Geo Energy Resources Rides Coal Price Tailwind

Date: March 9, 2017

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Geo Energy Resources Ltd 

SGX Code RE4
Mkt Cap S$M 358
% Price Change YTD 31.1
% Price – Div Adj. YTD 31.1
% Price – Div Adj. [1 Year] 147.9
% Price – Div Adj. [3 Years] -10.6
Price vs. 12M High % 0.0
Price vs. 12M Low % 227.8
% Div Yld N/A
P/BV 2.3

Source: SGX StockFacts (22 Feb 2017)

Growing up on a farm in Malaysia, Tung Kum Hon dreamed of becoming an architect.

“When I was young, I was fascinated by how things were created and constructed,” said the Chief Executive Officer of SGX-listed Indonesian coal mining group Geo Energy Resources Ltd.

“I eventually became an accountant, not an architect, but my passion is still in designing and building things. Although I don’t create physical structures, I lead companies and build them into major multinational corporations that impact lives and livelihoods.”

Tung, a Certified Public Accountant and Chartered Accountant, spent more than 15 years with PwC. His previous appointments ranged from CEO of Bellzone Mining plc – which trades on London’s AIM – and Group COO of a Hong Kong multinational group, to CFO of Shanghai Asia Holdings Ltd and Special Assistant to Executive Chairman of New Toyo International Holdings Ltd, both listed on SGX. He has also held directorships in other publicly traded companies, including Tien Wah Press Holdings Bhd.

“An architect creates and sets direction for change. In that sense, this attitude of thinking out of the box has always guided me in managing the different situations I have encountered in my career,” he added.

Tung, 56, played an instrumental role in turning around loss-making Geo Energy. When he came on board as CEO in December 2015, he faced a myriad of challenges and a ticking clock. 

“The company had been losing money for two years, and would have been transferred to the SGX watch-list if it incurred another annual loss. The share price had sunk to 13 cents a share and was being considered for the MTP watch-list,” he recalled, referring to the minimum trading price rule of 20 Singapore cents imposed by SGX.

To make matters worse, the Group was close to breaching its Medium Term Note financial covenants, and had no funding plans. It was also saddled with high receivables from customers languishing in the coal price slump. Engagement with stakeholders, including investors and staff, was noticeably lacking.

“There were so many things to work on within a short time!” he said.

Eventually, after a restructuring exercise and as coal prices recovered, Geo Energy returned to the black, reporting its first profit in years for the three months ended 30 June 2016.

Transforming Vision

Established in 2008 and listed on SGX Mainboard since 2012, Geo Energy has a current market capitalisation of over S$350 million. It owns two coal mining concessions through wholly owned subsidiaries PT Bumi Enggang Khatulistiwa (BEK) and PT Sungai Danau Jaya (SDJ) in East and South Kalimantan. 

These concessions have total Joint Ore Reserves Committee (JORC)-compliant reserves of 53.5 million tonnes of coal averaging 3,600-4,200 GAR (gross as received), which refers to calorific value. Currently, its primary focus remains on coal production in SDJ.

The 4,200 GAR grade is commonly used in coal-fired power plants throughout the region, including China and Indonesia, due to its low sulphur and ash content.

Between 2012 and 2015, the company averaged annual revenues of US$65.7 million. It made net losses of US$12.6 million and US$16.3 million in 2014 and 2015 respectively, after reporting earnings of US$18.9 million and US$12.6 million in 2012 and 2013.

To ensure a sustainable business, Tung revamped Geo Energy’s operations. When the company was first founded by the Melati family, capital spending was high, with heavy investments in equipment leading to rising depreciation and leasing expenses. The company had also expanded beyond its original plans, leading to poor returns on assets, he said. 

“I took steps to sell off assets, even though they were very dear to the controlling shareholders,” Tung recalled.

“The Melati family understood, and really wanted change. And I believe this was necessary for the company – to create a platform that could ultimately translate the 2016 coal price recovery into profits.”

Tung’s vision involved transforming Geo Energy into a cost-competitive, low-capex, easily scalable business that could maximise profits in industry booms and withstand price shocks during depressed cycles.

“Outsourcing mining services to BUMA, and rapidly divesting our non-core assets brought our cash costs down to US$23 per metric tonne for 3Q 2016,” he said. PT Bukit Makmur Mandiri Utama, or BUMA, is Indonesia’s second-largest coal mining contractor.

“Production volume was also prepared for scaling up, and on the sales side, offtake agreements with ECTP were also secured last year,” he added. The Group had inked a contract with global commodities firm Engelhart Commodities Trading Partners (ECTP) in July 2016 to supply about 42.0 million tonnes of coal for the lifespan of its wholly owned mine.

