Capital (LSE:CAPD) — March Investor Presentation

0:02 Good morning, ladies and gentlemen, and welcome to the CAPITAL LIMITED investor presentation. Throughout this 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. Just simply type in your question and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it is appropriate to do so. These will be available via your Investor Meet company dashboard,

0:34 and we will send you an e mail to notify you when they're ready for your review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll, and we'll be grateful if could give that your attention. And I'd now like to hand over to Giles Everest, CFO Rick Robson, Head of Corporate Development and JB Boyden, Chairman from CAPITAL. Good morning to you all. Good morning. Thank you very much, Mark, and I'd like to welcome everyone to the CAPITAL LIMITED twenty twenty annual results call. As mentioned in the introduction, I've got Giles Everest, the group our group CFO, and Rick Robson, head of corporate development with me. Both Giles and and Rick are based in London, and I'll be here to assist and answer questions when we get to the q and a portion of the presentation.

1:29 I'll kick off and run through the slide deck. We obviously announced our results last Thursday and a very good set of numbers, but we'll start with an introduction to the company. For those that aren't familiar with CAPITAL, we'll then go through the results, and then move into the strategy, and outlook for 2021 and beyond. So I'll kick off on slide four, which is an overview snapshot of the company. CAPITAL is a provider of service services to minerals, mining and exploration companies in the African Continent. We established ourselves fifteen years ago in Africa and started life as an exploration drilling company.

2:19 And over the subsequent fifteen years, we have evolved our service offering to expand into a full range of drilling services, and in more recent times, we've added maintenance services, analytical services, and most recently, contract mining and earth moving services. We currently operate in 10, countries across Africa, which are the dark blue ones that you can see on the slide, in the slide pack. We have operated, in the ones in dark gray. We have done contracts in those countries during our history. We have a fleet of 94 rigs as at December 31. The actual average fleet size last year was 98 rigs. We decommissioned some rigs late in the year and 28 pieces of heavy mining equipment, which is a new business stream for us.

3:15 To put that rig count in context, we which sits us about number five globally in terms of total rig count, and we think about, well, number one for a contract drilling company on the African Continent. We currently employ 1,300 people, but that number is rapidly increasing with the rollout of, earthmoving contract at Sukari. And we have a heavy, prevalence of very high high quality blue chip customers, the likes of Barrick, obviously the world's biggest gold company. They were actually our first customer all the way back in 2005. AngloGold Ashanti, Kinross, and Sentiment. So there's a lot of very high profile customers with some very high quality assets.

4:06 The group strategy is the delivery of an end to end exploration and mining services solution to our customers. We are focused on generating revenue from mine site based contracts, and there's a number of reasons that that underline that strategy. The basic premise is to target key customers with assets that are either in development or early production phase and to grow our services as the customer grows. And by embedding us and by offering services at the mine site, we we tend to transition through from inception which tends to be either exploration or delineation drilling and then over time, add services. And the case in point is the Sukari Gold Mine where we started in 2005 doing exploration drilling and delineation drilling.

4:58 It moved into grade control and production drilling in 2008, underground drilling, and then most recently, literally in the current quarter, we started earthmoving services. We we target customers with long life assets, low low on the cash cost curve, and and as I said, to grow as the customer grows. And over time, expand the range of services that we can offer. The the the basic premise behind targeting the mine sites not only is to grow with the customer base, but is to enable us to build infrastructure on-site. And then, obviously, the more services that we can deliver to the mine, the greater the, operating leverage as we leverage the on-site infrastructure.

5:44 It enables us to invest in our business, to grow, to train, and has has led to the generation of industry leading margins as we improve our performance which comes about through longevity.

6:00 Just some high level numbers just to give an overview of the company on on a revenue basis, looking at the twenty twenty revenue splits. So geographically, we are predominant well, obviously, predominantly Africa as per the introduction with about a third of the revenue coming out of Middle East, North Africa dominated by Egypt, a third of the revenue coming out of Tanzania, and one third coming out of West Africa. And West Africa has been quite a success story for us in the last few years. If we went back about four years or so, it was about 10% of our revenue. We've made a concerted effort over the past two to three years and moved 30 additional rigs into the region. So we now have 41 rigs in West Africa, and we've seen very strong growth in the revenue contribution over the last couple of years.

6:53 Excuse me. Services, look, we are still dominated by our drilling revenues, 87% of 2020 revenue with the nondrilling activities being dominated by fledgling earthmoving business and our mineral analytical business. The nondrilling portion of the revenue is set to grow significantly in the 2021. We'll get into the contracts a little later in the presentation, but we have secured major well, the largest contracts that we have ever secured for both the laboratory business and the earthmoving business, and that's gonna drive the non drilling revenue growth in the current year. The activity part pie chart basically just breaks down our drilling activity in a bit more detail, and this comes back to the thematic about delivering the services at the mine site. So you'll see the dark blue is the production drilling, and the one to its left beyond these underground, all mine site activity.

