Capital (LSE:CAPD) — Full Year Results

0:01 Good morning and welcome to the CAPITAL LIMITED Full Year Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time using the q and a tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where appropriate to do so. We begin, I would like to submit the

0:31 following poll and I would now like to hand you over to executive chairman Jamie Boynton. Good morning. Ladies and gentlemen, please just to be bear

3:09 with me while we just reconnect Jamie. Just whilst we just bring Jamie back in. Do bear with us. Thank you. Sorry, moderator. Could I just get confirmation Very that I'm good. Thank you very much. Yeah. Hi, Jamie. Yeah, we just did lose you for moment. So if you could just, yeah, I will come back on if we lose you again.

3:39 Thank you very much. Apologies. I'm having some broadband issues. So elevated capital spend as we expanded our service offering in 2020, 2021, particularly with with the move into the mining business. So we've had roughly 50,000,000, CAPEX for three years. So to be generating these sorts of return on capital with such a a a step change in the business, that's a particularly pleasing aspect for us with the financial performance. And we think testament to the model where we're leveraging our existing infrastructure and adding services to our existing infrastructure. Overview of CAPITAL again, we we are, for those that are new to the company, we are a service provider to exploration and mining companies with a focus on the African Continent, and we're expanding into The Middle East and into Canada, particularly with our laboratory business. We're a premium provider.

4:41 So we focus on the highest quality equipment, high quality training and development programs, industry leading safety record, which you can see in the bottom right. The again, an outstanding year for safety for the group, particularly again as we have expanded our service offering to still be head and shoulders above our peers is very pleasing. Best in class returns and margins, exposure to, a growing exposure to a tier one client base, both in terms of the clients that we face and the assets that that that we are working on. And I'll go into a little more detail. And a very strong focus on local development with over 90% of our two and a half thousand workforce being national employees.

5:35 And finally, obviously, and we'll go into again some of the recent contract wins, we are increasingly seeing business success and contract wins in metals exposed to the energy transition. This slide, what we've done for the first time is separate our gold and non gold assets for exploration of our business. Look, gold has been the bedrock of the company over 90% of the revenue for many years now. We have now established ourselves at four of the top 10 gold mines in Africa. And I should note that Tasiat and Bullehulu and North Mara sit around the eleven twelve mark themselves.

6:22 So we really are exposed to the absolute premier assets in the continent. We've added in recent years Kibali and Fekola in Q3 of last year. But then when you look at some of the projects we've been working on, Sukari since 2005, Gaynor since 2006, and North Mara since 2008, we're very pleased that the depth of this portfolio and the counterparts we're placing on the bottom left there, facing I should say, on the bottom left just continues to improve. So very exciting for us. We've added this slide, which is the non gold emerging growth clients. Some pretty significant names here, and a lot of these are recent contract wins, two of which we announced with the results last Thursday, specifically, Ricodig, which is one of the largest undeveloped copper gold deposits in the world owned by Barrick.

7:20 And we announced Bollinger Iron Ore, which is, to be operated by Fortescue, the world's fourth largest iron ore company. Add on top of that BHP now earning seven have earned 17% of Kibanga nickel and Gwulamena, which is owned by LEO Lithium being a top three to four undeveloped nickels lithium spodumene deposit globally. The reason I'm emphasizing this is that as we look at the opportunity set ahead of the company, it is as strong as I have seen it in my twenty year involvement with CAPITAL. And a lot of the time, we get credit for our exposure to these long term contracts such as Sukari and Gaita that I referenced earlier, these projects that we've recently commenced working for have the potential to be those sorts of duration assets. They are tier one assets, long mine life, low cost, on the cost curve, and really are an exciting proposition for us about expansion opportunities as we continue to grow the business.

8:26 We've also included a slide on MSA Labs just to really highlight how rapidly we're growing the global network for the laboratory business. So we're now up to 22 labs managed by MSA with an additional six franchises as part of the network. And we've included some of the clients on the legend on the right hand side to again, just give some sense of just how high quality this business is in what is still a very early stage of its exciting development. This slide really, I just draw your attention to the bottom left. And what we're trying to articulate here is that the blue line represents the performance of the gold price.

9:14 Obviously, it's since popped, in the last week or so. But as you can see, it's been broadly flat for the last couple of years whilst the the the bar charts, the bar lines, show the growth in revenue. And the revenue is up 115% since 2020. So just point we're trying to make here is that as we've grown and diversified our service offering, we have decoupled somewhat from moving with the gold price in terms of the cyclical price moves and really starting to show exponential growth independent of commodity price movement. A couple of slides on the macro, I think just worth highlighting. The first slide looks at expiration.

10:01 I think what's particularly significant here is if you look at the previous peak cycle way back in 2012 and the cycle troughed in 2016. However, it's only really started to get some momentum in 2021 and 2022, which is we've seen particularly in in the in the growth and utilization in our drilling business. But as you can see, exploration spend is still roughly half of the levels it was a decade ago. So there is an absolute pressing need within the industry to accelerate exploration if the companies are going to meet the demand growth coming through the pipeline. Slide 11 bears this similar thematic out in terms of capital spend, and the slide I particularly like looking at is the bottom left.

