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"Lab services growing like topsy
If that’s not enough to whet your appetite, Capital also holds two wild cards in its pack. First, back in 2017 it acquired a small laboratory business providing multi element analysis, mainly to get its accreditation status. Miners are obliged to use an independent third party lab for such tests to verify their resources in order to gain bank finance but as Boyton says, the original method using Fire Assay tests was too slow and used unfriendly lead. However, Capital has subsequently secured a licence to roll out photon assay machines, a new technology that literally scans a box of rocks in a container and generates the results in minutes.
Lab revenues have already soared 10-fold from US$3m in FY’19 to US$30m in ‘22 and analysts are targeting US$75m in FY’24 with units deployed to rise from 5 to to 20. This is a low capital intensity, highly profitable (FY’24 EBITDA forecast margin: 35%) business, with higher revenue “stickability” while it adds potential for Capital to cross-sell its other mining services. As Labs increases its share (and therefore the quality of earnings) of an enlarged revenue base, this could lead to a re-rating in the shares.
Investments
The second wild card is that Capital holds a lucrative portfolio of mining investments, some as payment in kind for works provided, which has increased in value from US$11m to almost US$40m. The largest and most exciting is Predictive Discovery (ASX-PDI; US$20m value), which discovered the Tier 1 Bankan gold project in Guinea (inferred resources: 4.2 million oz and growing). The others include private African gold producer Allied Gold Corp (US$8m value) and Leo Lithium (ASX-LLL, US$4m) whose “world class” Goulamina lithium mine is slated for first production in 2024. With the downside protected by its asset base and the low PE of 6.3, I am a buyer."
CAPD were tipped by Momentum Investor magazine (SCSW's sister publication) a couple of months back - since this is now history it should be OK to paste the introduction and conclusion here:
Https://www.momentuminvestor.co.uk/
"Capital Ltd - Mining services firm enjoys buoyant gold market; rising margins not reflected in PE of 6.3
March 2023
Epic Code: CAPD Price: 103.5p
During the month, I met with Jamie Boyton, executive Chairman and co-founder of Capital Limited, an African-focused, mining services company that helps gold miners extract the metal from the ground.
Capital has already beaten forecasts twice in the past six months (most recently in an update on 18 January) with a strong gold price only one of several factors driving its strong performance. Yet despite the broker upgrades, attractive margins, bullish outlook and conservative leverage, the shares are cheap, with Berenberg’s eps forecasts for US 20 cents (16.3p) for FY’23 and 22 cents (17.9p) in ‘24, implying a low prospective PE of 6.3 and then 5.8.
One keynote differentiating Capital from rivals is that it is no longer reliant on the more discretionary elements of a miner’s budget such as exploration and de-lineation (where it maps out where the reserves and resources are); instead, its mainstay is from rental of drilling rigs and excavators alongside service personnel. In addition, it has a fast growing laboratory services division, which helps miners independently verify their resources to gain bank and / or equity funding."
"Strong outlook for gold and rare earths
The future also looks bright for Capital when it comes to prospects for its customers, linked as they are to gold prices. Industry data shows world gold reserves have fallen from almost 35 m oz in 2012 to 30m at present and a great degree of catch up mining is required.
Gold has been on a tear over the past four years, rising from US$1,240 / oz at the end of 2018 to the current US$1,884 / oz, not far from all-time highs. Swiss Asia Capital reckons the current conditions mirror those of 2001 and 2008 when gold tripled in quick time as investors anticipated major economic stimulus ahead of shocks (dot com bust / Iraq War and Global Financial Crisis, respectively).
Meanwhile, Boyton is branching out to new markets also, including rare earth metals such as nickel and lithium, which are used in electric vehicle drive trains and wind turbine generators. Annual lithium demand is projected to roughly triple to 1.5 million metric tons of lithium carbonate equivalent between ‘21- ‘25 and over 3 million tons by 2030 with EVs expected to account for 84% of demand in 2030, from 55% in 2021."
