we're now running at 92% national employees. We've built from scratch in Sukari. For instance, we have nearly 900 people who by far, the majority, 95% plus Egyptian nationals, who, now highly skilled operators who we now are using in different geographies to help us start up as we go into new contracts. And similarly, in Tanzania, we've built a capability and we've been able to give people opportunities to go and work in other countries and really drive home the importance of building a national capability in those countries trying to pin the growth of that in our sector. Guidance remains at $320 million to $340 million CapEx on the upgrade that we did on Ivindo $65 million to $75 million. The drilling quality as we've added a couple of really critical contracts in the first half being Reko Diq and Ivindo in Gabon. Mining ramp up in H2 will see us now delivering mining services and crushing services at Ivindo. And then as we said, we would have continued to grow the Labs business significantly to and still remain on guidance for $40 million to $50 million of revenue this year, up from $27 million at the end of last year. So still really significant growth in that space, too. On that note, I'll hand back to take any questions. And I think Conor has a number that he'll go through first, and then we'll work through the questions that might come online.

I think we might do it the other way around actually. I think we might see if there's anyone on the operator first and then we can tackle the ones in the webcast.

[Operator Instructions] It seems at this moment, we have no questions from the telephone lines. I will now hand over to Conor Rowley, Investor Relations and Corporate Development Manager of Capital Limited to run through the written questions submitted through the webcast page.

Sure. Thanks. I will split these up into the different segments. So look, we start with drilling. There is a general question on the drilling market now and specifically on the equipment. Are you seeing a tight drill rig market? And in general, what is our rig fleet strategy from here?

Yes. Thanks, Yes. So the market is still tight. So the shortest lead time on any sort of standard drills now is minimum 6 months, and then specialist drills out to about 12 months. That's pretty typical across the different brands, but all the different types of drills that we use. We continue to partner with a couple of major drilling companies and working with them to have rolling drills coming through. So we're working with them to commit certain replacement drills and have flexibility around new drills coming into the market. . But it's certainly difficult, part of winning new work is a big part of that is planning the fleet that we'll bring in. So we do have -- with 75% availability, we're now working that we have some flexibility to start a contract. And then over time, we'll bring in the long-term solution for them. So we need to -- we use that flexibility across the group, and that's part of us driving the utilization around 75% enables us to stay on top of maintenance rebuilds of gear, but also had some drills available because most customers don't want to wait for a year for a drilling program to start. So very few do. So we need to have that flexibility in the fleet, both on drilling fleet and the support equipment.

And another one on drilling, I guess, more specific. Can you give us an update on Sudan. What the condition on the ground is like and the equipment, et cetera, and any.

So the Sudan project and Perseus have made a couple of announcements on this too. So -- and we're not back on site, yes. So we were drilling now until April. We took all of our workforce out, and we've been working on that with Perseus on how we might get back into that project. Currently, we're both looking to get back in late or into the last quarter of this year. So we think that there'll be some work to do that. We expect that there will be work to be done to get the equipment and things back to the standards that it needs to be. From what we've seen, we've only had photos so far, there's certainly some equipment that's being vandalized as Perseus called out, but we'll work through that once we can get people on the ground and really get an understanding of the extent. As I said previously, though, we have capability to bring some drills in on relatively shorter notice. So we're confident that we can restart up in the last quarter once things are sorted on the ground. I should say that project, the Meyas Sand project, it's in the very north of Sudan. So it's some 1,000 kilometers north of cartoon. So through the civil unrest, there wasn't any the fighting between the rebels and the army in that region. It was much more in the south, but clearly, it's impacted the country. But the northern cities are starting to get back to more normality. So we would be coming through Egypt like we did when we first went in there anyway and get back into operations that way.

Okay. We move to mining. Look, a number of people have asked us in different ways, but can you talk to the Sukari mining contract? When is it due finish and sort of what are your expectations of what next?

