Geo Energy buys out a Kalimantan coal mine for US$90m
Geo Energy Resources has added a third coal mine under its
belt that will double its coal reserves to over 100 million tonnes following
its latest acquisition of a mine in South Kalimantan, Indonesia for US$90
million.
Comments
Anita Gabriel
19 July 2016
Geo Energy Resources has added a third coal mine under its belt that will double its coal reserves to over 100 million tonnes following its latest acquisition of a mine in South Kalimantan, Indonesia for US$90 million.
Sweetening the prospects further, the Singapore-listed miner said it will hold talks for "a life of mine offtake deal" worth at least US$1.2 billion on the mine, which has an estimated reserves of 44.4 million tonnes of coal. This refers to the supply of coal over the lifespan of the coal mine.
If there are no bumps on the group's offtake aspirations, Geo Energy could achieve 10 million tonnes of coal production and sales in 2017, making it one of the largest coal producers in Indonesia, said chief executive Tung Kum Hon.
The Monday announcement failed to excite the counter after a trading halt was lifted at 4pm. The stock closed 0.5 Singapore cent or 3.6 per cent lower at 13.6 Singapore cents.
Geo Energy has signed a conditional agreement to acquire a 98.73 per cent stake in PT Tanah Bumbu Resources (TBR) which will be funded by cash and US$13 million through the issuance of 117 million new shares at 15 Singapore cents per share.
TBR holds a concession till 2022 for an area that spans 489.1 ha and is located next to another mine owned by the company, PT Sungai Danau Jaya (SDJ) which commenced production in December last year.
Just two weeks ago, Geo Energy said it snagged a life of mine offtake deal worth an estimated US$1.2 billion with global commodities group Engelhart Commodities Trading Partners (Singapore) (ECTP) to supply coal from the SDJ mine.
"Acquiring a neighbouring mineenables the group to harness various advantages, like the existing infrastructure and facilities of the jetty and waste dump sites," said Mr Tung.
"This proposed acquisition comes at an opportune time with the Indonesian Coal Index (ICI) showing promising signs of a sustained uptrend and coal assets prices around the region still remain at attractive valuations," he added.
Based on current price trends, the firm expects the ICI (Indonesian Coal Index) for 4200 GAR to hit US$30 per tonne by end-July or next month and US$35 per tonne in 2017.
Indonesian thermal coal prices have climbed 11 per cent since the start of 2016 and could well translate into better profitability for Geo Energy, said Maybank Kim Eng in a note to clients.
The price of 4,200 GAR coal, a popular grade among Chinese and Indian coal buyers, has risen to US$29/tonne due to supply tightness in Indonesia and strong demand from China.
Higher thermal coal spot price, cost savings and the firm's divestment of mining services operations could aid the company's turnaround in financial year 2016 after two years of losses.
Based on Maybank Kim Eng's forecast, Geo Energy could post a net profit of some US$9 million in FY2016 from a loss of US$16.3 million a year ago.