Hello everyone, and welcome to the Capital Limited 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 Boyton, our Chairman and CEO, Giles Everist, our CFO, 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&A. We'll pass the floor to Giles right after Jamie's run through. Jamie, over to you. Thanks.
Thanks Conor, and thank you everyone for dialing in. The purpose of today's 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 of August. In terms of the first half though, looking at the revenue results, really the word for it's outstanding. We followed up our best ever Q1 revenue number with an even better second quarter. I won't go through all the numbers, but just to give some of the highlights. The second quarter revenues were $54.7 million, which is an increase on the first quarter of this year of 24%, an increase on last year's second quarter of 68%, which is just an incredibly strong number.
Then extrapolating that into the first half results, revenue for the first half of $98.7 million. That is an increase from the second half of last year of 41% and an increase from the same period of last year in the first half of 51.7%. Incredibly strong results for the first half. The main driver of this has been the activity levels in our drilling business. 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. Within the mining business, obviously there's two main contracts there. The Limkok contract and the Sukari contract, which kicked off this year. Sukari, we set a pretty high bar in terms of expectations, and the team have beaten those expectations.
We've managed to mobilize $65- odd million worth of equipment to site in rapid time. All of the major equipment has now been commissioned, and slightly ahead of schedule. At the time of print, the earth-moving activities are again slightly ahead of schedule. Again, we set the bar really high there. It's very pleasing that the team has 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 for the second half. We obviously are in the process of commissioning a laboratory in Bulyanhulu for Barrick in Tanzania, with the revolutionary Chrysos technology arriving in the second half of this year, and another one of those units has now been scheduled to be sent across to Canada.
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 is now 17%. That momentum has continued. 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. 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 record levels, and that has continued into 2021. Last year saw a huge resurgence in the capital markets, and again, capital raising activities, which is a very strong lead indicator for drilling activity, again, trading at decade highs.
Last year exploration and delineation activity globally was 50% of what it was a decade ago. That is something that we had flagged before, and we have flagged the fact that the conditions felt like there was a wave of demand coming 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 two to three 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, look, we've had a slight firming in the hourly rates, that 5% increase, which is encouraging. The fleet has increased.
In the first half, it increased just over 20% from 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 due to arrive in the second half. The fleet size has contributed, but really it's all about fleet utilization, which has exceeded our expectations on the start of the year. The fleet utilization in the second quarter is 79%. For the first half, it averaged at 73%. Previous peak cycle, 2012, for the business, about 78%. Incredibly strong conditions, and as a result, it has driven an outperformance in revenue and an increase in our revenue guidance. Just to update where we are, revenue, we had originally guided at the time of the FY 2020 results to revenue of between $185 million and $195 million for the current calendar year.
We have today upgraded that revenue guidance to $200 million-$210 million. Look, a few highlights operationally. A few more contract wins. Another two-year contract extension with Resolute at Syama in Mali has been working there since 2016. New contract out in Kenya with Shanta. It's actually an asset that we built out before, when it was in the hands of Acacia. Another exploration contract with Arrow. Part of the key strategy for the company is obviously increasing capacity of existing mine sites. We saw that at Geita in Tanzania, North Mara in Tanzania, Morila in Mali, and the Sanankoro project with Cora in Mali as well. Safety, again, some outstanding numbers there.
Look, I'll just focus on two of them because they're large operations, particularly Geita, but we achieved five years LTI incident-free at North Mara in Tanzania in March, and we achieved four years LTI incident-free at the Geita Gold Mine, in Tanzania in March as well. Again, just outstanding results there. Look, I'll just move into the outlook. As we said, we've raised the revenue guidance to $210 for this calendar year. Predominantly volume driven. It's worth noting, of course, that Sukari continues to ramp up on the earth moving front, and that will be at full capacity in the fourth quarter 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. The general conditions are very buoyant.
Demand market is as strong as we've seen it for in the company's history. Business is performing well. Tendering activity, very robust. It's a nice call and a nice release to have to make today because, we are certainly working in a very supportive market at the moment. I won't talk too much further on it as I'll turn it over to the moderator for Q&A.
Thank you. Ladies and gentlemen, if you do wish to ask a question, please press zero and then one on your telephone keypad now. That was zero, one if you wish to ask a question. The first question is from Richard Hatch from Berenberg. Please go ahead. Your line is open.
Thanks very much. Morning, Jamie and team, and thanks for the call and congrats on a good trading statement. Got three questions. First one is, just on seasonality. Can you just give us a bit of context as we move into the third quarter, whether you would expect to see seasonality play a part in just perhaps drifting either utilization rate down or ore fall down, or are you fairly comfortable?
Second question is, just 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. 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 second quarter. Should we expect to see some form of mark-to-market upside with the results when they come out on the 19th, through your investments? Thanks.