7:52 The delineation drilling, which is effectively extending the ore bodies that are being mined at the mine sites, are also a significant portion of our revenue. So, again, focusing on mine site based revenue for consistency. And then finally, location, we just look at it holistically mine site versus non mine site. And as you can see, mine site revenue, 93% of the 2020 revenue. As an important point to flesh out with that, when you look at the the peers, our drilling peers listed predominantly on the ASX and TSX, and they all had either flat to declining revenues in 2020, whereas CAPITAL had 18% revenue growth, and that is underlines the strategy of the group.

8:40 So as COVID hit last year, obviously, that led to travel restrictions and it led to a a curtailing of field based activities. But at the mine sites, because it led to a spike in the gold price, that obviously flowed through to operating margins for the producers, which therefore led to an increase in services. And we had no major productivity disruptions during the cut due due to COVID for the simple fact that it's a very well controlled environment on the mine site. Specifically, there's one gate in and one gate out. You have quarantine procedures before you head on to the mine. You have health regular health checks. So as a result, as I said, we grew our revenue while the sector actually had flat to declining revenue. So very pleasing to see the the validation of the operating model.

9:28 This slide gives an overview of the long term contract portfolio that CAPITAL has, and as I said earlier, 93% of our revenue is coming from from these contracts. The pleasing aspect a couple of pleasing aspects here is that last year, we added a further two. So last year, this was eight. We've moved it to 10 long term contracts. The additions in 2020 were Firefinch in Mali. Firefinch purchased the Marilla Gold Mine off Barrick, and we have started a two year drilling contract with them. And obviously we hope to grow our services as they as they recommission that mine. And then in East Africa, we added the Bullehulu old mine with Barrick. We started there at the start at at in early two thousand and twenty with a deep hole, two and a half kilometer deep hole delineation program designed to look for extensions to the to the ore body, underground extensions to the ore body.

10:29 And then later in the year, we won a two year brake control program as well as a five year laboratory services contract. Excuse me. And, again, cements the model of opening our services with one service and adding services. Some other significant points to make here is being on the mine sites actually embeds us in the mining process and makes us it provides much greater recurring revenue visibility on your earnings because you become embedded in the day to day functioning of the operations. And to bring that point out, we have recently, last week actually, just before we announced the full year results, contract extensions of the Gator Gold Mine for a further three years. Those contracts will take our tenure in 2024 after nineteen consecutive years operating at the Gaeta Gold Mine.

11:22 Further to that point, last year in December, we announced a four year blast hole extension at Sukari and a four year contract mining earthmoving contract. Again, that would take us out to 2024, at which point it will mark twenty consecutive years of service at the Sukari site. So outstanding duration in our book of business. This slide just gives a quick overview of CAPITAL's fleet. As I said in the introduction, 94 rigs. There's going to be a lot of rig growth this year, predominantly driven by pre preannounced contracts, seven additional rigs going into Sukari.

12:07 There's six additional underground rigs going into Tanzania between Gator and Bulle Hulu. And then we have some additional reverse essentially reverse circulation capacity going into West Africa and East Africa given the increasing demand in the in the marketplace. On the right hand side is a snapshot of our mining equipment, which is currently operating across two different sites, the Benikro Gold mine in Ivory Coast and the Sukari Gold Mine in Egypt. We have absolute highest quality standards with our asset fleet. It makes absolute sense when you're operating in more challenging jurisdictions without the infrastructure to support, you mechanically to to have newer assets. The average age of our rig fleet is is about five, five and a half years of age, and that is achieved through regular rebuilds, decommissioning of older rigs, and new asset purchases.

13:04 And that is proved that that basically drives higher asset availabilities and therefore higher operating performance. The final part of the introduction is our safety standards, and again, it fits with our our mantra of being the premium quality provider to the industry. Highest safety stats or or the best safety stats, I should say. When you look at the the TRIFR in comparison to our peers, another outstanding year in 2020. Numerous safety records across a number of sites, and as I said earlier, the COVID protocols were successfully implemented in 2020 and no major disruptions in what was a pretty challenging year.

13:53 So just looking at the actual results and the highlights for 2020, I'm gonna do this back to front financial. We'll start by saying an outstanding performance financially. We recorded revenue growth of up 18% to 135,000,000. That was right in the middle of our guidance that we set in January pre COVID of one thirty to one forty. Our EBITDA was up 24%. Our EBIT was up 30%, demonstrating obviously operating leverages that fed through the p and l. And our net profit increased, 139%, which benefited not only from the strong operating performance, but also from some outstanding returns on our equity investments where we booked gains of 13,600,000 in 2020.

14:42 The adjusted return on capital for the group was 22%, up 20% on 2019. And last week, we announced a final dividend of 1.3¢ a share bringing the full year payout to 2.2, and that's a 57% year on year increase in the dividend. So look on every measure, an outstanding financial performance in a in a particularly challenging year. Strategic and operational highlights, a lot. A lot of very significant ones. So looking at the core drilling business, we we increased utilization from 54 to 59%, and that was off the back of multiple contract wins with existing and new customers, and that includes seven new mine site contracts, and as I said earlier, two new mine sites as as part of that.

