MIDAS SHARE TIPS UPDATE: Our mining tip Capital strikes gold with 70% rise in two years
Mining companies had a rough time after the 2008 financial crisis. Demand fell, prices slumped and many were left funding expensive expansion projects that they could no longer afford. Lessons were duly learnt and miners spent years doing precious little exploration and keeping costs low.
The strategy worked well but, as demand for all kinds of metal picked up and prices began to soar, the mining firms realised that it no longer made sense to sit on their hands – there was money to be made by finding new assets again.
The shift in sentiment started in earnest in spring last year – and mining services group Capital is reaping the benefits.
Gold rush: Midas recommended the shares at 61p in May 2020, since when they have risen more than 70 per cent to £1.04
Reporting 2020 results early last year, chairman Jamie Boyton told investors that Capital would deliver sales of about $190million (£150million) in 2021.
That estimate was raised in July. It was increased again in October and, when 2021 results were released last month, Capital’s sales beat even the most optimistic expectations, at $227million, a 68 per cent increase on 2020 figures. At the same time, Boyton suggested turnover would range between $270 million and $280million for this year, a forecast his company is quite likely to beat.
Capital makes most of its money from digging for gold. The Mauritius-based group is hired out by big mining companies, mostly in Africa. It has the biggest array of equipment on the continent and a top-flight safety record so demand is buoyant, with customers increasingly focused on availability rather than price. In recent years, Capital has been branching into other areas as well, notably earthmoving and laboratory work. Whenever mines are in use, earth needs to be shifted. The work is dull but profitable and Capital last year began a $250million four-year contract for the FTSE 250 goldminer Centamin, with other deals in the pipeline.
Laboratory services involve analysing mine samples to assess the quality and quantity of gold and other metals at a site.
Here too, Capital is making its mark, particularly after gaining exclusive use outside Australia of a new gold-testing technique, which is faster, more accurate and more environmentally friendly than conventional methods.
Across the group, prospects are bright. Global exploration spending is still 40 per cent lower than it was ten years ago and, when miners start exploring, they need rigs, earthmoving equipment and testing services, all of which Capital provides. Boyton has been with the business since 2009, he is a 12 per cent shareholder and concentrates on long-term contracts with large, well-known miners, such as Centamin, and Barrick Gold, the world’s biggest gold group.
Capital is starting to move beyond Africa and into the market for other metals, such as nickel and lithium. With gold prices at near record levels – and nickel and lithium soaring in value too – brokers expect continued turnover and profit growth for the next few years.
Capital pays a decent dividend as well, with 4.7 cents pencilled in for 2022 and 5 cents next year.
Midas verdict: Gold mining tends to wax and wane and the industry is definitely in the waxing phase right now. Capital is reaping the benefits and is likely to continue in that vein for at least the next couple of years. Midas recommended the shares at 61p in May 2020, since when they have risen more than 70 per cent to £1.04. Even at current levels, there should be more to go for, especially as peers on other stock markets are valued much more highly. Existing investors should stick with the shares. New investors might fancy a punt as well.
Traded on: Main market Ticker: CAPD Contact: capdrill.com or 00 230 464 3250