Capital Ltd (LON:CAPD), a leading mining services company focused on the African markets, has announced that it has entered into a conditional open pit waste mining services contract with Sukari Gold Mines and has also expanded and extended its existing drilling contract with Sukari. Sukari is the operating company for the Sukari Gold Mine in Egypt, one of the largest gold mines in Africa and the principal asset of Centamin Plc (LSE: CEY, TSX: CEE).
Collectively, the Sukari Contract and the Amended Sukari Drilling Contract are anticipated to deliver incremental revenues of US$235 – 260 million over a four-year period commencing 1 January 2021, representing the largest award of new business in the Company’s history.
The Company also announces a proposed placing to raise gross proceeds of approximately £22 million (approximately US$30 million) before expenses, via the issue of an aggregate of approximately 38.5 million new common shares in the Company at a price of 58 pence per share. The Placing is to be conducted by way of an accelerated bookbuild process, launched with immediate effect. Joh. Berenberg, Gossler & Co. KG, London Branch and Tamesis Partners LLP are acting as Joint Bookrunners in relation to the Placing.
The Sukari Contract and the issue of the Placing Shares are subject, inter alia, to shareholder approval. A circular containing a notice of General Meeting will shortly be posted to Shareholders and placed on the Company’s website. Information to be contained in the Circular is set out below. The Amended Sukari Drilling Contract is effective from 1 January 2021 and is not subject to shareholder approval or any other conditions precedent.
HIGHLIGHTS
· Capital awarded a 120Mt open pit waste mining contract at Sukari Gold Mine providing load & haul and ancillary services
· The Sukari Contract has a term of four years, expected to commence in January 2021
· Existing drilling contract at Sukari extended to 31 December 2024 (from 30 September 2023) and expanded by nine additional rigs, bringing the rigs operating at Sukari to 24 in total
· Collectively, the Sukari Contract and the Amended Sukari Drilling Contract are expected to deliver incremental revenues of US$235 – 260 million (vs 2020 revenue guidance of US$130 – 140 million) based on Sukari’s mine plan at the point of tender submission.
· New business awards at Sukari build on Capital’s longstanding customer relationship with Centamin and represent a strong endorsement of the Company’s offering
· To date the Company has spent US$23.4 million towards equipment and has made strong progress with early works, key personnel hiring and advanced operational planning
· Further solidifies Capital’s revenue base, which is dominated by long term contracts at Tier 1 operations
· Capital is currently active in several earthmoving tender processes with new and existing customers as it continues to evolve into a full-service mining contractor
· Proposed Placing to raise approximately £22 million (approximately US$30 million) before expenses at a price of 58p per share by way of an accelerated bookbuild process to be launched with immediate effect
· The net proceeds of the Placing will be used to purchase equipment to fulfil obligations under the Sukari Contract and Amended Sukari Drilling Contract and for general corporate purposes
· The Sukari Contract and Amended Sukari Drilling Contract are expected to be revenue and earnings accretive in 2021
Commenting on today’s announcement, Jamie Boyton, Executive Chairman, said:
‘The winning of the tender for the Sukari open pit waste mining contract is a significant milestone for Capital – it is the largest contract win for the Group since inception, adds substantial scale to our mining services division, as well as providing revenue diversification from our drilling services business. We are also pleased to have increased the scope and scale of our existing drilling contract. Having operated at the Sukari mine since 2005, which started commercial gold production over a decade ago, Capital is pleased to be deepening further its strong client relationship with Centamin in assisting with the generation of significant value to Centamin over the medium and longer term as the Sukari mine enters its next phase of gold production.
The proposed fund raise provides Capital with the opportunity to broaden and deepen its shareholder register. Both the equity raise and the mining services contract will further consolidate Capital’s position as one of the leading mining and drilling services operators on the African continent. The Capital team is looking forward to mobilising the required equipment and operational staff to start the work required at Sukari.’
Additional information on the Sukari Contract, the Amended Sukari Drilling Contract and the Placing is set out below.