Yes. So I think as we said on the end of the year result, Sukari or sentiment will release their updated mine plans in Q3. So we expect that over the next month or so. They've been working through in detail on the balance of underground and surface. Most of you probably know the underground mine that has higher grade than surface. So for them, getting the balance of 3 foot on the plant grades that are coming through from underground and surface is a key part. And we've been working on the cutback in the pit there. We've actually more recently moved into a little bit further into a cutback. And so we're taking another fletch of material out, starting near the surface to open up some of the ore bodies a bit further down sooner. So we're working still at full capacity at the moment. You'll see that for the foreseeable future. In theory, our volumes will run out in Q2 of next year, but there's a date on the contract as well. So but at the moment, we don't have any more detail to add on the contract, other than we'll work closely with sentiment and work that through. I should say, in the background, that's a pretty unique fleet in Africa, the scale of that equipment, the 785, 150-ton dump trucks and bigger excavators there give us should, for some reason, it didn't continue. There's certainly some options with that fleet. Sukari decided to do that to sentiment decide to do that themselves. There's certainly some options there. But the moment, our focus is on working closely with sentiment on the way forward.

Okay. I guess moving on to Labs. The question is here is in terms of the ramp-up. Rick, you alluded to earlier in terms of lower margin in the near term. How should we think about that sort of margin trajectory over the next few years?

I think -- so I guess 2 things in there. There's the lab, the Chrysos labs, which are a big part of the growth. There is a big part of the growth, too, which is more samples through our core lab in Langley sample prep that is -- we have a number of those that we've implemented this year, and we expect to keep doing that. So we're building a global footprint that will feed into our multielement labs in addition to the Chrysos units. Our expectation, and this probably lines up well with some of our big competitors, ALS and SGS, where mine site labs, it will be slightly lower margin. So high teens. We expect the exploration-focused labs on commercial labs, we probably say to be slightly higher margin with an average, as Rick alluded to around adjusted EBITDA close to 20%, but there will be a bit of variability on those. I think the key part of that is unless it's a mine site lab and it goes from 0 to full straight away a bit Kibali or something where we're putting 40,000 centers through the lab, the commercial labs do take a bit of time to build, and that's part of this -- I guess, at the moment, we're investing, bringing customers on board, but we do expect to get to 20% average EBITDA, adjusted EBITDA over the next probably year.

Peter, maybe just to finish up with a couple for Rick on the balance sheet. I guess, given sort of the cost of debt is higher than it was at the beginning of the year. How do you -- can you just reiterate sort of your comfort levels on where we are today in terms of the balance sheet?

Yes, sure. So look, yes, the cost of debt is higher. The base rate is, as everyone knows, is at that sort of elevated level now. I think what's notable from our side is some of the margins from the banks are coming down as we work with them, as we demonstrate history with them. So obviously, not one doesn't offset the other. So we are picking up higher cost of funds. I think what's fair to say is as we look forward in the tender pipeline will start to price and we will price that higher cost of funds in have started in some cases already. So we'll try and price that in. But we've got strong cash generation ahead of us. I think the position we're looking at here in June is one where we've obviously taken on Ivindo. We're in full swing on a deployment there prior to cash generation on that particular contract. So I think we're looking -- we're sort of cutting this at a certain point. And I think as we look forward, that cash generation kicks in, we should see a good pathway to bring the debt levels down and have capacity back into the RCF.

So I guess just final one on the cash generation. Is there any major swings you're expecting in H2 on working capital?

So that we don't guide on working capital specifically. But I guess, contextually, we are. As I've just said, we have a way bit swing ramp-up but have incross both drilling and mining quite frankly. So we're seeing a build on inventory for that suite of contracts. What we have seen, and we can see from the numbers, obviously, in June, there is an elevated position on receivables. Just for a little bit of context, that includes crushing equipment that we procured for Ivindo that we will sell to them. So again, just point in time, we've picked up a slightly elevated receivables balance there. But obviously, as that project gets into full swing ramps up, then that position on the working capital will reverse to a degree as that project is going. So I think, look, as I said, we don't guide on it. But conceptually, I think the position we're looking at is reflective of the Ivindo ramp-up.

Okay. That's actually a webcast. I've been asked by the operator to hand it back to the phone line just in case there was any one -- we'll try that once more. But otherwise, I'll hand back to Peter and Jamie to say thanks.

[Operator Instructions] We have a question from Mark Simpson of Excellent Investing.

Thanks, Peter, for the presentation. I've got a question for Rick on the finances. And then if I may come back to Peter with a couple of strategy questions. So Rick, in the last conference call, the guidance was that admin expenses would moderate going forward because there were some exceptional factors, such as writing off a drill for equity deal in 2022. However, these results are showing admin expenses up at 19%? Can you give some more color on that? And also, are we still expecting admin expenses to come in below 2022?

