Capital Limited (CAPD) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Capital Limited H1 2026 Results. [Operator Instructions] I will now hand over to Jamie Boyton, Executive Chair; and Rick Robson, CFO, to start the presentation. Please go ahead.

Thank you very much, and welcome, everyone, to Capital Limited's First Half 2026 Results Presentation. As the moderator said, I've got with me today, well, I'm Jamie Boyton, the Executive Chairman of Capital. I've got Rick Robson, our Group CFO, with me from London and also Ryan Tennis, who heads up our IR and corp dev function also based in London. I'll follow the usual format. We'll go through our presentation deck for 15 minutes or so and then open it to the floor for question and answers. And by way of introduction, again, for those that are new to Capital, a brief introduction to the company. We're an integrated service provider to exploration and mining companies. We operate across Africa, Middle East and North America. We have three operating businesses, specifically Capital Drilling, Capital Mining and MSALABS. In terms of our revenue split, very broadly, it's about 60% of the business is Capital Drilling, 20% is Capital Mining and 20% is MSALABS. The Drilling business is an end-to-end drilling service provider from aircore drilling through to mine site, blast hole grade control and underground drilling, we operate a fleet of a little over 130 rigs. With the recent changes to our portfolio, it is exclusively across Africa and the Middle East. And we are, by rig count, the #5 drilling company globally. Capital Mining is a niche provider of earthmoving services. We're currently operating 2 contracts, one at the Sukari Gold Mine in Egypt and the other at the Reko Diq development project in Pakistan. We have a fleet of over 60 pieces of yellow equipment, and we roll out that service generally concurrent with our existing drilling operations. Our laboratory platform is a very fast growth business. We've been involved in the labs business for about six years now. We have 33 laboratories across Africa, the Middle East and North America. In fact, the revenue for the lab business is the larger proportion is North American. Comprehensive geochemical analysis and is a very complementary offering to our drilling business in particular. So they're the operating businesses and then we have a fourth vertical within our platform, and that is our investment arm. We'll go into a slide on that specifically, but we use our network across Africa, the Middle East and North America to identify what we think are interesting opportunities, typically very early-stage development projects. We've had an outstanding track record, and we'll get into that detail a little later. If we can move to the next slide, please. Some highlights from the results. I'll try not to use the word record too often, but we have had a very strong performance in the first half. Our revenues increased just a little under 38%, and we achieved adjusted EBITDA margins of 25%. So both of those are records for the group. Balance sheet in a very strong position at net debt to adjusted EBITDA of 0.4x and group price-to-book at 0.8x. Now in today's presentation, I will talk a little more to valuation than I typically do. We've obviously had a fairly rocky six months of the year with respect to our share price. I think today's reaction is rather calming that we think there's a lot of inherent value in the company that is not being recognized in the market at the moment. A record for MSALABS. First half revenue grew significantly to $44.7 million and adjusted EBITDA margins of 16.6% and a number of significant contract wins announced in the first half. And today, we're announcing a new one as well, which is with Tungsten West, which is a five-year contract with their project in the United Kingdom. And we have 4 laboratories that are due for commissioning imminently, will start contributing to our earnings in the fourth quarter of this year. The Drilling and Mining business is performing well. We have announced over the first half of this year, again, some long-term drilling contracts with Montage Gold and PDI Gold and today's new announcement is that we've secured a multi-rig exploration contract with Maaden. We have actually worked with Maaden in Saudi Arabia for many years now since 2019, but we've done it through the Barrick joint venture at Jabal Sayid. This is our first win with Maaden directly. And with Saudi Arabia, a market that is seeing a lot of activity, we're very pleased to have secured this contract and announced this contract today. Investment portfolio, I'll come to later in the presentation, but we had a very good first half performance, a gain of $7 million. The index we choose to reference was down 14% over the same period. So a very strong performance yet again from our investment portfolio, which, as you can see, is valued at $116 million at June 30. If we could move to the next slide, please. I won't spend too much time in here because I'm going to hand over to Rick Robson. So just a few points that I will make, however, is our adjusted EBITDA margin, which was 25%. We have previously guided on many opportunities to the capital markets that the margin we're looking for, our sweet spot is between 25% and 30%. So pleasing to see it, albeit at the bottom in that range. But I should point out that is after we've incurred impairments and exit costs associated with the conclusion of contracts in both Mali and the U.S.A. So the underlying operating business doing very well. Our EBIT margin, 14.5%. And I think the other thing I probably would like to draw your attention to back in the context of where we were talking about price-to-book on the previous slide is our adjusted return on capital has climbed back up to almost 19%. Now again, we -- our threshold or our goal for our return on capital for the operating business is about 20%. So it's very pleasing to see it pick up significantly as the business has started to improve in the second half of last year and the first half of this year. So I go back to that reference about our price-to-book ratio, where we're trading at 0.8x price-to-book. Now about 1/3 of our market cap is our investment portfolio. The investment portfolio itself has generated a 60% return over the last 7.5 years. If you back that investment portfolio out of our market cap and do a price-to-book exercise, we trade about 0.7x price-to-book on an operating basis, and our operating business generates a 19% return on capital. As I said in the introduction, I will be focusing a little more on the valuation than I typically would do. However, a 19% return on a price-to-book of 0.7, an investment portfolio generating a 60% return, we're rather perplexed. And again, pleased to see a pickup in our share price at the back of the results today. I'll now hand over to Rick for the financials, please.

