The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
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Just bought £10k. I've read about this company whilst researching keeping up with my various goldies including SHG,CEY & HUM. OK yes they are capital intensive but their move into lab services is astute and I couldn't resist the geographically and functionally diversified nature of their business. A current PE of 5-6 on underlying operational earnings and 3 on IAS PE
Roll the dice...!
River and Mercantile UK Micro Cap Unvestment Trust have today released their monthly review for March.
Their portfolio commentary includes this rather pleasing commentary on CAPD - which is now the Trust's third largest holding at 4.8% of the total portfolio:
"Capital, the African gold drilling and mining business, was the final material contributor. The shares gained 14% in the month following strong results and remains good value despite trading at all-time highs. We also promoted Capital from an S3 to S2 sustainability rating which follows a few years of engagement with the company and recognises the progress they have made on our key pillars."
Encouraging new tweet overnight from CAPD (click link for the drilling activity chart):
Https://twitter.com/_CapitalLimited/status/1513714843445985282
"Capital Limited
@_CapitalLimited
Strong activity continues in the drilling sector, positive indicator for our drilling business, S&P Global’s Mar data shows drilling remained strong through the qtr, with a record # of projects reporting, up 2.5% MoM to 414. Distinct drillholes increased by 2.0% to 6,231 projects"
Excellent - tipped in today's Mail on Sunday Midas column with an update (cheers JLite, appreciated - here's your "limelight" attracting event!):
Https://www.thisismoney.co.uk/money/investing/article-10702563/MIDAS-SHARE-TIPS-UPDATE-mining-tip-Capital-70.html
Quite a good summary given the space limitations, pointing out:
- the thriving core business
- the move into mining services
- the disruptive potential of the labs business
- the branching out into other metals
And that's without mentioning the investment portfolio which backs up $60m of the £198m m/cap.
If Midas are already 70% up on their original tip they normally update by saying holders should take part profits and hold the rest, but unusually here they say holders should continue holding and newbies should buy in too.
it is very quiet on this board. Clearly they are still under the radar. I wonder what is needed to move them more into the limelight. New drilling contract awards? Another Sukari contract? More details on Labs roll out? Anyway, quiet Q1 on the news front but I assume they would only announce material wins - not just run of the mill drilling contracts.
Looking forward to more news.
Thanks for the updates Rivaldo - you are very much on the pulse here and they are very much appreciated.
JL
A very nice close last night, with a 32,685 share buy at 107.5p and other buying at 107p and 107.5p.
And Golden Rim has announced overnight that drilling has begun at its Kada project in Guinea - CAPD are the contractor here:
Https://www2.asx.com.au/markets/company/gmr
"5,000m of drilling is planned"
"Drilling is planned on seven prospect areas"
Chrysos have announced they're about to IPO in Australia. So the IPO documentation will likely have some info on their rollout arrangement with CAPD and reflect nicely on CAPD's MSALabs division and its prospects. Here's the latest news - looks like the launch is going extremely well:
Https://www.afr.com/street-talk/chrysos-ipo-covered-at-6-50-sh-637m-mkt-cap-20220407-p5abph
Https://www.afr.com/street-talk/chrysos-makes-seven-point-ipo-pitch-fundies-ready-for-pricing-talks-20220330-p5a98s
"Chrysos management is making a seven point pitch, starting with the “large, unpenetrated” total addressable market and including the company’s “highly disruptive technology”, “attractive customer value proposition” and scalable business model.
Management also told potential investors that their PhotonAssay technology reduced carbon emissions and lead contamination for miners."
Continued good drilling results from CAPD's drilling programme for Hummingbird in Guinea announced this morning.
Notably, the first gold pour is expected for Q2'23, so CAPD must be in prime position to pick up long-term production contracts here:
Https://www.investegate.co.uk/hummingbird-res.--hum-/rns/kouroussa-guinea-update/202204060700063929H/
CAPD's investee company Arrow Minerals were up 11% overnight to AU$0.005 on good news from its Vranso project, with gold targets confirmed:
Https://www2.asx.com.au/markets/company/amd
CAPD have certainly been the drilling contractor for Arrow elsewhere in Burkina Faso, so with drill testing to begin after sampling completion CAPD should as a prime investor be first in the queue to win the contract.
Firefinch rose almost another 6% overnight, to new highs at AU$1.25.....
Https://www2.asx.com.au/markets/company/ffx
On further investigation it seems CAPD's options in Firefinch which I mentioned in my earlier post have been subsumed into their new total holding of 18.95m shares, so that's the total extent of their holding in Firefinch, i.e now worth around £13.5m against CAPD's total £198m m/cap - let alone the rest of CAPD's investment portfolio, which in total was worth $60.2m at the last year end.