BACKGROUND TO AND REASONS FOR ENTRY INTO THE SUKARI CONTRACT AND PLACING
Capital today announces that following a successful competitive tendering process, its subsidiary, Capital Egypt, has entered into an open pit waste mining services contract with Sukari Gold Mines, the operating company for Centamin’s principal asset, the Sukari gold mine in Egypt, and has also agreed to amend and extend the term of its existing drilling services agreement at the Sukari gold mine. Centamin is a large gold mining company listed in London and Toronto. Centamin’s principal asset, the Sukari gold mine, is a long-life, bulk tonnage open pit and underground operation jointly held as part of a concession agreement with the Egyptian Mineral Resources Authority (EMRA).
The Amended Sukari Drilling Contract extends Capital Egypt’s existing drilling contract to 31 December 2024 (previously 30 September 2023) to correspond with the term of the Sukari Contract. It also provides for nine additional blasthole rigs to be added to the operation, bringing the total fleet of drill rigs operating at Sukari to 24, with the additional rigs due to be operational from the first quarter of 2021.
The new Sukari Contract expands the services that the Group will provide at the Sukari gold mine to also include load, haul and ancillary services over a four-year period, expected to commence in January 2021. The contract envisages a phased ramp up in 2021 with earthmoving commencing towards the end of the first quarter and run-rate volumes achieved towards the end of the fourth quarter. The Board considers the Sukari Contract to be an important and positive element of the Group’s expansion of its services to include earthmoving and therefore to provide fully integrated mining services for its clients.
Overall, the value (by reference to the potential revenue to the Group) of the Sukari Contract and the Amended Sukari Drilling Contract is anticipated to be between US$235m to US$260m. This revenue estimate is based on Centamin’s current expected mine plan, which may be subject to change, and with reference to the fee mechanics set out in the Sukari Contract.
In order to fulfil its anticipated obligations under the Sukari Contract and the Amended Sukari Drilling Contract, Capital Egypt is investing in further mining fleet, drilling rigs and ancillary equipment (the “Equipment”). The incremental capex required by the Group to service the Sukari Contract and the Amended Sukari Drilling Contract is estimated by the Directors to be approximately US$41 million.
The purchase of this Equipment will be financed through a combination of the net proceeds of the Placing, Group cashflow and drawdown under the Company’s existing debt facility, OEM finance facilities and asset backed loan facilities, some of which are subject to negotiation.
At the date of this Announcement, an OEM facility with Sandvik for US$8.5million has been agreed and is committed and an OEM facility with Epiroc is awaiting final credit approval with documentation in near final form. In addition, the Company is currently in advanced discussions with respect to further asset backed facilities and as at the date of this Announcement, non-binding commercial indications have been received from two debt providers.
Under the terms of the Sukari Contract, Capital Egypt is obliged to procure that Capital provides a duly executed Parent Company Guarantee of Capital Egypt’s obligations under the Sukari Contract on or before 31 December 2020, further details of which are set out below.
PROPOSED PLACING
The Company intends to raise approximately £22 million (approximately US$30 million) (before expenses) by way of a Placing of approximately 38.5 million new Common Shares.
The net proceeds to be raised by way of the Placing are expected to be approximately £21 million. The amount of approximately £8 million, being approximately 40 per cent. of the expected net proceeds of the Placing, will be applied towards the purchase of mining fleet, drilling rigs and ancillary equipment in order to fulfil Capital Egypt’s obligations under the Sukari Contract and the Amended Sukari Drilling Contract, with the balance being used for general corporate purposes.
The Placing is to be conducted by way of an accelerated bookbuild process to be undertaken by Berenberg and Tamesis acting as Joint Bookrunners. The Bookbuild will commence immediately following the release of this Announcement. The final number of shares to be issued pursuant to the Placing will be determined by the Bookbuild and announced upon closing of the Bookbuild. Following the completion of the Bookbuild, the Placing will be fully underwritten by Berenberg.
The Appendix to this Announcement (which forms part of this Announcement) contains the detailed terms and conditions of the Placing.
The Board considered various forms of financing for the Equipment and, in light of market conditions, the time available and the desire of the Company and Centamin to move forward expeditiously with the Sukari Contract, the Board believes that carrying out the Placing on a non-pre-emptive basis is the most suitable, certain and cost-effective option in conjunction with available and proposed debt financing and OEM financing. The raising of new equity capital will also strengthen the Company’s balance sheet to provide a strong platform for further growth and contract wins with a number of significant tender processes ongoing.
Subject to the Resolutions being passed at the General Meeting, it is expected that Admission of the Placing Shares will become effective on or around 22 December 2020.
