Capital (LSE:CAPD) — Q3 Trading Update & MDU Acquisition.

0:01 Good morning, and welcome to the CAPITAL LIMITED investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and could be submitted at any time via 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 you receive during the meeting itself. However, the company can review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to submit the following poll. I'd now like to hand you over to Jamie Boynton, chairman. Good morning, sir.

0:31 Good morning. Thank you very much, and, welcome everyone to the q three, 2026 trading update for CAPITAL. We'll follow a fairly, well trodden format here, introduction to the company, and we'll go through the third quarter results into some of the group, some group numbers, macro environment, and then we will hand over with Ryan, our head of corp dev, and he'll manage the q and a session. So to kick off, again, an introduction to the company for those that aren't familiar with CAPITAL. We're an integrated service provider to exploration and mining companies across Africa, Middle East, North America, and as we'll go into today, most recently, Australia.

1:20 There's three operating businesses within the platform, the drilling business, CAPITAL MINING and MSA Labs. Broadly speaking, on a revenue split basis, you're looking about 60% drilling, 20% mining, 20% labs. The drilling business up until, the q three announcement was a Africa Middle East, business, with 131 rigs at the end of September, making us, about number five globally, but the largest in Africa Middle East, and provides a full range of drilling services from early stage exploration through to production and underground drilling with the vast majority of the business being in the underground delineation, blast hole and grade control drilling, mine site drilling services.

2:07 CAPITAL LIMITED is a niche provider of earthmoving services. We're currently operating two contracts in the history of our mining activities. We've operated around about the fifth contract. We're currently operating two, one of which is in Sukari in Egypt doing an earth, waste stripping contract, and the other is Rikadik in Pakistan, which is a barrack site where we do... Where we're doing a lot of the preproduction civils work moving on to tailings work. To round out the service offering, MSA Labs, GeoChem business, with extensive operations across Africa, Middle East, and North America. It's actually a slightly larger platform in North America in terms of revenue contribution than Africa, Middle East, very high growth business.

3:00 It runs a network of laboratories, about 33 laboratories across Africa, Middle East, and and actually coincidentally, consistent with the drilling business, about the fifth largest globally in the testing space. So they're the service businesses, and then we also have an arm capital investments, which actually, formerly called CAPITAL DI. It's a venture cap that, uses the network that we have, particularly across Africa and The Middle East to identify early stage opportunities, provide funding, provide services, and we'll get into that, during the course of the slides today. The service business, look, we are a, premium provider in the market. We have the leading...

3:51 Industry leading safety standards. We, have cutting edge, newest equipment in in in the industry, and it reflects in the customer base that we face. The the blue chip customer portfolio obviously speaks for itself. There's some of the the largest mining companies, in the world and particularly the largest gold mining companies, globally. We, we're operating across 17 countries. There's 19 different customers across the drilling and mining business and, which is across 25 different sites and over 30 different contracts. And we have actually over more than 400 customers across MSA Labs. We operate on the tier one assets for the tier one for the tier one companies.

4:43 So most of the jurisdictions in which we operate, we... We're on the the assets like Sukari, Gaita, Kibali, which is some of the largest gold operations in Africa. Kibali, in fact, is the largest, as well as operating on some some of the premium copper assets such as Lomwana and Rikadik.

5:05 The next slide is simply a map of our operations, quite dispersed. You can see there's just over 3,700 employees, with about 15% of our revenue is coming from our North American operations, is now exclusively our laboratory business. Obviously, on that basis, the other 85% coming out of Africa, Middle East. But as as I alluded to, I'll talk through our recent entry into the Australian market. So just going through some of the third quarter numbers which came out very recently. Our third quarter revenue was actually marginally down on the second quarter, but up a very strong 23% on the same quarter of last year.

5:53 The reason for the dip Q2 to Q3 this year is explained by the drilling business. We announced few months ago that we exited our drilling operations in Nevada in United States and exited our drilling operations in Mali. So as we redeploy that equipment, we saw a dip, in our drilling revenue. But we have also recently announced a number of contract wins, which will see our drilling revenues and our utilization pick up as we go into q four and beyond. Mining revenue, was flat quarter on quarter, but obviously up very strongly compared to last year. But we ramped up Rickerdick over the course of last year and Sukari over the course of this year. They're pretty much now at steady state, which is why you're seeing, the flat revenue profile, albeit there is a bit more equipment due to be commissioned in in in the forthcoming months.