Shanta Gold have this morning announced good progress at West Kenya where CAPD are contracted, with drilling recommencing on a $10m budget this year:
Https://www.londonstockexchange.com/news-article/SHG/2023-group-exploration-update/15965482
"West Kenya
· Current resource of 1.76 Moz grading 5.55 g/t expected to increase to approximately 3+ million ounces over time
· Up to 26,000 meters drilling across 80 holes
· Centered around the Isulu and Ramula deposits
· Targeting both conversion to Indicated category plus resource extensions
· Third party consultants are now being engaged to accelerate technical studies
· Workstream toward mining licence application and permitting is now underway
· Total 2023 budget of up to US$10 million, consistent with previous years"
Shareminator, CAPD's holding in Allied Gold was previously completely illiquid as of course Allied Gold was a private company. An IPO would crystallise almost $18m of liquidity for CAPD! Which is almost 8% of CAPD's total m/cap by itself, even without the rest of the investment portfolio.....
"If Allied Gold IPOs at the mooted $1.2 billion valuation, that would equate to around $18.6m of shares for CAPD, i.e more than 10% of CAPD's m/cap by itself, and a nice $10m+ profit over the $7.7m valuation in the 2022 accounts."
If that is the case, very well spotted! Were Capital's holding previously illiquid? Still a net gain of $10m following the completion of the IPO wouldn't be insignificant for a company of CAPD's size
https://www.globenewswire.com/news-release/2023/05/11/2667358/0/en/Allied-Gold-Corp-Limited-Allied-Merger-Corporation-and-Mondavi-Ventures-Ltd-Announce-Binding-Letter-of-Intent-for-Business-Combination-and-Financing-for-Minimum-Proceeds-of-US-300-.html
CAPD have just tweeted this:
Https://twitter.com/_CapitalLimited/status/1658393946769489920
"Capital Limited
@_CapitalLimited
Excellent Maiden Mineral Resource Estimate (MRE) results for WIA Gold, part of our Capital Investments portfolio. Highlights: inferred MRE of 1.3m oz, 41mT at 1.0g/T Au with prelim met test results returning 91% gold recoveries under standard processes. https://investi.com.au/api/announcements/wia/d6501f8a-e1a.pdf
9:48 AM · May 16, 2023"
This overnight announcement confirms the Allied Gold IPO is proceeding nicely - structured via an RTO, with $300m being raised and a closing date of June 15th, so not long to wait:
Https://www.globenewswire.com/news-release/2023/05/11/2667358/0/en/Allied-Gold-Corp-Limited-Allied-Merger-Corporation-and-Mondavi-Ventures-Ltd-Announce-Binding-Letter-of-Intent-for-Business-Combination-and-Financing-for-Minimum-Proceeds-of-US-300-.html
Good news overnight from Golden Rim's Kada project where CAPD are the contractors, with new targets identified and more drilling to come:
Https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02664919-3A618149?access_token=83ff96335c2d45a094df02a206a39ff4
"Golden Rim’s Managing Director, Tim Strong, commented:
“Discovering gold at the Sadan prospect confirms our view that Kada still has a significant amount of gold ounces to uncover. We feel we have only scratched the surface when it comes to Kada, with 930,000 ounces at Massan across a 1km strike, and another very attractive target in Bereko, 9km to the north. We are now focussed on filling in the gaps across Kada’s 15km long bedrock gold corridor, and we are confident this will uncover further zones of mineralisation and underpin Resource growth.
“Recent RC results at Sounkou1 (17m @ 1.3 g/t) and now promising aircore results at Sadan and Massan South are proof that Kada is a substantial gold deposit, and we look forward to using these new results to drive targeted exploration forward.”
Kada Exploration Drilling
Golden Rim’s 3,000m AC drilling program targeting new discoveries is now complete, while its 3,500m DD program testing open mineralisation and providing structural information commenced in March 2023 is ongoing. In addition, Golden Rim recently completed a 10,000m RC drilling program at Kada which comprised exploration drilling at the Bereko Prospect and north of the MRE area within the Massan Prospect, as well as some resource extension and infill drilling around the margins of the MRE."
