Thermal coal prices have been hot this year, which will enable two Singapore-listed coal miners to enjoy substantial profits.

The high selling prices (see chart below) combined with a jump in production can only mean a very high trajectory for profits.

Geo Energy has so far said that this year's production will be "at least" 10-11 million tonnes, similar to 2020.

aerialport5.18

Its peer, Golden Energy & Resources (GEAR), has just said its subsidiary has received approval for a robust jump in its production target by the Ministry of Energy and Mineral Resources in Indonesia.

PT Golden Energy Mines Tbk (“GEMS”) has received approval for coal output of 39.6 million tonnes for the financial year ending 31 December 2021.


This represents an 18% targeted increase from its production volume of 33.5 million tonnes in FY 2020.

How big would the financial impact be from a 6 million tonne production increase?

Consider the chart of coal selling prices below: 

loading4.17


Let's take a hypothetical average selling price of US$50 per tonne for the whole of 2021.

That means US$300 million extra revenue (ie 6 million tonnes x US$50). 

If GEMS produces and sells the full production quota of 39.6 million tonnes at, say, US$50 per tonne, the revenue would be US$2 billion (2020: US$1.1 billion). 

Note that GEAR owns 62.5% of GEMS, which is listed on the Jakarta Stock Exchange.

And the profit impact?

Consider that GEMS reported average cash cost of production in 2020 of US$21 per tonne while the average selling price was US$31. 

While this production cost will rise somewhat this year in accordance with a formula agreed between GEMS and its contractors, one can see a widening gulf between the production cost and the selling price this year.

To be sure, profits from coal sales will be very strong. (GEAR has other businesses with exposure to coking coal and gold in Australia, commodities whose prices are strong as well).

You can see it already in GEMS' 1Q2021 results. Revenue was US$381 million.

On a record coal output production of 8.9 million tonnes in 1Q21, it achieved a whopping net profit of US$101 million

And GEAR gets 63% of that.

For perspective, for the entire FY2020, GEAR's group net profit attributable to shareholders was US$8.1 million (FY19: US$9.9 million).

GEAR is expected to announce 1HFY21 results next month. It should be a whopper. 


See also UOB KH's report: 


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