Capital (LSE:CAPD) — Annual General Meeting

0:00 Good morning, and welcome to the CAPITAL LIMITED Annual General Meeting Proceedings. Throughout this recorded presentation, attendees will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated in the right hand corner of your screen. Just click Q and A, scroll to the bottom, type your question and press send. The company may not be in a position to answer every question submitted today. However, the company review all questions submitted and publish responses where appropriate to do so on the Investor Me company platform. I'd now like to hand you over to Jamie Boyden, Chairman. Good morning, Jamie.

0:28 Morning. Thank you very much and welcome, everyone to CAPITAL LIMITED's two thousand and twenty one annual general meeting. I'd like to just welcome also the a number of the directors that have joined us on today's on today's call, including David Avery, who is the chairman of the audit committee and our senior independent director based in South Africa, Michael Rawlinson who chairs our REMCO committee based in London, Cassie Boggs who's recently joined the company as the chair of our sustainability committee, and she's dialing in from Denver. So thank you for that with your time zone. Apologies from our other directors who are currently in either prohibitive time zones or sitting on airplanes.

1:21 What I'll do is follow the format as per the last couple of years, just a brief overview of the company and our most recent trading update for the first quarter, and then I'll hand over to our company secretary, Catherine at at the fourth, and she'll handle the procedural matters for the meeting. So kicking off the snapshot of CAPITAL. Again, most shareholders will be familiar with this, a wide geographic footprint across the African continent. We, at the end of March, had 110 rigs in our fleet making us the largest drilling contractor in the continent, 35 pieces of heavy mining equipment which is a new business initiative for us, employing just under 2,300 people with a very high quality roster of blue chip mining customers.

2:18 And I should point out that we also have operations with our laboratory business that aren't reflected in this map, which cover, operations in The Americas, and Canada.

2:32 The four pillars to the business, I think, is a critical, point to discuss. Obviously, the drilling business is the bedrock of the company established back in 2005. But what we're particularly pleased about in 2021, was the growth in our non drilling revenue act or non drilling activities. And as you can see on that chart on the bottom right, the the blue line represents the growth in our non drilling revenues, which is growing extremely strongly propelled by activities in our laboratory business that we started in about 2018 and our mining business that commenced in 2019. Now both those businesses have got significant momentum. And as I sit here today, we're presenting a very different business than we were a couple of years ago and that we've got a much broader distribution of revenue and services offerings available to our customers and the cross selling opportunities that that has presented us have really propelled very strong growth. That was obviously reflected in the results where we saw 68% revenue growth in 2021.

3:40 So it's very pleasing. And obviously, the fourth pillar of the business is the investment activities, which as we stated when we released our full year results back in March, propelled us to record, earnings in the 2021 calendar year.

3:59 The strategy, has remained, broadly consistent, albeit with the addition clearly of these, other services, but we are driving to deliver an end to end exploration to mining services solution to our customers predominantly across the African Continent. The the we focus on activities at mine sites and over the last number of years, and and including, currently, majority of our revenues are derived from activities at mine sites about the 90% mark. The model therefore is to embed ourselves with our clients' operations at mine sites and, build extensive infrastructure and leverage various services through that infrastructure.

4:45 The model has proven to be very successful, and we're continuing to to implement that in the years ahead.

4:54 Looking at the the most recent data that we provided the market, it was the q one twenty twenty two trading update. We reported revenue of 66,900,000. That was a 52% increase on the first quarter of last year. As I said earlier, majority of that revenue derived from services provided at the mine sites. The non drilling revenue continued to grow and in fact it was 28% of our revenue in the first quarter. So we've continued that increasing trend. We had a slight dip in our core which was really attributable to rig movements and a higher proportion of underground revenue in the quarter. But rig utilization, and this is a key factor, running at 82%, we really are operating in an incredibly strong demand environment at the moment and and a very active tendering market.

5:49 We declared with the results the full year results a final dividend of 2.4¢ for the 2021 financial year, and that is actually payable on the May 10. I might just use this opportunity. We've received two questions that have come in on the on the investor meet platform. So I'll just use this opportunity to tackle those questions now. The first one was looking at an explanation as to why the ARPA was lower in q one than we've seen recently. So what I would say there is that the ARPA for the company over the the the preceding couple of years has broadly moved in a range of about 170 to $180,000 per month per per rig. So we really were sitting within that band.

