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LONDON (Alliance News) - Capital Drilling Ltd Wednesday said revenue remained broadly flat during the first quarter of 2016, a "traditionally weak" period for the company, and said this is expected to rise in the current quarter as it begins to conduct work under short-term contracts.
Capital Drilling shares were up 12% to 35.85 pence per share on Wednesday morning.
The drilling services company services the mineral resource markets, helping miners to drill, find and extract minerals such as gold.
Revenue in the first quarter of 2016 amounted to USD19.1 million, flat from a year earlier but, more importantly, 1.1% higher than the USD18.9 million generated during the final three months of 2015.
The main cause for the rise was better utilisation of its fleet of drilling rigs in the period. Capital Drilling had 34 rigs being used in the first quarter and final quarter of last year, but its fleet utilisation rate was slightly higher at 36% in the most recent quarter compared to 35%.
Fleet utilisation rose because the average fleet size was reduced between the final quarter of 2015 and the most recent period. Capital Drilling had an average fleet size of 97 rigs in the final quarter of 2015, but downsized its fleet to only 94 by the end of the year.
Capital Drilling still had 94 rigs within its fleet at the end of March.
"The result reflects the continued stabilization of the company's revenue with the company's core production contracts contributing over 80% of group revenue in the first quarter. The group saw a slight increase in utilisation over the quarter, reflecting increased activity at the North Mara gold mine and new exploration contracts that commenced late in the quarter," said the company.
The increased activity at North Mara is under a contract whereby Capital Drilling is providing services to the owner of the mine, fellow London-listed company and major miner Acacia Mining PLC. That contract was secured in December and the amount of rigs on site recently increased to five from four.
However, the average revenue per operating rig in the first quarter of 2016 fell quarter-on-quarter and year-on-year to USD181,000, which is the amount of revenue generated by each rig that was being utilised in the quarter.
That is 5.2% lower than the average USD191,000 a year ago and 2.2% lower than the average USD185,000 being generated by each utilised rig in the final three months of 2015.
"[Revenue per rig] was however marginally softer, primarily due to rigs commencing drilling in late March, therefore generating a marginal revenue contribution for the period, in addition to single shift drilling on a number of exploration programmes," said Capital Drilling.
Notably, Capital Drilling said the first quarter of the year is a "traditionally weak" period for the business and said revenue should rise in the current quarter as work begins under new short term exploration contracts.
Capital Drilling is optimistic moving forward after securing a number of new exploration contracts since the start of the year, adding it has secured "the majority" of the contracts that it bid for.
Gold prices have also rallied since the start of the year, which is good news for gold miners and in turn good news for Capital Drilling. Gold was trading at USD1,271 per ounce on Wednesday, which is almost 20% higher than the USD1,062 an ounce price at the close of 2015.
"Recent increases in the gold price along with increased capital markets activity in the mining sector give the Group an encouraging outlook. The early signs of recovery in the sector, albeit measured, together with the award of new exploration contracts, reinforce Capital's position for revenue and earnings growth during the balance of 2016 and beyond," said the company.
Mark Parsons, the chief executive of Capital Drilling, said the signs of improvements in the tendering markets, albeit small signs, is encouraging and should hopefully lead to higher levels of activity within the mining sector, creating more business for Capital Drilling in turn.
"While we currently expect trading to remain in line with expectations for the remainder of the year, we are in a strong position to take advantage of opportunities as conditions improve," he said.
"The large majority of our revenue is secured with long-term contracts, many of which are expected to operate beyond their forecast completion. Our low cost operating model also attracted several new contracts during the first quarter, supporting our growth strategy," he added.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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