Capital Share Discussion Threads

[troc1958] 31/8/2022 16:35

YasX ... I don't understand why you are so negative about Capital. It's come a long way since the last down cycle from being a risky driller. It now has one of the newest and growing drilling fleets in the world, plus vertical integration into lab sample analysis and mining contracting.If you recall correctly many of its investments in "minnow" explorers were drilling contracts for shares in the explorer in lieu of cash. Most of these explorers could not afford the drill fees, thus paid in shares. It was a good way for Capital to utilise some of its excess capacity. Otherwise it would not have got the contracts. So it now has a range of investments in explorers for very little capital outlay. Why are you so concerned about their liquidity? If only one hits it big Capital most probably would get a ten fold return on investment. The share price of any mining related share, particularly gold mining, will be volatile over the coming months. In Capital's case any drop in share price, like today, is worth using to top up. The further it drops on market uncertainty the cheaper it becomes to top up. In 3 to 5 years I can see this share in the 300 to 400's. I'm happy to wait.

[kaizenkid] 31/8/2022 15:17

I think its a good idea to think about what would happen to Capital's business in a downward change in the cycle. Fortunately we have a previous cycle as an example. Due to the long term production contracts and mines that are at the bottom of the cost curve, those mines continued to produce gold and Capital continued to service those clients. They were able to put effectively half their rigs into storage and cut capex well below depreciation for a number of years. The result was a business that rapidly de-geared the balance sheet. The share price went down but the underlying business got stronger. I like that Anti-fragile nature of the business. I take a business owners perspective and dont tend to worry about the share price over the short to medium term. I am confident, having lived through that cycle that Jamie and the management team are very much aware of the cyclical nature of the business. They know the importance of long term production contracts at world class assets, not just for the ROCE advantages / efficiency and customer captivity but also the advantage it provides them when cycles turn down. A simple way to look at this is the cash flow statement.

[yasx] 31/8/2022 13:52

I think it is fairly clear the highs seen in April will now likely mark a level not to be seen again in years. The Co. is badly structured and is not sufficiently appealing to investors, despite the boom in the underlying sector in which it operates. When the cycle turns against it, as it will, the fallout will be dramatic. The shares never made much progress while the sector was enjoying the best run in years and so one can hardly expect these to gallop ahead from here as the cycle turns.

As for the speculative portfolio, it took a battering recently, and that won't cease anytime soon. The Co. made a significant mistake in not reducing substantially that bunch of illiquid tiddlers since it would have provided them with a substantial cash cushion as well as enabling the market to view the business as a more structured and streamlined set up. Can you imagine trying to offload those tiddlers in a bear market - there will be no counter party.

[rivaldo] 30/8/2022 08:31

Positive drilling results from Syama (where CAPD are the contractor) from Resolute Mining today:



In particular, lots more work to come:

"Future Exploration

The drilling program at Syama North is ongoing and is expected to extend throughout 2022 as results continue to expand the Mineral Resources. The sulphide mineralisation remains open at depth and appears to be contiguous along the entire strike length of the Beta and A21 deposits.

Infill drilling will also be undertaken as half the Mineral Resources are classified as Inferred and will require to be upgraded to Indicated category to be included in Ore Reserve calculations.

At this stage exploration drilling will be restricted to zones within 150m of the surface to concentrate on identifying open pit extractable Mineral Resources. The potential of an open pit operation at Syama North is high with engineering studies commencing to evaluate the project.

An open pit sulphide mining operation will complement the Syama Underground Mine and add 'flexibility' to the processing complex.

A new low-level, high definition heliborne aeromagnetic survey commenced in July to improve on the historical wide-spaced aeromagnetic coverage. The survey will cover the whole 85 km length of the Greenstone Belt held under license in an effort to delineate more sulphide resources which are the long-term future of the mining operation."

[rivaldo] 26/8/2022 13:57

Late yesterday what looks like a very positive update on CAPD was issued by the never knowingly understated HotStockRockets - anyone got full access?



"Capital Limited – positive interims and further encouragement

By HotStockRockets | Thursday 25 August 2022

Mining services company Capital Limited (CAPD) has announced results for the first half of 2022 and that “the underlying demand in the market continues to be encouraging”."

[concentrate] 25/8/2022 10:58

In fairness, CAPD's underlying business is fairly mature and predictable, due to having good forecasting and high quality long term contracts.

Whereas the investment portfolio is very erratic.

I have no view either way, just pointing out that the unpredictability will be unappealing to institutions.

On another point: there was talk of refinancing the debt, and also a little discussion about moving into other regions. Any chance they take on a large facility and try have a go at the Americas? Must be fairly tough to start fresh in a new region.

[shanklin] 25/8/2022 10:33

Please would those institutions that pushed back advise where they are managing to achieve 50% annual compound returns, so that I can invest some of my money there. What complete planks - perhaps they should seek alternative employment.

[chillpill] 25/8/2022 09:48

Apparently some institutions pushed back on the investment portfolio. If I was JB I would ignore.
He has been highly successful in managing the portfolio- JB is entrepreneurial against most fund managers who are spreadsheet driven…

[chillpill] 25/8/2022 09:43

It always sells off after results. Short term traders know they will be good and then trade out…generally.

Not sure about JB’s choice of glasses but well done him and the team.

[shanklin] 25/8/2022 08:19

Just catching up on yesterday's CAPD's IMC presentation. I see they do cover the investment concentration in slide 15, 16 (IIRC).

EDIT: Interesting that CAPD are getting increasing non-Labs inquiries outside Africa.

[rivaldo] 25/8/2022 08:14

Predictive is now up 13% :o))

Shanklin, cumulatively they're still worth quite a few £m against CAPD's relatvely small m/cap. And of course initially Predictive was worth very little - until it rose so dramatically.