So look, I think the position we -- at the point when we gave that guidance, obviously, we were unsighted on the new contract at Ivindo. So I think we have had to scale up to that. So we have a lot of growth in the pipeline which, again, we'll have to invest in the headcount, et cetera, to deliver that growth. I think in terms of the June position itself, 1 point now is we are -- we do have a higher provision in respect of debt with Morila. So that's something we had to part provided for the last year and we're now fully provided against that position is that situation. Too Firefinch into Morila and he continues to be more comfortably resolved, but we worked on. So I think, look, the admin expenses will probably come up a little bit, just in regards to the investment we made in the team, et cetera, to, as a sector, but down that growth that's coming.

So just to clarify, when you say come off of it, you're expecting H2 levels to be at least H1 levels?

Yes.

Okay. Yes, I guess the market seems a little bit disappointed on the -- that the EPS is down and you've kind of obviously explained that. Are you comfortable with kind of market expectations going forward?

In terms of the consensus?

Yes.

Yes. We're relatively comfortable with consensus.

Yes. So then coming back to Peter with sort of operating questions. The first one is the risk in operating in Africa seems to have increased recently, so not just Sudan, but we're kind of hearing news from other areas as well. But I'm aware that we don't hear these in the U.K. in the news. So what's the company's view on this? Is this -- is risk increasing here? And how is this impacting your decision making?

Yes, it's a good question. So I mean, we clearly -- before we go into new countries, we do a full diligence to understand exactly, I guess, political stability, all of those sort of things as best we can. Sometimes that doesn't come to fruition, whether Sudan was probably caught everyone by surprise. But given that it has been quite stable for a while. I don't know whether there's necessarily an increase from our on the ground in Egypt, which is our biggest contract, our second biggest in Tanzania is seeing really good stability. Those operations continue to go well. There's big investment from various countries -- companies into those countries. And similarly, in Gabon, I think on any front stability, there's elections at the moment. So that will always cause a bit of uncertainty. But overall, strong stability there and into Saudi and what we're seeing in Pakistan as well. So I do think, looking from the outside, media sometimes portrays things that is not what we see on the ground. So it doesn't -- stability doesn't necessarily make good media coverage. So I think we're very conscious that we're able to work to ensure safety of our people as an absolute priority. But also making sure there's the right understanding about any sovereign risk or any other currency risks and other things as best we can. I think one of the reasons our business drives very strong returns is that we know Africa better than I think anyone else in our space, and understand where to make our investments the companies and assets. And I think the key there is focusing on the right assets with the right companies because they -- the likes of Barrick and B2 and some of the BHP and others are very focused on these things, too, and are very conscious not to invest in places where they don't see a long-term future.

Good. And final one from me. So kind of Rick pointed out that the company has set to leading return on capital, and now it's trading at a sizable discount to tangible book value. Surely, larger peers must be watching Capital carefully. And in the past, you've had kind of large holdings from founders and other directors that have as a sort of big defense and nothing would happen without JV say so really. But with Jamie being quite a large seller recently, together with other directors, it feels like that, that big defense isn't in place anymore. Are you worried that you're going to get taken out in the chip? And what can you do to defend against an opportunistic offer at these times?

Jamie, do you want to jump in on that one? Or do you want me to. I mean, I think Jack's maybe the first part, Jamie and Brian is still a really significant shareholders despite ton selling down some recently. Still the biggest shareholder in the business. But I think the other positive is we've seen a couple of our big holders increase over that period. So we've got actually institutions who are both around 10% now. So I think that's another positive on understanding our business and where we are. But maybe, Jamie, if you want to just make a comment on that sort of a potential takeover cheap takeover target?

Yes. Look, to your point Peter. I mean, between the founders which include incumbent directors and some that have left the company, but they're still on the register. We're still speaking for about 20% of the company. And then major shareholders, beyond the founders and directors, we have some example in the 10% range and Ben registered for the better part in 1 case, 13 million. So it's a very tight register with some very long-term shareholders, still a substantial director and found the presence of the register. But I think one of the biggest defenses as well is that to do something hostile and not have the wealth of experience of the management team, actually understand how we'll operate in what are more challenging jurisdictions to the point of your earlier question. I just don't see that as being a likely event.

We have no further questions. And I would like to hand back to management for closing remarks.

Okay. Thank you. I just sort of wrap up. Thank you very much for attending our H1 '23 results. Appreciate you all taking the time and engaging with the questions, both beforehand and is on the call as well. So thank you. And at that point, I'll hand back to wrap up the call.

Ladies and gentlemen. [Audio Gap]