Hello, everyone, and welcome to the Capital Ltd. H1 Trading Update. I will now hand over to the speakers. Please go ahead.
Hello, everyone, and welcome to our conference call following our Q2 trading update release today. My name is Conor Rowley, recently joined Capital as the Investor Relations Manager. On the call today, we have Jamie Boynton, our Chairman and CEO Charles Everest, our CFO Rick Robson and Rick Robson, our Head of Corporate Development. I'll pass over to Jamie to run through our announcements, and then we'll go to Q and A. So we'll pass over to the operator after Jamie's run through.
Jamie, over to you. Thanks.
Thanks, Connor, and thank you, everyone, for dialing in. So yes, the purpose of today is obviously just to go through the first half trading update, which is obviously a revenue update, trading update, noting that our first half results will be released to the market on the 19th August. In terms of the first half, looking at the revenue results, really the word for it is outstanding. We followed up our best ever Q1 revenue number with an even better second quarter. So look, I won't go through all the numbers, but just to give some of the highlights.
The 2nd quarter revenues were $54,700,000 which is an increase on the Q1 of this year of 24% and an increase on last year's Q2 of 68%, which is just an incredibly strong number. And then extrapolating that to the first half results, revenue for the first half of $98,700,000 That is an increase from the second half of last year of 41% and an increase from the same period of last year, the first half of 51.7%. So incredibly strong results for the first half. The main driver of this has been the activity levels in our drilling business. But before I actually just go into some of the detail there, what I will do is just briefly comment on the activities in both our mining business and our laboratory business.
On the mining within the mining business, we obviously, there's 2 main contracts there, the New Pro contract and the Sukari contract, which kicked off this year. Sukari has we set a pretty high bar in terms of expectations and the team have beaten those expectations. We've managed to mobilize $65 odd,000,000 worth of equipment to site in rapid time. All of the major equipment has now been commissioned and slightly ahead of schedule. And at the time of print, the earthmoving activities are again slightly ahead of schedule.
So given we set the bar really high there, it's very pleasing that the team has achieved safely achieved and beaten our expectations. The laboratory business has continued to perform well also. It's performing in line with our expectations, but it is actually seeing a very robust pipeline that is encouraging into the second half. We obviously are in the process of commissioning a laboratory in Bulunhulu for Barrick in Tanzania with the revolutionary Frisos technology arriving in the second half of this year. And another one of those units is now being scheduled to be sent across to Canada.
So both of those businesses are performing, as I said, in line with our expectations. And what's pleasing is that the non drilling revenue contribution has grown now from 9% in the first half of last year. It's now 17%. So that momentum has continued. But this set of results, as I suggested in the opening, is all about the performance of or the outperformance that has driven the revenue upgrade today has been driven by the drilling business.
And we have commented for some time that there was somewhat of a disconnect going on in the marketplace, specifically commodities trading at decade high levels and or record levels, and that has continued into 2021. Last year saw a huge resurgence in the capital markets. And again, capital raising activity, which is a very strong indicator drilling activity, again, trading at decade highs. Yet last year, exploration and delineation activity globally was 50% of what it was a decade ago. So that is something that we had flagged before and we had flagged the fact that the conditions felt like there was a we actually used the term wave of demand coming in and it really did in the first half.
The demand spike was as strong as we've ever experienced, and I'm really pleased to say that the activities of the business over the last 2 to 3 years, commissioning assets in particularly in West Africa, which is now 38% of our revenue, building the infrastructure and getting ourselves ready has really paid dividends. Most of the increase in drilling activity, we've had a slight firming in the RPOs, that 5% increase, which is encouraging. The fleet has increased. In the first half, it increased just over 20% in the second half of last year. We had a closing fleet of 106 rigs at the end of the first half, and there are another 6 odd due to arrive in the second half.
So the fleet size has contributed, but really, it's all about the fleet utilization, which has exceeded our expectations when we started the year. The fleet utilization in the second quarter was 79%. For the first half, it averaged at 73%. Previous peak cycle, 2012 for the business, about 78%. So with incredibly strong conditions, and as a result, it has driven an outperformance in revenue and an increase in our revenue guidance.
So just to update where we are in revenue, we had originally guided at the time of the FY 'twenty results to the revenue of between $185,000,000 $195,000,000 for the current calendar year, and we have today upgraded that revenue guidance to $200,000,000 to $210,000,000 Look, a few highlights operationally. A few more contract wins, another 2 year contract extension with Resolute with Simon and Marlin. We've been working there since 2016. New contract in Kenya with Chanther. It's actually an asset that we've drilled out before when it was in the hands of Acacia.