The sum of these moves resulted in a net profit of more than US$2 million for the second quarter of 2016, and earnings of over US$7 million in the subsequent quarter. “We expect to do better, as coal prices continued to rise in the fourth quarter of 2016,” Tung noted.

Creating Value

Geo Energy has set a 2016 production and sales target of 6 million tonnes of coal, with this figure rising to more than 10 million tonnes in 2017. 

“At the current price of US$42 per metric tonne, this would generate revenues of more than US$400 million in 2017, and effectively propel Geo Energy into the ranks of Indonesia’s top 10 coal producers by production volume,” he added.

Indonesia’s five largest coal miners by market capitalisation are PT Adaro Energy, PT Tambang Batubara Bukit Asam, PT Bayan Resources, PT Indo Tambangraya Megah and PT Golden Energy Mines. 

Last year, Geo Energy embarked on its expansion plan with a series of corporate activities. It announced conditional sale and purchase agreements for a stake in PT Parisma Jaya Abadi (PJA) mine with 6,800 GAR coal for US$18 million, and a stake in PT Cahaya Lembusuana (CLS) mine with 7,000 GAR coal for US$13 million. Both are located in East Kalimantan.

Last July, it unveiled another conditional agreement to buy nearly 100% of PT Tanah Bumbu Resources’ (TBR) mining concession in South Kalimantan for US$90 million. When completed, the acquisition will double the Group’s mineable reserves to more than 100 million tonnes. The project is expected to start production of 4,200 GAR coal in the April-June quarter of this year. 

Geo Energy also entered the high calorific value (CV) coal market last November with the acquisition of PT Surya Tambang Tolindo (STT), which is in the pre-production stage. 

“Coal prices for 6,000 CV coal are now US$90 per metric tonne, and our estimated production cost is about US$60 per metric tonne,” Tung said. “Depending on the exploration and JORC report on its reserves, this would be another great value-creation for the Group.”

Looking ahead, Geo Energy is working with a few large commodities trading houses on potential collaborations, and continues to seek good acquisitions to grow and scale its operations.

The Group could also diversify into other sectors, such as power generation in mine-mouth power plants. It announced last July it was exploring opportunities to supply thermal coal directly to power plants through Indonesia’s state-owned electricity company Perusahaan Listrik Negara (PLN). The Indonesian government aims to add 35,000 megawatts (MW) in power generation capacity across the country by 2019.

“Almost 20,000 MW under the program is to come from coal-fired plants, which may present an interesting opportunity for us,” he added.

Holding Steady

Meanwhile, Tung remains sanguine that the rebound in coal prices – from about US$28 per metric tonne for the 4,200 GAR grade last June to above US$40 per metric tonne this month – is sustainable. 

“We expect coal prices to remain range bound, supported by Chinese import demand following domestic coal production cuts,” he said.

In April 2016, China implemented a shorter, 276 working-day policy per year for coal miners that resulted in a supply crunch and low inventory levels. This has given imported coal a significant boost. 

“The size of China’s domestic coal market compared to the seaborne market means its role as a major driver of price formation will continue, while Indonesian producers perhaps have more flexibility than producers elsewhere due to their lower cost of transportation to ports,” he added.

Recovering coal prices have given Geo Energy a much-needed fillip. The stock has tripled in value over the past six months, but is still more than 50% below its historical high of 63.5 cents reached on 8 January 2013. It hit a 52-week high of 29.5 cents on 22 February 2017, up from the all-time low of 9.5 cents on 1 August 2016. 

“We want to grow Geo Energy into a US$1 billion market cap company by doubling its capacity to generate over US$500 million in revenue, at the lowest cost, and with the highest productivity and efficiency,” Tung said.

“It takes strong leadership, focused on constructive change, to bring about growth,” he added, noting that many companies reap little because they sow little. Rather than re-investing profits to build their businesses, they have under-invested, or are focused on buying back their shares to boost value. 

“Together, the Board has more than 25 years in coal mining, and more than 50 years in corporate finance, management, legal, M&A, commodities and investments, to steer Geo Energy toward greater heights.”

While the journey so far has been riddled with difficulties, Tung believes it’s important to adopt a glass half-full approach. 

“Do not be discouraged by what life throws at you. Difficult roads often lead to beautiful destinations. We should choose to shine even after experiencing the storms,” he added.

Life can be totally unpredictable, he acknowledged. Some of his school mates who didn’t score good grades in school are now successful businessmen, while those who topped their classes have merely taken on middle-management roles in small companies. “I firmly believe life is about how you seize the opportunities that come your way.”