10:46 It's the CAPEX to depreciation ratio at thirty year lows, and it sends a very clear message that, again, the mining companies have been investing for sustaining CapEx, not for growth CapEx. And, again, when you look at the the statistics and the numbers that have been pretty widely reported about the growth, in in mining capacity required to satisfy the energy transition, it does again point to very strong demand, in the years ahead and something we think is very structural, demand coming through for many years. The business, five key pillars, I'll go through them sequentially as as we go through the slides. I'll let Peter talk through our recent initiative, which is the CAPITAL INNOVATION. We formalized the establishment of that business, but we'll get to that when Peter, talks to that a little later.

11:39 Services across the mining cycle, again, a slide many of you will be familiar with, the thematic of the evolution of our business having started as an exploration drilling company. And now we really are offering a multitude of services from exploration all the way through to production and processing. So diving into the individual business units a little more, drilling, very much a mine site focused business. The pie chart, on the top right gives the exposure. And as you can see, of the drilling business, which is about 70% of the total revenue, the drilling business, about 13% is exposed to exploration with the biggest proportion of that being predictive, which is a world class ore body at 4,200,000 ounces already.

12:27 So we are very much a a mine site focused and development focused drilling company. You can see the proportion coming from production underground and mine site delineation, which are the long term contracts that the company seeks to win. Utilization has been was very strong, over the course of 2022 at 79%. Look, we think as sweet spot's about 75%. We were actually at 85% in q two, but we we made a strategic decision in the second half to pull

13:01 back from some of the shortest term jobs. And we saw immediate benefits come through in Q4 as our productivity increased at the sites that we continue to operate at. And really it's been a story of very strong demand growth. The tendering opportunities are robust and the portfolio is improving. Mining, we continue to operate at Sukari and the team have done an outstanding job there. It really, I mean, the header says it all that the delivery has beaten all of our lofty expectations and beaten the client expectations. And it really has enhanced our reputation to continue to grow in this space. We're very selective about the opportunities we look at. Obviously, the mining business requires a heavier capital investment, so we are very selective about where we will direct that capital. We're currently shortlisted on another number of opportunities, we're hoping to get some news flow on that, in the months ahead.

14:03 But the team could not have done a better job in terms of entrenching our reputation as a quality service provider within this vertical. Laboratories, exceptional growth. We had over 70% revenue growth into 2022, and we've guided this year, revenue 40 to $50,000,000, which again is exceptionally strong headline growth. We obviously had been quite vocal about our alliance with Chrysos and rolling out their revolutionary technology. But as you can see in the top left with the with the, pie chart, Chrysos, we we only really started that rollout over 2022, and was 14% of the total revenue for the laboratory business.

14:52 As we roll out more units, which we have done and we've made recent announcements to this effect, Chrysos will become a more meaningful contributor to the overall pie in terms of the laboratory. But look, the growth trajectory is well on track. It's about getting these labs rolled out and executing in the delivery of the team again has been exceptional.

15:16 Investments, we've done a fair bit of portfolio rationalization over the last eighteen months. The bulk of the investing was done back in 2019. We've since rationalized. We now have three holdings specifically Allied, LEO and Predictive that constitute about 80% of the portfolio. It's been a very strong performance. We were impacted obviously with weak equity markets particularly in the second half of twenty twenty two. However, the portfolio itself has a net net invested capital of circa $12,000,000 still worth $39,000,000 at the end of twenty twenty two. And it's been a very powerful business development tool. We've we we generated $51,000,000 worth of revenue from investee companies on arm's length tendered contracts.

16:06 But the depth of the relationships that this this this activity has has allowed us to to to generate been particularly pleasing.

16:18 At this point, I'll hand it over to Rick to run through the financial results. Thanks, Jamie. So, we've covered off the revenue increase already 28% up year on year, dollars 64,000,000 of growth there, primarily driven by our long term mine site contracts, particularly Sukari and Geita. But also, as we've spoke, as Jamie mentioned, MSA has impressed. So 70%, so $10,000,000 of that growth came from MSA. In these results, we've introduced a new performance measure, which is a lease adjusted EBITDA. I'll talk more about that on the next slide. But just to cover further on this one. So headline impact for the year is down 67% year on year, is overshadowed by the fair value investment losses of circa 20,000,000. So adjusting for those, we've actually got 16% growth in the impact at $42,500,000 for the year.

17:22 Margin wise, overall margins were robust year on year. And as Jamie mentioned, we're particularly pleased with the return on capital employed there at circa twenty six percent for 2022.

17:37 So our new performance measure is a lease adjusted EBITDA. So just to give everyone a bit of context, as we roll out the Chrysos laboratories across the MSA network, we're actually leasing the Chrysos units from Chrysos. So they're on long term leases. They get captured by IFRS 16, which is a specific sort of leasing set of rules under the IFRS. So contextually, leases are capitalized on our balance sheet. So when we look at the P and L as reported, the leases will come up under depreciation and an embedded finance charge in the interest line.