[shanklin] 25/8/2022 08:03

Thank you rivaldo, So very little beyond those 3.

[rivaldo] 25/8/2022 07:51

Shanklin, I try to update the investment portfolio in the thread header post every so often (though I haven't yet included the Leo Lithium demerger from Firefinch) so it's reasonably up to date.

The largest holdings are Predictive and Firefinch/Leo Lithium (combined), plus the unquoted Allied Gold potentially worth $20m.

[shanklin] 25/8/2022 07:33

Anybody any idea please as to which are the three key investments and what proportion of the portfolio is in these three holdings? Obviously I appreciate its something of a moving feast as per rivaldo's updates on individual company activities.

[rivaldo] 25/8/2022 07:21

CAPD's large investment in Predictive is up 8% overnight on "outstanding" drilling results from Bankan.

CAPD in Q1'22 extended its exploration and delineation drilling contract and expanded "initially" from 2 to 5 rigs - and this press release says there are currently 10 active drill rigs on site:



“Predictive’s next phase of drilling, which is focused on further defining the quality and extending the fast-growth resource of the NE Bankan gold deposit, continues to prove up the significance of what is the largest gold discovery in West Africa for over a decade.

“As we continue to drill out our assets and move towards the development phase of the project, we are also highly encouraged by the consistency and quality of the resource through our initial grade control drilling at NE Bankan.

“With the expanded drilling cap and the data gathered to date, Predictive continues to maintain significant momentum in its development as we gain further knowledge of what will clearly become a Tier 1 asset in the gold mining industry.”

[otemple3] 24/8/2022 14:02

Thought it was an excellent presentation & good Q&A session, so thoroughly recommend making the time. Whilst I was disappointed they haven't restarted the buy back it's obv good news that they see better opportunity to expand operations (Americas being the obvious target). Wider geographic spread should improve rating in time. Yasx, they have rotated holdings towards three key ones who are moving towards production. At this point, they would be looking to exit their holdings. Always a risk one could fail to get there but given the c.50% CAGR to date, my instinct is to trust they know what they are doing.

[rivaldo] 24/8/2022 13:45

I missed the presentation this morning so will have to catch up another time.

dangercapital has posted some helpful notes on Discord, for which thanks - apparently Jamie noted repeatedly that the current investment cycle was still in its early stages::

"Q. M&A? A. market not valuing earth movers. Jamie addresses bid defence - strong holders and concentrated should defend against an opportunistic bid.
Q. Dual listing? A. Aware of valuation difference, but illiquidity across 2 exchanges doesn't help.
Q. Leverage? A. An internal target not an external one.
Q. Inventory? A. managed closely, expected to fall in H2.
Q. focussed holdings? A. Moved out of those without explo success, added to those with explo success.
Q. End goal of equity holdings. A. to realise value, provide services as exiting investments.
Q. debt refinancing H2 aim? A. increase capacity to move quickly. Cost of debt should come down quickly.
Q. MSALABS margins? A. Mature Labs would have a higher margin. Current - still relatively small. will report segment when larger.
Q. Rig count? A. no magic number, based on clients, not about rig growth but developing the next big mine customer.
"We are bulls on this cycle, it is due to the classic capital investment cycle. Due to an underinvestment ... looming shortage in resources in many commodities."

[yasx] 24/8/2022 13:26

Either a dividend increase or buyback - but, they need to do something. Selling a mere 2% of the investment portfolio is insufficient - they need to offload more before some of these become worthless, since surely they will.

[dangersimpson2] 23/8/2022 13:44

They are on a forward EV/EBITDA of something like 2.5 so that is equivalent to EBITDA margins of 40% or so (of course, with some doubt as to how long they remain this elevated) so really any excess capital should be going to a buyback unless they have uses for the capital that generate higher EBITDA margins or is such a long contract it looks through the next gold cycle. Of course, if the share price doubles and trades closer to 5xEBITDA then this is more like 20% EBITDA margins and investing capital into new contracts at full cycle 25-30% EBITDA margins make more sense than buybacks.

[adamb1978] 23/8/2022 12:37

I'm not sure that increasing the dividend further will bring in many new investors. The yield is 3%-4% odd - a number of people who look for materially higher than that, say 6%-7%, are probably more risk averse and unlikely to be interested in a company operating in CAPD's core geos.

3%-4% yield, plus similar buyback makes sense to me...and if there was even more capital available which isnt needed for growth, use it for special divis

[otemple3] 23/8/2022 12:29

I like their approach so disagree. I am hoping to be able to add to my position if it gets to 90p soon. Cash is building nicely, rotating into more robust contracts; clearly excellent capital allocators

[yasx] 23/8/2022 12:15

Re Berenberg/Tam

Those targets are meaningless - there is no interest at a fraction of those prices.
They need to increase the dividend to attract more investors since repetition of the same story of great visibility, record order book etc is not helping affairs. Separately they ought to dump more of the investments and bolster the cash position.

[dangersimpson2] 23/8/2022 09:49

They are almost certainly paying the dividend they feel will be sustainable through any cyclical downturn. Look at what happened in the last big downturn: they generated a lot of cash which they used to pay down debt and pay a dividend. They are likely to go into the next downturn (whenever it arrives) with less gearing, a greater number of long-term contracts, and a still rapidly growly labs business. With fewer growth opportunities, that cash will be increasingly directed towards dividends and buybacks. And should put a floor on any share price drop.

[otemple3] 22/8/2022 22:56

Great to see the upgrade and am looking forward to Wednesday's presentation having missed last weeksLots to like here and been a good steady performer for me and feel lots more to come if MSLABS can get close to their growth targets. Given mgmt are generally prudent, I am confident they will Looking forward to seeing how they look to unlock some of the hidden value here over the coming years