Thanks, Jamie. Next slide, please, and again. So good morning, everybody. Welcome again. So as Jamie said, a very pleasing revenue performance up nearly 38% half-on-half with a strong contribution from MSA, a record contribution from MSA of $45 million for the half. Adjusted EBITDA margin, again, as Jamie mentioned, sitting at the 25% level, which again is a pleasing result for us despite the wind-down costs that we saw in the U.S. and Mali. I think the other thing to draw people's attention to is at the operational NPAT level. The result there was impacted by higher tax. So our effective tax rate has remained high at circa 45% for the half. I think as previously raised at the 2025 results call, that tax rate is elevated due to higher withholding tax rates in Tanzania. But in half one 2026, we also had the impact of those U.S. and Mali wind-down costs, which sort of slightly elevated that tax rate. We expect that tax rate in H2 to stay elevated at probably at the high 30s, but possibly starting with a four. Overall, though, a strong operating performance from the business. Next slide, please. So looking at the cash flows, you can see a much stronger and pleasing operating performance has pulled through to that operating cash flow, nearly 70% up half-on-half. But what is notable is a big swing in the working capital as we referred to. So just for context, half one 2025's working capital positive movement was driven heavily by mobilization and establishment payments that we received, which as you move to H1 2026, that position is unwinding during the course of -- has unwound during the course of H1 '26 and will continue to unwind in H2. But we're also seeing the impact of just more activities to increased operations in the business, just having a working capital draw in that first half as well. Investing cash outflows, 70% up half-on-half, obviously driven by our participation in the WIA and Asara equity raises during the half, offset marginally by about $2.7 million of disposal proceeds, again, tied -- majority tied to the U.S. wind-down. Next slide, please. So just looking at our financial position. A quick update on the debt facilities. In March, we refinanced our -- what was our $75 million RCF into an RCF and term loan structure, split 50-50 on that $75 million total. Term loan is fully drawn at the point of the refinance and is a four-year amortizing facility. The RCF, as we moved through to 30 June, has been drawn to $25 million, and that's a renewed RCF on a three-year period. So net debt has increased on December. So in December, we were $31.8 million net debt up to $43.3 million, driven by the working capital movement that I've outlined already, the participation in the raises and obviously offset by our improved operating performance. Leverage-wise, as Jamie pointed out, that net debt to adjusted EBITDA is sitting at 0.4x, a consistent level with the 31 December point as well. CapEx. So just as a reminder, the way we talk to CapEx on this -- in this forum is cash CapEx, prepayments plus the OEM financed assets as well. So we aggregate those three concepts. So in the half, we had $24.1 million spend against our guidance for the year, which we are reiterating today at that $55 million to $65 million level. So will be an H2 weighting to that. Next slide, please. Sorry, next slide. Thank you. So just to finish off, so we've maintained our dividend -- interim dividend of $0.013 per share, a consistent level with the last four to five years. And again, just to reiterate that we remain committed to returning value to shareholders whilst maintaining a strong balance sheet. And with that, I'll hand back over to Jamie to cover off the growth and moving forward.