Firefinch shares soared another 13% last night to new highs of AU$1.18.....
They announced that a whopping US$130 million of funding has been received by the Goulamina Lithium Project JV:
Https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02505422-6A1084648?access_token=83ff96335c2d45a094df02a206a39ff4
CAPD's holding of 18.95m shares in Firefinch is now worth £12.8m. They also have per my records 5.625m options @ 0.015 AUD, so these are worth a further £3.8m, i.e a total worth of £16.6m....
Moving up very nicely now - still lots of upside though imo (and the various covering analysts!).
Https://masterinvestor.co.uk/equities/taking-a-small-cap-look-at-pier-capd-jneo-and-bag/
"Capital Limited (LON:CAPD) – scored my first ‘hat trick’
Yesterday Tamesis Partners issued a Post Result Update note on this mining services group. Their analysts have maintained their positivity about the group’s prospects.
Furthermore, they confidently rate the shares as being undervalued, having set a price objective on the shares of 160p, that upside offers an excellent 60% plus to go for – the shares last night closed at just 100.5p.
Tamesis points to this current year being another record in anticipated revenue terms, which will have more than doubled since 2020.
They note that all elements of the group’s business are growing strongly.
It has been a bit of a slog getting the shares over the 100p mark, which they eventually did last Thursday, hitting 103p at their best.
That actually means that, for the first time I have scored a ‘hat trick’ in having targeted the group’s shares to break the 100p level subsequent to my three main profiles on the company.
Holders should stay with the shares, hoping that the Tamesis price aim will help to drive them even higher."
Nice finish - 47,000 shares bought at around 102.5p reported after the close.
Interesting to see there's been a surge of buying of gold in Russia by people wanting to protect their savings, with demand quadrupling:
Https://www.kitco.com/news/2022-03-28/Russia-sets-fixed-gold-price-as-it-restarts-official-bullion-purchases.html
Finally, Golden Rim have just announced they're finalising a new drilling programme at Kada, and "drilling is expected to commence shortly". As the existing contractor, and having just invested further, this looks good for CAPD:
Https://www2.asx.com.au/markets/company/gmr
He's been selling fairly regularly for a while now, so his sales dont bother me. Shouldnt have too many to go and has likely been one of the things holding this back....
Any concerns? £1.5m sold in last few days...
It's worth digging deeper into Tamesis' new note - they have a 206p valuation based on average peer group EV/EBITDA multiples:
"Valuation
Sum of the parts analysis - we show our comparative valuation table in Fig 2. It is a bit too early to start considering SOTP analysis in earnest when valuing Capital given the stage of growth and size of the mining services and laboratory business. Nonetheless it is worth noting that if we applied the average peer group EV/EBITDA multiple for 2022 to each of the segments and then add the investment business we get a valuation of $509m or 206pps. As an aside our we assume a constant EBITDA margin of 30%; in line with the group total rather than an estimate of the underlying businesses. We would also point out that ALS is a very large diversified laboratory business so the multiple is less relevant but suspect it should be towards double digits.
Using earnings and cashflow multiples we continue to retain strong conviction that the share price is trading on too big a discount to its peer group or the market generally. For instance if we applied the blended average EV/EBITDA of 5.2x to our 2022 forecast we get a valuation equivalent of £1.81/sh. We understand that comparative EV/EBITDA analysis is not the most accurate valuation tool but there is further support from a P/E multiple of just 6.5x and 5.7x for 2022 and 2023 and a dividend yield now of 3.3% and 3.7%. So we believe as conditions remain strong and the company delivers on its guidance (with the expectation of an increase to the guidance later in the year) we should see share price growth not just on underlying conditions but also from a re-rating."
Tamesis have today increased their target price to 160p (from 140p). Peeps should be able to download for free if they register with Tamesis:
Https://www.tamesispartners.com/research-portal#/portal/tamesis-partners/research/37_202203290253515276
"Capital Ltd now has three broad income streams: drilling, mining services and the assay business. There is also the company’s investment portfolio, Capital Investments, which is essentially a “drill for equity” business and has proven remarkably successful. The portfolio carried a value of US$60 million as of 31 December 2021 vs $12.5m at the end of 2019 and currently equivalent to 25% of the market value of the business.
