Golden Energy and Resources

[valuebuddies]

https://en.vietnamplus.vn/indonesia-targ...220775.vnp

Jakarta (VNA) - Indonesia's Ministry of Energy and Mineral (ESDM) targets producing 663 million tonnes of coal in 2022, up 7.9 percent against last year, given the government continuously adjusts policies related to the coal export ban in early January.

Minister of Energy and Mineral Arifin Tasrifi said at a briefing on the performance of ESDM in 2021 on January 12 that the country set a target of exploiting 663 million tonnes of coal in 2022.

Of these, 165.7 million tonnes are for domestic consumption and the rest are for export. It means that the coal export target in 2022 also increased by 14.3 percent compared to 435 million tonnes set out in 2021.

Indonesia's coal production reached 98.24 percent of the set target of 625 million tonnes in 2021, equivalent to 614 million tonnes.

Earlier, Director General of Minerals and Coal Ridwan Djamaluddin said that in 2021, only 15 percent out of 634 domestic coal companies fulfilled obligations to supply coal to the domestic market to serve power generation and industry. Ridwan suggested coal companies improve their policies and increase their responsibility to the country.

[valuebuddies]

https://www.straitstimes.com/asia/east-a...coal-mines

(BLOOMBERG) - A satellite detected clouds of the super-potent greenhouse gas methane coming from China's main coal-producing region, drawing attention to a lesser-known global warming consequence of the country's reliance on the dirtiest fossil fuel.

*******

This implies that China will face strong international pressures not only on the amount of coal it burns, but also how much it mines. If China cut down on the mining activities, they will just have to rely on the imports mostly from indonesia and Australia, either way it's beneficial to GEAR who has strong presence in Indonesia and Australia (post acquisition of BMC).

On the metallurgical coal, the premium HCC hits $422.59/T on 18 Jan, from $318.76/T on 3 Dec. Stanmore has an average FOB cost of A$131/T, therefore at current price, Stanmore probably is making A$400 gross profit per tonne, base on its Q3 production report, it produced and sold more than 600,000 tonnes in a quarter. Based on this, if price and cost stay at this level, we could see A$240M gross profit per quarter!

[valuebuddies]

As expected, bumper profits with no dividend.

https://links.sgx.com/1.0.0/corporate-an...149f61671f

SINGAPORE – 18 February 2022 – Golden Energy and Resources Limited (“GEAR” or the “Group”), a
leading energy and resources company in the Asia Pacific region, announced its financial results for the
six months and twelve months ended 31 December 2021 (“2H2021” and “FY2021” respectively). For
FY2021, the Group achieved a record net profit of US$251.3 million, increasing by 629% year-on-year
(“yoy”). This is also the highest net profit that the Group has recorded since its listing in 2016.

[LionFlyer]

As expected, bumper profits with no dividend.

https://links.sgx.com/1.0.0/corporate-an...149f61671f

That their results are going to be spectacular wasn't a big surprise, given the selling price of coal. But I wasn't expecting them to pay a dividend either so I exited earlier this week.

[valuebuddies]

Ppl dont understand, high coal price is not a temporary thing, the coal demand is increasing as we can see for the case of India, Indonesia and China, even recently Europe has been buying lots of coal due to the situation at Ukraine. It is definitely not surpise to see higher earnings for coal company this year, but it is also wont be surprising to see the same or better earnings for the next 2 years. I would not see that no dividend = bad management, Bershire is a good example.

[weijian]

Ppl dont understand, high coal price is not a temporary thing, the coal demand is increasing as we can see for the case of India, Indonesia and China, even recently Europe has been buying lots of coal due to the situation at Ukraine. It is definitely not surpise to see higher earnings for coal company this year, but it is also wont be surprising to see the same or better earnings for the next 2 years. I would not see that no dividend = bad management, Bershire is a good example.

Hi valuebuddies, GEAR is obviously not Berkshire Hathaway to start with. It becomes dangerous when we try to use similarities to justify certain decisions. It smacks of confirmation bias.

Is there any reason/s why no dividend (despite record earnings, and as you surmise - it is probably going to maintained or even better "for the next 2 years") is a good thing for GEAR?

[valuebuddies]

Gear subsidiary, Stanmore, has an ongoing USD1.2b acquisition of 80% in BMC, the earning will be channel as equity contribution to Stanmore. Based on past announcement, and at current met coal price, BMC is capable to generate more than USD600m annual profits. Am not making a comparison between Gear and Bershire, but ppl like myself believe in keeping cash for growth, especially with such a critical opportunity.