New article today about the upcoming Allied Gold IPO, mainly in relation to its Desert Gold operation:
Https://finance.yahoo.com/news/proposed-allied-gold-transaction-highlights-093111090.html
They seem to be much better at picking small miners than I am. I wonder why! Lol
Today's RNS confirms that CAPD hold 1.55% of Allied Gold. If Allied Gold IPOs at the mooted $1.2 billion valuation, that would equate to around $18.6m of shares for CAPD, i.e more than 10% of CAPD's m/cap by itself, and a nice $10m+ profit over the $7.7m valuation in the 2022 accounts.....
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Direct-Investment-Update/90935774
Hopefully the PR for Allied Gold's forthcoming IPO will bring more attention to CAPD. Given the huge undervaluation here already (imho!) the injection of an instant additional £20m or so of liquid funds to the valuation is not be sneezed at.
Looks like a positive review for CAPD here from HotStockRockets (subscriber only):
Https://*************.com/views/68100/capital-limited-q1-2023-trading-update-another-record-year-ahead
"Capital Limited – Q1 2023 trading update, another record year ahead?
By HotStockRockets | Thursday 27 April 2023
Mining services company Capital Limited (CAPD) has issued a first quarter of the year trading update, emphasising “a solid platform to achieve another record year milestone for 2023” and helping the shares to currently 99.8p."
Thanks for the reply Rivaldo appreciate that will look into them companies you have mentioned all sound good
Excellent news re the upcoming Allied Gold Corp IPO in the USA, thx Commoditytrader.
CAPD's investment in Allied was valued at $7.7m at the last year end and was last thought to be around 2% of Allied. With a $1.2 billion pre-money valuation that would imply a value of $24m or say £19m.
Which alone would equate to more than 10% of CAPD's entire m/cap and would add very nicely to CAPD's liquidity. CAPD could place their stock out as part of the IPO, sell stock into the market afterwards or retain it, but whichever, it will add another substantial building block onto the undervaluation here.
Https://www.newsfilecorp.com/release/163921/Africas-Fastest-Growing-Gold-Miner-Attracts-Highly-Experienced-Former-Yamana-Principals-to-Drive-Public-Listing-and-Continue-to-Build-the-Next-Generation-Senior-Gold-Producer
Potentially significant news for private CAPD portfolio company Allied Gold. News that former Yamana management team joining and targeting a listing at a valuation of $1.2 billion.
https://www.newsfilecorp.com/release/163921
Hi Jjones001, thx re the comment, appreciated.
As regards where to reinvest, I'd split some of my current best prospects into three.
There are microcaps like TST, DKL, REAT and SYS. These have all recently announced good news and have rather good prospects as well as being good value on low current or prospective P/E's despite being microcaps imho.
Then there are larger companies such as RNWH, CAPD, MWE and CNIC, which again are all on very low P/E's, have terrific cash flows and have excellent upside potential.
Finally there are companies which are exciting and are either on a slightly higher P/E, but have terrific management and have proven themselves over many years, like SDI, or are exciting as they're on the cusp of a transformational change in revenues and profitability, like SCE.
Boring stuff - please DYOR on all these companies!
Rivaldo I see you are invested in quite a few companies and always a good source for information on them. I was invested in sureserve and now looking for a similar solid and ‘sleep easy’ company to put into with the potential to 1/2x my money. What would you recommend? Thanks
CAPD's holding in Golden Rim is edging up slowly, with more good drilling results - CAPD are the contractor and there's lots more drilling going on until the end of May:
Https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02657229-3A616936?access_token=83ff96335c2d45a094df02a206a39ff4
CAPD also drill for Desert Gold in Mail, where DG have announced further encouraging news:
Https://money.tmx.com/en/quote/DAU/news/8054647050192465/New_2680_ppb_GoldinAuger_Value_Highlights_Additional_Potential_for_Expansion_of_Desert_Golds_Mogoyafara_South_Gold_Deposit_in_Western_Mali
"Next steps will be to follow up with drilling on these new high priority auger targets as soon as possible."
It’s really bizarre the market continues to ignore a company that has a strong track record beating previous year figures.
· Revenue US$77.8 million, a 16.3% increase on Q1 2022 (US$66.9 million).