15:33 But we also had some some significant wins in our non drilling business, the most significant of which was the transformational waste mining contract that we announced in December last year at Sukari, which involves an extension and expansion of our drilling activities. We're taking the fleet from 15 to 24 rigs, and we are deploying a significant mining fleet to operate a way to to execute a waste stripping operation that will run out to 2024. As we said in December, that contract, the incremental value of the uptick on the existing business is is worth circa 250,000,000 over four years. Again, in context, last year, we turned over a $135,000,000, so a significant win to say the least.

16:20 Our laboratory business, won a five year, services contract with Barrick in Tanzania and multiple other wins on the lab side of the business as well. And as a result, non drilling revenue increased from eight to 13% and is set to increase materially higher in the current year. I'll now move into the results section. I won't spend too much time on these slides, we've covered the highlights, but I'll just make a quick comment on revenue. The revenue growth of 18%, it was pretty broad based. The biggest driver was revenue growth on existing contracts, which I alluded to earlier, specifically higher gold prices contributing to improved operating margins, contributing to increasing demand for our services.

17:10 We had a nice number of wins in West Africa further solidifying that business as it continues to grow, growth in our laboratory business. And I think the most pertinent point to take here is that the q four revenue was the strongest fourth quarter revenue that we have experienced since 2012. And that's a read through that seems to be coming out from the commentary of some of our peers as well, and particularly pleasing is that momentum has flowed through into Q1 of twenty twenty one. Slide 13 outlines the group's margin profile and we've had steady improvement in our margins for the last four years. We installed a new management team in 2017, greater rigor around our cost focus, and and each year the margins have gradually improved, so very pleasing to see.

18:03 Industry leading margins, but the pricing is, look, we're a premium provider of service, but certainly pricing, not outsized pricing. The the feature that really drives our margins is consistency. And it's back to the thematic of mine site based contracts, long term contracts, the tenure of most of the contracts between two, three, or four years, and consistency is the key thing that drives margins in this business. So where we received where we achieved margin accretion in 2021 specifically improved maintenance practices, which include a lot of fleet standardization, improved supply chain efficiencies. We had a restructure of our supply chain function over the last couple of years, that started to benefit margins.

18:50 And then obviously, improved asset utilization and the operating leverage that comes from it. Slide 14 looks at the cash flow for the group. Another very strong operating performance. The cash flows were up 25% year on year. EBITDA cash conversion was at 106%. So look at a very strong year, but obviously, there's two fairly significant bars in this waterfall. One is CAPEX and one is the equity raising. So I'll move to the next CAPEX slide and just give some context around those numbers. Capital expenditure for the year was quite significantly up on prior years, but when you look at the pie chart, we've deliberately divided the 2020 CapEx into two sections.

19:41 So let me start with the lower part of that pie chart, which is what we call ordinary course of business CAPEX. And what this chart brings out is that the CAPEX profile for the for the operating business of drilling and more recently, analytical services continues to have a reasonably stable CAPEX base and has been self funding since we came to market in 2010. In the last year, we generated EBITDA of 33,800,000. Let's say 33 roughly of that came from the drilling and the laboratories operations and CAPITAL for those businesses 19,000,000. So the core business, the core historical business continues to be cash generative, cash flow positive, self funding, and and we expect that to continue as we move forward.

20:34 But then, obviously, in December, we announced the the award of the Sukari waste, waste mining contract, and that requires $65,000,000 worth of upfront CapEx. As you can see from the pie chart, we had spent and capitalized 30,000,000 of that as at December 31. There's obviously another 35 to be expensed or capitalized, I should say, in this current year, noting that we had prepaid about 15,000,000 of that at the end of December. And that CAPITEX obviously now sets up the platform for the core fleet to grow that business from moving forward. The balance sheet, I won't spend too much time on the detail here. Just a couple of peak points to raise that are obviously the balance sheet has been up sized.

21:21 In December, we came to market for a 30,000,000 US dollar capital raising. We were strongly oversubscribed. We ended up accepting $40,000,000 worth of demand. So that obviously had a positive impact on the strength of the balance sheet. Post closing the contract, it was a it was a concurrent event of announcing the contract and the capital raising triggered the the the crystallization of the contract. We then negotiated and finalized debt facilities with the OEMs on the rigs and Macquarie Bank on an asset based asset backed financing facility. On the bottom right, you can see the profile of the group where we have been net cash for the better part of the last five or six years. As we finish the capital requirements for the Sukari contract in addition to the heavier, rig rig build in 2021, the group will be moving into net debt.

22:16 But we have, consistently said to the market if the right opportunity came along, we would be prepared to put debt on the balance sheet provided, a, it's a long term contract, and b, that the debt then amortizes down over the contract. We've we've stayed true to script. We've got the right term right opportunity, four year contract, and we've structured the debt facilities such that they start amortizing in the second half and are fully amortized over the duration of the contract. The investments was a very welcome gain in in 2020. So just to outline how this strategy came about, it is something that is is prevalent both in the earthmoving contracting sector and then in the drilling sector to occasionally take services and payment for services in the form of equity.