6:36 The reason I wanted to address this question is because I think there is a perception that perhaps the ARPU is is a measure of drill rates only. And certainly drilling rates are on the increase and are a factor in ARPU, but there are other contributing factors as well. Specifically, if a rig is single shifting or double shifting, that is gonna have an impact on how much revenue the rig will generate during the month. If a rig starts operating halfway through a month, if a new contract is starting, that will have an impact on our pool. And that is certainly what you tend to see in the first quarter of the year as people come back from the the Christmas break. You tend to see the new contracts commencing again for the for the year ahead. So our port continues to trade in the band. We are still operating in a very strong demand environment and a positive rate environment.

7:24 The second question that we feel is in the event of a major slowdown in the cycle, where could you bring CAPITAL down to? Look, I've often said this in presentations that the the the biggest lever that a business like ours has is CAPITAL LIMITAL. So if I step all the way back to 2012 heading into 2013, on on a, you know, significantly smaller business than we're dealing with at the moment, but we saw our CAPITAL move from about $30,000,000 in 2012 to less than $10,000,000 in 2013. Because, obviously, if there's no demand for new growth CapEx in the event of a downturn, then you're really just looking at sustaining CapEx. And what that period led to was a rapid degearing of our balance sheet. In fact, by 2014, we were debt free and we commenced paying dividends.

8:13 So it certainly remains a a lever to to to manage the business.

8:20 I should also stress, however, and this will take us into, the outlook and guidance, is that we are in a very strong demand environment at the moment. So we're certainly not expecting to see a slowdown in the cycle. We saw an increase in utilization and tendering activity about twelve months ago. And that has continued to flow through to demand in in in across all of our business units in the current year. So in terms of the outlook statement, the we we still are operating in environment with gold price up a principal commodity exposure trading at near record highs. But also as as the last eighteen months has evolved, we've increased our exposure to other metals such as copper in Saudi Arabia, lithium in Mali, nickel in Tanzania, and all these metal markets are obviously under undergoing very strong demand, and pricing scenarios. So certainly bodes well for where we are in the cycle.

9:18 But the key thing that we've raised many times is taking a look at the the expiration cycle, expiration spend, and the CAPITC cycle. And both of those measures are still trading at levels that are 40 odd percent below the previous decade highs. So certainly, we think we're still quite quite new in the cycle and and see significant upside moving forward. Our revenue guidance for for this year, we we stated it with the full year results, 270 to 280,000,000.

9:49 We are expecting to grow the drill rig fleet from about well, 109 up to about a 120 at the end of this year. We we finished q '1 at a 110 rigs, and we're we're commissioning another five in the current quarter. The load load and haul business dominated by the Sukari contracts continuing to perform very well at full run rates. We've recently beefed up management team within the mining business, hiring some very experienced people with extensive African experience and tendering opportunities continue to develop. And our laboratories business is going from strength to strength. We're expecting, you know, nearing a 100% of revenue growth this year. We've got, obviously, the Christos units being rolled out, one in Canada and another one is just the one that we've previously flagged for Marilla in Mali that's actually just arriving in country shortly.

10:46 And then obviously with the most recent results, we announced a letter of intent to deploy another Khrysos unit at the Kibali Gold mine in the DRC with Barrick Gold. So at this stage, guidance remains as previously provided, but the outlook very strong moving forward. So at this point, I'll hand over to Catherine to for the procedural part of the meeting, please. Thanks very much, Jamie. Morning, everyone. Now turning to the formal business of the meeting. Since all members have received the notice of AGM, I suggest the notice be taken as read. We've received votes totaling 130,215,866 shares, representing 68% of those total shares issued with voting rights being 190,891,187.

11:40 I now formally propose that each of the 13 resolutions set out and explained in the notice is put to the meeting. I don't intend to propose each resolution in turn. Resolutions twelve and thirteen are special resolutions which require 75% or more of the votes for the motion to be carried. All other resolutions are ordinary resolutions and will be passed if more than 50% of the votes cast are in favour. For the purposes of such counts, abstentions are not included. Under By law 22.3, for the resolutions to be voted today, we're proceeding with a count of votes received, counted by our independent scrutineers, Computershare. I confirm the voting results on the following resolutions as follows. Resolution one. Based on the votes received, there are 130,022,803 votes in favor, representing 100% of present and voting shares.