Thank you. If we can move forward. Thank you. We'll start with talking through the group revenues. Obviously, one of the highlights of today's results is that we have increased our revenue guidance, which is previously $410 million to $440 million. We have increased it today to $430 million to $450 million. A few bullet points that we've highlighted there is the growth of our non-drilling revenue, which is now contributing to 40% of the group revenue. I think the growth rate, another factor playing into our perplexed nature with our valuation is just having a look at our revenue growth. So we've obviously charted the 7-year cumulative revenue growth, and we're growing the top line at 22%. This year, obviously, a very strong year of revenue growth. So moving through some of the other statistics, obviously, the healthy levels of utilization across our drilling fleet at 71%. Our laboratories are running in the mid-50s. I'll defer to MSALABS when we move on to that. And then I note the comment about on the mining side. So let me just address that because over the course of the first half of this year, we've been rather sensitive to announcements made in the public domain with respect to Barrick and Reko Diq. We are reiterating as we have done with our quarterly revenue updates that the Reko Diq mining contract continues to operate as contracted. And mining activity at Sukari Gold Mine, which is the new -- with our second iteration of the waste stripping contract has started ahead of schedule with further equipment to arrive in the fourth quarter. And I'll go into a little bit about -- more about Reko as we go through the slides. If we can move to the next slide, please. Just consistent with the improving revenue profile and the improving profitability of the business, obviously, as I alluded to earlier, we've seen quite an inflection in our return on capital, which is the light blue line on the graph. As I said, we're looking for a threshold of 20%. So we're certainly heading back in the right direction, and we have extremely supportive market conditions for what I think is quite a few years ahead of us. So expecting to see that return -- those returns to continue to improve. Moving on to the next slide, please. Just reiterating, I think it's important to point out, and I'm going to say this in the context again of the market speculating on Reko specifically. We have -- we are the preferred partner in the jurisdictions in which we operate on the absolute Tier 1 assets. We're active service providers at the largest of the African gold mines. Places like Sukari in Egypt, Geita in Tanzania, Kibali in the DRC, Tasiast in Mauritania. These are 0.5 million ounce per annum long-life, low-cost mines owned by the majors, and we are the trusted partner to execute on these assets. In terms of contract wins that we announced in the first half, it's a similar thematic. We announced a five-year laboratory contract in Grand Falls in Newfoundland with Equinox Gold. It's a $20 billion company. Today, we've announced the exploration contract, multi-rig, multiyear contract with Maaden, which is obviously in the tens of billions in terms of market capitalization. Montage, we've announced contracts for both our laboratory business and our drilling business, both long-term contracts. This is one of the largest deposits and mines to come on stream in West Africa in the last decade. PDI Gold, we've recently started drilling there. They are the owner of the Bankan deposit, which is the largest mine coming on stream in Guinea. So consistent thematic that we are winning work on long-term, low-cost, large-scale mines, which is a testament to the service offering of the company. Now back on the focus of the capital markets on Reko Diq specifically, we make the point today that we operate across 17 countries. We have 19 different customers across our drilling and mining business. We operate across 25 different sites, and we have over 30 separate contracts. When you go into MSA, the story gets even broader, over 400 customers for our laboratory business across 33 laboratories. So there is diversification across our client base. And again, perhaps too focused on the valuation, but we have seen a lot of reaction in the market, a lot of focus on the Reko Diq contracts. So again, in fact, if I could reference some feedback I was given on one of the retail channels about if the company had materially bad news to impart, then it shouldn't hang around for the results to let us know. We are acutely aware of our disclosure obligations. And if we had bad news to communicate with respect to material contracts, we would do so. We obviously release our results for our -- in our quarterly, we release contract wins, I should say, every quarter. We bespoke release contract wins for material contracts. But within our portfolio, at any point in time, there will be scope changes across the 25 different sites at which we are working. And the balance of those scope changes are in a positive direction, consistent with the demand environment in which we're operating. So I hope to some extent, we've quelled what seems to be quite focused speculation