| Golden Energy & Resources (GEAR) achieved US$48.7 million net profit in 1H2017, as it produced 3 million tonnes of coal in each of the two quarters, despite a monsoon season that didn't end in April as usual but extended past June. GEAR attributed this to its operational capabilities and mining infrastructure. (The rains did affect Geo Energy which produced 1.5 million tonnes in 2Q17 versus 2.2 million tonnes in 1Q17).
GEAR declared an interim dividend of 0.8 cent a share, or a 2% yield, its maiden dividend since it got listed through a reverse takeover in 2015. It said it is on track to produce 8 million tonnes of coal in 2H2017, bringing the total for the year to 14 million tonnes (+47% y-o-y). This suggests a sizeable profitability -- assuming that coal prices stay at current levels.  Golden Energy & Resources owns a jetty at which stockpiled coal from its nearby Borneo Indobara (BIB) mine is transferred to barges in the Java Sea for onward transfer to mother ships. NextInsight file photo. |
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|
(US$’000) |
1H2017 |
1H2016 |
% change |
|
Revenue |
282,826 |
186,977 |
51.3 |
|
Gross profit |
137,371 |
54,047 |
154.2 |
|
Profit attributable to shareholders |
30,803 |
512 |
N.M. |
GEAR's average selling prices of coal stayed high -- at US$40.86 per tonne in 1Q2017 and US$42.58 per tonne in 2Q2017.
As at end-July, FOB Kalimantan 4,200 kcal/kg GAR coal sold for US$42.50 a tonne.
GEAR's whopping profits derived from its low cash cost of production of US$20.94 per tonne in 1H2017.
|
|
Golden Energy |
Bukit Asam |
Geo Energy |
|
Operating margin (1Q17) |
32% |
27% |
24% |
|
Net margin (1Q17) |
25% |
19% |
15% |
|
Source: Golden Energy |
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China, being a major importer of coal from Indonesia, experienced short-term supply issues as well as weaker hydropower brought about by the closure of up to two thirds of hydropower plants' capacity to limit damage due to flooding as a result of higher rainfall.
Growing through acquisitions
GEAR's key mine, the BIB concession, is set to ramp up production annually from 12 m tonnes of coal this year. It plateaus at 35-40 million tonnes a year from 2021-2036.
GEAR has ambitious plans for inorganic growth too.
In 2016, it acquired all of PT Era Mitra Selaras, with concession rights to PT Wahana Rimba Lestari which has a JORC probable and proven coal reserve of 70m tonnes and coal resources of 183m tonnes, for an aggregate consideration of US$37.2 million.
That works out to about USD50 cents a tonne of reserve.
In May 2017, it said it planned to acquire for US$65.6m PT Barasentosa Lestari (BSL) which has probable and proven coal reserves of 195m tonnes and coal resources of 393m tonnes.
That works out to USD70 cents a tonne (taking into account the debt of BSL).
Mark Zhou, head of investments, Golden Energy & Resources"You know where comparables are trading -- above US$1. So, these acquisitions become instantly value accretive to GEAR," says Mark Zhou, GEAR's head of investments.
"The next thing is with the acquisition of BSL, GEAR will have among the Top 5 coal reserves in Indonesia (about 973 million tonnes)."
GEAR is not done yet: It is on the lookout for more acquisitions given its war chest of US$122 million in cash and cash equivalents as at end-June 2017, and a gearing of 0.09X only.
For more, see GEAR's 2Q17 Powerpoint presentation here.
Watch video of our visit to GEAR's mine -->
