Capital Share Discussion Threads

[adamb1978] 20/9/2023 13:48

I've emailed the company to suggest that they split out capex in future results announcements. TEG's results this morning split capex:

- maint
- growth capex in existing estate
- growth capex in new sites

Very useful in terms of understanding cashflow. If CAPD could do something like that, it would make it very easy for people to see the run-rate FCF, which should look exceptionally strong for a £150m market cap business

[davebowler] 20/9/2023 13:30

As Rivaldo says, the Tamesis report mentions....
Capital Ltd, a leading mining services company, is pleased to announce the award of a material drilling contract in Nevada and associated rig purchases, together with an update on the ramp up of operations at its Ivindo iron ore contract. The former is not only a major new contract in its own right - paying c.$35m p.a. in revenue (an additional10.35% to our FY25 forecast) once up and running – but is in a whole new jurisdiction and awarded by the best in class Barrick; one of two truly global gold mining behemoths. Clearly Capital are getting it right on the Barrick sites in Africa. We see the news on Ivindo mainly as a message that all is proceeding as planned despite any political shenanigans in the capital. Key Points from the announcement below. New Major Contract Capital has signed a three-year comprehensive drilling services contract with Nevada Gold Mines in the US: • NGM is a joint venture between Barrick (61.5% ownership) and Newmont (38.5% ownership), with Barrick as operator. NGM operates three Tier One gold assets: Carlin, Cortez, and Turquoise Ridge consisting of 10 underground mines, 12 open pit mines and associated facilities. • The contract spans a wide range of drilling services including diamond, both surface and underground, and underground reverse circulation. • The contract will consist of 9 rigs and will include equipment with advancements in automation for improved safety and efficiency. Modelling Assumptions The contract is expected to generate annualised run rate revenues of ~$35 million once all the rigs are fully operational from 2025, at margins commensurate with the broader group ie 28%. Capex is expected to be c.$20 million, of which we model $15m falling in 2024. This will take our capex forecast up to $75m this year which is the top of the company’s guided range. We believe this is likely to be OEM funded at the same coupon as for the rest of debt funding (i.e 10%). Changes to our forecasts are show in the table below. The full effects can be seen in FY25 with a 10%, 13% and 28% increase in Revenue, EBITDA and FCF respectively. Figure 1 – Key financial metrics impacted by the new contract FY23 FY24 FY25 Pre Deal Post Deal Δ Pre Deal Post Deal Δ Pre Deal Post Deal Δ Revenue 324.6 324.6 0% 324.2 339.2 5% 339.1 374.1 10% EBITDA 94.3 94.3 0% 83.5 85.0 2% 77.7 87.5 13% FCF 15.4 11.2 (27%) 35.2 17.3 (51%) 26.5 33.9 28% Source: Tamesis Est and Company filings Ivindo Going Well The company has also reported that the ramp up of operations at their load & haul, crushing and drilling contract with Ivindo Iron SA (a JV between Fortescue and the Africa Transformation and Industrialization Fund) is proceeding well. Drilling operations have begun to assist in further defining this world class deposit. The majority of the mining equipment is now in country with operations also already underway, and crushing due to commence later in the year. Valuation Commentary Whilst Capital have a growing presence in Canada with MSALABS this is their first drilling contract award in North America representing a landmark moment for the company. We would expect to see further success now they have a foothold in the world’s biggest gold producing region. The company is truly diverse both geographically and across the three businesses: mining services, drilling and laboratory testing. However there has been no rerating, quite the reverse, as the shares are back to where they were at the end 2021 despite continual and meaningful progress across all operations and through the P&L, cashflow and balance sheet. info @ fpcfinancial.co.uk Prepared solely for David Bowler. Not to be distributed anywhere. Strictly for personal use. Prepared by Tamesis Partners LLP See final two pages for important disclosures 2 After adjusting for todays announcement the shares are trading on a PER multiples for 2023 and 2024 of 5.3x and 7.1x and EV/EBITDA multiples of 2.3x and 2.5x. Free cashflow yields are 6% and 9% and the company remains in a strong position to deliver a dividend yielding 4%. We maintain our price target of 160p

[adamb1978] 20/9/2023 10:48

I agree Shanklin about communications around capital allocation - its the point I was trying to make, particularly as a number of investors will be put off by debt in a samll-cap company which (i) operates in the resources sectors and (ii) operates in Africa.

