After a challenging 4Q18, the outlook for thermal coal price is less uncertain, in the near term at least.

This is one of several positives for Singapore-listed coal producer Golden Energy & Resources' (GEAR) first half 2019 performance. 

loading4.17For 2019, GEAR plans to produce 22 million tonnes of coal from its BIB mine, 2 million from KIM, and 1 million from BSL. NextInsight file photo.It expects its cash cost of production to fall.

The cost of production had shot up by US$4.30/tonne to US$27.42/tonne (average for 2018) on a number of factors such as higher fuel prices, higher strip ratios and longer distances to dump the overburden from its coal mines.

The cost of production will fall to around US$25/tonne this year, said to Mark Zhou, its head of investments, at the FY18 results briefing. 

This is due to lower costs expected for, mainly, logistics and lower strip ratios at its coal mines in Indonesia.

The lower production cost will have a salutary effect on GEAR's profitability when the tonnage of coal produced rises.

GEAR said it is targeting 25 million tonnes this year, up from the 22.6 million tonnes achieved in 2018.

MarkZhou3.18Mark Zhou, head of investements at GEAR. NextInsight file photo.(The 2018 target was 20 million tonnes, so GEAR had once again exceeded stated production targets.)

What's crucial next is the selling price -- which has roller-coastered last year. 

In 4Q18, the market price for GEAR's grade of coal dropped to as low as US$29/tonne (after soaring to nearly US$50/tonne in 1H2018).

It has recovered to nearly US$40/tonne in 1Q this year.

Phillip Securities analyst Chen Guangzhi, in his Feb 2019 report, said he expected the average coal price (4,200 GAR) to be US$39.5/tonne in 2019.

In comparison, GEAR's average selling price by its coal mining division in 2018 was US$41.39/tonne.

Stock price 

23.5 c

52-week range

21–42 c

PE (ttm)


Market cap

S$553 m

Shares outstanding

2.35 b



1-year return


Source: Bloomberg

"Therefore, the overall performance will continue to improve due to the growth of output offsetting the decline in ASP," said Mr Chen, referring to GEAR and its SGX-listed peer Geo Energy.

In FY18, GEAR achieved US$1.1 billion in revenue, up 37.3%, the first time it crossed the US$1 billion mark.

Net profit declined 29.4% to US$73.7 million.

Net profit attributable to shareholders was US$39.3 million, down 37.4%.

After declaring an interim dividend of 1.39 SG cents/share in 3Q18, GEAR did not declare a final dividend. 

This is owing to covenants under a 2018 bond issuance limiting any dividend to "50% of the cumulative net income," said Mr Zhou.

♦ Timely diversification to Aussie coking coal

In Nov 2018, GEAR made an unsolicited takeover offer for Stanmore Coal, an ASX-listed coking coal producer supplying to steel producers in Japan, Korea and Europe.

After the close of the offer (in Jan’19), GEAR owned approximately 25.5% at A$0.95 for a total consideration of A$61.2 mn (US$44 mn).

Stanmore’s financials

(A$ mn)


Production (‘000 tonnes)


+ 91%



+ 79%



+ 122%

Net profit


+ 166%

The share price has spiked up (recently: A$1.27) on the ASX after the release of strong 1HFY2019 financial results of the company (see table).

(The mark-to-market gain in GEAR's stock investment will be reflected under GEAR's "other comprehensive income" going forward).

The Stanmore management's guidance for FY19 was bullish: Production of 2.15Mt of saleable coal and EBITDA of A$140m-A$155m.

GEAR said it would continue to explore other such value-accretive diversification opportunities.

For more, see the Powerpoint materials for the FY18 results briefing are here.