12:31 None against 193,063 withheld. Resolution two. Based on the votes received there are 104,952,236 votes in favour, representing 81.55% of present and voting shares. 23,000,007 and 43,006 and 30 against. 1,520,000 withheld. The Board notes that 18.45% of votes cast were against the remuneration report. The Remuneration Committee consulted with its major shareholders in respect of the changes made to remuneration in early twenty twenty two. The package of changes is aimed at ensuring that the Executive Director's remuneration arrangements effectively serve the best interests of the company and its shareholders.

13:23 The Board will continue to engage with shareholders and continue to take account of shareholder views in taking decisions on executive remuneration.

13:32 Resolution three, based on the votes received there are 99,153,585 votes in favour representing 88.44% of present and voting shares. Pounds 12,954,347 against. 18,107,934 withheld. Resolution four. Based on the votes received there are one hundred and twenty million two and twenty seven thousand seven and forty one votes in favor representing 96.48% of present and voting shares, 4,387,092 against, 5,601,033 withheld.

14:22 Resolution five, based on the votes received there are 127,000,004 106,290 votes in favour representing 97.86% of present and voting shares. 2,789,576 against 20,000 withheld. Resolution six, based on the votes received there are one hundred and nineteen million seven and thirty three thousand five hundred and sixty seven votes in favor representing 97.37% of present and voting shares, 3,234,755 against, 7,247,554 withheld. Resolution seven, based on the votes received there are 130,095,497 votes in favour representing 99.93% of present and voting shares, 95,309 against, 25,060 withheld.

15:26 Resolution eight, based on the votes received, there are 130,171,201 votes in favor, representing 100% of present and voting shares, zero against 44,006 165 withheld. Resolution nine, based on the votes received there are one hundred and four million six and twenty two thousand five hundred and fourteen votes in favor representing 98.58% of present and voting shares, million 511,490 against, 24,081,862 withheld. Resolution 10, based on the votes received there are 130,145,166 votes in favor representing 99.96 of present and voting shares.

16:21 50,000 against 20,700 withheld. Resolution 11, based on the votes received there are one hundred and twenty eight million six and thirty seven thousand two hundred and eighty votes in favour representing 99.95% of present and voting shares, 58,586 against 1,520,000 withheld. Resolution 12, based on the votes received there are 128,695,166 votes in favor representing 100% of present and voting shares none against 1,520,700 withheld. And finally Resolution 13, based on the votes received there were 130,166,610 votes in favor representing 100% of present and voting shares, none against 49,256 withheld.

17:22 That's all from me. Thank you very much. Thanks, Catherine. We've received another question. So I will or was there a weakness elsewhere in nondrilling revenue? So my my my response to that is that the MSA growth that we have forecast for 2022 is certainly Chrysost is a very important factor in that, but it's not just growth from Chrysost, so I should stress that.

18:15 However, if you're comparing q one twenty twenty two on q four twenty twenty one, what that is ignoring is the seasonal impact in that the headquarters for our lab business is British Columbia, and, basically, the core part of its business in that part of the world's under snow in q one. So q one is always weaker, for MSA labs. The other question that I've had is that is referenced to myself, so I'll tackle it running as a separate investment fund that invests in similar companies. Yeah. That is overseen by the board as is any investments in any potential customers where there could be perceived to be a conflict of interest that's fully disclosed and goes through a process with independent board process.

19:10 So they so, yes, the company ensures there is no conflict of interest there. That rounds out the questions that we've received today. So on that note, I'd like to thank everyone for dialing in and attending the AGM. We obviously look forward to another very strong year ahead. And on that note, I'll hand over to the moderator. Thank you. That's fantastic. Thank you very much indeed, Jamie, Catherine, for updating attendees today. Can I please ask attendees not to close the session to be automatically redirected to provide your feedback in order the board can better understand your views and expectations? This will only take a few moments to complete, and I'm sure it's greatly valued by the company. On behalf of the board of CAPITAL LIMITED, we'd like to thank you for attending today's annual general meeting proceedings. Thank you very much, and good morning.