18:25 Now, the Chrysos lease payment is a key cost of the MSA Labs business. And so when we look at the underlying profitability of that business internally, we adjust the profit. So we adjust the GPs and the EBITDAs to show that lease cost embedded. So to reflect the underlying profitability, we adjusted the profit metrics. So what we've shown on the left hand side there, our headline EBITDA figure of 90,000,000 for 2022. And we've adjusted that figure by $3,700,000 of lease payments for the year, bringing our adjusted EBITDA

19:02 to 86.4 for 2022. Now in 2022, 3.7 is a significant cost if you like relative to the 90. But as we go forward, that lease payment to 3.7 will increase as we roll out the unit. So again, to get to the true underlying profitability of the business and cash flow generation from the operation at the operational level, we're adjusting internally and we're showing that metric now to the market. So people can look at the, as I say, the underlying profitability. Importantly, that means when we come to a net debt figure, the lease liabilities are not included in the net debt because we factored in the costs through the profit.

19:54 Touched on this already, but consistent robust margins in the business. The top left there does show the lease adjusted EBITDA flowing through. And as mentioned, strong return on capital employed for 2022. A little bit of a forward look. We were expecting the margins on drilling and mining to remain robust through 2023. The labs business will see lower margins, and that's primarily a feature of ramp up across the labs network. So we've got a series of laboratories coming online during 2023, which will take a little bit of time just to get the throughput in and up to a sort of run rate operational capacity.

20:44 Looking at the net debt waterfall, you can see on dotted box towards the left, that's our adjusted EBITDA just to highlight that. So that's the 90,000,000 of reported EBITDA or headline EBITDA adjusted for the lease payments there. To sort of pick out some of the key components here on the working cap side, probably a larger than normal drawdown of working capital, primarily led by the inventory. So through the year, we obviously suffered from some of the global supply constraints. We reacted to maintain operational stability and basically, stocked up at key sites. Importantly, going forward, we'll see that moderate, we'll see that normalize in the business,

21:35 to normalize levels relative to our purchases, etcetera. On the CapEx side, 57.5 for the year. So that's the full cash CapEx plus prepays that we made in 2022 against future CapEx. And importantly, the OEM financing. So we finance many of the new rigs, we finance with OEM with Epiroc in particular. So in that 57,500,000 is about $9,000,000 of financed OEM facility. It also includes the asset purchase from AMS during the year, which facilitated our entry into the Fekola contract in Mali.

22:23 That was about high single digit figures of asset purchase within that 57.5. Dividend and buyback, to remind everyone, did the buyback at the start of the year of that 9.6, about 2.5 is buyback. Interest and tax payments, 17,000,000 there, that's split roughly speaking, tax and the balance interest. And then 6.5 is just the non cash components, just to true up the EBITDA to a cash figure. So overall finished the year on 47 of net debt, but look net debt to EBITDA of 0.5 times. So we still got a decent amount of flexibility to grow.

23:09 We look forward, so just to cover off movement investments, a reported figure of a mark to market loss of just shy of $20,000,000 for the year. I think the important point to note here is, this is coming off an initial investment amount of $12,500,000 So, a very significant and impressive return so far at 210%. In the year we're in net sellers with net cash proceeds of $1,600,000

23:40 I'd cover off a little further on the CAPEX. Just on the left there, we felt it was important just to demonstrate the history of our CAPEX spend versus the revenue profile of the business. I think it's, what it shows is when the cycle turns, can put the brakes on, we can dial back the CAPEX and react accordingly very quickly. 2020, 2021, those are higher reflecting the Sukari mining contract rollout. And then 2022, I've spoken about already the 57.5, which importantly includes the 10 rigs we purchased from AMS. Guidance wise, to 60,000,000 for 2023. We're coming off a higher rig base here. So we're 129 rigs at the end of twenty twenty two.

24:31 So higher sustaining CapEx is a component of that 50 to 60, just off the higher, sorry, off the expanded fleet. But we do have the fleet replacement program continues to roll. And we expect roughly speaking 10 rigs out and 10 rigs in during the year to enhance the fleet productivity by creating a younger and more reliable fleet.

25:02 Of that 50 to 60 as well, just a couple of other important points. There is a component in there sub circa five to 10, which relates to major overhauls on the Sukari mining fleet. So it's a couple of the excavators coming through that program this year, but it also includes 5 to $10,000,000 worth of CAPEX for MSA labs as well, higher than normal for the labs business. And that's primarily driven by the fact that the lab rollouts across the year are primarily commercial labs as opposed to mine site labs. So mine site labs are funded LIMITED by the mining companies themselves. Our commercial labs are our and hence, because there's a heavy skew towards commercials for this year, we've got a slightly higher CAPITAL LIMITED.

