Capital Share Discussion Threads

[rivaldo] 16/11/2023 09:52

Momentum Investor magazine summarised the Q3 update in last weekend's issue. There's some useful info on Peel Hunt, who have a 153p target:

"Peel Hunt has left forecasts unchanged for pretax profit of US$36.1m and US$53.3m in FY'24 for eps of 12.8c and 19.9c (16.4p). Mining Services, which enjoys longer life contracts and the higher margin PhotonAssay business together make up over 30% of revenues, but this higher quality mix is not reflected in the FY24 PE multiple of 5.0.

The broker's price target is 153p. I am a strong holder."

[adamb1978] 15/11/2023 08:29

The board needs strengthening but disappointing announcement this morning.

Board really needs strengthening in terms of capital allocation, cap structure and investor focussed experience.

This lady seems to bring some generic sector experience, which I would say that the current board and management have in abundance. Others can comment on the rationale for her appointment - I dont see what she brings which is additional.

Disappointing

[rivaldo] 08/11/2023 09:53

Chrysos's share price has increased by 126% since the start of this year, and they've this week raised $75m to "support the deployment of PhotonAssayTM units and accelerate Chrysos’ growth trajectory".

The presentation supporting the fundraising is here:



Slide 8 is encouraging as regards "further adoption by global gold miners" - hopefully via MSALABS:

"■ Three initial PhotonAssayTM deployments at the Nevada Gold Mines (NGM)
complex in the USA
■ Potential deployment of up to 10 more PhotonAssayTM units to other
Barrick projects by the end of 2025, subject to finalising due diligence
■ New partnership is an extension of an already successful relationship
between the three companies at Barrick’s Bulyanhulu mine in Tanzania and
its Kibali operations in the Democratic Republic of the Congo
■ Partnership is a watershed in the global adoption of PhotonAssayTM
technology and is anticipated to lead to further adoption by global gold
miners"

[davebowler] 01/11/2023 11:16

Tamesis very positive.

[rivaldo] 01/11/2023 08:47

Tamesis Partners have issued an update following yesterday's excellent news, reiterating their 160p target price and including the following - note the 115% growth in MSALabs revenues in just 2 years to $90m:

"This is a major announcement from Capital and a stamp of approval for MSLABS and the Chrysos PhotonAssay™ technology from a major mining company.

Although this update does not alter our forecasts, it provides us with a clear path and significant de-risking to the rollout of 21 Chrysos units by 2025, which we estimate to raise MSALABS revenues from $42m in FY2023 (13% of group revenues) to $90m in FY2025 (25% of group revenues). See revenue growth profile as illustrated in fig 1 below.

The partnership also raises the potential for further uptake across Barricks global operations, with Barrick having publicly highlighted the success and benefits of the technology. As referenced in the Capital’s announcement, Barrick’s Mineral Resource Management & Evaluations Executive Simon Bottoms, said: "PhotonAssay has already been delivering faster, safer, more accurate and environmentally-friendly analysis to our African operations, so we are more than pleased to broaden the partnership with Chrysos and MSALABS to take advantage of this innovative technology in our global operations."

"It is worth noting that Chrysos have started to test the applicability of the technology in the use of copper. This would be a provide a massive addressable market for the technology beyond gold. Barrick itself has a major copper project at Reko Diq, expected to double the size of the company’s copper production capacity when it is commissioned in 2028. Barrick’s current gold and copper attributable production guidance for FY2023 is 4.2-4.6moz Au and 420-470klbs Cu."

"Investment Case

This announcement de-risks Capital’s rollout of Chrysos PhotonAssayTM units. We currently maintain our forecast of 21 units being rolled out by FY2025. However, there is scope for an increase in this now for reasons as mentioned above.

This year has seen continued positive updates, including:
• Delivering 2 new major material contracts this year, being Ivindo SA and Nevada Gold that contribute $40m and $65m in revenues in Fy24 and Fy25
• 4th year of consecutive revenue growth and record revenues of $324m per our forecast
• De-risking MSALABS Chrysos PhotonAssayTM units roll out to guided 21 units and see MSALABS revenues doubling from FY2023 – FY2025

The shares are YTD 18% down, and trading on EV/EBITDA of 2.5x and PE of 6.3x, with a dividend yield of 4.1%"

[otemple3] 31/10/2023 16:48

If the additional 10 mentioned in the RNS come through, then I think that is the end '25 target hit, so anything further will be upside to FC. You'd expect, given the momentum, there would be plenty more following ?