Another exploration contract with ARO. And part of the key strategy for the company is obviously increasing capacity in the existing mine sites. And we saw that at Gaeta in Tanzania, North Mara in Tanzania, Marilla in Mali and the Sanukoura project with Kora in Mali as well. Safety, again, some outstanding numbers. Look, I'll just focus on 2 of them because they're large operations, particularly Gata, but we achieved 5 years LTI incident free at North Mara in Tanzania in March, and we achieved 4 years LTI instrument free at the Gold Mine in Tanzania in March as well.
So again, just outstanding results there. So look, I'll just move into the outlook. As we said, we've raised the revenue guidance 210 for this calendar year, predominantly drilling driven. It's worth noting, of course, that Sukari continues to ramp up on the earthmoving front and that will be at full capacity in the Q4 of this year. The capital markets, extremely buoyant and supportive of continued robust demand.
Gold trading at decade highs. Other commodities are obviously seeing a surge in activity. So the general conditions are very buoyant demand market as strong as we've seen it for, well, in the company's history. Business is performing well, tendering activity, very robust. So it's a nice call and a nice release to have to make today because we're certainly working in a very supportive market at the moment.
I won't go too much further on it as it's I'll turn it over to Conor, the moderator for Q and A.
Thank you. The first question is from Richard Hatch from Berenberg. Please go ahead. Your line is open.
Thanks very much. Good morning, Jamie and team, and thanks for the call and congrats on a good trading statement. And I've got 3 questions. First one is just on seasonality. Can you just give us a bit of sort of context as we move into the Q3, whether you would expect to see seasonality play a part in just perhaps drifting either utilization rate down or ARPU down or you're fairly comfortable?
And second question is just I had a question this morning just with regards to the pipeline. Are you seeing any form of slowdown of activity at the moment? It doesn't appear so, but just to clarify that. And then thirdly, just on the investments. Well, I don't believe they're included in net debt, but just to clarify that.
And obviously, it would appear that some of your portfolio companies have done quite well in the Q2. So should we expect to see some form of mark to market upside with the results when they come out on the 2019 through your investments?
Okay. Seasonality, absolutely, West Africa. You don't experience it in Tanzania nor Egypt. Remind you, West Africa is 38% of the revenue. We're now moving into the wet season in West Africa.
We have proven more resilient than most of our peers that operate there during the wet season for the simple reason that we targeted our activities to mine site activities. So the bigger contracts there are the likes of the Regulates and Huntingbirds and Benicros and more recently, Marilla, where you're operating around the mine site with graded roads and so on. So we're less affected with the seasonality at those operations. But certainly on the exploration front, the wet season will make it prohibitively difficult. So I would expect a little bit of dampening in demand in West Africa.
But converse to that is that we have increased activity recently in Tanzania adding capacity, as we mentioned earlier, in both North Mara and Geita. Obviously, we've got Shanda kicking off as well. And then obviously, Sukari, the ramp up continues. And Q3 is going to be bigger than Q2 and Q4 is going to be bigger than Q3. So certainly, we'll face a bit in West Africa, but yes, other parts of the business will give back.
In terms of the pipeline, the only slowdown I can reference is back to 0.1 is that a number of the exploration programs in West Africa are coming to a conclusion. They'll go away and assess results during the wet before coming back to work. But we're expecting very robust demand at the back end of the wet season. The market conditions are incredibly supportive. So really, other than the seasonality, no slowdown in the pipeline.
Your final question, investments. Correct, not included in the net debt figure. Correct, the portfolio has continued to perform well in the first half and particularly the second quarter. And we'll update the market with the investment portfolio performance in conjunction with the results in the 'nineteen.
Can I just ask one more just on cost inflation? It seems to be creeping into some companies and some commentary around just the broader market. Are you seeing any of that at the moment? Or are you feeling fairly kind of optimistic on being defensive against that?
We're not seeing it yet, but I'd be disingenuous to say that it's coming. You can't have this level of demand increase and not have cost inflation coming with it. And it's analogous as we stood here, the one I like to reference really is Western Australia. There's been quite a few companies down there that have noticed the labor shortage. Now and I referenced that because I meant to my hometown, but they've been in a 5 or 6 year bull market because of the weak Australian dollar.
And that has contributed to labor shortages and wage inflation. We are yet to see any meaningful cost inflation in our business, but we are taking proactive measures to make sure that we are retaining key staff because the demand environment is that strong that we will see poaching. So we're being very proactive about it. But at this stage, look, frankly, it's always the perfect storm H1 in that the demand environment has taken off very rapidly. We have to see cost inflation.
