Mark_Chow_Didi_RonaldCrossing Indonesia's Mahakam river to reach the mine site with Geo Energy's chief investment officer Mark Zhou (left) are BJPE representatives Didi Korompis (center) and Ronald Luthfiyano.
Indon_4900cal-g_coal_priceCoal prices (USD/ton) are volatile as seen in movements of SGX OTC swaps on Indonesia's coal of 4,900 Kcal/kg. Chart: Bloomberg

Visuals by Sim Kih


Continuing from our first report of NextInsight's visit to Geo Energy Resources coalmining projects in East Kalimantan, we look in greater detail at its business growth strategy and barriers to entry.

IN THE FACE of volatile coal prices, Geo Energy intends to ramp up output to sustain group revenue just like what the big coal mining companies do.

Unlike the big players, by starting out with low rank coal of about 3,400 kcal/kg means it can look forward to raising average selling prices as it acquires mining concessions with higher grade coal.
BEK-open-pitGeo Energy is a third-party mining services provider for overburden removal, coal haulage and coal sales at the BJPE project. Coal seams are found near the surface at the BJPE pit we inspected, with a strip ratio of 10.
It has several revenue streams:

1. Ramp up output at its existing BEK mining concession

2. Acquire more mining concessions --- conditional sale and purchase agreements to purchase five concessions have been inked this year by Geo Energy.

3. Expand the coal trading segment such as through coal offtake from Bumi Jaya Prima Etam (BJPE)

4. Increase mining services to other mine owners: clearing of overburden and coal haulage

Together with AmFraser and Religare investment analysts, NextInsight travelled to the BJPE mine site in mid-June.

coal-vs-overburdenFossilized carbon content in coal (left) has a black hue, compared to overburden soil that is found above the coal seam.

This is where Geo Energy provides clearing of overburden and coal haulage, a contracted service which it offers if the mine concession owner allows it to offtake the coal produced.

Not only does Geo Energy have access to acquisition of additional commercially viable mining concessions, it also has the expertise and equipment to, monetize these concessions.

Given the surge in coal deposits that its intended acquisitions will bring about, Geo Energy can stabilize its income by choosing to harvest coal seams according to their economic viability as commodity price fluctuates.

Here’s where the measure of strip ratio becomes important.

Strip ratio is the volume of overburden (or waste material) that needs to be handled in order to extract the same volume of mineral ore.

The open pit that we inspected at its existing BEK mining concession had strip ratio of 6.5, meaning that 6.5 bank cubic meters in volume of overburden need to be cleared in order to extract one ton of coal rocks.

The greater the strip ratio, the greater the expense in diesel fuel as a fleet of bulldozers, dump trucks, excavators, man-haul jeeps and other service vehicles needs to be mobilized for clearing overburden.

Miners and local village communities interdependent

. .
In Indonesian villages, infrastructure such as roads are frequently built by the local community rather than the government.  Indonesian law requires natural resource companies to allocate a budget for corporate social responsibility activities within the vicinity of their operations. Click on arrow to see scenes of a typical mining village.
.

"The 5 concessions that we are looking to acquire neighbor our BEK concession.

"We place great emphasis on CSR activities to foster long-term relationships with the local communities.

"Harmony with the locals is essential for smooth production at our projects," said Mark Zhou, the chief investment officer of Geo Energy.

To secure the relevant licences and permits, a coalmining company has to demonstrate a good track record in its corporate social responsibilities (CSR) to the environment.

ng-see-yongNg See YongThese CSR efforts include training villagers to perform mining work, which is a major income source for the local community with a population of 3,560.

Ng See Yong, Geo Energy’s Head - Corporate & Human Resource, said: “We are dependent on the local community for a large portion of its labor resources as less than 5% of our site personnel are supervisors and engineers from the cities.

"Our community assistance efforts are also extensive and includes the upgrading of roads, repairing of roofs and drains, donations to mosques and schools, organization and participation in local festivities and celebrations with local village communities. We also make arrangements for free clinic consultations and treatment services.”

400_School-DonationsGeo Energy site workers in village school donation effort.


 


Related stories:


GEO ENERGY: Acquiring Its 5th Mining Concession Year-To-Date

Jim Rogers Joins Board Of GEO ENERGY RESOURCES, Set To Take Stake

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