[deanowls] 31/10/2023 15:39

That’s a good point, are they additional units to be deployed or just the same number but now announcing the end partner?

[adamb1978] 31/10/2023 08:43

Hi Fozzie

Could be because they didnt feel sufficiently comfortably with the numbers to state them, or that the partnership is intention-based rather than a contractual commitment...or perhaps that this is something like a framework agreement and then individual machines/commitments need to be signed up to based on that agreement.

Adam

[fozzie] 31/10/2023 08:41

Why are there no commercials attached to this announcement?

[rivaldo] 31/10/2023 08:38

It has to be very good news for CAPD that not only are they now benefiting from more Chrysos machine supplies, but that they've got such validation from the likes of Barrick.

It's possible now that more work will come from Barrick via drilling contracts as well as via MSALabs - perhaps at Nevada, "the single largest gold-mining complex in the world", where three new Chrysos units are now being deployed by MSALabs.

[adamb1978] 31/10/2023 08:07

Hi Rivaldo,

Yes, the geographical diversification is good. Long may it continue.

Given this is mentioned as a partnership, I assume its not a JV of any sorts and perhaps just a commitment from Chrysos to supply the machines to CAPD and a commitment from Barrick to use those services.

Adam

[rivaldo] 31/10/2023 07:36

Great to see today's news of an expanded partnership with Chrysos and particularly the huge Barrick Gold "to deliver PhotonAssay(TM) technology to Barrick mine sites across four continents", starting in Nevada, USA.

This further diversifies CAPD's operations both geographically and in terms of operations:

[rivaldo] 30/10/2023 07:35

With the gold price at $2,000 now, PDI shares rose 6% overnight to A$0.245, which is its highest for almost 2 years and getting towards its highest ever level from around that time.

At current exchange rates that's worth £18m against the £148m m/cap:



Allied Gold's shares have also bounced 14% to C$4.80, so this holding is worth another $10m or £6m.

[jonesj] 27/10/2023 13:42

With their borrowing facilities nearly maxed out, CAPD either need to cut capex or sell something to fund buybacks. Which is exactly what I would like to see,

[davebowler] 24/10/2023 05:19

Gold is hitting all time highs again in JPY,EUR and AUD.

[hpcg] 23/10/2023 10:09

If all the central banks pause this week - quite likely, and rates have topped, gold could go higher, and with it gold miners. That said it would be kind of irrelevant to the share price because everything is being buffeted by flows. There are forced sellers across the market, but especially at the small end. Until that changes there is not much any company can do, unless it has capital freedom to buy back stock. If the company can keep good time on the Centamin rock shifting - it looks like it might finish 6 months early (original contract was end 2024 for 120MT) and that could free up capital. A break out in gold could make the portfolio even more material and allow for conversion into cash - probably forced when it comes to PDI.

I'm not at all a gold bug, hence being in picks and shovels, but the long term gold chart shows a cup and handle with the chart being well into the handle.

[davebowler] 23/10/2023 05:14

Don't ignore Capital's investment portfolio, advises BerenbergProjects at Capital Ltd (CAPD), previously known as Capital Drilling, are on track but the market is giving no credit to its investment portfolio, says Berenberg.Analyst Richard Hatch retained his 'buy' recommendation and increased the target price from 169p to 173p on the Citywire Elite Companies AA-rated mining services company, which closed unchanged at 77p last week but are down 20% this year.A third-quarter update showed revenue slightly below Berenberg estimates, but it observed that 'key mining and drilling projects are on track' and the group 'also provided an investment portfolio update, noting an increase in value by $5.7m to $47.8m'.'Capital's holding of Allied Gold, which listed during the third quarter, with a market capitalisation of CAD1.3bn, was worth $10m as of 30 September,' said Hatch.'Overall we view this as a steady update from Capital, but we highlight the positive investment portfolio update which is 25% of its market cap and given no credit in its valuation, in our view.'

