Geo Energy reports highest quarterly earnings

By Romel S. Gurky

Petromido|Khalsa

SGX-listed Geo Energy Resources Limited, a major Indonesian coal producer, reported Wednesday stronger financial and operating performances in the fourth quarter of last year on the back of higher coal sales volume and price.

The company said in a statement that net profit from continuing operations increased to US$14.7 million in the fourth quarter of last year (4Q2016), the highest ever quarterly profit reported since listing, from a loss of $6.1 million in 4Q2015.

The group?s 4Q2016 revenue increased nearly thirty-fold to $92.0 million from $3.0 million in 4Q2015, and over 62 percent from $56.9 million in 3Q2016. This was driven by the increased volume of coal delivered from the company?s PT Sungai Danau Jaya (SDJ) mine, and higher coal prices. SDJ?s coal production increased by 33 percent from 1.8 million tons of coal in 3Q2016 to 2.4 million tons of coal in 4Q2016. The average selling price of coal in 4Q2016 was $38.93/ton, a 24 percent increase from the 3Q2016 average of $31.40/ton. This is in line with the increase in the Indonesian Coal Index (ICI) for 4200 GAR (Gross As Received) price index, which rose to an average of $41.95/ton in 4Q2016 from $32.15/ton in 3Q2016 (+30%).

There were no coal sales in 2015 apart from coal trading as the group has only recently completed its restructuring into a mainly coal producer. Also, there was no revenue contribution from the Group?s other coal mine, PT Bumi Enggang Khatulistiwa (BEK), as production has been placed under care and maintenance since end of 2014.

Gross profit was $27.7 million in 4Q2016, an over ninety-fold increase over 4Q2015 gross profit of $0.3 million, and 118 percent higher than 3Q2016 gross profit of $12.7 million. Again reflecting the group?s business transformation in FY2016, 4Q2016 gross profit was driven solely by the sale of coal from SDJ, versus 4Q2015?s profits in coal trading activities offset by losses incurred in mining services.

Geo Energy said that as coal prices strengthened in 4Q2016, the cash profit per ton of coal produced by the group increased to $13.86/ton (+65%) from $8.42/ton in 3Q2016.

The company said that the Indonesian coal industry continues to benefit from policy developments in China, where the number of statutory working days for coal miners were reduced in April 2016 from 330 days to 276 days a year. This forced Chinese businesses to rely on coal imports to make up for the shortfall in domestic supply. To date, demand has remained strong due to the high switching costs for energy, given the long-term investment nature of coal-fired power plants. Thus, ICI 4200 GAR coal prices have increased from $26.69 per ton in January 2016 to $43.97 per ton on February 24, 2017, an increase of 64.7 percent during the period.

In FY2016, Geo Energy embarked on a series of acquisition opportunities as part of the group?s growth strategy to increase coal production volume and diversify into coal of a higher calorific value. In particular, the completion of the acquisition of PT Tanah Bumbu Resources (TBR) should see the group?s total JORC marketable coal reserves increase to more than 90 million tons. The company said it is currently in the process of obtaining the latest report on its reserves and resources, to be circulated prior to the forthcoming Annual General Meeting. The company also said it continues to pursue options for earnings accretive acquisitions and off-take agreements, particularly for the TBR coal mine which it hopes to announce in due course.

FY2016 also saw the group?s first foray into mining project management services with PT Angsana Jaya Energi (AJE), and a new off-take agreement signed with Engelhart CTP Singapore Pte Ltd (ECTP) for 7 million tons of coal and a prepayment of $40 million for 2017. The group expects another similar prepayment arrangement in end-2017 for FY2018 production volumes, and is exploring a similar arrangement once the TBR acquisition is completed and it begins production. This will further strengthen its balance sheet and cash flows.

Geo Energy said it is also exploring how to optimize its capital structure, including a potential restructuring of the MTN facility, to best suit the group?s growth plans. As its MTN will come due in less than a year, it will be reclassified under Current Liabilities from the fiscal period ending March 31, 2017. There will be no operational impact from the reclassification.

On a base of enlarged coal reserves and accelerated production plans, Geo Energy said it reiterates its production and delivery target of 10 million tons for FY2017.

?Today?s results show that we have kept our commitment to produce and sell close to our targeted 6 million tons of coal in our first full year of production for the SDJ coal mine. We have maximized cash and productivity from our assets, delivering $23.5 million in FY2016 net profit from continuing operations while strengthening our balance sheet with a cash position of $67.7 million at year end,? said Tung Kum Hon, Chief Executive Officer of Geo Energy.

?We enter 2017 in good stead as our group aims towards becoming one of Indonesia?s top coal producers,? he added.

He said the company?s proposed acquisition of TBR, to be completed in first-half of 2017, will almost double the firm?s coal reserves to more than 90 million tons. Based on current ICI for 4,200 GAR coal, the value of the group?s combined coal assets are worth more than $500 million.

Editing by Reiner Simanjuntak