Americas could hold key to Lycopodium 2.0

Richard Roberts

Editor in chief

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Lycopodium managing director Peter De Leo (right)
‘The growth in our business is at the moment not limited by the market’: MD

Lycopodium managing director Peter De Leo says the mineral processing engineering company is looking at avenues to grow its study and project delivery capacity in the Americas and southern Africa, which could potentially lead to a rescaling of the market-leading plant builder’s business.

Fielding analyst questions after ASX-listed Lycopodium delivered record FY23 first-half profit and revenue, and upgraded full-year guidance, De Leo said demand for plant design and construction services was running at a high level and was expected to remain elevated due to the strong undercurrents of surging battery-mineral project investment and a resilient gold sector.

The company was currently delivering projects worth A$3.9 billion: “We have 35 resource projects in delivery and over 40 major studies [underway] at the moment,” De Leo said.

“The growth in our business is at the moment not limited by the market.

“The market is strong and there’s strong demand for our services pretty much across all the sectors.

“The growth in our business is limited by … the number of people and resources that we can apply to the projects.

“We’re not a bums-on-seats style of organisation where we’ll happily bring 50 or 100 people off the street and just plonk them down and get them working on a project or a study. We need to be very careful that we have quality teams providing the expected results that our clients are coming to us for.

“There’s a limit to the number of teams you can put together and how much work those teams can cover.

“Having said that, there are some continued opportunities for us to expand. I think Perth generally … is pretty much tapped out and the Perth office is probably about the limit we see in the foreseeable future. There might be some change there, but it’s not going to be huge.

“Where some of the opportunities really lie … continue to be out of our southern African office [but] probably more so out of the Americas, out of BC and out of Toronto, and what we might be able to do there.”

Lycopodium’s seven-year-old Mondium JV with Monadelphous had ‘few opportunities … in the current market’. Peter De Leo said: ‘Mondium is still alive and well. Well, it’s alive.’

While he didn’t elaborate on growth levers, and Lycopodium has a modest reputation as an acquirer, De Leo reverted more to type in concluding that “subject to the market staying strong, I think we can continue to grow at a steady rate into that market”.

The 31-year-old company won’t disappoint too many current shareholders – including the board and management at 37% ownership – with that comment.

Its shares had surged again at the time of writing and are up circa-23% for the year. Like the company’s latest results, the price is in uncharted territory.

ASX-listed Sandfire Resources’ new Motheo copper plant in Botswana marks Lycopodium’s entry into the country. “Construction progressed extremely well during the half and in fact we just achieved first ore on that project yesterday. Commissioning is progressing extremely well and on schedule.”

“We achieved record revenue of just under $160 million and record NPAT of $20 million, and an EBITDA of $25.3 million,” De Leo said.

“At the 31st of December we had just under $95 million in the bank, which all equates to a return on equity of just under 20%: 19.7%.”

Full-year ROE of c40% would put last year’s 27% ROE in the shade.

Retail investors hold 37% of Lycopodium’s 39.7 million issued shares; institutions another 26%. Lycopodium is paying a 36c-a-share interim dividend (fully franked).

“Our strong balance sheet really provides an opportunity for ongoing investment in the business,” De Leo said.

Lycopodium is commissioning its first dry mining unit (DMU) at the Grande Cote mineral sands operation in Senegal. “We’ve had outstanding feedback from the client on that piece of equipment and we consider that broadens the market for us.”

“You can see we’ve done the right thing by our shareholders with regard to dividend: we’re able to pay a strong dividend and [deliver] a good yield as a business. But also the balance sheet enables us to pursue our strategies and to take the best opportunity or make the most of the opportunities that are presented to us through our work in each of the sectors in which we work.”

De Leo indicated improved margins were resulting from the company working at capacity, at higher rates.

“We’re mindful and very careful not to be a business that gouges,” he said.

“Our clients have long memories and … we want to be seen to be delivering good value for what we do and what we cost our clients.

“Having said that, obviously it is more of a seller’s market in the context of what we sell.”


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