23:08 In this case, we actually took a proactive stance, and this was back in 2019. We formed an investment committee as we were moving into West Africa. One thing that was very transparent to us is that there was an absolute lack of capital available to the junior and mid tier mining and exploration companies, and we were moving capacity into West Africa. So we set up the investment committee, we screened the opportunities, we identified the companies that we thought look attractive, and we made proactive approaches to these companies. We we offered them what essentially were anchor orders to enable them to go and complete capital raisings, and off the back of those capital raisings, they could get back to work drilling again. And off the back of that came numerous contracts, preferred contractor status.

23:56 In 2020, as the gold price improved and as a number of these companies had some pretty successful results, that equity portfolio has revalued sharply, and we recorded gains of 13,600,000 in 2020. And we also generated contract revenue of $18,000,000 from the investee companies over the course of 2020, which continues into 2021. In 2020, we were less active. We actually were at a slight cash inflow, so we're slightly on the net sell side with the portfolio. We have rationalized a number of the names. We'll continue to look at opportunities as they come, but obviously now with the capital markets well and truly open for the mining companies and exploration companies, the the opportunity set is not as great as it was in 2019.

24:49 Finally, on the financials, the dividend, I've already obviously stated the numbers. The dividend timetable is in the table on the bottom right. What the the comment I would make is that the company has been paying dividends since 2014. We've got widespread investor support for that dividend. We'll continue to pay dividends moving forward. So now I'll move into the strategy and outlook. So when I look at the strategic when we look at the strategic priorities and where we can take capital over the next, four or five years, it's really there's four major verticals. One is growing the the earthmoving contract mining business. The second is to grow the ancillary services revenue. The third is a continuation of the current theme to expand capacity with our existing customers.

25:39 And finally is to increase our fleet utilization of last year noting we had 59% utilization, so effectively 40 idle rigs in our drill rig fleet. So let's start with the mining contracting business. The Sukari contract, I've touched on this already. So I'll give an update of where this contract is at. We're about these numbers are actually, believe it or not, even even in the last week, little bit dated. We're about 250 people into the hiring now, so sort of approaching the halfway mark. All of the equipment for stages one, two, and three has been purchased, noting that the project ramps up in quarters. It commences in q one, moves to another level in q two, another level in q three, and hits the full run rate in q four of twenty twenty one. So stage one is now fully functioning.

26:33 We commenced operating in February. We were marginally ahead of schedule, and it all going according to plan. Stage two, all the major equipment is now on-site. Commissioning is underway of those assets which should be achieved by the end of March and again on schedule to commence production in Q2. And finally stage three, most of the equipment is in country, much of it on-site, again, on track for ramp up in q three. So look at it. A pleasing start. No no negative surprises, performing marginally, as I said, ahead of our our expectations. So a good start to this contract. And critical for for us in the in the earthmoving, contract mining business this year is about execution.

27:21 The Sukari contract is is a large, large contract, well recognized within the industry, and it certainly put a a flag in in the sand for us to to put our market down, and the execution of this is absolutely critical because it will open up a lot of opportunities for us if we execute well, which I'm confident that we will do. Next, growth is to continue to grow the ancillary services revenue. This this is a is Us maintenance services business which does an outsourced maintenance and predominantly the the analytical business. So the analytical business, mineral analytical business, we acquired this in 2017. We installed new management into the business, and we have expanded this aggressively in Africa in the last two years. So when we purchased this business, it had less than 10% of its sales coming out of Africa. Now more than more than 60% of sales are coming out of Africa.

28:20 We built labs in Mauritania, Nigeria, and we purchased a lab in the Ivory Coast, and now we are running laboratories for Kinross in Mauritania, Barrick in Tanzania, and we and we are commissioning and building a laboratory in Nigeria for exploration in the second half of this year. This business is still a reasonably small business in the context of capital. It turned over about $8,000,000 last year, but the growth trajectory, again, is very strong. We're expecting revenue to double this year, And it's a nice business. It's a high margin, low CAPITAL LIMITED high return business, and a perfect adjunct to a drilling business because obviously the lead indicator for samples going through a laboratory is a drilling company.

29:07 The next pillar of growth is is is basically to continue executing on expanding capacity with our existing customers. To give some sense about leveraging on-site infrastructure, I think we've included some photo photos in the deck, and they have pictures of our infrastructure at Sukari. And this is what we aim to achieve across all our sites, build substantial infrastructure, to support the operations, look for longevity in the contracts, and look to expand the services that we offer. The the projects in the bottom right, there's five there where we had an expansion of services in 2020. This year alone, we've we're we're expanding capacity of Sukari, obviously. And last week we announced the Gator contracts which included an expansion of our underground rig capacity. We're also expanding capacity this year at the Bullehula Gold Mine.