6:54 And our laboratory business continues to perform extremely well. Had an exit run rate, for q three of over a $100,000,000, in revenue, up 9% on the previous quarter and up 23.8% on the same quarter of of of last year. So, like, we're pleased with our numbers, and we have recently increased our revenue revenue guidance, which is the second time this year, which I will get into. So just to talk to meters down under, which is our acquisition that we announced in the Australian market. It's a specialized underground reverse circulation drilling company based out of Kalgoorlie, a business that's very well known to us, and we've been in discussions with them for a quite a... Quite an extended period.

7:49 They are one of the largest specialized RC, underground RC drillers globally. And it's a business that we are familiar with. We're carrying out underground RC drilling at the Gator Gold Mine in Tanzania. That is an AngloGold Ashanti project, and AngloGold Ashanti is also the major customer of meters down under. The acquisition involved the purchase of 11 rigs. The two predominant contracts are Sunrise Dam and Tropicana, which are both, as I said, AngloGold Ashanti, projects where they've been operating for quite some time. And it marks our entry into the Australian market. As I said, we're very familiar with the group. We've known them for some time, and we do have a presence down in Australia. With quite a few staff down there, including our founder, and and and others.

8:49 And we're pretty excited about the prospects of what we can do with MDU and and their and their technical skills and how they can help CAPITAL.

9:02 Just to give some sense of what we paid for it, the total consideration is up to 16,000,000, but there was an upfront payment of 11,000,000 US with a trailing payment to come later. We've put some multiples in in here, and CAPITAL itself trades at very discounted and undemanding multiples versus the sector. We've managed to make an accretive acquisition here, which we're very pleased about. And as we as we show here, 69% of the consideration is upfront with the with the balance to to come at later stages. So very pleased with it, and excited for the future. And I have to say that since we've made the announcement, publicly, we've had a lot of inquiries.

9:51 We have for some time been asked by our customer base, which is a global customer base, when we are planning to, come into Australia. So pleased to say here we are. Excuse me. Looking at moving now into full year numbers, as I said earlier, we increased our revenue guidance recently, 435 to 455,000,000. We're obviously tracking, if you look at where we're sitting versus the first three quarters, tracking tracking well to achieve that. Highlighting the fact that we have evolved from being a drilling company and adding these extra services. So we've now got a non drilling revenue contribution across the labs and mining of 42%.

10:41 Our developed markets revenue in North America is 15%, and now we're obviously adding the Australian revenues to that. You can see that the top right, the, revenue growth. So we're on a, you know, very, very solid revenue growth now since 2020. Top line revenue growth compounding at 22%. And, Obviously, we flatlined into 2025, and and we're back on a growth path in in 2026. MSA Labs, their growth rate's been even higher. Year to date revenue is up 36%. And we have recently announced that we've commissioned some more laboratories. The on-site laboratory at Montage Golden Ivory Coast is just being commissioned, and we are... Commissioning is underway at Korhogo, which is Northern Ivory Coast, which is quite close to Montage's operations, as well as commissioning an on-site laboratory in Armenia for United Gold with a with a number of other labs currently under construction. And as I said earlier, on the mining side, contracts are performing well.

11:51 Consistency across the quarter, a little bit of extra equipment going into Rico Dick. But overall, you can see that the the revenue growth has been very solid, and we're we're quite optimistic as we head into 2027. Following from that, group returns have started to increase. You can see that the adjusted EBITDA for the group in the first half of twenty twenty six was an all time high for us. Our return on capital has moved back toward the 20% range, and that's the minimum target we're looking for. And many of you will remember we raised money late last year, and the balance sheet, as a result of that, is in extremely strong shape. We've got 0.4 times net debt to equity.

12:42 So the balance sheet is really well positioned as we continue to allocate capital where we've got a CAPEX this year, 55,000,000 to 65,000,000 puts us in a really good position in what is a very strong, demand environment. The venture CAPD fund that I talked about earlier, the portfolio value at the end of September was at... It had over 126,000,000. Obviously, it's had an outstanding return profile since we formalized this structure in 2019. The two primary or the two largest portfolio holdings currently are Weirgold and Asara Resources, which both had quite significant milestones in the third quarter of this year. Specifically, Weir Gold, announced quite a substantial increase in their resource inventory.

13:37 They announced the DFS, and they announced a funding package which included equity and debt that's gonna take them through to construction. The next gate for that company is the approval of the mining license. So very pleasing that that position company is now fully funded into production, which is quite a milestone for them. Asara, they too announced a significant increase in their resource base. It went from 930 odd thousand ounces to 2,100,000 ounces. They've announced some of the best results that we've seen since they started the drilling campaign at Caida. They also completed a capital raising that sees them with a little bit over $50,000,000 worth of funding, and they're moving in now into their study stage. They actually just released their quarterly yesterday highlighting the fact that they'll have their DFS completed, by the second quarter of twenty twenty seven.