25:57 Just looking at the balance sheet, I think the important point to note here is the gearing level. So our net debt to equity of 20% for the year, that's viewed as conservative level internally and a level that we feel very comfortable to be at on a go forward. We've worked hard to develop relationships and look at the sort of flexibility going forward. As we look to grow the business and take on new contracts, we will need enhanced debt flexibility. So that's work in progress. But I think it's fair to say that as we take on large contracts, we'll see that

26:42 gearing level just elevate slightly as we take on the contracts, but then moderate once the cash flows come through. So as long as we see that strong pathway back to the 20% gearing, we feel comfortable internally to go down that path. Of the debt at the year end composition wise, very similar to the past. So Macquarie asset backed facility is the largest chunk. So that's the 30 plus dollars of debt secured against the kit at Sukari. We have our long standing revolver with Standard Bank, which was fully drawn at the year end at 25. So we actually increased the RCF during the year from 15 to 25, and at the year end was fully drawn at 25.

27:28 And the balance is our OEM facilities with Epiroc and Sandvik, which is skewed towards Epiroc. As I mentioned before, we're purchasing a lot of our rigs on finance with Epiroc. And then finish off on the dividend. So we've declared a final dividend of 2.6¢ for the year,

27:54 taking our total to sort of 0.9¢ overall. So an 8% growth both on the final and on the total. I think it's fair to say, we've delivered consistently through the years since 2014. And our policy is such that we've got a little bit of flexibility in the policy clearly, but our policy is such to set up to 20% of the net operating profit after tax. Overall, we'll remain committed to a strong balance sheet as I've mentioned, particularly respect to that gearing level. So we'll continue to have a very disciplined approach here, but we certainly hope to maintain a dividend profile moving forward. So I hand over to Peter on the outlook and innovation.

28:49 Last couple of slides and introduce the new area that we've called the CAPITAL innovation part of the business. So a new vertical that we created just recently, we've appointed a manager to lead this stream of work. Just to give you some history, CAPITAL has always been a really strong innovator, particularly in the drilling space. And more recently the CHRISOS lab, where we were the first to adopt that technology outside of Australia. And some of the others that we'll talk a little bit further about such as the solar lighting plants, electric mobile rigs underground and a few other technologies that we've been doing. We decided that it made sense to formalise this work stream in the business and really put more commerciality around what we're doing and look to how we might one,

29:39 filter through the opportunities that come because we do see a lot of them in the business and take a more structured way on how we then push those through to decide whether we invest or maybe buy or commercialise some of those assets that we're seeing. So that was started just in the last couple of months. We're already working through a pipeline. In fact, today we had another one of our regular meetings with the team who are responsible for driving this. And there's some exciting new opportunities that are starting to come through that really enable us to further expand on our end to end capability around the mining cycle that Jamie talked through briefly earlier. A couple of areas in here that we're focused on and they're quite broad in some parts, but I'll pick out two here, the mine power solutions where we've partnered with Enerware to develop a mobile solar capability that we can then roll out to our drills and or mine camps and other smaller locations where we need to have or we can maximise the use of solar to reduce emissions across the business. The first of these will go live in Mali in the next few weeks. And we'll do that at one of the satellite operations that we're working at up there. So we'll certainly keep sharing information through some of our social media and the like as that gets launched.

31:07 The other really important one is where we're investing in a company to build a training capability initially in Tanzania, but it has a broader application across our group to bring local skill sets up to formal qualification where we've got a lot about whether it be drillers or other trades like the welders or fitters or electricians and the like to give the local workforce the ability to get a formal accreditation. We've partnered with a UK organisation that gives a globally recognised capability. For us that does a few things. Certainly helps us improve the quality and capability of our people.

31:52 It helps better engage our workforce. And we're really delighted to say we have a very low turnover in our business of around 6%. So we have a lot of loyalty in the company and that will continue in the African businesses and as we continue to grow outside of Africa as well. It also ensure and we have a lot of people who've been able to move around our various businesses getting trained in one side or another. And this will certainly help to formalise that process. And we're also looking at other things like health and safety passports and others so that someone can be accredited before they join us in our company.

32:35 Finally, last slide of the presentation is to give some or summarise the outlook and guidance that both Jamie and Rick talked about. So revenue guidance 03/20 to 340 midpoint there represents about a 14% increase on current year. I should call out though that we are bidding on a couple of mining tenders and they are not reflected in here. The lumpy natures of those who would have been followed CAPITAL would have seen with something like Sukari means that these it's very sort of black and white of whether these come in or not. We're shortlisted on a couple, We're confident on at least one of those will be successful. But to put that into the forecast would move or to the revenue guidance would certainly give us

33:24 a very difficult to sort of manage perception in the market. So our view is that we'll announce one of those when they come through. I think importantly, capital we talked about in there at around 50 to 60,000,000 includes a continued rig replacement program. We talked last year about a lump in capital that we spent on drilling. This year we still plan to put another 10 rigs into the new drills into the business and retire about 10 in addition to the ongoing sustaining capital that we need to do across the business. Rick alluded to about $10,000,000 into the commercial laboratory. So that's not just for SIM standard CHRISOS unit where we're putting a CHRISOS unit that we're building in our own right and we'll build core lab capabilities around those. We need to build the infrastructure to hold the CHRISOS unit. When we put those onto a customer site they provide the infrastructure and we operate the unit.