30:01 And then finally, and this is the one that has actually surprised us pleasantly on the upside, in 2021 thus far. And back to the earlier point I made, the q four revenues were the strongest that we'd seen since q four twenty twelve. So we've we've come back to work in January and the demand for our rig fleet has has picked up very strongly. So what I might do is actually just go back go straight through to slide 2828 to have a look at the thematic here. And that is on the on the top left is the gold price. And even despite the the recent pullback in the gold price, it is still trading around decade decade highs. And and more to the point, for the gold miners, if you'd said to them two or three years ago, would you be happy with $1,700 gold? They would have jumped at it. Their operating margins are very strong.

30:54 Their profitability is very strong, and you see that borne out in their operating results. The balance sheets in in our customer base are very strong. In the bottom left are the financings, and again, these are at ten year highs. So when when COVID came and the gold price spike, there was a huge reopening of the capital markets to fund the the junior and mid tier companies, and that has continued unabated into 2021, but it's actually broadened into the battery metals and some of the base metals. So again, very very positive signal, very strong lead indicator for a drilling business because this capital invariably has been raised for project development and drilling activities. So where the disconnect lay actually, one other thematic to point out actually before I move into it is that these balance sheets have gotten stronger in the sector and that has flowed through to widespread sector m and a activity.

31:48 It started a few years quite a few years ago with Barrick and Randgold merging, but even in the West Africa space, you've seen,

31:55 Endeavor, Sema Foe excuse me, Endeavor, Tarango, Resolute, Mako, and the list goes on and on. So the the basic premise excuse me. I'll just have a quick read. So the basic premise is that for a resource company to grow its asset base, there's two ways to do it. And they can either buy the resources, which is m and a activity, or they can go and find the resources, and that's exploration activity. And when you have a look at these charts, ten year highs for commodity prices, ten year highs for financing, yet exploration activity is half what it was ten years ago. So there's been an enormous disconnect in the market. And over this time, a lot of the producers have actually been running down their assets from the point of view that they haven't been doing a lot of mine site exploration, which means each year of production is another year off the mine life. So now as we've come back to work in January, we've been very pleasantly surprised with the level of

32:53 demand that is coming through on the drilling side, which we think is a function of the 2021 budgets having been allocated and the the the companies coming out looking to, to spend those budgets. To put this in context, the the top left is our rig fleet, which as you can see has been pretty steady for quite a few years now, but it's gonna increase quite strongly in 2021. But at 69 sorry, 59% utilization, that basically means we've got 40 idle rigs using 100 ballpark 100 as as the year end closing figure. Now at the previous peak cycle, we were doing 80% utilization back in 2012, and the demand conditions that we're operating in at the moment are akin to the 2012 demand conditions with one exception.

33:38 It's the start of a cycle, whereas that was the end of a cycle. To put some context around these numbers, our drilling operations last year did revenue of $120,000,000 out of the total of 135. If we're to turn on another 20 of our idle fleet, those rigs do when they're fully working about $2,000,000 per annum in revenue, that's an incremental $40,000,000 of revenue on the one twenty just by turning on the existing assets. So to that point, we are starting to see that happening. So on this slide, we this is the assortment of contracts that we have, contract wins and commencements in some cases that we've announced in 2021. And if I was to show this slide twelve months ago, we would have probably seen about three of these tombstones.

34:27 So it really has been the strongest start to a year that we have seen, with the strongest tendering market and activity market that we've seen really in the company's history, and it certainly sets a fantastic platform for the year ahead. I note that the broker consensus is running with utilization rates of around about 66% for our rig fleet. Our next release to the capital markets is mid April with the q one trading statement, and we certainly feel very comfortable with those

34:54 numbers and with tailwinds currently in the marketplace. And what is also encouraging as the the cycle is moving, it's starting to mature. So the rig utilization is starting obviously, starting to increase. It has been happening for quite a few years, but it's picking up space at the moment. What happens then, the rig productivity increases, which basically means extended shifts, extended programs instead of particularly the expiration and instead of three month programs, six months, nine months programs. The rigs moved to double shifting instead of single shifting. And then the next dynamic is pricing, and we are starting to see some pricing power come back to the contractors, and we're seeing improving rates on our new contracts. And that really is a broad thematic with contract terms and conditions also starting to improve.

35:44 So this is this is the one that's more than anything surprised us pleasantly as we've entered 2021, and as I said, really strong trade trading conditions and and strong tailwinds. So that then brings me to the outlook and guidance. A lot of these points I've covered, but just to reiterate, we've got gold and commodity prices trading at highly supportive levels. We've got surging equity market activity, which means on both cases, the balance sheets of the producers and the balance sheets of the explorers are strong, as strong as they have been for many years, and strong balance sheets tends to lead to to increase in demand for services. So we've got demand accelerating

36:28 demand is accelerating across all of our business units, and as I said earlier, we've announced multiple new contract wins already in 2021. We continue to work with a very strong balance sheet, which gives us the capacity to capitalize on these opportunities. And last week when we issued our full year results, we issued our revenue guidance which is a 185 to 195,000,000 in 2021. At the midpoint, that is up 41% year on year, continuing very strong growth in revenue. And at that, I'll hand back to the moderator. That's great. Jamie, thank you very much indeed for your update. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. I just while the company take a few moments to review investor questions submitted today, I'd 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 your Investor Meet company dashboard, and we will send you an e mail to notify you when they're ready for you to review.

