23 March 2017

• The number & combined market cap of SGX listed stocks focused on thermal coal mining in Indonesia has grown fourfold over the past three years. Following Geo Energy’s listing in 2012, three RTOs have seen Resources Prima Group, BlackGold Natural Resources and Golden Energy and Resources list on SGX.

• Two of these four stocks - Geo Energy Resources & BlackGold Natural Resources - have generated triple digit returns over the past 12 months, taking the average 12 month return for the four thermal coal stocks to 58%.

• Geo Energy reported quarterly net profit of US$14.7 million in 4Q2016, the highest ever quarterly profit recorded since it listed on SGX in 2012. Geo Energy achieved 5.5 million metric tonnes of coal sales in FY2016, which translated to sales revenue of US$182 million.

• BlackGold Natural Resources reported a net loss in FY2016, which was 88% less than its FY2015 loss. Revenues were generated from the Group's PT SB concession with production commencing in 1Q16 and sold to a Riau state-owned enterprise. Yesterday the stock requested a suspension pending the release of an announcement.

Singapore lists four coal mining plays - Golden Energy and Resources, Geo Energy Resources, Resources Prima Group and BlackGold Natural Resources. All four stocks mine thermal coal - used to generate electricity, with mining conducted in Indonesia, and all companies report in US Dollars.

The pure-play coal mining stocks have expanded significantly over the past three years – growing from one stock with a market capitalisation of S$364 million in March 2014 to four stocks with a combined market capitalisation of S$1.76 billion in March 2017.  The four-fold expansion of the segment has been possible with three Reverse Takeovers (RTOs). An RTO is the acquisition of a public company by a private company and an alternative method to listing via an initial public offering.

Market Capitalisation of Coal Mining Stocks (S$ Million)

Source: SGX, Bloomberg (March 2017 data as of 20 March)

The three RTOs have significantly expanded the combined market capitalisation of the stocks focused on thermal coal mining in Indonesia. Modern large-scale mining of coal deposits in Indonesia began in the late 1980s and have increased exponentially since then. The great majority of Indonesia’s coal is located on the islands of Kalimantan and Sumatra. Sub-bituminous coals are found in eastern parts of Kalimantan.

Majority Locations of Indonesia Thermal Coal

Indonesia overtook Australia as the largest thermal coal exporter in the mid-2000s, with its South East Asia positioning able to help serve China and India’s ongoing demand growth in thermal coal.  Within Indonesia, BlackGold Natural Resources affirms that coal is a vital source in meeting the country’s growing domestic electrification needs, as urbanisation and a  growing middle class have created the need for greater access to electricity across the archipelago. Geo Energy also notes that the Indonesian government plans to generate an additional 35,000 megawatts (MW) in power generation capacity across the country by 2019.

Now Indonesia is amongst world’s largest thermal coal exporters and largest coal producers. These rankings are maintained by the World Coal Association (WCA), which adds that Indonesia’s coal resources are six times larger than its proven reserves and most of them could be put into production with relative ease. More information on the distinction of resources, reserves and the SGX Listing Rules for mining plays recognising international best practices in reporting standards can be found at the end of this Market Update.

Recent Performances

Singapore’s four listed coal miners - Golden Energy and Resources, Geo Energy Resources, Resources Prima Group and BlackGold Natural Resources – have averaged a 29.0% total return in the year thus far, with three gainers and one decliner.  All four coal Miners report in US Dollars and complete their Financial Years on 31 December.

To see the profile of each stock in SGX StockFacts click on the links below.

*Note yesterday BlackGold Natural Resources requested a suspension pending the release of an announcement.
Source: SGX StockFacts, Bloomberg (Data as of 22 March 2017)

For a kopi-C profile of Geo Energy Resources CEO Mr Tung Kum Hon, click here.

BlackGold Natural Resources – Production Commenced in FY16

BlackGold Natural Resources is an Indonesia-focused coal mining company targeting Indonesia’s rapidly-growing power plant industry, with a specific focus on supplying coal to power plants located in Riau province, Sumatra, Indonesia. The Group, through its subsidiaries in Indonesia, holds the rights to three coal concessions in Riau. The three coal concessions are:

• PT Samantaka Batubara
• PT Ausindo Andalas Mandiri
• PT Ausindo Prima Andalas

For the year ended December 31 2016, BlackGold Natural Resources reported a loss net of tax of US$3.6 million compared to a loss net of tax of US$29.2 million for the previous year.

PT Samantaka Batubara (PT SB) is a feasibility asset located in Riau province, Sumatra, comprising 15,000 hectares. Through its local subsidiary, BlackGold has the rights to the PT SB concession until 2023. BlackGold has commenced its commercial production with PT SB mine currently in operation. In accordance with the company’s production schedule, the target production rate for PT SB is 4 million tonnes per annum of coal, as the asset has adequate reserves to produce at this rate for over 15 years based on the current geological database and the economic assumptions used for its design.

BlackGold Natural Resources’ Revenue for the year ended December 31, 2016 amounted to US$320K, generated from the Group’s PT SB concession. Production and sales for the year commenced in 1H2016, and were made to a Riau state-owned enterprise. No coal sales were made for the year ended December 31, 2015.

