Capital gains go deep

These days it’s tougher for those on the sidelines to do better than the resources companies during boom times, but they can provide shareholders with a bit more stability in an inherently cyclical market. Capital Drilling (CAPD) earns 90 per cent of its revenues from providing drilling equipment and services to gold producers and explorers. However, it has avoided the levels of share price turbulence its clients face: it started and kept its dividend going through a downturn and when the gold price bottomed at about $1,100 an ounce in 2015 and 2016. 

Capital is focused on east and west Africa and Egypt, with its work ranging from long-term contracts at mines doing resource expansion and blasthole drilling and shorter campaign drilling for explorers. 

Those long-term contracts include Centamin’s Sukari mine and new London entrant Resolute Mining’s underground operation Syama, as well as Kinross Gold’s Tasiast mine in Mauritania and Acacia Mining’s North Mara mine. Capital’s executive chairman, Jamie Boynton, puts longer-term deals at about 85 per cent of its revenue, which is forecast to be $110m-$120m this year. 

The company has recently been increasing its capacity in west Africa, amid much excitement in the industry about the region’s gold prospects. Mr Boynton said the early 2019 fervour around the region had not yet had a big impact, but added that explorer cash and the high gold price should soon start to feed through to more work for the company, as indicated by a higher rate of inquiries recently. If gold stayed at around $1,400 an ounce that would do much to move exploration money to juniors on Aim and the Toronto Stock Exchange’s equivalent. 

Capital’s places of work could raise some concerns for governance-focused investors; Mauritania and Nigeria, a new market for the company, are well down the list of countries in Transparency International’s corruption perception index. West African jurisdictions fare better at about halfway down the rankings. The company argues that operating as a contractor to listed mining companies with “world class” standards should keep all its dealings strictly above board. 

Looking ahead to the second half of 2019, investors can expect seasonally higher revenue because explorers and miners ramp up activity after the wet season in west Africa.