37:30 I'd also like to remind you that your

37:32 feedback is important to the company. And immediately after the presentation has ended, you'll be redirected for the opportunity to provide feedback in order that the company can better understand your views and expectations and would very much encourage you to do that if you can allocate a little bit of time. Jamie, obviously, investors had the ability to pre submit questions. We've got four that I'd like to start off the Q and A with. And then perhaps we can look at the questions that have come in the live event.

37:59 The first question that we received is what range do you have for gross profit margins? The three year average is 40%. Will that be achievable for full year 2021? Or is the Sukari waste contract a lower margin contract, 30%, and will slightly lower the overall gross margin?

38:18 Thanks very much. I might actually get Rick. You can you can feel this one. Thanks, Rick. Sure. Thanks, Jamie. Okay. So as Jamie mentioned, we've guided revenue to $1.85 to $1.95 for 2021, so $1.90 in the midpoint. We don't provide specific guidance on margins. However, I would direct people to the consensus from the brokers. So our brokers are coming out with gross margins of about 37% for 2021 with an EBITDA margin of 26% for 2021. So we we we believe these levels are achievable. And then just as it pertains to the Sukari waste contract, we expect that contract to have broadly or achieve broadly similar margins to the rest of the group.

39:04 Thank you, Rick. The next question, the amounts in dispute with the tax authorities in Zambia, Tanzania and Mauritania are large. How much of management time in the last twelve months has been spent on trying to resolve these issues? How concerned should shareholders be about unresolved tax issues?

39:24 Running through them, very little time on on Zambia. We've not operated in the country for more than five years and when we received the assessment, we strongly refuted the majority of the assessment, the areas of ambiguity we provisioned for, but very little activity is taking place on that front. Tanzania and Mauritania are obviously two countries that we're we're active in, therefore it's taken management time and focus, but more so finance team, obviously, more so than the management the senior management team. But with respect to the concerns about the unresolved, look, we we have provided in our accounts for the tax disputes, that that we think are potential areas, of of exposure. And, obviously, you know, the notes to the accounts go through the detail, but we're comfortable that not significant exposure. These accounts have obviously been independent independently audited. So, look, it it does certainly take some of management's time, but we're we're certainly not, overly concerned. And as I said, we've we've provisioned for what we think potential exposure could be.

40:31 Thank you. There's a question around stockopedia around broker forecasts. The question reads, are these forecasts based solely on existing contracts based on the strength of your markets? Are you able to provide any guidance for, one, additional contract wins increasing guidance, and two, ongoing revenue growth in subsequent years? Any sort of broker forecast for a contractor are always gonna have a mix of existing and new business because, obviously, at any point in time, there's certain contracts coming to an end. Now when you look at us versus our peers, we've actually got a a very large proportion of our book is a long term contracts. And and to that point, the two biggest contracts or the two biggest clients we've had, Sukari, we've just resigned with them for four years, and Gator, we've just resigned with them for three years. And that's on top of multiple others such as Bull and Hooley, two and five year contracts recently signed in December.

41:34 So there's always, an element when you when you do your forward looking forecast that you have to pick up some new business to replace contracts that are coming to an end. So what I would say is that for 2021, and we've announced numerous contracts obviously with in recent weeks and with the release that all of that business required to make the forecast for 2021 is now secured, which is a lovely position to be in this early in the year, and now it's all about execution. We've we've also got a strong level of coverage into 2022, noting that Sukari increases because that's that is its first full year run rate. It hits the run rate in q four of this year. And as I said, Sukari and Gate have just haven't been renewed for four and three years, gives us a high degree of visibility into 2022 and beyond as well.

42:22 That's great. And the final pre submitted question, I know you touched on the investments that you have, but CAPITAL have shareholdings in a number of listed and unlisted companies for which it undertakes work obtained when mining companies are finding it much more difficult than currently in terms of attaining funding. While each of these may be a good investment in itself and may facilitate the winning of future business, they tie up capital, which could be used by the company or returned to shareholders. What what criteria do you have when applying decisions whether or not to retain these holdings? Well, whether or not to retain the holdings is just a function of our expectations on future performance. And when we're looking at our cap capital allocation decisions, it's obviously, whether it be via in in the form of a contract, then we'd look at the tender model and see what sort of return on capital we're gonna get. We'd evaluate that, obviously, with the returns that we expect to get from, our investments as well.

43:19 So, you know, it's it's it's a iterative process discussed within the management team and occasionally at the board level. As I said earlier, we we have been a a marginal net seller of those investments, but the group's return track record speaks for itself. I mean, we've averaged a four year return on capital of 19%, and that that's pre the investments. And, obviously, the investments last year were absolutely outstanding. So, you know, we we'll assess each each and every prospect on its own merit obviously. Thank you so much. Well that takes care of the pre submitted questions, Jamie. But I know you haven't had an awful lot of time to look at the questions that have come in and thank you to all those investors that have submitted questions. And of course, any questions that we don't get around to answering, we can review, the company can review post the conclusion of this meeting. Perhaps I could just ask you to open up that Q and A tab, Jamie, Rick and Giles. And if I could ask you to perhaps read out the question, who it's from, and where appropriate to give a response, that'd be fantastic, and I'll pick up at the end.

