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LONDON (Alliance News) - Capital Drilling Ltd Monday said that, although its second quarter trading activity improved slightly on its previous quarter, its half year revenue will be significantly lower than the previous year, though in line with market expectations, as weak commodity prices, subdued capital markets, and a focus on capital discipline hit sales at the company.
The emerging markets drilling company said its first half revenue for the six months ended June 30 is expected to be down 27% to USD52.9 million from USD72.7 million the previous year, as mining companies reduced their tenders for drilling due to falls in commodity prices and a necessity to focus on capital discipline in the mining industry.
However, the company said its second quarter saw marginal improvement compared to the previous quarter, up 2.3% to USD26.7 million from USD26.1 million.
In May, Capital drilling said its revenues were 20% up in its first quarter compared with its fourth quarter 2013 figures, due to the start of production drilling at the Geita gold mine, with five new rigs being added to the fleet at the site during the first quarter.
The company said on Monday that the award of five-year contracts - with AngloGold Ashanti Ltd in Tanzania and with Centamin PLC in Egypt - has led to an increase in capital expenditure during the first half. The firm bought seven rigs for these contracts, and it expects a further rig to be bought in the fourth quarter.
Capital Drilling said it now has a total of 96 drilling rigs being utilised.
The company added that although market conditions remain difficult into the second half of the year, it has already seen an increase in tenders and it hopes to continue an incremental quarterly revenues increase.
"While industry headwinds remain there has been a small but encouraging increase in tendering activity in recent months. The group continues to have ample available capacity in exploration and development drilling, ready to redeploy when conditions improve. We expect improved free cash flow in the second half of the year, with the capital expenditure required for the production contracts largely committed in the first half," Executive Chairman Jamie Boyton said in a statement.
Capital Drilling shares were untraded early Monday; they were last quoted at 28.90 pence.
By Tom McIvor; tommcivor@alliancenews.com; @TomMcIvor1
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