COMPANY PROFILES

Driller digs deep to reach new heights

At a time when many rigs are sitting idle around the globe, this international driller has made key improvements: lowering costs, picking up new work and paying its maiden dividend. Ngaire McDiarmid reports.

MiningNews.Net
Mobilising new rigs in Geita in Tanzania

Mobilising new rigs in Geita in Tanzania

Capital Drilling is emerging from the industry downturn as an efficient, customer-focused company that provides drilling solutions.

The London Stock Exchange-listed company’s first contract in 2005 was in Tanzania and Capital is maintaining its focus on emerging and developing markets in Africa and neighbouring regions.

The company’s 97-rig fleet is less than six years old and despite subdued global tendering activity, Capital’s strategic delivery of a low-cost drilling model, efficient service and excellent safety record has seen it kick off 2016 with a strong balance sheet and an increasing workload.

At the start of January, Capital began its new contract to provide production drilling services for Acacia Mining PLC’s North Mara gold mine in Tanzania.

The win followed a number of recent contract extensions with three existing long-term clients, including Centamin at its Sukari gold mine in Egypt and Kinross Gold at Tasiast gold mine in Mauritania. 

In addition to a contract extension with AngloGold Ashanti at Geita gold mine in Tanzania, Capital also gained the contract to provide underground exploration services at Geita.

CEO Mark Parsons puts the company’s success down to a four-pronged approach – driving operating and overhead costs down, increasing efficiencies, changing its approach to project management and increasing stakeholder liaison.

He cites the company’s recent success with Khoemacau Copper Mining in Botswana as the perfect model for the company’s more efficient and customer-focused execution of contracts.

“Historically drilling companies can take considerable time to get operationally efficient,” Parsons said.

 “In Botswana, from the time we signed the contract to the time we started drilling was five weeks.

“We met and exceeded the three incumbents’ drilling performance in the first month. 

“We just hit the ground running. It was an ideal model.”

Capital’s clients around the world are benefiting from the resulting better service delivery, operational efficiencies and lower costs.

“We went through and planned, executed, delivered the rigs and about two months into the Botswana operation, we sat down with the stakeholders and looked at what have we learned from this,” Parsons said. 

“What was really beneficial was putting guys on the ground – as soon as we got the contract we put someone in-country, someone with a really deep understanding of the drilling business so he could go in there, get all the vendors lined up and have a really good look at where we were going to be drilling – and get the campsite lined up.

“He built the relationship with the customer so that when the project manager turned up with his equipment, he could focus on drilling straight away and not be distracted by the other set up issues.

“We now use these in-country specialists for all new start-ups and we’ve a solid team to support us now.

“We’re also being more efficient in the way we deliver – making sure we’ve got the right kit going in, reducing the amount of kit that’s going out, being self-contained when we get on-location, not going back and having continuous supply-chain issues, and making sure we get metres straight away.”

He said the company’s safety focus was paramount and Capital was increasing its skillset and building capability into its staff on the ground, particularly the project managers.

The company’s fresh approach has been rewarded by its healthy balance sheet despite a historic low rig utilisation rate of 34% in the first half of 2015.

Capital achieved consistent quarter-on-quarter revenue growth up until the end of Q3 2015 reporting, has maintained a strong net cash position and paid its maiden dividend in May and its maiden interim dividend in October.

“Our continued discipline towards capital expenditure and cost management have again contributed to positive operating cash flows despite the challenging market conditions in the global mining sector,” Parsons said.

The company is in a strong financial position to weather any continuing challenges but chairman Jamie Boyton is seeing early signs of recovery.

“An analogy I like is one with Ben Bernanke (former chairman of the US Federal Reserve) saying he saw some green shoots … two years before the US economy actually started to pick up,” Boyton said.

“That’s what I think we’re seeing.

“We’re also seeing some of the juniors coming back. They’re small contracts, but the juniors were very absent from the market

“In the first half of 2015, capital raisings for the resources sector was the equivalent of 2014 total.

“There is a little bit of life coming back there.

“And you are seeing the juniors tender small contracts because after two years of being idle, the ones that are still there have got real projects and they are incrementally adding value to those projects. And that’s where we’re seeing small-scale activity.”

Capital Drilling has a lot of equipment in Africa and is looking at the potential for further work on the vast continent and emerging markets.

“We’re looking at opportunities in other parts of Africa we haven’t worked in historically,” Parsons said.

“I think there are a few opportunities.”

The company has relocated its corporate headquarters from Singapore to Mauritius as a better base for its Africa-centric operations and a cost reduction of 50% compared to Singapore.

“We were born in Africa,” Boyton said.

“We started in Tanzania and it’s just in the DNA of the company.”

Capital also has established operations in Peru and Chile and has held contracts from the Pacific to Pakistan.

Boyton said although Africa remained the key focus for the company, it would continue to execute and seek contracts beyond Africa.

“We have a customer driven model with a geographical bent to it, shall we say,” he explained.

“We’ve entered regions like Latin America and Papua New Guinea, and so on, because of our customers.”

Looking to the future, Parsons and Boyton did not rule out merger and acquisition activity and both agreed the company’s underground drilling services could expand.

“Indications are it will,” Parsons said.

“I certainly think it needs to be part of the portfolio going forward.”

The company is also keeping a close eye on innovation and technology developments in the sector and how they could help particular clients.

“It’s mostly these days about the information management underlying those hardware applications,” Boyton said.

“Helping people execute to plan better than they have been in the past, and helping companies get to a more agile state of operating.”

Parsons said the company was committed to continuous improvement and with its record cash generation, signs of industry improvement and strategic management, Capital Drilling was set to leverage its strengths in 2016 and beyond.

A growing series of reports, each focused on a key discussion point for the mining sector, brought to you by the Mining News Intelligence team.

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