LONDON (Alliance News) - Capital Drilling Ltd Tuesday said profit fell in the first half of the year, due to a drop in revenue, after it said it was hit by weakness in the mining services industry.
The company, which provides drilling services to mining companies in emerging and developing markets, said the first half of 2014 was challenging. It reported pretax profit of USD3.3 million for the six months to June 30, down from USD3.7 million in the first half of 2013.
Revenue of USD53.8 million in the first half was 26% lower than the USD72.7 million reported in the first half of last year. However, revenue did improve significantly compared to USD43.6 million in the second half of 2013, driven by the start of blast-hole drilling services at the Geita Gold Mine in Tanzania by AngloGold Ashanti Ltd.
The company said rig utilisation was 45% over the period, the lowest levels experienced by the company since commencing activities in 2005.
Capital Drilling said spending by mining companies remained cautious in the first half, with headwinds in the industry that it expects to remain in place over the remainder of 2014, as sector revenues remain under pressure with low visibility and increasing competitive pressures.
"As we enter the second half of 2014, we continue to operate in a difficult environment. While there has been a small lift in activity levels within the exploration sector in recent months... the scale and duration of the programs remain subdued. We are currently expecting softer revenues in the second half of the year," said Executive Chairman and Interim Chief Executive Jamie Boyton in a statement.
The company said that despite expecting lower revenue, it expects to see an increase in free cash flow over the second half, due to a substantial reduction in required capital expenditure and the benefits of cost savings generated over the past 18 months.
Capital Drilling said it is "well positioned" for any upturn in the mining industry, with a large proportion of current revenue underpinned by longer-term production contracts, a strong focus on cost control, and "prudent balance sheet management".
"On the basis of current market trends, the board remains comfortable with market expectations for the full year although it remains cautious of the prevailing headwinds in the industry," said Boyton.
Capital Drilling said it increased capital expenditure in the first half with the acquisition of seven new rigs for the production fleet, as a result of awards of drilling contracts with AngloGold Ashanti in Tanzania and Centamin in Egypt.
Capital Drilling shares were untraded Tuesday morning at 29.00 pence per share.
By Rowena Harris-Doughty; rowenaharrisdoughty@alliancenews.com; @rharrisdoughty
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