Geo Energy Resources

[cyclone]

Geo Energy signed an agreement with BUMA for the provision of overburden removal at its TBR mine

SINGAPORE, 7 March 2018 – Geo Energy Resources Limited announced that the Group has entered into an agreement with PT Bukit Makmur Mandiri Utama ("BUMA") for the provision of overburden removal at the Group’s wholly owned coal mine, PT Tanah Bumbu Resources ("TBR"). The Agreement will be for the entire Life of the Mine or until all the coal reserves have been fully extracted from TBR mining area and has an estimated contract value of over US$500 million.

BUMA, one of the largest mining services companies in Indonesia, is listed on the Jakarta Stock Exchange under PT Delta Dunia Makmur Tbk (IDX: DOID.JK). BUMA has been the mining services provider for the Group’s PT Sungai Danau Jaya (“SDJ”) mining concession since June 2015 and have consistently achieved the production targets set since SDJ commenced production in December 2015.

More details in http://infopub.sgx.com/FileOpen/Press%20...eID=492051

[karlmarx]

Geo Energy has been very active in engaging the investor community through release of the regular meetings it conducts with investors and analysts:

http://infopub.sgx.com/FileOpen/UBS%20Cr...eID=492038

http://infopub.sgx.com/FileOpen/Nomura%2...eID=512111

But not much positive development has taken place since Geo sold its 8% US$300m 2022 notes. In fact, the risks that Geo investors are exposed to are heightened over the same period.


1) The Chinese anti-pollution drive will deter demand for coal. Especially dirtier coal which Geo is selling. While it is very unlikely for coal as an energy source to be obsolete in the near future in China, the long-term direction of Chinese environmental policy makers are not favourable for miners of dirty coal. The fact that it has already taken a year -- the time since Geo completed its acquisition of TBR in June 2017 -- but still has not finalised its offtake agreement, should tell investors something about the difficulty Geo has in securing a favourable agreement. Why is it taking so long? TBR is expected to be mined for 6-8 years, depending on how fast it is worked. Therefore, an offtake buyer has to ensure that there is demand for the TBR coal for 6-8 years. Perhaps the period is too long for comfort for the Chinese buyers who may be worried about future restrictions on dirty coal.

http://www.scmp.com/news/china/policies-...ce-chinese


2) In spite of the lack of an offtake agreement for TBR, Geo has gone ahead to award a contract to its mining operator BUMA to begin mining operations. Since plenty of mine preparation work is required (such as overburden removal) before the first coal can be mined, if Geo is able to secure sales of TBR coal just as BUMA mines and delivers the coal to the ports, then Geo will not have to wait for a few more months before the first of TBR coal can be sold. But if Geo is unable to secure its offtake agreement, it may have to sell in the spot market, perhaps at less favourable terms. Now that the mining costs are contracted, the worst case that can happen is for Geo to be unable to secure an offtake agreement, or for coal prices to drop. The BUMA contract for TBR is worth US$500m. In this regard of having contracted liabilities but no contracted revenues, I perceive Geo to be a a little too much of a risk-taker.

http://infopub.sgx.com/FileOpen/GER%20An...eID=492050


3) And because Geo has yet to secure an offtake for TBR, Geo is probably more circumspect about using its US$300m notes to acquire yet another mine. Perhaps Geo themselves are also worried about the Chinese anti-pollution drive. If Geo went ahead to acquire another mine before securing an offtake for TBR, that will be a very risky and unwise move. Yet, Geo is also unlikely to buy back the notes, since it will look silly for retracing its steps. While Geo decides on what to do with its US$300m notes, it is paying US$24m per year. For debt investors who believe in Geo, its notes are selling at about 92.8.

https://www.bondsupermart.com/main/bond-...Y2700AAB53

All these 3 points mean that unless Geo pivots its sales towards non-Chinese buyers, it will be difficult to grow, and it will be exposed to risks that can sink it.


Can there be margin of safety in your investment, if the managers of your portfolio company takes too much risk?

[cyclone]

Geo Energy Announces Its Intention For A Dual Primary Listing On The Main Board Of The Stock Exchange Of Hong Kong Limited

Highlights :
* Appointed Guosen Securities (HK) Capital Company Limited as the Sole Sponsor, Sole Global Coordinator, Bookrunner and Lead Manager
* Geo Energy will maintain its listing on the Singapore Exchange Securities Trading Limited (the "SGX-ST")
* Dual primary listing on The Stock Exchange of Hong Kong Limited ("HKEx") to occur in conjunction with or without a proposed capital raising, details of which have not yet been decided
* Dual primary listing to broaden and diversify shareholders’ base, establish stronger investors presence in the Greater China and Hong Kong markets, improve the corporate profile and liquidity of the Company’s shares

More details in :
1. http://infopub.sgx.com/FileOpen/Geo%20-%...eID=525558
2. http://infopub.sgx.com/FileOpen/Geo%20-%...eID=525559

[cyclone]

PT Tanah Bumbu Resources Mine Affected by Flood

Geo Energy Resources Limited announced that the Regent of Tanah Bumbu Regency in Indonesia has declared flood emergency status for 14 days from 10 June 2019 to 23 June 2019 and that the flood is affecting the production and delivery of coal from the Company’s subsidiary PT Tanah Bumbu Resources' mine.

