GEO ENERGY: Ramps up coal production, expects positive results in 2016

GEO ENERGY RESOURCES had a challenging year in 2015 as coal prices continued to soften -- so how different would 2016 be?

Quite different, going by happenings in 1Q this year. Specifically, Geo delivered the first shipment of 55,000 tonnes of coal in January 2016 out of its SDJ mine in Kalimantan, Indonesia.
 
Production had started in the mine in Dec 2015. This mine in which Geo has an effective 98.96% stake was acquired in two stages -- in Aug 2014 and Dec 2015.

It is the second mine, after BEK, in the Geo group.

Photo of SDJ mine by Geo Energy. Much progress has been made at SDJ: The sixth shipment of 52,500 tonnes has already gone off to customers in China, said CEO Tung Kum Hon at a FY2105 results briefing.  Geo is now filling orders for the next 2 shipments and expects more orders for its high caloric value coal of 4,200 GAR from key export markets. And it said its production will expand to 500,000 tonnes per month in the next 2 months. For 2016, Geo is targeting for the SDJ mine to produce a total of 6 million tonnes of coal. Assuming the current price of US$26-27 per tonne, six million tonnes will generate US$160 million in revenue.  “Share price is currently trading at 17% above NTA/share, and does not reflect the future earnings of Geo going forward and the start of SDJ mine.” – CEO Tung Kum Hon Geo has not given any profit forecast but at these selling prices, it is in a competitive position given the low cost structure of the SDJ mine: 1. It has a low strip ratio of 1:3.2, which means for a volume of overburden (or waste material) removed, 3.2X in volume of coal can be extracted. 2. The mine is a relatively short distance of 17 km to a Jetty and 15 km to anchorage for exports. Short distances translate into low hauling costs.  We have covered the SDJ mine more extensively previously. See: GEO ENERGY: Looking to 2016 for strong cashflow and profit

Geo Energy CEO Tung Kum Hon speaking with analysts after the recent FY15 results briefing. Photo by Leong Chan TeikBuilding up its coal reserves

Geo Energy is set on expanding its coal reserves. It has announced the proposed acquisition of two mines for a total of US$31 million. 

They have coal of much higher caloric values of 6,800 and 7,000, respectively.

For more information, check out the Powerpoint materials used in the FY15 results briefing here.

See also: GEO ENERGY: Looking to 2016 for strong cashflow and profit