14:30 So, very pleased with the the progress amongst the portfolio companies.

14:39 Moving on to the cycle. We obviously covered a lot of these in previous presentations. Commodity prices remain elevated. They remain remain highly supportive for the demand environment. I have said this, pretty consistently, since the capital raising of last year, and it was around this time last year when I actually noted that whilst we'd been operating in a robust market, the demand hadn't really started to come through significantly. It was it was solid, but what we have seen over 2027... 2026, pardon me, is that demand has really significantly increased. And we've announced a range of contracts, Sukari Earthmoving, Montage Grey Control, Montage Lab, Mardin Exploration.

15:30 So, you know, the the the proof has been in the pudding, a lot of contract wins. But, you know, we continue to... And the slide that we've talked to for quite some time now is just to look at the spending from mining and exploration companies, and we're still 35% below the previous peak cycle despite record commodity prices. So, you know, I'd I'd argue that we're still, as a service provider, quite early in the demand cycle, twelve months or so, and quite far behind where we were in terms of our customer base spending over a decade ago. The second thematic that we often refer to is is is these charts. And, you know, when I get asked about this cycle versus the last cycle, we highlight the free cash flow generation. So in the previous cycle, you can see in the top graph, the sector broadly was cash flow negative, heavily investing in capital expenditure, merger and action... Acquisition activity.

16:34 What we're seeing in this cycle is quite different into... And, again, draw your eyes to the top left chart on the right hand side. It's just the generation of cash cash flow generation that we're seeing in this cycle is significantly higher than it was in the previous bull cycle. And and as I said, we're starting to see that really come through in terms of demand for our for our services. The other, I think, characteristic that is quite different or what we're seeing is a difference is the demand profile. And when you look at the contracts that we have announced over the last twelve, eighteen months, it is dominated by predominantly mine site contracts, majors, tier two, mid mid tier, but the higher quality assets we're seeing. Whereas I would argue that the the previous cycle, there was a lot more activity from the juniors.

17:28 So in terms of the robustness of the demand, certainly looking at this current cycle, thinking there is a lot more, strength to the demand from what is very highly cash generative customer base. I should round off just on reiterating revenue guidance for the full year, 435 to 455, and, it's not difficult to do the math to say that we should be toward the top end of that range. MSA Labs, 85 to 95, again, top end of that range, and group CapEx remains guiding at 55 to 65,000,000. The investment case, for for the company, obviously, an integrated business model. We are quite unique, in that we are able to provide multiple services to our customer base and the cross selling between, our laboratories business and our drilling business in particular has has obviously, been hugely successful, for the company.

18:31 We're we're we're exposed to the tier one customers, know, great credit count... Counterparties, but we're also on the tier one assets as I said earlier. So when you look at the production profile of our customers and their cost base, we're we're dealing at mine sites and in many... In some cases, twenty years on these sites that are very much in the lowest quarter of the cost curve. The returns have come back. So again, we're operating at sector leading margins, sector leading returns. Obviously, the mining cycle itself is in extremely good shape, and I'm sure valuation will come up. The CAPITAL continues to trade at a discount to all its peers, whether it be mining, drilling, or laboratory peers at a significant discount, on a look through basis, and obviously has, a third of its market cap represented, in the investment portfolio.

19:37 I'll round it off there, and I will hand over to q and a. Thanks, Ryan. That's great. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the q and a tab situated on the right hand corner of your screen. Just while the company take a few moments to review those questions submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published q and a can be accessed via investor dashboard. And, Ryan, could I please just hand back to you to read out the questions and give responses where appropriate to do so? And I'll pick up from you at the end. Thanks, both. A handful of questions have come in. So, Jamie, just focusing on MSA labs. Someone has asked when a lab reaches maturity, what kind of utilization rate can be expected?

20:25 We obviously... We report our utilization in aggregate across commercial and mine site laboratories, and the recent numbers was 56%. It's important to point out that as we keep adding labs and they ramp up, that dampens that utilization to an extent because we are actually growing our lab network. But, I mean, a lab at maturity, there are multiple labs within that portfolio that are operating in the nineties. So, you know, if you extrapolate what that means, we've got quite a bit of latent capacity still. We we invested quite heavily in our lab rollout, particularly across '23 and '24.

21:16 We slowed down a little bit in '25 and increased our BD, focus, and and that's where we've seen the business inflect to profitability. But to answer the question, you know, to to to see that portfolio move up to 80%, I don't think is is is an unrealistic expectation, assuming we we continue to have a supportive, cycle. Thanks. And still sticking with MSA Labs. So someone has commented that a number of Canadian junior exploration companies have said that there have been significant backlogs at SA Labs in... So the question is, are key districts in Canada a growth area for MSA Labs, and any plans to grow insights?