[LionFlyer]

The stated reasons in their press release are:

Company is proposing to conserve and retain cash to meet its commitment under the Entitlement Offer to fund the Acquisition. In view of this, the board has decided not to declare any dividends in relation to financial year 2021.

The primary cause are:

https://www.fitchratings.com/research/co...11-11-2021

GEAR’s plan to acquire the BMC stake from BHP Group through its Australia-based subsidiary, Stanmore Resources Limited, for USD1.2 billion with an additional payment of USD150 million over the next two years is contingent upon coal prices. BMC’s key assets are its two open-cut metallurgical coal mines in the Bowen Basin in Australia, where Stanmore Coal also operates. The company expects to fund the acquisition with Stanmore equity of about USD600 million and acquisition debt of USD625 million. We assess Stanmore’s post-acquisition business profile to be comparable with that of mid-to-low ‘BB’ rated mining peers.

GEAR has committed to subscribe up to USD300 million in Stanmore’s proposed equity entitlement offer but reserves the right to subscribe up to its full entitlement of USD450 million. GEAR plans to use its internal cash (end-June 2021: USD138 million) and dividends from its 62.5%-owned subsidiary, PT Golden Energy Mines Tbk (GEMS, B+/Stable), to fund the investment. Fitch also expects GEAR to raise debt of USD150 million to fund its share of the equity commitment, although higher-than-expected dividends from GEMS can reduce GEAR’s debt needs. Any changes to the proposed capital structure or funding plans, resulting in higher debt, are likely to have a negative impact on GEAR’s credit profile.

[weijian]

Gear subsidiary, Stanmore, has an ongoing USD1.2b acquisition of 80% in BMC, the earning will be channel as equity contribution to Stanmore. Based on past announcement, and at current met coal price, BMC is capable to generate more than USD600m annual profits. Am not making a comparison between Gear and Bershire, but ppl like myself believe in keeping cash for growth, especially with such a critical opportunity.

hi valuebuddies,

Thanks for your reply. This is actually a capital allocation question. Provided, none of us are really experts in the metallurgical coal industry, probably we have to defer to the track record (if any) of the GEAR operators to make the correct decisions here.

Just a quick look on the other side of the deal for the seller (BHP):

The transaction is done at "Enterprise Value/EBITDA multiple of 6.9x" and the price isn't exactly dear.
https://www.bhp.com/news/media-centre/re...c-interest

BHP had already announced the intention for the sale in Aug2020 (took ~15months for a deal to be concluded) and their rationale for selling are (1) decarbonize, (2) belief that higher quality metallurgical coal would be in demand as steel makers latch onto the decarbonizing trend.
In a way, I suspect there is a motivated seller, more than a desperate buyer.
https://www.spglobal.com/platts/en/marke...erformance

I am generally weary of cyclical companies that double down when things are going good. At least, it seems like things are going good for general coal now.

[valuebuddies]

When GEAR announced the acquisition of 80% BMC, my immediate concerns was on whether is it too ambitious to commmit such a big acquisition when the coal price was at its highest, and whether Stanmore is capable to secure US$1.2B for the acquisition. Today, situation has changed, Stanmore just announced that the acquisition has becomes unconditional, it has secured USD625M financing (albeit at very high interest of 11.5%), as well as all necessary approvals from the authorities. What is left is the announcement of right issue, which doesn't seems difficult because the Australia DBCT coal prices remains near all time high for the past 2 months (premium HCC is at $457/mt and whereas HCC is at $401/mt).

I guess the reason why there have been no taker previously on BHP's interest in BMC largely because of the depressing coal price. Based on Stanmore's presentation, BMC made US$283M EBITA for year ended 30.06.2020 and merely US$20M EBITA for year ended 30.06.2021. However for Q3 2021, the EBITA increased substantially to US$174M per quarter. Soon after on 8th Nov, BHP announced the sales to Stanmore. So yes, probably there weren't any desperate buyer before Q3 2021, so Stanmore is probably luckly enough to have started the negotiation with BHP when the coal prices started to rise.

Stanmore's recent presentation (below) is a good read for all who are interested in GEAR, slide 21 gives an idea of the current coal price which stood much higher than Q3 2021, it's not difficult to guess that Stanmore and BMC have been making huge cash flows each and everyday.

https://cdn-api.markitdigital.com/apiman...a206a39ff4

GEAR management was probably wrong to withhold dividend for FY2021, and they would be very wrong if they do not pay at least a few cents of dividend for FY2022.