[rivaldo] 20/10/2023 11:10

Berenberg increased their target price to 173p (from 169p) after the trading update:

[gb904150] 19/10/2023 21:08

The PoG is already breaking out to new highs in multiple currencies, but not yet in USD.

I think if the gold price breaks above $2000 and out of its cup and handle formation that CAPD gold mining portfolio that everybody loves to hate might start to become significantly more valuable.

This stock is a 'get paid to wait' type stock. A steady picks and shovels business (mining services and drilling), MSAlabs as a growth segment and exposure to a portfolio of gold stocks that they understand enough about to know the long term quality of them.

Meanwhile there's a 4% dividend yield.

I acknowledge the concerns about lower margins in mining services and I have some concerns over costs rising with the oil price....but if a gold bull market takes off we can expect the utilisation and the ARPOR of the drilling contracts to improve too.

Happy holding here. I think it's a pretty defensive investment.

[adamb1978] 19/10/2023 20:26

Hi Danger

Buying shares now is indeed the time, but they should have a plan in place such that when the capex for the major contracts is done, then they jump on it then if the share price is still languishing...and if the share prices isn't, well then we're happy enough anyway.

In terms of cost of capital, given the Africa exposure an investor should rationally want a premium to calculated WACC. You can relate that to the investment portfolio too - whilst hte IRR from it looks good at face value, for investments in junior mining companies you'd want a high IRR.

I think they need to be running this business a lot more aggressively/lean. Look to operate it at zero net debt (given people will always view it as cyclical) and plan to get there over 3-5 years from current levels rather than doing anything drastic. Institute a share buyback asap and find ways of liquidating the investment portfolio when the opportunity arises (eg sell listed shares) and plough that into a buyback too. Plus set a higher threshold for organic investments. Unfortunately, I think the current board/management is to cozy a group and the governance not strong enough to bring this about.

Adam

[wrighna1] 19/10/2023 19:34

It would appear to me that byA. Ensuring broker provides better quality forward guidance B. More shareholder friendly capital allocation decisions (investment portfolio vs debt/capex funding)Then potential shareholders could become more comfortable about the medium term plan.But what do I know.I will stick rather than twist for nowNice potential here though

[dangersimpson2] 19/10/2023 17:22

I agree. On a pure return on capital basis, the drilling and labs business are so good that the mining services detracts from this. What it does give is scale and opportunities, in the same way that the equity stakes open doors for the high-margin drilling.

The Centamin waste stripping looks like it is not going to be extended. However, there is a relatively tight market for the type of equipment they run so it looks like they will do pretty well from selling it on. But this is at least partially luck, not management skill. It should free capital though, that can be put to better work elsewhere IMO. The problem is that the time for buybacks is now, when the shares trade at a material discount to TBV. By buying back shares they are buying highly productive assets (the 23% ROCE is way above their Cost of Capital, even with debt costing 10%) that they already own at a discount to the market value. They can't get that by buying new equipment in the market.

[benjonesinvestments] 19/10/2023 15:19

My concern is the mining contracts and it would really be helpful if CAPD published the full cost of sales and operating costs of this business, rather than just state margins are in-line with group. It's easy to make EBITDA margins look in-line but the significant I and D associated with the mining contracts can make the bottom line look pretty poor pretty quickly. Competitors in this space are very low margin businesses (Macmahon and NRW for example). I get the impression these contracts are primarily to boost the top line rather than prioritise return on capital. The lack of transparency doesn't help.

The business still looks very undervalued but it looks to me like exiting mining services and prioritising drilling, labs and buybacks would be better use of capital.

[dangersimpson2] 19/10/2023 14:22

I've never known the company guide on gross margins. In fact, I think they keep pretty quiet on these because the drilling has c.50%, which customers may see as a number to challenge. Having the mining plus nascent labs business helps obscure this compared to when they were a pure drilling company. This, I'm guessing, is why efficiency and operational improvements mean that the drilling gross margin has likely trended up in recent years without them having to give it back to the customer.

What the company does provide is an EBITDA margin guidance, and it is this that they say is unsustainable at c30%. However, the LT guidance is 25%, which clearly makes 2025/26 EBITDA in the Tamesis note too low.