Mining Journal - Capital wins Fortescue contract

Mining Journal
13 June 2023

Capital wins Fortescue contract - Mining Journal (mining-journal.com)

Capital has been awarded a US$150 million contract for earthmoving and crushing services at the Belinga iron ore mine in Gabon by Fortescue Metals Group subsidiary Ivindo Iron.

FMG has forecast capital costs of US$200 million for a stage one operation to produce 2 million tonnes of iron ore per annum from the second half of this year.

Capital will conduct earthmoving and crushing services worth $30 million per annum over five years.

The company will acquire about $15 million of additional equipment for the contract, lifting its 2023 capital expenditure guidance to $65-76 million from $50-60 million.

As a result, Capital's revolving credit facility has been doubled to $50 million, with Nedbank joining original lender Standard Bank.

Mobilisation of equipment to the Belinga site is already underway.

The contract win follows the award of a three-year drilling services contract for the project earlier this year.

Capital CEO Peter Stokes said the company was thrilled to win its second significant mining services contract.

"We look forward to working closely with Ivindo Iron to expand our relationship from drilling services to mining and crushing services and ensure a rapid ramp-up on this world-class deposit," he said.

"In addition, the increase in our RCF gives us greater flexibility to move quickly on new opportunities and represents a greater level of maturity for our business."

Canaccord Genuity analyst Alex Bedwany said the award of a contract from a "mega-cap" like FMG reaffirmed Capital's status as a premium operator.

"Apart from the uplift in revenue and EBITDA, we view the move as positive for a number of reasons: 1) expanding the mining 'contract portfolio' should eventually smooth long-term revenue (currently expected to fall away once the Sukari contract is complete) from the segment once a critical mass of contracts is reached, 2) economies of scale may be found by building out the company's mining fleet, 3) diversification into iron ore should further stabilise revenues for a company whose fortunes have historically been linked with gold prices, and 4) more blue-chip clients are a further sign of increasing quality of the contract portfolio," he said.

Capital shares jumped 6.3% in London overnight to 102.5p, valuing it at £198.3 million. Canaccord has a buy rating with a 5p increase in price target to 150p.

FMG last traded at A$20.79, valuing it at $64 billion.

Ivindo is 72%-owned by FMG with the remainder held by Abu Dhabi's Africa Transformation and Industrialization Fund (ATIF) and the Gabon government.