[cyclone]

Geo Energy appointed Trafigura as the New Offtaker for the SDJ Mine

Highlights :
* The Group appointed Trafigura Pte. Ltd. as the new offtaker for the remaining life of mine of PT Sungai Danau Jaya ("SDJ")
* Trafigura  will  make  an  advance  payment  of  US$15  million  to  Geo  Coal International Pte Ltd ("Geo Coal") in relation to the New Offtake
* Engelhart CTP  (Singapore) Pte. Ltd.  (“ECTP”) and Geo Energy have mutually agreed to end the existing SDJ offtake agreement 

Geo Energy Resources Limited announced the signing of a New  Offtake for the Group’s SDJ mine with Trafigura. The coal delivery under the New Offtake is expected to commence from 1 January 2020. Under the New Offtake, Trafigura will buy and Geo Coal will sell the entire SDJ coal production for the remaining life of mine less the domestic market obligations. In addition, Geo Energy has committed to a minimum annual supply of 5 million metric tonnes of coal to Trafigura  from  the  SDJ  mine  during  2020  to  2022.  Trafigura  will  make  available  to  Geo  Coal  a prepayment of US$15 million for the New Offtake.  

SDJ  mine’s  previous  offtaker,  ECTP,  and  Geo  Energy  have  reached  a  mutual  understanding  to terminate their existing offtake agreement due to ECTP streamlining its physical coal trading activities and will be exiting its offtake agreements, including with Geo Coal. The New Offtake comes with more competitive terms and better rates than the current coal purchase contract with ECTP. The coal sales for the remainder of 2019 including the Group’s domestic market obligations will be marketed by SDJ.

More details in https://links.sgx.com/FileOpen/GEO%20-%2...eID=565001

[karlmarx]

Given their current rate of losses due to low coal prices, going forward, they will have to hope for substantially higher coal prices term to be able to redeem the outstanding notes due two and a half years away, on October 2022.

https://links.sgx.com/FileOpen/4Q2019%20...eID=598625

[karlmarx]

Since it is likely that coal prices will remain low throughout most of 2020 -- and GER is unable to make gross profits on coal sales at such prices -- it looks like the company is planning to put itself into furlough.

It just announced its intention to suspend sales.

https://links.sgx.com/FileOpen/Geo%20-%2...eID=607671

If it is able to do so -- and probably not without incurring severe penalties from BUMA -- then the company will only incur overhead and finance expenses.

Just last month, they have already bought back a third of their outstanding notes at about half of par value. And it looks possible for them to exhaust their cash balance ($104m) to redeem the rest of the outstanding notes ($188m), if market prices of the notes remain the same or lower.

Since there are liquidity pressures from the upcoming note redemption -- about a year from now if they don't acquire a mine -- and since they are likely to suffer losses if they continue coal sales at current prices, the acquisition of a mine will deplete their already low cash levels.

If they do acquire a mine but coal prices do not recover fast enough, or if they are not able to put the mine to work fast enough, it will be more difficult for the company to redeem the notes in 2022.

So it looks like they might be abandoning their expansion plans at what would probably be the best time to purchase assets, for the sake of securing the company's equity and financial stability.

Had GER been well-capitalised, or owned mines which can remain profitable during times when coal prices are depressed, it is likely that they will now be buying more mines.

In any event, it is still a good deal to borrow a dollar but only return 50 cents. Bad for noteholders, of course.

Assuming all the notes are redeemed, the company will save $24m of financing expenses. The overheads may amount to $10m or so, which is probably a tolerable loss.

When coal price recover, and GER decides to resume production, they will require working capital but -- having caused large losses for its note holders -- may face difficulty accessing the debt market. So there might be some equity raising from shareholders.

[karlmarx]

A tender offer is made for its notes at 43 cents on each dollar, which is even lower than the previous transacted prices.

https://www.businesstimes.com.sg/compani...tire-bonds

Since the risk of insolvency is lowered as more notes are redeemed, the remaining noteholders may have a much higher probability of redeeming at par.

[wonghw12]

Any valuebuddies still following this stock? After repaying most of the bondholders below par, the company has emerged net cash. PE2+ company now and highly cashflow generative as coal prices have surged. The company also made an interim dividend recently after a final dividend. Wonder if the management intend to continue paying dividends on a quarterly basis.

[Coco]

@wonghw12: Indeed coal prices have surged and Geo Energy (and Golden Energy & Resources) are expected to deliver record earnings, based on the following reasoning:

1. Geo's net profit in 1Q2021 was US$29 million on ASP of US$41 / tonne. Sales vol. was 3 million.

2. ASP in 2Q2021 likely will come in around, say, US$51 / tonne (for easy calculation), based on ICI4 index.

3. Thus, on assumed 3 million tonnes sales, the incremental profit is (3 million x US$10) = US$30 million. Add that to the US$29 million base, and you get US$59 million.

4. ICI4 index has continued its uptrend into the mid-US$60s. If we annualise the profit, we get US$59 m x 2 = US$108 million for the full year 2021.

5. The US$108 million equates to S$140 million or so. The market cap of Geo is currently S$310 million.
So that's a gem of a stock that is yet to be fully discovered.

Any thots fr Valuebuddies ?