Something like a 2-3 year plan of how they see capital being deployed, the split of it between capex/return of capital/debt reduction etc. Perhaps also disclosing a split of growth capex vs maintenance too such that people can see what run-rate FCF would be

[shanklin] 20/9/2023 10:40

Adam

In terms of cash, we have gone from being cash positive to gradually ramping up debt (costing 10%?) as part of the company's drive to grow the business, whilst at the same time operating a share portfolio, the value over part of which we still have no visibility following the recent flotation.

I certainly agree it would be helpful for CAPD to give investors some idea as to how they see their cash situation developing over time. Obviously we know CAPD are very aware of making sensible capital allocation decisions even if investors are not getting the full story IMHO.

BTW, its obviously a big positive to be diversifying out of Africa into the US. In time this type of win may help reduce interest premiums.

[hpcg] 20/9/2023 10:20

They clearly have a very strong relationship with Barrick because just this year they have won two out of core area contracts. I note that the company addresses itself as simply a mining services company. It is really starting to get away from the African focused gold mine drilling contractor of a couple of years ago. Getting a drilling foothold in the US and with Newmont is handy. Their processes are clearly repeatable which makes them attractive as a supplier.

[chillpill] 20/9/2023 10:02

I don’t necessarily have a problem with the longer term growth plan.
What I find disappointing is Chairman and founder Brian Rudd wanted cash in the short term and sold 5m shares at 98.5p….they wanted the short term payback.

[rivaldo] 20/9/2023 09:46

Tamesis retain their 160p valuation.

They have CAPD on a P/E of just 5.3 for this year, with a 4% dividend yield.

They've raised their forecasts for 2024 and 2025 EBITDA by 2% and then 13% to $85m and $87.5m. FCF falls in 2024 to $17.3m and then rises by 28% to $33.9m.

Incidentally, they state the capex "is likely to be OEM funded at the same coupon as for the rest of debt funding (i.e 10%)".

They conclude:

"Valuation Commentary

Whilst Capital have a growing presence in Canada with MSALABS this is their first drilling contract award in North America representing a landmark moment for the company. We would expect to see further success now they have a foothold in the
world’s biggest gold producing region. The company is truly diverse both geographically and across the three businesses: mining services, drilling and laboratory testing. However there has been no rerating, quite the reverse, as the shares are back to where they were at the end 2021 despite continual and meaningful progress across all operations and through the P&L, cashflow and balance sheet.

After adjusting for todays announcement the shares are trading on a PER multiples for 2023 and 2024 of 5.3x and 7.1x and EV/EBITDA multiples of 2.3x and 2.5x. Free cashflow yields are 6% and 9% and the company remains in a strong position to
deliver a dividend yielding 4%. We maintain our price target of 160p."

[adamb1978] 20/9/2023 09:35

That negative short-term cashflow impact is inevitable given the type of business Shanklin...not sure how they avoid that. Perhaps some greater clarity / messaging about capital allocation process/decisions?

[shanklin] 20/9/2023 09:27

Everything CAPD is doing to achieve future growth seems to be resulting in negative cashflow in the short-term and unfortunately cashflow seems to be the market focus

[adamb1978] 20/9/2023 08:42

Hi Chillpill

I think its positive for the price, but agree that its probably cashflow negative for 2024.