about the company with our revenue upgrade and with the diversity of our client base. If we can move on to the next slide, please. MSALABS is having a fantastic growth period. You can see the revenue growth of 50% cumulative over the last seven years. And the momentum is continuing. The first half revenue growth of 45%. What was particularly pleasing is we achieved adjusted EBITDA margins of 16.6%. When we were going through the company's investment phase, rolling out the laboratory platform, which we have now seen the benefits of that rollout through added with our increased BD capabilities to see increased utilization, we are already operating within the target margins that we set, which were 15% to 20%. And typically, seasonality-wise, the second half is stronger than the first. We commissioned the Grand Falls laboratory in the first half. We've got labs being commissioned in Armenia, two labs in Ivory Coast and then Tungsten West as we announced today and a joint venture that we formed with Mari Minerals in Pakistan. So we continue to grow that platform at pace, and we're extremely pleased with the performance of that business. It really gathered momentum over the last 24 months. If we can move on to the next slide, please. Our investment arm spoke to it a little bit earlier. Cumulative return over 7.5 years is 60%. We have been extremely successful in identifying early-stage investment opportunities, partnering with the management teams, bringing our network to assist them in terms of technical expertise, corporate expertise, capital raising capabilities, service provision. Between the companies that we've been involved with, there's been over $10 million -- 10 million ounces, pardon me, of grassroots discoveries over the last six years. I saw one of our clients referencing their target for the next five years, they had a 6 million ounce greenfield target. This is one of the majors. Through our efforts, we've discovered over 10 million. So the portfolio continues to do particularly well. It's concentrated on WIA Gold and Asara, both of which had capital raisings in the first half of the year. And we are more recently announced only a week ago a subsequent capital raising and debt financing an increase in the resource to 3.78 million ounces with the DFS. So that project is now funded into production with the subject to mine permitting, which they are anticipating in the second half of this year. So continue to look for opportunities and has been a fantastic performer for the group. Next slide, please. Demand. I don't need to talk to the gold price. I do think it's probably just worth mentioning though that there's been two things, I think, that have had an impact on Capital share price in the first half, and one has been the speculation around Reko Diq and the second one has been the correlation with the gold price. I think it's important to point out that the assets on which we work and the demand environment in which we are working, gold price at $4,000, gold price at $5,000, it doesn't have a significant impact on demand. In January of 2025, the gold price was $2,600. So this is a sector that is awash with cash at the moment, record operating margins. If you look to the bottom left, there's a capital markets activity. And you can see that particularly on the ASX, record levels of capital markets activity, record operating margins. And when you look at the top right, and this is a slide that we were, a graph that we have talked to many times before. And we use the term disconnect. The disconnect between the previous cycle peak, which is about 15 years ago, where we still have exploration spend and Capital spending 50-odd percent lower than where it was 15 years ago despite record gold prices, record operating margins, the most robust balance sheets in the sector. In October last year, we made the statement that we thought we were at the front end of the demand cycle for service providers. In late November last year, we raised money to enable us to secure capital equipment for what we thought was a growth phase that was coming. Today, we have reported extremely strong revenue growth. I'd go so far as to say it's unprecedented demand that we are seeing across our platform as a result of the macro conditions supporting our client base, and we're very encouraged by the outlook for the next number of years. We can go to the next slide, please. To this thematic a little further, the last bull cycle, looking at the top left graph, you can see despite the very strong market, the sector, the clients that we faced operated with negative cash flows. When you move across to the right and you see where the sector has started to pick up, you can see that the operating cash flow and free cash flow is at levels we've never seen before. So we continue to be extremely encouraged and we're seeing it in terms of our demand pipeline. So again, just to reiterate today, we've upgraded our group revenue guidance to $430 million to $450 million at this stage, maintaining MSA at the $85 million to $95 million range and group CapEx at $55 million to $65 million. And on that, I'll hand over for Q&A, please.