44:21 I might just go the the lucky last that's come in, Sam m, and it's for for either Rick or Giles. The question is the balance sheet looks quite solid, which it is, but your debt financing, despite being secured by assets, looks reasonably expensive. Macquarie at LIBOR plus seven seventy five. Do you think your debt's expensive? Yeah. Happy to take that one, Jamie. Look. I mean, the the cost of the debt for us is is partly a function of rolling out the new strategy and contract mining and partly a function of of jurisdiction. So I think the the facilities we've got in place now or the one referred to in the in the questionnaire is is was in place at the year end. We've just signed up a further facility from Macquarie now with a with a a margin lower than than the one in the question. We also got OEM facilities at margins below that as well. So I think, look, as things move forward, as the business gains critical mass, we we fully expect that margin to come come off with with different facilities that we bring on and, you know, get that cost of debt, the blended cost of debt of the group down.

45:33 Okay. Thank you. Next question from Bobby M. Does your mind site focused strategy as well as the additional services counteract the cyclicality of metal prices, which I'll field that one. And my answer to it is yes, it does. I mean, we operate in an inherently cyclical industry as Israel knows the commodities are. But by moving into the mine site strategy and particularly focusing very carefully on the customers with whom we work for and I could list off, you know, North Mara, the Tasiets, the Sukaris, the Gators, these are all, companies producing gold in most cases the lowest cost quartile sort of 700 to $800 per ounce. So therefore, if you see cyclicality and volatility in natural metal prices and you look through, these companies continue with the mine sites in particular to continue to make very handsome profit margins. Whether it be 1,700 or $1,800 gold, they're still making very, very profitable, margins. In fact, I saw sentiment release was a 54% EBITDA margin when they released their results.

46:41 So therefore, you know, provided their balance sheets are strong and they're enjoying those sorts of margins, the activity continues unabated despite the short term volatility in the commodity prices. So the answer is yes. What it also allows us to do is invariably the mine site related contracts, the blast hole, grade control underground, because you're an essential part of the mine's infrastructure. These are longer term contracts. As I said earlier, two, three, four year contracts, and that again goes a long way to mitigate the cyclicality in the revenue. Another question here from Michael S. Post Sukari, what do you forecast CAPITEX going forward circa twenty five million? I would say you're pretty pretty spot on or around about spot on with that number, Michael s.

47:30 The Sukari CAPITEX, obviously, as I said early, will finish in the first half of this year, and that that capital life on those assets is sort of roughly ten odd years. The contract runs to 2024, so there's not a massive no pressing need for additional CapEx to go in there. So then you're back just to the core business, and that and and that number looks, you know, somewhere between $2,025,000,000 moving forward is around the the the right number. Bear with me. Rick, you can pick some out while I'm reading through if you like. Oh, here's one from Steven H. Would you sign other large contract mining contracts before seeing how you executed Sukari?

48:18 If not, what does that imply for the timing of any future contracts? The answer is yes. We we we would consider for the right opportunity, but the fact that we're already in March and Sukari, as I said, has now commenced phase one, and phase two is is is due to commence shortly in q two, these these non or these earthmoving contracts, these are six to nine months tendering processes. They're they're they're extremely complex tendering processes. So, you know, even if even if one was to be signed, this wouldn't kick off until the end of the year. So we're certainly so do we think we have the capacity? Yes. But I'll go back to an earlier point. The the focus right now is on execution, which I think is the is is is the angle of the question.

49:08 We we've got to make sure we get Sukari right. We've hired a team of really well regarded mining people. As I said, it's performing exactly the plan at this stage, so execution is the absolute priority number one for us. Steven h, the chart of ARPAU utilization surprising. ARPAU was not high when utilization was. Now that I'm assuming is going back about a decade ago potentially. I mean, at the moment, the outpour has actually been very steady for us. I mean, it's been marginally decreasing in the last couple of years, but that's a function of we got very solid uphold of our base business of blast hole, grade control, and underground back on the thematic long term contracts, very stable revenue, driving a very stable uphold.

50:06 As the rigs come back to work, then you start on exploration jobs, which are more start stop in nature, in some cases just single shifting. But back on the point I raised earlier, as those jobs mature, which is starting to happen now, those single shifting jobs become double shifting and invariably early stage exploration like aircore drilling moves into the mid cycle reverse circulation drilling and drum and core drilling, all of which is positive for Arpore. Not to mention, of course, as pricing starts to improve, that feeds directly through to our port. So typically, way it moves is utilization moves first, our port dips a little as you have less consistent operations as utilization keeps picking up, ARPAUR then starts to trend up and attach back to utilization and move with it.

