Want your share as gold hits new highs? Dig deep...
THE lockdown may be lifting, slowly, but economic prospects remain uncertain, interest rates are likely to stay close to zero for some time and many professional investors are nervous about the future. These are difficult times – but they are good for gold.
The metal is trading at over $1,700 (£1,390) per troy ounce, an eightyear high. Experts believe conditions are set fair for some time to come, which bodes well not just for gold miners but those who work with and for them, too.
Capital Drilling specialises in drilling for gold. One of the top ten drillers in the world, its clients include some of the best-known names in the mining industry, such as Anglo Gold Ashanti, Barrick Gold and Centamin.
Capital shares are 61p and should go higher. The company is expected to benefit on several counts from the rising gold price and it even pays a dividend. A payout of 2.25 cents (1.84p) is forecast for this year, putting the stock on a yield of more than 3 per cent.
Capital works almost exclusively in Africa, where plenty of gold mining takes place, but equipment is often old and past its best. Capital aims to change this. Under chairman and co-founder Jamie Boyton, the group has consistently focused on quality – using top-dollar kit and ensuring it is properly maintained.
Highly qualified staff are employed, too, capable of sensing what lies a mile beneath the surface when they start to drill just from the feedback they receive as they start to work.
Such attributes are critical at gold mines. Stoppages and power cuts can mean thousands of pounds of lost revenue, so robust equipment and skilled staff help Capital attract and retain blue-chip customers.
Most drilling groups focus on working with explorers. Over the past few years, however, Capital has pivoted towards gold producers – miners who are churning out gold day in, day out.
Boyton has signed long-term contracts with these producers so Capital enjoys more stable revenues than most of its rivals.
The group also benefits when gold prices rise. In a bullish market, producers start looking for more gold, so exploration budgets increase and they need more drills.
They also tend to recalculate which parts of their mine are profitable. The higher the gold price, the more areas can be economically drilled. And junior explorers start working harder, too, creating further demand for drill specialists.
Capital is already experiencing a pick-up in demand and that should persist throughout 2020. In the first quarter, for example, turnover rose 20 per cent to $32.5million, while brokers expect full-year figures of around $130million, a 13 per cent increase on 2019 numbers.
Net profits are likely to show even stronger growth, up 20 per cent to $12million, with further rises pencilled in for 2021 and beyond. The company reports in dollars, because gold is traded in the US currency, but dividends are converted to sterling for UK investors.
Capital is moving into new areas, particularly earth-moving and this should generate further growth. Earth-moving comes down to digging rocks and transporting them from mine to mill. Contracts are large and many gold miners are keen to use one supplier for both drilling and earthmoving.
Capital is an obvious candidate, as it is the highest quality drill firm in Africa with a world-class track record in health and safety.
Boyston has already signed one contract and tenders are out for several more, with results expected later this year.
A trading statement last month revealed that coronavirus was having minimal impact on Capital. Drilling has continued and staff have remained fit and well.
Looking ahead, the pandemic may create delays in mining activity, however Boyston remains confident about meeting expectations for 2020 and the longer-term outlook is robust.
MIDAS VERDICT: Capital Drilling is a well-run company with a strong culture, centred on professionalism and integrity. At 61p, the shares are a buy.