US$’m

1QFY17

1QFY16

Change

Revenue

143.2  

96.8

47.9%

Gross profit

72.1

25.5

182.5%

Gross profit margin

50.3%

26.3%

Net profit after minority interests

19.0

1.68

1032%

Golden Energy & Resources (GEAR), buoyed by strong coal prices, achieved US$19.0 million in net profit attributable to shareholders in 1Q2017.

Coal prices have soared above its cash cost of production, which is why its 48% rise in revenue led to a 1,251% surge in net profit of US$29.6 million (net profit attributable to shareholders: US$19.0 million)

Free cash flow was strong, leading to GEAR's cash level soaring to US$103.8 million as at end-March 2017 from US$43.6 million a year earlier. This places it in a position to consider a dividend for FY2017, said management.

(At as end-March 2017, GEAR had US$7.9 m in short-term debt and US$47.2 m in long-term debt).

Golden Energy & Resources

Share price: 
44 c

Target: 78 c
Source: KGI

The favourable coal price trend, which sprang up in 2H2016, inspired a 50% rise in GEAR's 1Q2017 production volume -- from 2 million tonnes to 3 million, notwithstanding the seasonal 1Q rainfall.

With that, GEAR says it is on track to achieve its 2017 production target of 14 million tonnes versus 9.5 million last year.


bigmover4.17@ GEAR's mine in Kalimantan. NextInsight file photo Coal prices have softened in the 2Q, with the ICI4 index recently hovering at US$38 per tonne compared to GEAR's average realised price of US$40.86 in 1Q.

Given that GEAR's cash cost is about US$21 a tonne, it still has a bonanza to reap.

JoelNg10.16“We believe the recent weakness in coal prices may be temporary given that the Chinese government has set a coal price target of 470-600 yuan (US$69-88) a tonne.

"The government seeks to provide a price level that ensures coal miners and power producers are profitable. Nevertheless, to provide a more meaningful margin of safety, we have lowered our long-term coal price forecast to US$40/tonne (previously US$42) and raised our cash cost to US$21/tonne (previously US$20).”


-- Joel Ng (photo),
Analyst, KGI Securities

GEAR's cash cost is several dollars lower per tonne than its peers mainly because about 20,000 hectares out of 24,000 hectares of GEAR's key concession (BIB) lie below a forestry concession owned by United Fiber System, the company that GEAR did a reverse takeover of.  

Thus, it doesn't have to pay compensation to landowners.

GEAR's target production of 12 million tonnes this year from its BIB mine is already booked. (Another 2 m tonnes from another mine is for its own power plant).

The risk is in the market pricing, which is influenced by a myriad of factors, the key being China's demand (which can be seasonal in nature) as well as related policies. 

 markzhou2013"Do continue to watch out for us. GEAR has a strong earnings growth story. Our balance sheet, our cashflow, are strong. We are in a net cash position with low gearing. We have 2 arms of growth -- organic in terms of production ramp-up as well as inorganic through acquisition to add to our coal reserves.

-- Mark Zhou (photo), 
Head of investments, GEAR

Optimistic about long-term pricing, GEAR, as with property developers and their landbank, seeks to acquire coal concessions to replenish its reserves. This is where its cash pile comes in handy.

Last Friday, GEAR announced that it planned to acquire BSL, a concession in Sumatra, for US$65.6 million. 

BSL has a JORC reserve of 393 million tonnes, which would boost GEAR's coal reserves to nearly 1 billion tonnes, by far the highest among SGX-listed coal miners. 

Mr Mark Zhou, head of investments, GEAR, said BSL is greenfield and would come into production likely early next year. 

Mr Fuganto Widjaja, Group CEO of GEAR, said, “The Group anticipates that the outlook for coal will continue to be positive, given an expectation of a supply shortfall, arising from strong demand for thermal coal. Industrialisation and electrification in Asian economies are expected to drive coal demand in both the domestic and export markets."

For the Powerpoint presentation materials, click here. 


W
atch this video of our recent visit to GEAR's mine in Kalimantan -->


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