SHAREHOLDER APPROVALS AND OTHER CONDITIONS PRECEDENT
Entry into the Sukari Contract, and a Parent Company Guarantee to be given by the Company in relation to the Sukari Contract, each constitute a Class 1 transaction pursuant to Listing Rule 10.5.1 on the basis of the anticipated expenditure on Equipment for the purposes of the Sukari Contract and the nature of the Parent Company Guarantee respectively. Accordingly, the Sukari Contract, the Parent Company Guarantee and the issue of the Placing Shares is each subject, inter alia, to shareholder approval being granted at a general meeting to be convened on or around 21 December 2020. A circular and notice of General Meeting will shortly be posted to Shareholders and placed on the Company’s website.
The Resolutions to be proposed at the General Meeting will be as follows:
· Resolution 1, which will be proposed as an ordinary resolution, and will be conditional on the passing of Resolutions 2 and 3, will be a resolution to approve: (i) the Sukari Contract, and (ii) the Parent Company Guarantee, in each case as a Class 1 transaction for the purposes of Listing Rule 10.5.1R;
· Resolution 2, which will be proposed as an ordinary resolution, and will be conditional on the passing of Resolution 1, will be a resolution generally and unconditionally to authorise the Directors to allot and issue the Placing Shares; and
· Resolution 3, which will be proposed as a special resolution, and will be conditional on the passing of Resolutions 1 and 2, will be a resolution generally and unconditionally to authorise the Directors to allot and issue the Placing Shares for cash other than on a pre-emptive basis.
The above is a summary and the full text of the Resolutions will be set out in the Notice.
In addition, the Sukari Contract is conditional upon the Placing completing and raising minimum funds of US$20m.
The Amended Sukari Drilling Contract is effective from 1 January 2021 and is not subject to Shareholder approval or any other conditions precedent.
IRREVOCABLE UNDERTAKINGS
The Company has received irrevocable undertakings from each of the Directors and certain of the senior management of the Group who have an interest in Common Shares and certain other shareholders, representing in aggregate 59,812,031 Common Shares, representing 43.7 per cent. of the company’s issued common share capital to vote in favour of all Resolutions to be proposed at the General Meeting.
DIRECTORS’ INTENDED PARTICIPATION IN THE PLACING AND RELATED PARTY TRANSACTIONS
Each of the following Directors has advised the Company that he intends to subscribe for Placing Shares:
– Jamie Boyton, Executive Chairman
– David Abery, Non-Executive Director
– Michael Rawlinson, Non-Executive Director
– Alexander Davidson, Non-Executive Director
Mr Boyton is a substantial shareholder of the Company and his intended subscription for Placing Shares will constitute a smaller related party transaction for the purposes of Listing Rule 11.1.10R. Any participation by Mr Boyton in the Placing will be on the same terms (including as to price) as all of the other investors in the Placing.
Under the terms of the Relationship Agreement between the Company and its Founder Shareholders, including Mr Boyton, each Founder Shareholder is required to abstain (and procure that his connected persons abstain) from voting at any general meeting of the Company on any resolution concerning any transaction, agreement or arrangement between him (or any of his connected persons) and any member of the Group. As Mr Boyton intends to participate in the Placing, this undertaking would prevent Mr Boyton from voting on the Resolutions to approve the Placing. The Company may vary a provision of the Relationship Agreement if the decision to grant such variation is taken by the Company’s independent non-executive directors, being David Abery, Alexander Davidson and Michael Rawlinson. Such independent non-executive directors have agreed to grant a waiver of this restriction in the Relationship Agreement to allow Jamie Boyton and his connected persons to vote on the Resolutions. The waiver constitutes a smaller related party transaction for the purpose of Listing Rule 11.1.10R.
The Independent Directors (being each of the Directors other than Jamie Boyton) who have been so advised by Berenberg, consider the terms of Mr Boyton’s intended participation in the Placing and the waiver of the Relationship Agreement to enable Mr Boyton and his connected persons to vote on the Resolutions, each as described above, to be fair and reasonable as far as Shareholders are concerned. In providing its advice to the Independent Directors, Berenberg has taken into account the Independent Directors’ commercial assessment of Mr Boyton’s intended participation in the Placing and the waiver of the Relationship Agreement.