The shares are trading on a PE ratio of 6.5x and 5.7x for 2022 and 2023 respectively, EV/EBITDA of 2.7x and 2.4x and a dividend yield of 3.3% and 3.7%. The FCF yield is expected to rocket in the next two years – current estimate 10% for this year, rising to 17% for 2024. These multiples are simply not reflecting the high growth, relatively low cyclical and risk and profitability of the three proven income streams nor the additional value being created by the investment business. We increase our PT to 160pps which, at this price, means the company would still only trade on a 4.5x EV/EBITDA multiple vs an average of 5.2x for its peers."
Excellent post Jlite, thanks.
CAPD have now increased their shareholding in Golden Rim to 34.3m shares, from 23.1m shares:
Https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02503324-6A1083636?access_token=83ff96335c2d45a094df02a206a39ff4
There's been a few on-market purchases, but CAPD have now bought another AU$726,000 of shares in a placing at AU$ 0.078. So this could become another sizeable success if it continues a la Predictive or Firefinch.
Hi Rivaldo
Thanks for the reminder on this presentation, I planned to dial in but couldn't on the day.
What struck me most was the confidence in the pipeline. They have the financial and organisational capability to take on another Sukari size project. And this is not in the forecast at all. They also took their time to note that they upgraded forecasts twice last year, that could well be a sign that they plan to do the same again this year. As per my last message, the current forecast of $270-280 includes no new contract wins at all. Indeed it probably doesn't include enough if they manage to maintain the utilisation rate at 80% with the increased number of rigs. So I would be amazed if they didn't upgrade at some point this year - if they don't that will be a sign that their sales team have not delivered. But let's hope it does not come to that.
In summary, still my largest holding, still ridiculously cheap on a very low multiple with no upside priced in at all. They were at pains to tell us that this is the start of the cycle with more than 10 new mines moving to DFS so they are, for the first time in their history, in a position to bid for those from a position of strength with a fantastic case study of Sukari. It will only take one more of them to move the dial forward massively. If they win two big ones, they may have to raise to fund the expansion, but that would be from a position of massive strength. Their balance sheet can cope with plenty more debt currently too.
Lots more to come after a successful 2021.
JL
CAPD's very large investment in Firefinch was overnight up 5.6% to new highs at A$0.945 - worth over £10m - due to news of "Substantial Resource Increases for Viper and N'Tiola" at its Morila site.
CAPD are Firefinch's preferred drilling contractor, and CAPD's MSALabs are quoted in the press release as carrying out the lab operations.
Production and mining at Morila is ramping up, and there's lots more drilling to come:
Https://www2.asx.com.au/markets/company/ffx
Https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02502730-6A1083411?access_token=83ff96335c2d45a094df02a206a39ff4
"• The Viper Mineral Resource Estimate (MRE) increased by 128% to 3.27 million tonnes at 1.15g/t gold for 119,000 ounces of contained gold
• The N’Tiola MRE increased by 18% to 2.90 million tonnes at 1.03g/t gold for 96,000 ounces of contained gold
• Total Mineral Resources for the Morila Gold Project are now 2.5 million ounces of gold
• The Viper MRE has been depleted for mining of 8,000 ounces of gold as at 31st December 2021.
• Viper mineralisation now defined over 1.5km of strike; further drilling planned at both deposits in 2022 testing extensions to mineralisation
• Mining at Viper is underway and mining at N’Tiola will soon follow. Both contribute substantially to mill feed in 2022-2023 as Morila production ramps up"
Great to see a late 58,000 share buy at 102p and 11,000 bought at 101.514p. Hopefully a bit of a surge coming :o))
I finally got round to watching CAPD's Investor Meet presentation here:
Https://www.capdrill.com/news/investor-presentation-investor-meet-company
The core business is as we know roaring along, summed up by Jamie's closing comments that CAPD are still in the "early stages" of the current upcycle, and that they're "very bullish on the years ahead".
But the MSALabs content in particular is really very exciting. This business had only $3m or so turnover in 2019, whereas guidance for this year is $30m.
Revenues for each Chrysos machine are around $5m per annum, so the 6 Chrysos machines rolling out....even my maths is good enough to work that out.
A question was asked about previous guidance of $50m revenues from in 2024/25 perhaps now being too light, and this provoked lots of smiling all around from the CAPD team! Jamie noted that $80m is now being discussed and the run-rate could be greater than that.
An MSALabs spin-off is certainly up for discussion, but they would want revenues to be much greater than at present. However, Jamie noted that labs businesses trade at much larger multiples....
In the current environment, aside from geographical/political risk, CAPD still looks like a tremendous bargain imho at these levels given the various drivers going their way now and in the coming years.
And 100p finally breaks. Hopefully breaking this is only a stepping stone to greater things.
and buying coming in at 99p this morning.