Opportunities aside, details do matter.

“Small details keep me awake at night,” Tung admitted. “Little things make big things happen, and they often have a significant impact on what we do if we’re not careful in managing them.”

Having said that, failure is not a foe, but a friend, he emphasised. “Never be afraid of taking on a new challenge – be adventurous! Even if you fail, you can learn from the experience, and that will allow you to eventually triumph over adverse circumstances.”

Obviously, learning is a lynchpin of Tung’s life philosophy. “If you are the smartest person in the room, you are in the wrong room,” he grinned.

The father of a son, 20, and daughter, 22, dreams of retiring on a farm, growing tomatoes, basil and chilli, with an orchard and a pond teeming with fish. 

“I would like to return to my roots. But first, I need to convince my wife!”

Financial Results

Year ended 31 December (US$ ‘000) 2015 2014 2013 2012
Revenue 22,336 53,107 108,594 78,765
Gross profit/loss 398 -2,423 30,548 36,234
Net profit/loss -16,306 -12,578 12,623 18,925

Quarter ended 30 September (US$ ‘000) 3Q 2016 3Q 2015 % Change
Revenue 56,876 5,159 NM
Gross profit 12,746 434 NM
Net profit/loss 7,442 -1,428 NM

*NM: Not meaningful

Source: Company data

Brokers’ Ratings   Price Chart
Buys 2
Holds 0
Sells 0
Consensus PT 0.4

Source: SGX Stockfacts


Outlook & Risks

  • The Indonesian Coal Index (ICI) shows promising signs of a sustained uptrend in coal prices.
    ICI 4200 GAR coal prices have increased to US$43.31 per tonne as of 10 February 2017 
    from US$26.69 per tonne in January 2016, a gain of 62.3% over the period.
  • On 1 July 2016, the Company announced the Group has secured a Coal Offtake Agreement
    for the life of mine and Prepayment with Engelhart Commodities Trading Partners (Singapore)
    Pte Ltd (ECTP), a deal worth an estimated US$1.2 billion based on July 2016 coal prices. 
    This agreement will allow our Group to focus on expanding coal production while ECTP takes
    care of coal trading and sales. The first Prepayment on the coal offtake agreement of US$20.0
    million was received on 8 July 2016, and future Prepayments at US$4 per tonne based on SDJ
    coal production for the following year over the life of mine will provide future funding for the Group,
    and strengthen its cash flow and financial position going forward.
  • On 18 July 2016, the Company announced it had entered into a Conditional Sales and
    Purchase Agreement with International Resources Investment Ltd for the acquisition of
    100% interest in Fortune Coal Resources Pte Ltd. This proposed acquisition, which is
    expected to be completed by 1Q 2017, will allow the Group to access and control the
    mining concession and the coal deposits located in the mining permit area next to the
    SDJ coal mine. This will in turn improve the Group’s mining efficiency and synergy and
    increase the quantity of high calorific value coal reserves available for production. It will
    also increase its JORC-compliant coal reserves to more than 100 million tonnes when
    the proposed acquisition is completed.
  • Since the commencement of SDJ coal production in December 2015 and the first shipment
    of 55,000 tonnes of coal in January 2016, the Group has sold 3,148,517 tonnes of coal for
    the nine months of 2016 to China and regional customers. The Group also sold 740,000
    tonnes of coal in October 2016 and at the date of this announcement, had signed on for
    shipments of 910,000 tonnes of coal for export shipping dates up to November 2016.
  • Barring any unforeseen circumstances, the Group expects an initial production target of
    600,000 tonnes of coal for each of the remaining months in 2016, and 10 million tonnes
    per year of coal production and sales by 2017, subject to the completion of its acquisition
    and the start of its production. 

Geo Energy Resources Ltd

Geo Energy Resources is a coal mining specialist with an established track record in the operation of coal mining sites for coal production and sales since 2008. The Group’s operations are primarily located in Indonesia. Geo Energy owns major mining concessions and coal mines in East and South Kalimantan, with JORC-marketable coal reserves of 53.5 million tonnes. The Group is currently in the process of completing its acquisition of a mining concession in South Kalimantan, which will increase its JORC-marketable coal reserves to over 90 million tonnes.

The company website is:

Click here for the company’s StockFacts page.

For third quarter ended 30 September 2016 financial results, click here.

First published on 24 February 2017 on

Text: Jennifer LH Tan
Photo: Company file

kopi-C is a regular column on SGX’s My Gateway website that features C-level executives of leading companies listed on the Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

For previous editions of kopi-C: the Company brew, please click here.