The flip side of that, obviously, is that the rate environment, we've had some rate rises in H1. You would expect the rate environment to be favorable in H2 to offset the cost inflation.
And the next question is from Bob Morris from Buchanan. Please go ahead. Your line is open.
Good morning, guys. Great results. As usual, just a quick one. You can give us a little bit of background on the cryo photon assay technology. Just is that is this a widely used technology?
Or is this something which is seeing rapid adoption across labs, businesses generally?
Bobby, I hate to use the word because I think it's overused, but I couldn't use it anyway. It's disruptive. I never really use. This is developed. There's a scientific group out of Australia called the CSIRO.
This is where this is originally developed. I think at the moment, there's about 7 units out there. They've rolled out 3 or 4 into or 2 into Kalgoorlie, which is the goldfields in Western Australia. There's 1 in the Eastern States of Australia. I believe Intertek had just purchased 1 in Western Australia.
And then we've now got an agreement. We've already got 1 on the way to Bulunulu, 1 on the way to Canada, an agreement for another 4. So it's early stage, but it is widely gaining acceptance. It is a lower cost, more environmentally friendly, but critically lower turnaround time. And that's the critical thing with assays.
So typical assay at the moment, we're hearing assay turnaround times stretching out in some cases to 6 weeks with Crysvox getting a turnaround time within 24, 48 hours. So it's a reasonably new technology, but the adoption is starting to take off and starting to attract a lot of interest within the sector, within the industry.
And the next question is from Maxim Simpson from Exane Investing. Please go ahead. Your line is open.
Thanks, Amy, and congratulations on a brilliant quarter. And I think it's really impressive that you've managed all this with still kind of COVID challenges going on. Four questions from me. The first one is about gross margins on the drilling side. Can we expect these to be in line with the sort of levels we've seen in the past?
The second one, yes, just following up on those photon assay units. I think they're going to add because of the turnaround time, they're going to add significant lab capacity. And I'm wondering, is there a sort of typical payback period from investing in these machines? What does that sort of look like? And then on the finances, third question is, are you likely to see the net debt sort of peak at the current levels?
Or will that increase further going forward? And finally, a more technical question on the Level 3 assets. So once there is this mainly sort of unlisted warrants where capital holds an equity stake? Or is there other licenses or equity in unlisted companies in there, too?
Okay. I'm going to answer in a disparate order. The Level 3 assets are predominantly the unlisted assets. We disclosed some time ago that we'd invested the biggest one is an investment in a company called Allied Gold. That was we announced that, I think, late 2019 when they purchased the Bonapro Gold Mine.
So it's predominantly an unlisted private equity play, if you like. It's been backed by Orion Mining Partners out of London. That's the main one. There are some other small direct equity stakes as well. So it's my asset turnaround time payback period.
There is no payback period because we don't own the asset. The way that Khrysos are bringing the technology to market is that they are the owner of the asset. We are the operator of the asset. There is a monthly rental fee for that asset. It's arranged under a long term contract, long term license back to back with the customers.
So it's actually it's effectively a lab management contract. The actual CapEx, which is a great model for us, the CapEx is borne by Crossroads themselves to get these rolled out into the marketplace. So the comment about the question is about gross margins and the net debt, I'm going to hand that across to Giles.
Okay. Thanks, Jamie. In terms of the gross margins, we'll be providing more update on that in August when we announced the half year results. So I'd like to reserve any comments on that.
That sort of rough guidance that they'd be similar to the past Or give some commentary on where you see gross margins going in general rather than I don't want the specific figures, obviously.
No. I mean, look, I think this as Jamie has already said, this announcement and the results are very much about the increase in utilization, but there is obviously some increase in rates. So, quid pro quo, one might say that the margins are looking to more increase rather than decrease.
Okay. That's brilliant. Thank you.
Okay. And in terms of net debt, look, as flagged in the announcement, we have more or less finished the Sukari Mining CapEx spend in the first half. So the second half and again, this is we haven't been specific about CapEx. So I'll reserve that again for the announcement in August. But certainly, one would expect that there was a heavy weighting of CapEx for the first half.
And therefore, there would be lower CapEx in the second half and cash generation in the second half, which would reduce net debt.
There currently no further questions registered. So I'll hand the call back to the speakers. Please go ahead.
Okay. Well, thank you, everyone, for the questions. Thank you for dialing in. We look forward to catching up again on the 19th August. Yes, thanks for your time.
This concludes the conference call. Thank you all for attending. You may now disconnect your lines.