Adam

[adamb1978] 20/9/2023 08:32

Very good client for them to have, and nice pop in the share price

Some very rough numbers - assume 50% of the run-rate revenues in 2024, 100% in 2025 and 2026 and then 50% in 2027 plus assume 45% gross margins and 25% tax, then this is worth about 3.5p on the share price. It doesnt factor in using the kit for anything beyond 2027, though thats probably prudent given its unknown

[chillpill] 20/9/2023 08:31

Whilst positive I think it is share price neutral.
Mining and oil shares these days are valued on short term returns to investors. These recent contracts just mean shareholder returns are pushed out until 2025-6.

[rivaldo] 20/9/2023 07:15

A big $35m per annum drilling contract win with Barrick - and in the USA too, increasing geographic diversity and security of revenues - commencing in 2025. Excellent news:



Plus Ivindo contract preparations are confirmed as going well.

Barrick's continual expansion of their relationship represents great validation of and kudos for CAPD.

[rivaldo] 19/9/2023 12:07

Cheers allstar17 - I haven't found any updated value for the Allied stake post-IPO.

I've contacted CAPD via their web site and asked them to issue an update on RNS/Reach confirming what stake they now held in Allied. Perhaps others could do the same?

[allstar_07] 18/9/2023 23:01

Thanks rivaldo, do we know how much the allied stake is worth to CAPD. Have found it almost impossible to find anything other than what people have posted links to here!

[rivaldo] 18/9/2023 14:40

News just out this afternoon - Allied Gold has approved development and fast-tracking of production at the Diba project, where CAPD are the drilling contractor, with production in H1'24:



"Frederick Bell, CEO of Elemental Altus, commented: "We welcome Allied Gold's announcement that our recently sold Diba project, which is contiguous with their flagship 10 million ounce Sadiola mine, is being fast-tracked in to production in H1 2024. The combination of royalty revenue and milestone payments from Diba will contribute meaningfully to our revenue growth, with over 6,000 GEOs and up to $6 million in cash payments over 2024 and 2025. There remains a material resource across the project and significant exploration upside...."

[adamb1978] 12/9/2023 10:57

Hi Rivaldo

Thanks, and yse, would be good to get a RNS from them. I also think they should put a summary of the portfolio on their website with shares held. Doesnt need to include value - just company, shares held and %. Would help enable to see the value and wouldnt need much maintenance either.

Adam

[rivaldo] 12/9/2023 10:25

More "excellent" drilling results from PDI's Bankan project (where CAPD are the contractor) sent PDI's shares up 6% overnight.

I calculate this holding alone is now worth almost £24m:



Surely CAPD should issue an RNS re the Allied Gold IPO, if only to clarify how much their holding is now worth (or whether they sold any on IPO). We know that the AAUC m/cap is now C$1.32 billion, but don't know CAPD's value within that.

[hpcg] 11/9/2023 14:27

Well its an RTO so there isn't a prospectus as such, to my knowledge.

[rivaldo] 11/9/2023 12:33

Cheers hocg. The company number is useful and got me the list of disclosures. Can't see a prospectus on a first look though, unless my eyes deceive me.

[hpcg] 11/9/2023 10:28

Rivaldo



The company number is the one inherited from Mondavi, 00051991. There is a conflict because there is a prior Allied Gold, so use the search date. Above is for month of September and I think all the relevant documents of interest are in that date range, filed on 7 September.

[rivaldo] 11/9/2023 10:16

Looking forward to the Allied Gold IPO this afternoon. The symbol to look for will be AAUC.

I can't find a web site for Allied Gold, Allied Merger Corporation or Mondavi Ventures as I'm trying to find the prospectus (if any), and the Sedar site is incomprehensible to me in terms of searching as nothing seems to work! Anyone got any further clues?

[hpcg] 07/9/2023 21:08

Actually trading for Allied will start on 11 September. Sedar (link above) has a press release on the listing and financial reports for Allied.

[hpcg] 05/9/2023 19:28

The Allied Private $267mn placement has completed. It did a few days ago it just takes a while for documents to get uploaded to Sedar. The new Allied will trade from 8 September, Friday. Ticker AAUC.