· Average monthly revenue per operating rig ("ARPOR") was US$192,000 in Q1 2023, a 10.3% increase on Q1 2022 ($174,000). We saw ARPOR pick up particularly in Q4 2022 and expect higher levels to continue going forward. This has been the direct result of our fleet repositioning strategy in the latter half of 2022, with a focus away from shorter term contracts in favour of large scale mine sites and world class developments.
· MSALABS: Continuing to deliver on its multi-year growth trajectory. MSALABS now has 6 units commissioned across Africa and Canada. It will deploy 21 units with Chrysos by 2025.
· Guidance for MSALABS remains $40-50 million for 2023, as guided at our FY22 results, and another significant increase YoY (FY 2022: $27.3 million).
Berenberg and Cannacord have both reiterated their Buy recommendations, with 166p and 145p targets respectively:
Https://investing.thisismoney.co.uk/broker-views/CAPD
Sorry again rivaldo - this is the kind of person I thought you were (from NT), just a note to others to be mindful, whether you are or not I'm sure you appreciate the same sentiment:
"For newer market participants a little warning about videos/podcasts etc where people excitedly talk about shares and an "interviewer" talks to company bosses.
Mostly, interviews with companies are paid for by the companies. Therefore don't expect any objectivity.
Indeed some companies pay money to people to push their shares everywhere they can.
These paid pushers then go on all the popular discussion forums to pump those shares, publishing all positive stuff about them.
So you could simply be buying on the say of someone on a bulletin board who is getting paid to push the shares. They are good at their job and paid to be seductive."
Capital Limited (CAPD-LSE | BUY, TP 145p): CAPD 1Q23 trading update. Total 1Q23 revenue of ~US$78m was in line with our expectations on a half-year run rate basis (CGe 1H23: ~US$156m). CAPD reported average utilised rigs of 95, in-line with our estimates (CGe: 95) as higher utilisation of 77% (CGe: 73%) offset a lower total rig count than expected (123 closing, v CGe: 132). The rig count declined due to timing differences between decommissioning and incoming replacement rigs. The company has guided that its fleet should be in line with end-2022 levels (~130 rigs). ARPOR of US$192k was slightly higher than our expectations (CGe: US$181k) as the company’s fleet repositioning strategy continues to target higher value contracts. Numbers updated for the trading update (including a smaller fleet for FY23, offset by higher ARPOR/utilisation), minimal impact on revenue/EBITDA in FY23 (~1%), while the impact from 2024 (as a result of a smaller drilling fleet carried forward) is -4%.
Tamesis Partners retain their 160p target in today's research note update.
They forecast 19.5c EPS this year, i.e 15.7p EPS. That's a P/E of only 6.2.
They conclude:
"Conclusion:
This is a steady start to 2023 on which Capital will aim to build on throughout the year. The Company is confident on its revenue guidance and expects a strong back half of the year as MSALABS contributions increase. The shares are down 8% since the start of 2023 representing, in our view, a great entry point for a Company that we believe continues to look extremely undervalued trading on a 2023E EV/EBITDA and P/E of 2.7x and 6.2x respectively – see Block Model. We retain our PT of 160p."
The Q1 update looks good to me, with revenues up 16% year on year and on track to meet guidance. The ARPOR is particularly impressive and fleet utilisation is good, with "very strong demand for our services".
Labs and mining services continue to increase smoothly. And there's "a number of opportunities progressing" in tendering, so hopefully there's large contract news coming.
Above all, "The Group has got off to a strong start in 2023 across all our business units".
CAPD remain extremely cheap at these levels imho:
Https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Q1-2023-Trading-Update/90809960
An intriguing move. You'd have thought CAPD's advisers would establish there was buying interest in CAPD's shares before doing this? Stifel in particular are a huge American investment bank so should have some heft in making this worthwhile:
https://uk.advfn.com/stock-market/london/capital-CAPD/share-news/Capital-Limited-Commencement-of-Trading-on-the-OTC/90789936
Thanks rivaldo. My apologies if you aren't in any way connected to CAPD. It doesn't surprise me either way as I have a friend who has a listed company and he pays 3rd parties to provide positive updates on the boards. It clearly happens on many other boards too, I suspect the majority of the small caps so just a note to all to be mindful.