[Operator Instructions] I will now hand over to Ryan Tennis, Corporate Development and Investor Relations, to address the written questions. Please go ahead.

We have had quite a few questions today. So I'll just work through them systematically, and we can just start with the drilling business. So for Jamie, can you give an explanation of the optimum utilization rate for our drilling fleet and specifically for exploration rigs? And where do you see it moving from the current levels of 71%?

Our peak as a public company has been 83%. We -- the answer to that question is 75%. You'll never have a perfect scenario where you have exactly the fleet configuration for the contracts on tender. So having some capacity within your fleet and allowing, obviously, movements of assets, refurbishment of assets, routine maintenance, et cetera, the answer is 75%. I don't know that we necessarily differentiate with that target utilization across the different types of assets. Most of our exploration rigs, which is only a small part of our business, 10-odd percent of our business, they can be used on mine sites, development assets, which is where they tend to be. But when you do get into the blast hole contracts, the underground contracts, you do tend to see utilization across the fleet sitting at 90-odd percent, predominantly because you get two, three, four-year mine plans ahead of you. So therefore, better visibility on exactly what the profile is going to look like going forward.

And then a question on why did we exit Mali and the U.S.? And can you give an indication of the losses that we booked?

I'll let Rick talk to the losses. I mean, look, for us, it was, we are in -- I'll use the word again. I mean, I've been with the Capital for 20 years now. And I mean the last time I saw demand, extremely strong demand, was 2011. This is as strong demand as we've seen. We just made the decision that we needed to optimize the portfolio. The operating conditions in Mali were not particularly favorable for international contractors, and we had a lot of opportunity on our platform in Guinea and Ivory Coast. And in the U.S., look, we went there under previous management. The contract had not met our return hurdles. And as such, assets have been redeployed. So this is all about portfolio optimization, which I expect, and you're already seeing it. It's feeding through to our margins and our returns. And I think there's more to come in terms of how we can improve this business as we optimize it further.

Yes. I think on the wind-down costs, Ryan, I think the U.S. had an asset base, some of which was configured specifically for the U.S. requirements in that market. So unsurprisingly, those assets were put up for sale. We have taken a bit of a loss on disposal there. So I think it's about $1.1 million loss on disposal predominantly tied to that concept with another further $1 million impairment against sort of future disposals to be made. Overall, probably a sort of mid-single-digit cost for exiting the U.S. business.

Thanks, both. On to the mining division, how much capacity is there or flexibility to add additional mining service contracts?

Personnel-wise, there's capacity, technical personnel-wise. Equipment-wise, we're pretty fully utilized. Part of the reason that we raised money in late last year is we were pretty confident on some opportunities. And we announced in the first half of the year that the Sukari waste stripping contract. That's utilized all of our idle equipment that was remaining after we sent a lot of the fleet to Reko Diq in Pakistan. We did purchase further equipment part of the proceeds from the raising, which is arriving in the second half of this year. So from a fleet perspective, we're pretty well -- we are fully utilized. But we -- I'm going to reiterate the fact that we're not actively participating in the open tender market for mining opportunities. We're very selective about what we look at and mining opportunities have long lead times. So being able to secure equipment is an integral part before you submit the tender of having a line of sight on being able to secure equipment, which we can do.

And then could you give some more details on the likely outlook for Reko Diq?

Well, Barrick have made a lot of announcements and a lot of our shareholders have picked up on those announcements. There has been a slowdown in activity. It's been well flagged by Barrick. However, they do continue to run the asset. They're talking about the development timetable being pushed out. But Barrick are over $1 billion deep into this asset is an absolutely world-class asset. They continue to invest in the asset, albeit at a reduced pace. We are a key contractor at the site, in fact, the largest contractor at the site. The work that we are doing at site is critical path items to continue to move the project forward. Where I won't begin to speculate what will happen with the asset in terms of ownership. However, I'll reiterate the fact that when you're more than $1 billion deep on one of the world's premier copper assets, I do not -- I can only see this continuing to be developed.

So on to labs. So our overall labs utilization is 54%. How are the mature established labs performing? And what would be the ideal long-term rate for an established site? And in addition to that, does on-site labs restrict the ability to have more than one customer? And how does that impact pricing?

Okay. A bit to unpick there. On-site labs, typically, yes, they're just one customer. When we talk about a margin range for the labs, how it affects pricing, it tends to be slightly lower margin. But in saying that on-site labs are typically client CapEx, not to our account, to the clients' accounts. So the returns are obviously commensurately compensate. In terms of more mature labs, yes, as they get -- as they're better established, remember, MSA itself is only about seven years old. In seven years, it's gone from a standing start to being the fifth largest geochemistry lab in the world. And the brand is building. So those labs that have had a longer lead time are running at higher utilization. Labs that we are recently commissioning lower. However, in the case of Grand Falls, for example, that was a, what we call, a hybrid lab. So it has an anchor mine site customer, specifically Equinox and Valentine mine, underpinning the volumes. New commercial labs, and we established some quite a few in Canada quite a few years ago. They take longer to penetrate the market. But across the portfolio, certainly heading in the right direction. And if you talk to any of the lab companies at the moment, all the clients, I should say, and probably more so, turnaround time in the industry is the critical factor at the moment, getting your data back quickly. Turnaround times at a lot of our competitors who haven't been investing in capacity have slowed down. This is where we're also seeing a benefit having some spare capacity as a result of our infrastructure build over the last couple of years is benefiting us in this market.