Geo Energy Resources Limited (“Geo Energy”, the “Company”), a major Indonesian coal producer, is poised for significant growth in the coming years. With a track record in operating coal mines and a focus on low-cost production of high-quality coal, Geo Energy has established itself as a reliable provider in Southeast Asia.
The Group owns 5 mining concessions through its subsidiaries:
Kalimantan, Indonesia
- PT Sungai Danau Jaya
- PT Tanah Bumbu Resources
- PT Bumi Enggang Khatulistiwa
- PT Surya Tambang Tolindo
South Sumatra, Indonesia
- PT Triaryani
The Group also owns a 49% equity stake in PT Internasional Prima Coal in Kalimantan, Indonesia as a joint venture with PT Bukit Asam Tbk, a state-owned coal mining company and one of the largest coal producers in Indonesia.
In this article, we will explore Geo Energy’s robust FY2023 operational and financial performance, its strategic acquisitions and growth potential in the Asian coal market.
FY2023 Operational and Financial Performance
For the year 2023, Geo Energy achieved a revenue of US$489.0 million and net profit of US$62.7 million despite lower sales volume in 2023.
This is attributed to higher strip ratios in the SDJ and TBR mines due to their geology as well as the normalization of coal prices, with the Indonesian Coal Index Price for 4200 GAR (“ICI4”) prices averaging US$62.96 per tonne in 2023 (2022: US$86.06 per tonne).
On a bright note, the Company exceeded its initial target, delivering a total of 8.4 million tonnes of coal in 2023, including 0.2 million tonnes from the recently acquired PT Triaryani (“TRA”) mine.
This resilience demonstrates Geo Energy’s ability to navigate challenges and maintain profitability.
The Transformational Acquisition of PT Golden Eagle Energy Tbk
Geo Energy’s acquisition of PT Golden Eagle Energy Tbk (listed on IDX) in 2023, which in turn owns 85% of TRA mine, has been a defining moment for the company.
The TRA mine, with 2P reserves of over 275 million tonnes of high-quality coal reserves, offers favorable low ash and low sulfur characteristics that command premium pricing.
On top of bringing in accretive cash flow to the Group and extending the Group’s mine life by more than 20 years, this acquisition also provides access to world-class infrastructure and the potential to ramp up annual production to 25 million tonnes.
Riding on Twin-Boosters: Securing an Offtake Agreement and US$35 Million Equity Investment
According to this announcement, Geo Energy has secured an offtake agreement with EP Resources (“EPR”) – one of the largest power producers in Europe and ranks among the leading electricity producers based in the Czech Republic.
Under the agreement, EPR will buy from the Company’s subsidiary, Geo Coal International Pte Ltd (“GCI”) a substantial portion of the export volume of TRA coal of up to 12 million tonnes per annum for the life of mine, which has been estimated to be 15 years.
In exchange, EPR will make available to GCI a standby prepayment facility of up to US$20 million.
And that’s not all!
The cherry on the icing is that Resource Invest AG (“ResInvest”), a private commodities investment company, also intends to invest US$35 million in the shares of the Company.
This investment will be made through market acquisitions and direct purchases from Geo Energy and seeks to enable ResInvest to build up a minimum 5.5% stake in Geo Energy by 31 March 2026.
Among other things, ResInvest will be utilizing the bulk of the investment (US$20 million) to purchase Geo Energy shares in the open market.
In a nutshell, this offtake agreement coupled with a substantial equity stake in Geo Energy is set to strengthen its position in the market and sets the stage for future growth opportunities.
Rewarding Shareholders with Dividends
Geo Energy remains committed to its shareholders, evident in the proposed final dividend of 0.6 SG cents per share for 2023. This brings the total dividend for the year to 2.0 SG cents per share, equivalent to a dividend payout ratio of 33.7% and a dividend yield of 5.9% based on its share price of S$0.34.
Despite substantial investments for long-term growth, Geo Energy maintains its dividend policy of distributing 30% of net profits to shareholders, ensuring shareholders benefit from the company’s success.
Additionally, Geo Energy’s offtake agreement with EP Resources will ensure that there is a consistent income flow going forward, which is likely to trickle down to more dividend payouts in future.
Strong Coal Market amid Growing Demand
Despite the ongoing global transition to renewable energy sources, coal power plants continue to play a significant role in the energy landscape.
The affordability and reliability of thermal coal as a resource for energy generation ensures its sustained demand in the coming decade where alternative energy sources are still unable to fully replace coal in the near term.
Coal prices are also likely to remain high with a growing demand in the Asian market as well as a lack of construction of coal power plants globally.
For instance, China’s coal imports reached record highs in 2023, surging by 61.8% to 474.4 million metric tons. India, the second-largest importer of coal, aims to meet 50% of its electricity demand from renewables by 2030 but continues to rely on coal due to the lack of reliability of renewable.
Extreme weather events, such as El Niño and La Niña, also led to coal’s demand surge during periods of extreme cold and hot weather conditions.
Geo Energy’s ability to respond to these fluctuations positions the Company to meet the challenges posed by extreme weather conditions and capitalize on the demand for coal.
Conclusion
Geo Energy’s multi-year growth potential is driven by strong operational performance, strategic acquisitions, and the robust demand for coal in the Asian market.
The multiple acquisitions in the past years have significantly increased Geo Energy’s reserves, positioning the company for future growth. Within 5-6 years, Geo Energy aims to scale up its production to 25 million tonnes, representing a compound annual growth rate of 18.6%.
Lastly, with a commitment to reward shareholders through dividends and a long-term vision for growth, Geo Energy is well-positioned to fuel the future of the Indonesian coal industry.