34:28 And we'll also continue to invest in the innovation part of the business as well as looking at ongoing investments into CAPITAL DI. And we can talk about those. I noticed there's a couple of that in the question which I'm sure we can delve into in more detail. So on that note, thank you for all of you attending. I'll hand back to Connor now to run through the questions. Please keep posting questions as they and come we'll try to address them as best we can. Thank you. That's great. Peter, Jamie and Rick, thank you very much indeed for your presentation this morning. Ladies and gentlemen, please continue to submit your questions using the Q and A tab situated on the top right corner of your screen. While the company take a few moments to review those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via our investor dashboard.

35:21 Jamie, Peter and Rick, as you can see, we have received a number of questions throughout today's presentation and thank you to our investors for submitting their questions. And if I may, Connor, hand over to you for the Q and A session and kindly ask you to read out the questions and give responses where appropriate to do so, and I'll pick up from you at the end. Thank you.

35:39 Sure, thanks. So let me try and group these questions. We'll start high level and we'll get to sort of the more specific ones as we go on. I guess a few questions have come in about the cycle in general. I guess two parts, like maybe one for Jamie to start. How do you see each of the three operating businesses exposed and or insulated to the cycle? And can you talk about the cash flow generation in this business in different parts of the cycle?

36:09 Okay. The we've really done a lot of work over the last eight or so years, but even more so in the last two and a half years of derisking our exposure to the cycle. And we've done that by and this stands for all the business units. We've done that by being very focused on the tier one assets that have long mine lives, low cost of production with blue chip tier one counterparts. And I sort of can't really stress that enough because when we went into the last cycle downturn which ran from 12 to 16, we had a significantly higher proportion of our business coming from expiration activity.

37:07 And as a result of that and having seen the impact it had in the drill drills at the time was purely a drilling business so utilization dropped back to the mid 30s which was consistent with the industry. It was a deep downturn. So I'm not suggesting if there was a cycle downturn that you wouldn't see a drop off in utilisation. However, the nature of all of our activities, I mean, the mining activities are on mine sites, the earth moving contract.

37:35 The drilling activities are about 90% of it are on mine sites of which about 3030% is delineation on the mine sites and the balance is grade control, blast hole drilling and underground which are all long term contracts. And then we are as part of MSA labs build out securing a lot of mine site work. For example Bull and Hulu, Kibali. So, you know, for us, the best way to manage it is simply to build these long term contracts. I think the second part of the question kind of was around the cash flows. Is that right? Correct. What I would say is that the the drilling business against 70% of group revenue last year we IPO ed in 2010.

38:20 That business has been self funding since that date. And in the last downturn Rick alluded to it with with the CAPEX, you have a very powerful lever and that is just to reduce your capital spend. And because our fleets have been very well maintained, it's very young and we're continuing the grid replacement strategy, you actually find perversely in the last downturn the the strongest cash free cash flow generation we've had because we weren't growing was during that twelve to fourteen period where we actually paid down all our debt and started to and started being a dividend paying company and we have been ever since. So you know the the lab business is fairly capital light or very capital light.

39:06 It's drawing capital at the moment because of the expansion the rapid expansion that that's being funded by head office. I mean obviously mining is the lumpier one. And that's why we came to market in 2020 to to to allow us to enter into the mining business. But again, once those jobs are established, they're very cash generative. It's just establishing those jobs, which is the critical part of the capital cycle. I hope that answers the question. Yeah, perfect. Maybe moving over to you Peter on mining and labs, I mean maybe we'll start with mining. Can you give people an update of discussions with Centamin about potential renewals? I mean we'll start with that maybe just what's the Okay, current thanks, Connor. So two things I mentioned in the end of the presentation.

39:58 We are shortlisted on a couple of additional opportunities. We certainly don't want to continue with one mining operation. I think we've certainly proven our capability, very high productivity at site. We've worked closely with the clients and ultimately lifted productivity across both ours and their fleets over the last almost since we've been on-site. So we have two contracts at Sukari, the drilling contract both about 50% of the revenue. The drilling contract runs until the end of 'twenty four. And as Jamie said early in the presentation, we've been at Sukari since the early 2000s. We've grown an ongoing fleet of drill and blast and grade control units and are about to start some regional or nearby exploration for them as well.

40:47 But we so we're very confident that contract will continue on in its guise with a large rig fleet continuing to support the open cut no matter what happens with the mining contract. The mining contract is running on target or slightly ahead of target at the moment. We have a discrete piece of work with the contract running till the middle of next year, as I said. That said though, current mine plans at Sukari have a gap in the capability of the fleet to move the volumes of the Sukari fleet, sorry, to move the volumes that are needed to continue the mine productions at the current levels for about two years after we finish. So we feel very confident that we'll continue or we extended. The reason that we're still sort of working through that process is Sukari recently announced two things. One, an expansion of underground and secondly, a review of the open cut to look at how that best interacts timing wise with the underground work that where they're expanding by nearly 50% to pick up some of the higher grade deeper under the open cut.