22:06 Look. I'd speak broadly. I'd speak North America, which obviously for us means Canada and The US and juniors in particular, look, it is prevalent in the industry at the moment. Turnaround times have extended. Laboratories are super busy.

22:26 So for us, I... I'm pretty pretty happy with the platform that we've got. We've got, in Canada specifically, laboratories in Timmins and Val D'Or, a hub lab in Langley, and most recently, we commissioned a lab in Brown Falls in Newfoundland. I think the immediate focus for us in in addressing the question to Canada specifically is to increase the utilization through that platform that we have, and we are seeing that. While we also do have North America more broadly, but Canada as well expansion plans at at those existing labs. So just adding capacity, adding more testing capabilities.

23:20 So, yeah, we will continue to expand that platform.

23:27 Thanks. Another another question for the company as a whole. So given the drilling contracts pipeline and MSA Labs ramp up, the overall business is in a much better shape. So is there a long term strategy to reduce exposure to some parts of the business?

23:42 For example, mining given the lumpy nature of revenue or cross selling opportunities to justify keeping all of the businesses?

23:52 There isn't a long term strategy to reduce across the three specific verticals that we have currently. And, you know, we often get asked around mining, and, yes, it is lumpy.

24:13 However, what it does bring the group is an end to end capability, which we found very beneficial in terms of cross selling and the ability to talk everything from exploration through to production. It's quite... As I said earlier, it's quite unique. So we'll be very selective on the mining side, and I appreciate that there can be some volatility when those contracts come to an end because of the sheer scale of them relative to a drilling contract.

24:43 That being said, when they are in place, they are long term contracts and they are very consistent and very reliable. In terms of MSA and and, you know, one of the questions we often get asked is about a demerger of of MSA. And, look, the the... We'll assess, naturally assess the portfolio, at any stage. But for us, the key thing for MSA was to get that business to demonstrable pro... To to profitability. We... And we've done that. But it certainly is an exciting high high growth part of the business. But there... You know, with respect to the question we get asked about a demerger, I mean, there's obviously an argument here that lab businesses trade at significantly higher multiples than the mining and drilling business. So, you know, it's it's not lost on the board that that there there could be a value release through through a demerger.

25:46 But certainly, you know, not... Nothing that, has been agreed upon. Thanks. And just a question about fuel costs. Have they affected, our drilling and mining operations?

26:02 Negligible. Almost exclusively, our contracts, the cost of diesel is on is on the customer. So diesel and fuel as a percentage of revenue is, I wanna say, less than 1%. So, yeah, minimal impact on on on the on the business.

26:28 Thanks. And final question. So as we are heading into the end of f y twenty six, do you have any commentary on FY '27 and beyond?

26:41 I I think, you know, we'll obviously... We we we typically provide specific guidance early in the year. So I won't talk to the broker numbers specifically, but what I would say is that I'm... I mean, the most common question I get is about cycle and where where we're at. Now, obviously, it covered a little of that earlier that I do think we have an extremely strong demand outlook for '27 and '28. I think the balance sheets, of the companies that we face and their cash flows accept... They're exceptional, levels. So I... And and I'd also note that the majority of the customers we face are in their budgeting cycle now. So, you know, their spend for '27 is being set now, and I expect that to be very robust. So, you know, I think I think we're in a very good space at the moment, and I think we've got a couple of, you know, a couple of very good years ahead of us.

27:46 Thanks, Jamie. That is all the questions. That's great. Thank you for answering all those questions you can from investors. And, of course, the company can review all questions submitted today, and we'll publish those responses on the Investor Meet company platform. Just before redirecting investors to provide you with their feedback, which I know is particularly important for the company, Jamie, could I please just ask you for some closing comments? Sure. Well, first of all, yeah, thank you, everyone, that has dialed in today, thank you for the questions. Closing comments really are that encourage people to look at deck and particularly the back end of the deck where we highlight CAPITAL's valuation. We certainly have got a lot of positive momentum behind us. We've upgraded our revenue guidance twice this year.

28:31 So very supportive tailwinds with a business that is executing well and has a balance sheet to capitalize on this growth. So, you know, as as per the questions, I think we're in for position well for a very good, number of years ahead of us. And once again, just thank you everyone for for dialing in and asking the questions. That's great. Thank you for updating investors today. Could I please ask investors not to close this session as you'll now be redirected to provide your feedback in order that the management team can better understand your views and expectations. This may take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team, we'd like to thank you for attending today's presentation, and good morning to you all.