Geo Energy?s revenue jumps 176% on stronger coal price

By Romel S. Gurky

SGX-listed coal mining firm Geo Energy Resources Limited saw revenue in the second quarter of 2017 (2Q2017) increased by 176 percent to US$58.9 million from $21.4 million in the corresponding period of last year, mainly contributed by its coal mining business in Indonesia? South Kalimantan Province as well as the new revenue streams from its coal mining management services.

The company said in a recent statement that the Indonesian Coal Index (ICI) for 4,200 GAR coal decreased slightly from an average of US$42.77 per ton in 1Q2017 to $40.12 per ton in 2Q2017. At the same time, the average selling price of the company?s coal in 2Q2017 was $40.11 per ton, an increase of $0.66 per ton over the $39.45 per ton in 1Q2017. This resulted in the Group?s coal mining business recording a higher cash profit of an average $15.24 per ton in 2Q2017 as compared to an average of $13.16 per ton in 1Q2017 and $4.50 per ton in 2Q2016.

General and administrative expenses (G&A) increased from $1.7 million in 2Q2016 to $2.6 million in 2Q2017 due to higher staff costs as part of the expansion of the Group?s operations. Finance costs declined from $1.6 million in 2Q2016 to $1.2 million in 2Q2017 as a result of lower amortised borrowing costs on the Medium Term Notes (MTN) payable. MTN is due on January 2018. Overall, the Group?s net profit from continuing operations surged 136 percent from $4.2 million in 2Q2016 to $10.0 million in 2Q2017.

In 2Q2017, the Group?s PT Sungai Danau Jaya (SDJ) coal mine in Tanah Bumbu Regency, South Kalimantan, delivered approximately 1.5 million tons of coal as compared to 1Q2017 where SDJ mine delivered approximately 2.2 million tons of coal.

?The lower production was due to the prolonged monsoon season in South Kalimantan during the second quarter, which had slowed down production,? Geo Energy said in the statement.

Rainfall in 2Q2017 was longer than 1Q2017 (321 hours vs 158 hours). ?The prolonged rainy season resulted in unfavorable conditions in the coal mine, where pit access is slippery and restricted by water. In addition, production halted during the last week of June 2017 due to the Muslim festive season and extended public holidays in Indonesia (which occurred in July last year). These factors affected the production volumes for most coal mines in South Kalimantan,? the company added.

The Group?s cash and bank balances declined from $67.7 million as of 31 December 2016 to $26.5 million as of 30 June 2017 mainly due to the payments made relating to the PT Tanah Bumbu Resources (TBR) South Kalimantan coal mine acquisition on 23 June 2017, dividend paid by the Company in May 2017 of 1 Singapore cent per share and advance payments made to jetty owners to facilitate our coal delivery. TBR was acquired in a part-cash part-share deal for $90.0 million. Following the completion of the TBR acquisition, total number of shares issued increased to 1,329,273,113 shares as of 30 June 2017. Excluding the new shares issued, net asset value per share increased to 11.54 US cents per share as of 30 June 2017.

?The ICI shows promising signs of a sustained uptrend on coal prices,? Geo Energy said. ICI 4,200 GAR coal prices had increased from $26.69 per ton in January 2016 to US$42.55 per ton on 4 August 2017, an increase of US$15.86 per ton or 59 percent during the period. Global seaborne export supply of thermal coal is expected to increase in line with demand through to 2025 to support power generation requirements and allow for ongoing industrialization and electrification.

Indonesia remains the largest contributor of seaborne thermal coal market, contributing approximately 40 percent of the thermal coal supply. Majority of Geo Energy?s production currently goes to end customers in China, comprising mainly coal-fired power plants. Strong economic growth in the South-East Asian markets, including Indonesia, are also expected to see increased coal demand given the need for power for these developing countries around the region.

Commenting on the positive set of financial results and the outlook of the Group, Tung Kum Hon, Chief Executive Officer of Geo Energy said, ?The Group expects a higher volume of coal sales for the second half of 2017 given better weather conditions.?

?Our Group is also delighted to announce the completion of our acquisition of TBR in June 2017. Our Group is now looking for the most cost-effective method for the mutual joint mining plan to boost production and sales for both SDJ and TBR. Given that our MTN is due in January 2018, our Group has been exploring feasible options to redeem the bond early and to optimize our capital structure in order to maximize shareholder value,? he added.

He said that demand for Indonesian?s high calorific, low sulphur and low ash coal in the region is still increasing due to the Chinese government?s potential tightening of rules on low-quality and high ash content coal imports. In the near future, China intends to reject coal grades of below 3,400 GAR and those with high ash content of above 30% to uphold their strict environmental initiatives.

As most countries head into the winter season in the later part of the year, the Group expects stockingup demand to pick up during the July to October period which should see current coal prices sustain or improve.

Editing by Reiner Simanjuntak