• Thermal coal futures over the next 6 months are on an uptrend again. Geo Energy Resources' stock price (30 cents) has moved up ahead of what could be strong profits for 4Q this year. 

• This is a sharp break from the falling stock price in 1H2023. SGX data shows a net institutional fund outflow in the year-to-date from Geo Energy stock to the tune of S$17.3 million.

• On a macro basis, the outlook is good for coal demand, especially from China and India, which more than offsets decline in coal consumption in the US and EU.

• "In 2024, we expect global coal demand to remain stable (-0.1%) at about 8.38 bt, which remains a level never reached before 2022," according to the International Energy Agency. "In 2024, the share of China, India and the ASEAN region is expected to reach 76%."

• Meanwhile, Geo Energy is edging closer to a transformative acquisition. Below are investor questions ahead of an EGM this Friday to vote on the acquisition, and Geo Energy's replies.


coal pic22

1. Why is there a need to buy two companies, namely PT Golden Eagle Energy Tbk (“GEE”) and PT Marga Bara Jaya (“MBJ”)?



Answer: GEE, an entity listed on the Indonesia Stock Exchange (ticker code: SMMT), through its subsidiary PT Triaryani (“TRA”), has a concession over a coal mine (the “TRA Asset”) which has around 275 million tonnes of 2P (Proved and Probable) quality coal reserves of around 4,000GAR with low sulfur and ash content as at 31 May 2023.

Stock price 

30 c

52-wk range

21 – 42 c

PE (ttm)

3.75

Market cap

$417 m

Shares outstanding

1.39 b

Dividend 
yield
(ttm)

15.3 %

1-yr change

-24%

P/B

0.76

Source: Yahoo!

Such coal specification attracts strong demand from domestic and international markets, particularly Asia, and commands a premium above market price.

Currently, the TRA Asset has annual coal production of approximately 2-3 million tonnes.

MBJ has ready-for-development world-class infrastructure (92km hauling road and jetty) with required land and permits secured. The development of this infrastructure is expected to have a capacity of 50 million tonnes per annum of which 25 million tonnes will be reserved for the TRA Asset.

This infrastructure will complement the TRA Asset by providing exclusive access to the lucrative international export markets and having sufficient capacity to support the ramp-up of production to 25 million tonnes per annum.

The excess capacity of the infrastructure could allow the Group to earn additional income when leasing to neighbouring mines. It will also provide great synergies if the Group wishes to make further acquisition in the same region.


2. a) There was a valuation performed for GEE. Is the valuation report accurate?
b) Is the Acquisition bought at fair value and could the Company overpay for this Acquisition?




Answer: a) The Independent Qualified Person’s Report and Valuation Report of TRA coal mining concession (the “RPM Report”) was issued by an independent qualified person, PT RungePincockMinarco.

The Statement of Coal Resources and Coal Reserves within the RPM Report has been independently reported to be in accordance with the recommended guidelines of the 2012 edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves for the reporting of Mineral Resources and Reserves and the Australian Guidelines for the Estimation and Classification of Coal Resources (2014).

The technical valuation within the RPM Report has been prepared in accordance with the Australasian Code for the Public Reporting of Technical Assessments and Valuations of Mineral Assets promulgated by the VALMIN Committee (VALMIN Code, 2015).

b) The price for this Acquisition was arrived pursuant to arm’s length negotiations between the Company and the Seller on a willing-buyer, willing-seller basis, after taking into account, amongst other factors,

(i) the current market prices for comparable coal quality, and
(ii) the Group’s willingness to take over capital investment and operating costs for continued mining production.


Please refer to paragraph 8.3 of the Circular to Shareholders dated 26 September 2023 for more information on the basis of consideration for the Acquisition.

Given that the TRA Asset was valued at a preferred value of US$809 million based on 2023 variable coal forecast and a preferred value of US$957 million based on a constant coal price, the Acquisition is value accretive for the Group.


3. It was mentioned that the TRA mine has the potential to generate USD250 million cash profit per annum assuming USD10 per tonne cash profit. In order for investors to better appreciate the dynamics affecting cash profit per tonne, could Geo Energy provide an illustrative table showing the cash profit per tonne achievable at different coal price levels and at different mining costs and royalty tax levels?


Answer: Please refer to the Independent Qualified Person’s Report dated 24 August 2023, announced by the Company on 24 August 2023, section 9 pages 87-93 of 114 for the economic analysis performed by our JORC consultant for the Triaryani mine.

Following the completion of the new infrastructure, the expected mining cash costs is around USD25-30 per tonne depending on coal prices, strip ratio and negotiation with the service providers.

Assuming ICI4 coal prices of around USD55 per tonne and an average selling price of around USD50 per tonne (after taking into account 25% sales to domestic markets at lower prices), this would imply a cash profit of around USD20 per tonne.



See Geo Energy's post on the SGX website here

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