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've targeted our activities to mine site activities. The bigger contracts there are the likes of the Resolute's and Hummingbird's and Bonikro's, and more recently, Morila. We are operating around the mine site with graded roads and so on. We're less affected with the seasonality at those operations, but certainly on the exploration front, the wet season will make it prohibitively difficult. I would expect a little bit of dampening in demand in West Africa.
Converse to that is that, we have increased activity recently in Tanzania, adding capacity, as we mentioned earlier, in both North Mara and Geita. We've got Shanta kicking off as well. Sukari, the ramp-up continues. Q3 is going to be bigger than Q2, and Q4 is going to be bigger than Q3. Certainly, we'll face a bit in West Africa, but other parts of the business will give back. In terms of the pipeline, the only slowdown I can reference is back to point one, 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. We're expecting very robust demand at the back end of the wet season. The market conditions are incredibly supportive.
Really, other than seasonality, no slowdown in the pipeline. Your final question, investment. 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 will update the market with the investment portfolio performance in conjunction with the results on the 19th.
Cool. Thanks. Can I just ask one more just on cost inflation? It seems to be creeping into some companies and some commentary around the broader market. Are you seeing it in Ghana at the moment, or are you feeling fairly 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. It's analogous. The one I like to reference really is Western Australia. There's been quite a few companies down there that have noted the labor shortage. I reference that because, it's my hometown, but they've been in a five or six-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 costing.
We're being very proactive about it, but at this stage, frankly, it's almost the perfect storm, H1, that the demand environment's taken off very rapidly, yet to see cost inflation. The flip side of that, obviously, is that the wage environment, we've had some rate rises in H1. You would expect the wage environment to be favorable in H2 to offset any cost inflation.
Okay. Thanks, Jamie.
The next question is from Bobby Morse from Buchanan. Please go ahead, your line's open.
Morning, guys. Great results as usual. Just a quick one. If you can give us a little bit of background on the Chrysos PhotonAssay technology. 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 was going to use it anyway, is disruptive, and it really is. There's a scientific group out of Australia called the CSIRO, this is where this was originally developed. I think at the moment, there's about seven units out there. They've rolled out three or four into Well, two into Kalgoorlie, which is the Goldfields of Western Australia. There's one in the eastern states of Australia. I believe Intertek have just purchased one in Western Australia, and then we've now got an agreement. We've already got one on the way to Bulyanhulu, one on the way to Canada, an agreement for number four. It's early stage, but it is widely gaining acceptance. It is a lower cost, more environmentally friendly, but critically, lower turnaround time, that's the critical thing with assays.
In a typical assay at the moment, you're doing assay turnaround times stretching out in some cases to six weeks. With Chrysos, you're getting a turnaround time within 24- 48 hours. 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.
Just as a final reminder, that is zero one if you wish to ask a question. The next question is from Martin Finstein at Swinton Investing. Please go ahead, your line's open.
Thanks, jamie, and congratulations on a brilliant quarter. I think it's really impressive that you managed all this with still COVID challenges going on. Four questions from me. The first one's 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, just following up on those PhotonAssay units. I think because of the turnaround time, they're going to add significant lab capacity, and I'm wondering, is there a typical payback period from investing in these machines?
What does that actually look like? On the finances, third question, are we likely to see the net debt sort of peak at the current levels, or will that increase further going forward? Finally, I'm going to take a question on the level three assets. I'm assuming those are mainly some unlisted warrants where Capital holds an equity stake, or is there other licensees or equity in unlisted companies in there too?
Okay. I'm going to answer in disparate order. The level three 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. We announced that, I think, in 2019, when they purchased the Bonikro Gold Mine. Predominantly an unlisted private equity play, if you like. It's been backed by Orion Mine Finance out of London. That's the main one. There are some other small direct equity stakes as well.
Okay. Thank you.
Both my asset turnaround time payback period, there is no payback period because we don't own the asset. The way that Chrysos 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. It's effectively a lab management contract. The actual CapEx, which is a great model for us, the CapEx is borne by Chrysos themselves to get these rolled out into the marketplace.
Great. Thank you.
For the question 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 announce the half year results. I'd like to reserve any comments on that for then.
Can you give a rough guidance that they'd be similar to the past? Give some commentary on where you see gross margins going again, rather than, I don't want specific figures, obviously.
No, I think, as Jamie's already said, this announcement and the results are very much about the increase in utilization. There is obviously some increase in rates. Quid pro quo, one might say that the margins are looking to more increase rather than decrease.
Okay. That's really helpful.
Okay. 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. The second half, and again, we haven't been specific about CapEx, so I'll reserve that again for the announcement in August. 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.
Brilliant. Thanks so much.
Thanks, Martin. There are 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 of August. Yeah, thanks for your time.
This concludes the conference call. Thank you all for attending. You may now disconnect your lines.