51:00 Can you shed shed some light on the state of the share price? Why did my eyes turn to this one? We're perplexed. We're trading at about, I think, at about three three point two times EBITDA. There is a compare well, let's look at the drillers in Toronto. There's major drilling trades at 11 times EBITDA. There's a company in Australia called DDH one, which has a fleet of almost exactly the same fleet rig count as us, 96 rigs, same similar revenue profile, similar margin profile. Excuse me. There's drilling in the background rather inconveniently. And they just raised money. They went to an IPO, they raised money at 5.3 times EBITDA.

51:48 So it's a difficult one for us to understand. We've got the the the highest quality customer list you could have. We've got I think across any of the drillers, we've got the longest duration contracts in our portfolio. We have the highest margins out of any of the drillers. We've got a very strong balance sheet. So look, we're we're we're not too sure why the share price is where it's at, but we hope if we continue to to deliver these results that, we'll start to get a bit of a rewrite. Kent and P, how confident are on the political situation in Mali? Have you experienced any pressure on mining leases? Obviously, any change of government, and in this case, the military change, brings within a degree of uncertainty, but I have to say that the the change last year was really had very limited impact, on on any of the operations day to day.

52:48 You certainly had some disruption in the government departments for and I'm literally talking a couple of days before it was business, everything back to you normal. So no real major cause for concern there. I mean, 2020 was an interesting year. There was elections in Tanzania, Guinea, Ivory Coast, a new government in Mauritania, a military intervention in in in Mali. So, you know, you couldn't have had more disruption politically across the jurisdictions than we are that we operate in yet again. We had we had the you know, one of the strongest years that we've ever had in the company's history. Julian h, what is the USP of m s MSA Labs proposition, and we should what we should what should we think about the scalability of the business in terms of contract wins and margin uplift?

53:44 Let me tackle margin uplift first of all. These are very high margin businesses and they're all about getting scale of volume through the the centralized lab. We bought this business. It was only turning over a couple of million dollars per annum, and really what we were buying was the the the barriers to entry. These are QAQC ISO rated businesses with software platforms that have high barriers to entry. After acquiring the business, we then, as I said earlier, expanded it into Africa. And last year, it went from EBITDA negative to EBITDA positive. And in terms of its outlook, the CEO has actually just been in Egypt, now in Mali, and the the list of opportunities is is is significant. So scalability, look, we're expecting revenue to double this year.

54:33 And on a five year basis, the the the the strategy plan, looking for a target of up to $50,000,000 in revenue. No surprises that, MSA Labs has grown off CAPITAL's customer base. So what's the USP? The cross selling between the two businesses, I mean, we really you know, instead of a business that's run by chemists, if I can say that, we've got a lab business run by people who actually understand and are and are part of the mining industry.

55:19 I think, Jamie, just to just to add to that, one of the one of the other USPs is for MSA that's that's coming to the floor and a big part of the strategy going forward would be the sort of impact of new technology on the on the turnaround times in in the labs. And I think that's gonna be a big selling point for for the business is is is basically reducing those turnaround times and and gain market share through a lot a much more operationally sort of better offerings. Yeah. Thanks, Rick. Marcus, what's the current spare capacity in the rig fleet by type? Are these largely the type of rigs used for exploration rather than production? Short answer is yes. Largely.

56:05 And that's why I spent some time on that slides looking at the utilization and and those contract wins because what we're seeing at the moment is the expiration delineation rigs going back to work, and that's got a number of benefits of the the one I obviously stated at the time is putting idle equipment back to work and the operating leverage that comes from that, but it also is the is is the lead indicator for future business. And I'll go back to that analogy with Sukari starting there in 2005 with a few rigs on the surface doing delineation, and we're still there twenty years later, doing all sorts of services. And as this activity picks up again, you know, we we we this is this is the the lead indicator to start to grow with with some new opportunities like that.

57:00 Would you would you consider share buybacks if the weakened share price doesn't reflect the value of the business? Look. We're open to all things. It's always a question of weighing up the demand for capital between, you know, opportunities to grow the business and put scale in the business, and then, obviously, looking at, returns from, you know, the optimal use of return on capital. So, look, we're we're certainly open minded to it. It's not something that's had deep discussions, but one of the conundrums that we faced in the last few years pre that equity issuance is that we really didn't have a lot of turnover in the stock, and it was quite illiquid. So it would've just compounded that lack of liquidity, but that problem's obviously gone gone away to a degree since the equity issuance. So, look, possibility, certainly not something that's immediately on the radar.

57:55 Look. That sort of brings us to an hour, and we've got to do another investor call. So I think it's we'll use this opportunity to wrap wrap things up. I wanna thank everyone for submitting all the questions, and thank you everyone for dialing in. I appreciate it. Jamie, Rick, Giles, thank you ever so much for your presentation and for a very inclusive Q and A. And thank you to the investors also for submitting those questions. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide feedback? If you access this meeting from our website, the feedback page will appear. But if you access this meeting via the link sent to you by email, you'll simply be asked to log back in, in order to submit your feedback. And if you could give the company at that time, that would be most grateful.

58:44 On behalf of the management team of CAPITAL LIMITED, I'd like to thank you very much indeed for attending today's presentation. That now concludes today's session, and good morning to you all.