GOLDEN ENERGY & RESOURCES: 2Q18 profit US$15 m, on track for 20 m tonnes of coal production

The volume of coal produced was up, and so was the average selling price. However, this positve combination at Golden Energy & Resources (GEAR) in 2Q18 was not enough to generate a profit that was also up year-on-year.  Above: Removal of overburden. The cost of disposing overburden has gone up because of the longer distance to the site and due to higher fuel cost. NextInsight file photo.   1H2018 1H2017 Average selling price / tonne US$44.90 US$41.69 Cash cost / tonne US$25.98 US$20.94 Interest expense US$7.6 m US$2.6 m In 2Q18, GEAR produced 4.4 million tonnes of coal, 47% more y-o-y. Accordingly, group revenue -- including that from coal trading -- rose 49.4% to US$208.6 million. Net profit came in at US$15.0 million, a nice number but it's down 21.5% y-o-y.  Reasons: (US$’m) 1H18 1H17 Change Revenue 481.6 282.8 70.3 % Gross Profit 194.9 137.4 41.9 % Net Profit  after tax 58.5 48.7 20.2 Profit attributable to owners 34.8 30.8 13.1 % ♦ Increased mining services and coal freight costs:  These were the result of higher strip ratios at its PT Borneo Indobara (BIB) mine, which is expected to produce 17-18 million tonnes of coal this year. Higher expenses were also incurred because of the longer distances to dispose the overburden and, most critically, because of rising cost of fuel for operating various machinery, and transporting coal and overburden. ♦ Increased interest expenses due to the issue of US$150 million notes with a 9% coupon in Feb 2018.

The average selling price of coal (of the 4200 GAR grade that BIB produces) stayed stable at US$42.17 per ton in 2Q 2018, compared to US$42.58 per ton in 2Q 2017.

Mark Zhou, head of investments, GEAR.However, it was lower than the US$47 achieved in 1Q2018.

The market price has softened further this month (Aug) to about US$41.

But the coal demand is there: "We see that our coal production ramp-up for 2H18 will be easily absorbed by the market," said GEAR's head of investments, Mark Zhou, at a 2Q18 results briefing.

After the 9.1 million tonnes produced in 1Q18, GEAR is on track to achieve its target of 20 million tonnes this year, or a 28% y-o-y increase.

Mr Zhou said cash cost per tonne is expected to hover around US$26 for the full year, barring any significant volatility in the cost of fuel.

“GEAR has continued to make significant progress in its top and bottom line in the first half of the year, and the Group’s strong coal trading and mining divisions are testament to its focus in delivering value and profitability through production growth and price realisation." -- Fuganto Widjaja (photo),  Group CEO of GEAR.

As at 30 June 2018, GEAR’s balance sheet remained stable and robust, with cash and cash equivalents of USD153.8 million. Gearing was a low 0.34 times.

In line with the Group’s strategic plans to expand its business operations and increase its coal reserves and production levels, GEAR’s subsidiary, PT Golden Energy Mines Tbk (GEMS), entered into a conditional sales and purchase agreement with GMR Energy (Netherlands) B.V. and GMR Infrastructure (Overseas) Limited in May 2017.

The deal is for GEMS to acquire the entire effective shareholding interest of PT Barasentosa Lestari (“BSL”).

BSL holds a coal concession in South Sumatra, Indonesia.

The consideration for the transaction is US$65.6 million, and is expected to be completed in 2H 2018.

That would raise GEAR's total 2P coal reserves to more than 1 billion tonnes, making it the fourth largest coal reserve owner in Indonesia.

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