41:56 So we expect that the updated pit plans will be released towards the end of Q2, early Q3, at which point we'll be able to engage more formally with Sukari on an extension of the work that we're doing. Additionally, the satellite areas that we'll be drilling on the Sukari management or Centamin management team are confident they will produce further satellite opportunities and mining those would also suit outsourced model that we operate for Sukari at sites. Thanks Peter. Just maybe a follow-up just on mining then. I mean clearly if we're looking at extending there any new mining contracts would be looking at buying new kit. Could you give us a sense of scale of what kind of size projects that we're bidding on? Yeah. So the two contracts that we are down shortlisted on now, each one of them is about half the size of Sukari.

43:01 So our view is that we can, providing they don't drop on the same day, we have the ability to fund both of those without having to do a raise. We have a small starter fleet from the Benic Road project we were operating last year that would be able to kick off one of those projects. Both of those have a gradual increase. So they're not a large one off CAPITAL like Sukari was. They would increase over the first year or two of each of the contracts. So I'm confident that we can fund both of those if we're awarded both and certainly one or the other we'd definitely be able to fund. Thanks Peter. Then moving on to labs, I mean there's lots of specific questions on labs so I'll come back to those maybe a bit later, but I guess just at high level, I guess can you explain the relationship we have with Chrysos?

43:54 Some questions would come in saying why clients don't go directly to Chrysos rather than coming to MSA Labs. So just explain that dynamic and around the 21 unit deal that we have. Sure. So there's a couple of parts to that. So we do have a very strong relationship with Chrysos. As I've said in the presentation, we were, we provided the first outside of Australia lab and engagement with Barrick. One of the largest global gold miners and miners generally to get the first lab in that business. They've now as a company decided they will use Chrysos units across the business. Barrick, like many of the other mining companies outsource their assay whether it be on-site and they have to outsource their exploration samples, but typically don't see that as a core. So even where we operate the lab on at the largest gold mine in Africa, Kibali, which went live with a Chrysos unit earlier this month, that's been outsourced to us for five years and initially with an option for them to extend.

45:04 So on that contract, for instance, we're running the older technology or the current technology of FHIR assay and then we'll migrate all of their samples across to CHRISOS over the next six months or so. I think the relationship with CHRISOS, we have 21 units of the first 40 odd that they can build. The capacity for CHRISOS to build more units is tapped out until early twenty twenty five with those 40 odd units. And as I said, we have half of those globally and about two thirds of those outside of Australia. We do have options on other labs if we want to pick up some of those further down the production line. So within that 40 odd.

45:52 So we have a right of refusal on some of the additional labs before they go out into the commercial market as well. And based on volumes that we're seeing, we think that there is certainly further opportunity for us to do that. To date, there's only one Chrysos unit operated by a miner out of the units that have now gone live and that's in Australia. As I said earlier, I think most of the global mining companies choose to outsource their laboratory work to ourselves and one or two, the other two or three larger laboratory companies globally. I think on that point Peter accreditation's got a lot to do with it as well. Such that if the clients wish to have their samples independently verified and used in resource statements and banking documents, they need to have an independent accredited group running the laboratory process for them. Yep.

46:53 Thanks, Jamie. Thanks, Jamie. And Peter, maybe moving back to Jamie for one on the investments. Some questions coming in saying, has the volatility of the portfolio been a distraction versus the operational businesses? So maybe you can just talk to how the relationships work in that business and why it's proven such a strong business development tool as well. Yes, it certainly hasn't had any impact on the volatility has had no impact on the operational side of the business. They're very independent other than the relationships that we have with our customers and our investees. The contracts operationally are arm's length tendered processes run by our business development team and our operational team of which myself and the investment committee are not engaged with. We are engaged on the investing side only. So it really you know it again the volatility doesn't doesn't impact the operations at all.

47:54 The volatility I'll just address that because I know there has been some questions about it but we're going to revert back to the performance since we formalised this strategy has been outstanding. Last year's numbers obviously disappointing but to contextualise this, about 50% of the portfolio is predictive and over the course of the year they they had a huge rally in '21 up to 28¢ and then fell back to about 18 in over 2022. Perversely as the project is is is derisking itself. But you know that obviously had a big impact on the headline number. What the the the number of the portfolio doesn't demonstrate is that the that it has been rationalised significantly.

48:44 So between Allied Predictive and Leo, you're talking 80% of the value sits in those three companies. Where we've rationalised the portfolios where projects just haven't met the criteria and look, that is part and parcel of exploration. The initial capital commitment is generally sub 2,000,000 roundabout $1,000,000 In the case where predictive, for example, we were pre discovery, then the company had a cent and then the discovery then they had their discovery. We've since followed our money as we could see the project has the ability to become a mine, same concept with LEO whilst we've rationalized those that don't have the potential to do so. I hope that starts to address the question, Colin.

49:33 Yeah, thanks. Maybe back to Peter, just on the drilling business. We've shown sort of a focus this year on regeneration and replenishment of fleet. Some questions have come in saying is that due to performance issues and would that be any write downs and maybe just to extend that in terms of maybe some comments strategy in general. Thanks Connor. So no write downs to answer that one. The plan we have adopted a more formalized fleet strategy over the last few months and agreed with the board to rationalize the types of drills and brands and things that we've had. In the past, I think we've had to be opportunistic on growing the fleet.

