Capital confident despite some first-half weakness

Mining services company Capital reported a mixed first half on Thursday, as it continued its strategic expansion and investment in new growth areas.

The London-listed firm reported a 9.8% increase in revenue to $169.4m, tempered by a 2.3% decline in adjusted EBITDA to $42.9m and a 12% drop in operating profit to $25m.

It put the reduction in profitability down to slower-than-expected ramp-ups at key projects, including Nevada Gold Mines, Belinga, and MSALABS, as well as increased costs associated with expansion efforts.

Net profit after tax fell sharply by 45.5% to $9.6m, while adjusted net profit after tax decreased 29.8% to $11.8m.

The decline was driven by reduced group EBITDA margins, higher interest costs due to investments in new growth areas, particularly in the US, and increased tax expenses.

Basic earnings per share dropped 46.4% to 4.7 cents.

Despite the challenges, Capital reported a strong cash flow from operations, with adjusted cash inflows increasing by 36.9% to $52.3m.

Capital expenditure also rose by 22.4% to $44.3m, reflecting the company's continued investment in expanding its operational capacity.

Strategically, the company completed a $6.6m investment in Eco-Detection, acquiring a 22% stake.

The investment granted Capital exclusive rights to distribute Eco-Detection's water analysis technology to the mining industry, highlighting its focus on innovation and environmental monitoring.

The value of Capital’s investment portfolio increased slightly to $47.8m, up from $47.2m at the end of 2023.

However, the portfolio recorded a small investment loss of $0.5m in the first half.

On a positive note, Capital announced the sale of its holding in Predictive Discovery to Perseus Mining for $31.2m , with proceeds expected to reduce the company’s debt.

Operationally, the firm said it faced a decrease in rig utilisation, down to 69% from 75% in the first half of 2023, due to lower activity in the first quarter.

However, utilisation rebounded in the second quarter, driven by increased rig counts and the beginning of operations at Nevada Gold Mines.

The company secured several key contracts, including a new drilling services contract with Perseus Mining and contract extensions with Barrick Gold and Centamin.

Capital said its safety performance remained strong, with a total recordable injury frequency rate of 1.1 per million hours worked.

Looking ahead, Capital maintained its full-year revenue guidance of $355m to $375m, with expected capital expenditures between $70m and $80m.

The company anticipated stronger revenue growth in the second half of 2024, particularly as operations ramped up at Nevada Gold Mines and other key sites.

However, there was some risk to MSALABS’s guidance of $50m to $60m due to potential delays in ramping up operations at Nevada Gold Mines.

The company also declared an interim dividend of 1.3 cents per share, consistent with the prior year, reflecting confidence in its ongoing strategic initiatives despite the challenges faced in the first half.

“Capital in 2024 is undergoing a number of structural transitions that we expect will set up the business for the next wave of growth,” said chief executive officer Peter Stokes.

“We are soon coming to the end of our waste mining contract at Sukari and, while at the end of 2020, this contract was the largest award in the company's history, once it concludes we will emerge as a much larger business, a credit to the business development success across the rest of the group.

“In addition, we have de-risked the company through a significantly improved client portfolio, a more diversified service offering and, more recently, a more diversified geographical footprint adding lower-risk jurisdictions, namely the US and Canada, across our drilling and laboratories businesses.”

Stokes said that was made possible by long standing relationships built over the years with leading miners.

“We are pleased to announce an interim dividend of 1.3 cents per share, a testament to our commitment to creating value for our shareholders through shareholder returns as well as growth in the broader business.”

At 1041 BST, shares in Capital Limited were down 4.47% at 85.4p.

Reporting by Josh White for Sharecast.com.