Geo Energy returns to profitability

By Romel S. Gurky

SGX-listed Geo Energy Resources Ltd, an integrated Indonesian coal mining group, said Friday revenue from continuing operations more than doubled to US$21.4 million in the second quarter of this year from $7.4 million in the same period of last year, contributed by revenue from coal mining as PT Sungai Danau Jaya (SDJ) mine starts and ramp-up production, a successful turnaround following two years of consecutive losses.

The company said in a statement that group revenue in 2Q2016 increased by 80 percent over 1Q2016 and 231 percent for the 1H2016 over the same period last year. In 2Q2016 SDJ has delivered a total of 850,000 tons of coal, 75.3 percent more coal as compared to 485,000 tons of coal in 1Q2016.

Excluding non-cash items on depreciation and amortization, the group generated cash profit of $3.8 million or $4.50 per ton, an increase of 49.0 percent over the $3.02 per ton in 1Q2016. The increase was in line with the increase in the Indonesian Coal Price Index (ICI) for 4,200 GAR coal of $0.65 per ton and effective production cost control in 2Q2016, the company explained.

In June 2016, the group divested its mining and haulage services business, PT Mitra Riau Pratama (MRP) and PT Geo Mineral Trading (GMT), for $10.0 million to PT Autum Bara Sejahtera. The divestment would allow the group to focus more on coal production while reducing the group?s gearing and operational cost significantly and streamline its operation. As a result of the divestment, Geo Energy said it recognized a net gain of $3.7 million in other income for 2Q2016 and is also expected to save $1.7 million in costs per quarter going forward.

The group managed to keep its operating costs low in 2Q2016 as general and administrative expenses remained at $1.7 million. Finance costs decreased by $0.1 million to $1.6 million in 2Q2016 mainly due to lower amortized borrowing costs incurred by its Medium-Term-Note (MTN). Other expenses have also declined substantially by $2.8 million to $0.1 million in 2Q2016, largely attributed to decreases of $1.7 million in forex loss and $1.0 million loss on disposal of property, plant and equipment.

Geo Energy said there was no revenue contribution from the group?s other coal mine as PT Bumi Enggang Khatulistiwa (BEK) temporarily halted its operations, whilst it restructures its costs of production and awaits a more favorable coal price for its category 3,400 GAR coal.

In June 2015, mining services on the SDJ?s coal mine has been outsourced to PT Bukit Makmur Mandiri Utama (BUMA). BUMA is able to offer mining services and coal haulage services at a more competitive cost and efficient rate thereby in-line with the Group?s strategy to lower its cost of production in order to compete regionally.

Net asset value per share increased from 7.91 US cents per share as of 31 December 2015 to 8.22 US cents per share as of 30 June 2016 despite total number of shares issued increased from 1,185,050,891 shares as of 31 December 2015 to 1,212,273,113 shares as of 30 June 2016.

Commenting on the positive set of financial results and outlook of the group, Tung Kum Hon, Chief Executive Officer of Geo Energy said, ?Our Group is very pleased to turn around our financial performance and register a net profit attributable to shareholders of US$2.6 million after two years? of consecutive losses.?

?After the successful commencement of coal mining operations at SDJ, our Group is heartened to secure a LOM contract with one of the biggest global commodities trading house, ECTP, to off-take most of SDJ?s coal output. Following the LOM contract, our Group announced on the opportunity to acquire another asset at the neighbouring TBR mine site,? he added.

He said this proposed acquisition contains many significant synergistic advantages and would not only replenish the company?s coal reserves but also potentially double our revenue. ?We are now in the process of discussing on a LOM contract and prepayment on the TBR mine to off-take its coal and fund its development. The value of the TBR?s LOM contract is expected to be not less than the US$1.2 billion LOM contract signed on the SDJ.?

Once the acquisition is completed, he said the group intends to start production at TBR in early 2017. ?Our Group is confident that TBR?s coal output would find no lack of customers given that thermal coal demand is expected to stay high in the next few years given sharp production cuts in China and the region and coal consumption to remain resilient.?

Editing by Reiner Simanjuntak