50:20 For instance, the AMS fleet we bought last year, some of those rigs are different to other ones we've got in the business. So we'll be working through over the next while bringing to getting more standardized fleet across the different types of drilling that we do. That'll in turn help us reduce some of the inventory that Rick mentioned early on as well. And also part of what we continue to work through a refurbishment program. Each one of the drills, they're different life cycles for the drills depending on the application. The blast hole drills for instance won't run as long as a diamond drill that doesn't move. You'll sit on a single hole for days or weeks at a time. A blast hole rig's moving every hole over often sometimes irregular ground in the pit. So they won't last as long. So we do run a structured program of refurbishments.

51:16 We last year with the higher utilization we had to we delayed some of those or deferred some. We're doing some additional ones of those this year. It hasn't impacted us on productivity, but we want to make sure that we stay well ahead of the requirement of the or on track of the maintenance required on all the drills so that we maintain the high productivities we've got across the business and we continue to deliver the outstanding performance that we have with our current customers, which is a key part of our reputation and enables us to attract the higher returns that we're able to get from drilling than we see you would see from some of our competitors. Okay, great. Thanks Peter. Maybe moving on to Rick on some of the more financial questions.

52:08 So on margins, you touched on the sort of outlook for MSA Labs in the coming year being lower in terms of the ramp up. Can you talk to where you see the margins of that business going longer term? Yeah, sure. So on a longer term basis, we guide people to and again, we obviously introduced this lease adjusted EBITDA concept. So on a longer term basis, we guide people to roughly 20% on a lease adjusted EBITDA for that business. Now, that business, as we've said, is capital light. So the depreciation of the underlying asset base is not significant. The underlying asset base is not significant. And so 20% lease adjusted EBITDA is close to a 20% EBIT margin, which obviously brings it in line with the rest of the drilling and mining business.

53:04 Now, importantly, with MSA, again, because it's asset light, you've got a lower capital base. So the return on the capital employed, we expect that to be quite attractive, quite significant. Thanks, Rick. Guess lots of questions on the admin expense and provisions. Could you give us maybe a bigger insight into what's in the 2022 number and what to expect for 'twenty three? Yeah, sure. So, in the 2022 number, we have the bad debt write off 1,500,000, roughly 1,500,000. We consider that a one off, it relates to an investment proposition on our part that as we drilled it wasn't going to come through, the resource wasn't going to be there. So we took the decision to write off the drilling revenue from that.

54:04 So again, very much a one off. The provision is primarily related to Marilla, to the Firefinch situation. We used to drill there. We currently operate the lab there. We have provided against some of the position there. Now, that mine is still operating. We're still operating the lab. We have received payments since the year end. And so whilst we have been conservative with a provision, we expect to recover against that. So those two together are about $4,500,000 thereabouts. We consider those one offs.

54:50 If you adjust those out of the 22 overall admin expense, that as a percentage of revenue has brought it back down to close to twenty twenty one's level. Now 2021 was probably in of itself a little lower, just sort of referenced to the travel there. Obviously twenty twenty one's travel was restricted quite frankly. So we're seeing a more full back to normal, should we say effect from travel. But as a level of those expenses relative to revenue, yeah, we're at that sort of 14 ish percent level. And I think that's where we'll see it go from here relative to the revenue. It's not a fixed, a purely fixed cost base for us. So there is an element of variability as activity increases.

55:37 So it's important to bear that in mind. Thanks, Rick. Maybe just a breakdown of the 10,000,000 CapEx related to MSA Labs this year. I mean, you described it as a CAPITAL LIGHT. Can you explain just exactly why there's CAPITAL there and what that means in terms of the CHRISTOS rollout for 2023? Yeah, sure. So we're obviously MSA Labs is heavy in growth phase, as we've alluded to. There are a number of laboratories being rolled out in new geographies across the year. Many of those laboratories this year are commercial laboratories. And what I mean by that is they're our laboratories.

56:22 So we build and operate those laboratories. They're not tied to a single mine site per se, they're not on mine sites, they'll be in independent locations, and they are fed from a series of mines and projects. And so that's what we mean by commercial operation. And so, in the past, we've had a mixture of mine sites and commercial labs. We've had fewer commercial labs being built in the past because we have a commercial lab base already. So it just so happens that this year, the rollout of our new laboratories is commercial lab led. And so in the future, we may not have as many commercials labs rolling out and maybe more mine site labs, which are, as I say, the CAPITAL would be to the account of the mining company.

57:14 And so just to touch on the CHRISOS point, so many of those labs will be CHRISOS related. I mean, at the end of the day, a heavy proportion of the rollout of MSA labs, of the growth of MSA labs is going to be CHRISOS led. So a number of those labs are where CHRISOS units will be placed on a commercial basis. And I think that, placing those CHRISOS units into the commercial labs is the CAPITS associated with that, as we've said, those labs get fed by various mine sites. I think importantly, just as a cross pollination, if you like, within the business, when we feed the Chrysost labs, we get the volumes through the Chrysost units. There is always going to be an element of additional multi element work that will feed our hub lab in Langley in Vancouver.

58:05 Rick, I think it's also just worth adding that as we spend this CAPEX to build those commercial labs that have CHRISOS units, once they're set up, they go back to being very capital light and those Crisos leases is Peter raised the point earlier. They're five year with five year options. So you're basically putting the infrastructure in place now for what is a ten year stream of business based on those lease agreements. Thanks both. Maybe just one more technical one just on working capital and inventory. You sort of mentioned it in the net debt slide, Rick, but we finished inventory of the year about $59,000,000 and you talked to a reduction. What kind of reduction are you thinking and how is that going already this year?

58:56 Yes. So best way of answering that is difficult to put a dollar value on the reduction. Do expect a lot of that inventory builds, just to give it a little bit of context, a lot of the inventory builds towards the back end of last year to take us up to that 58, 59 level was relating to what we would consider more high or fast moving components within the business. So fast moving consumables within the business. And again, as I said during the presentation, it was really to protect the stability of the operations in the various jurisdictions. And so, that sort of, let's call it an overstocked position at the year end, relating to those high, fast moving consumables, then we'll see that roll off over the first half for sure.

59:46 Now, what's coming out as the other way clearly is the growth of the business and the growth of so many new projects, like Sudan, Pakistan, Gabon, etcetera, where we'll see a little bit of a draw on the inventory to stock up in those locations. So difficult to put a dollar figure on it, but what I would guide to is a more normalized inventory days level, should we say. So we'll see ourselves going back more towards the, circa one hundred fifty to one hundred eighty days of purchases within that inventory. Okay, perfect, thanks. I think last few, just one on MSA Labs, we're a majority shareholder, will the minorities be paying their share of CAPITAL And is there any way we could increase our stake in the business?

1:00:38 So as we look to fund MSA as a business, it does have a circa 20 plus percent minority position. We plan to do that as an equity raise at the MSA level. And obviously, we'll offer that to all the shareholders. As for what proportion will take part in that, it remains to be seen. In the past, we've had some participation from those investors, but we're prepared to soak up what is not paid for by those minorities. So in that regard, that will creep up our position should there be a shortfall. Thanks, Rick.

1:01:25 Two last questions, a bit more strategic moving back to Peter. Firstly on M and A, how do you think about M and A versus organic growth in this business? Yes, thanks, Connor. Our aspiration certainly is to continue to grow the business and probably keep growing at a faster rate than we have even. So aspiration in the next three years to get to $05,000,000,000 revenue. I think to do that organically is certainly going to be challenging. And also as we look to in some of the new geographies like where we're growing the labs in Canada, we're seeing lots of opportunity for drilling on the back of the labs business. There's potential for us to look in some of these other geographies at inorganic growth as well.

1:02:14 Obviously, our focus will continue to be organic growth. We want to get to sort of three mining contracts. So if you think of mining currently $50,000,000 revenue, of $150,000,000 of that labs at 100 and the remainder in drilling. So we'd be growing across the business over the next three years is really the focus. I think in their strategic M and A would be a key part of that. Thanks Peter. And maybe just last one we've got time for. Given the huge growth we're seeing in MSA Labs and and the sort of the higher multiples that these businesses typically trade on, is this something we'll look to spin off? It's certainly an option to consider Connor.

1:03:03 I think we need to we're in a really strong growth phase of that business at the moment. I think we want to demonstrate strong returns, bed down the growth that we see over the next couple of years. And I think clearly the market doesn't recognise the inherent value that's sitting in the business. When you look at our Us as a multiple across the business, I don't think recognises that, although I think to date the labs business hasn't been that big, but it will certainly grow with our guidance of 40,000,000 to £50,000,000 next year and then growing out to sort of 85,000,000 in 2025. I'm hoping that that starts to get some recognition, but if it doesn't, I think that some sort of spin off would make sense.

1:03:54 But we do, as I said, see synergies in our businesses. I think we'd still want to be part of however that looks, but something we'd look at down the track I think. That's great, guys. And thank you very much indeed for taking the time to address all those questions for investors today. And of course, the company will review all questions submitted today and we will publish those responses on the Investor Meet company platform. But before we directing investors to provide you with their feedback, which one is particularly important to you and the company, Peter, If if I could just ask you for a few closing comments. Thank you. Thank you. Thank you very much for the questions. There's a lot of insight from clearly from the people attending the call. We're happy to continue to engage and really appreciate you taking the time to listen to our presentation and look forward to continuing to engage going forward and look forward to the share price continuing to go up again as it did a little bit today, so back to where it should be hopefully over the next few weeks. Thank you very much for your time.

1:05:00 Peter, Jamie, Rick and Connor, thank you once again for updating investors today. Could I please ask investors not to close the session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of management team of CAPITAL LIMITED, we would like to thank you for attending today's presentation. That concludes today's meeting. Good morning to you all.