On 10 March, BlackGold Natural Resources announced that the Group has signed a share placement agreement with Mr Johanes Budisutrisno Kotjo pursuant to which the Group intends to issue 39,511,654 new ordinary shares in the capital of the Company (the “Placement Shares”) at S$0.0901 per share to raise gross proceeds of up to S$3.56 million. The rationale for the placement is to strengthen the working capital position of the Group. The Group has recently secured long-term coal sales to two large state-owned enterprises in Indonesia. The Company intends to use the entire net proceeds for general working capital of the Group. For more details click here.

Geo Energy Resources – Record Results in 4Q16

Geo Energy Group has generated a 46.7% total return in the year thus far. Geo Energy is a coal mining specialist that owns major mining concessions and coal mines in East and South Kalimantan. In East Kalimantan, Geo Energy Group owns PT Bumi Enggang Khatulistiwa (BEK), the Mining Business License (IUP) owner of a 4,570 hectare coal mining concession area in Kutai Barat and subsidiary companies that are responsible for mining, as well as heavy equipment and machinery procurement and rental.

The Group is currently in the process of completing its acquisition of a mining concession in South Kalimantan. The acquisition will increase its JORC marketable coal reserves to over 90 million tonnes. Geo Energy recently record quarterly net profit of US$14.7 million in 4Q2016, the highest ever quarterly profit recorded since it listed on SGX in 2012. Geo Energy achieved 5.5 million metric tonnes of coal sales in FY2016, which translated to sales revenue of US$182 million.

In its FY2016 results briefing Geo Energy reported delivering US$23.5 million in FY2016 net profit from continuing operations while strengthening its balance sheet with a cash position of US$67.7 million as of 31 December 2016. The Group also proposed its first dividend since its IPO in 2012, at S$ 0.01 per share (which implied a 3.4% yield as of the closing price on 28 February 2017). For more information on Geo Energy’s FY2016 results briefing, click here.

Golden Energy & Resources – Turnaround Profit

Golden Energy and Resources was formed through the completion of the RTO of SGX Mainboard-listed United Fiber System and commenced trading in December 2016.

The Group is principally engaged in the exploration, mining, and marketing of thermal coal sourced from its coal mining concession areas, covering an aggregate of approximately 42,904 hectares in South Kalimantan, Central Kalimantan, Jambi (a province in Sumatra) and South Sumatra, Indonesia. Backed by the Sinar Mas Group, one of Indonesia’s largest conglomerates, the Group collectively owns the rights to mine more than 2.0 billion tonnes of thermal coal resources, with coal reserves of approximately 780 million tonnes, as at 31 December 2016.

For the year ending December 31, 2016, Golden Energy & Resources revenue was US$393.3 million compared with US$359.8 million a year ago. The increase in revenue was backed by higher sales volume in the Group’s Coal Mining Division, which recorded a 9.7% increase in revenue for the segment to US$329.5 million from US$300.4 million in FY2015 (click here for more details). Profit attributable to owners of the company was US$21.8 million compared with loss of US$9.4 million a year ago.

Resources Prima Group -  Total Ownership of its Entire Supply Chain Facilities & Capabilities

Resources Prima Group together with its subsidiaries is a mine owner and primarily engages in the business of coal exploration and coal mining, currently, in East Kalimantan, Indonesia.

Through its wholly owned subsidiary, PT Rinjani Kartanegara (PT Rinjani), it has been granted a Production Operation permit (IUP) which is valid for an initial term of 12 years until 24 November 2021 (extendable for up to two (2) additional ten (10) year tenures) to carry out coal mining operations in the mining concession area (with an area of 1,933 ha).

The Group was issued with a “borrow-use” permit by the Indonesian Minister of Forestry in respect of an area covering 308.54 ha of the mining concession area. The Group through PT Rinjani, commenced mining operations in June 2012 with our first sales delivered in November 2012.

For the year ending December 31, 2016, Resources Prima Group’s revenue was US$57.9 million. The loss for the period was US$2.6 million. On 2 September 2015, the Company announced the change of its financial year end from 31 March to 31 December. This change was effected to align the financial year of the Company with that of its Indonesian subsidiaries following completion of the RTO with Sky One Holdings on 12 November 2014.

Resources Prima Group have total ownership of the entire supply chain facilities and capabilities in its mines, allowing for control and management over operational efficiencies and cost effectiveness.

In its FY2016 Financial statement (click here), Resources Prima Group detailed the main factors affecting the Group financial performance for the twelve months ended 31 December 2016 versus the nine months ended 31 December 2015. These included:

• Coal production and sales;
• Cost of waste mining operations (waste mining is contracted out to a third party waste mining contractor. Although waste mining costs are set by long-term contract, the Group has been able to renegotiate rates downwards, subject to certain conditions, to reflect changes in market conditions);
• The coal sales price;
• The stripping ratio (a key determinant of operating cost);
• Efficient operation cost (the Group is cost competitive as a result of its own fully integrated coal mining facilities such as the coal stockpile, coal crushers, coal conveyor system and jetty facilities);
• Additional recurring income; and
• Working capital.

Resources Prima Group noted its mining activity and the stripping ratio for FY2016 were in accordance with the Group’s mine plan. However, coal production was adversely impacted by the unusually heavy rainfall at the Group’s mine site since September 2016.

Mining Stocks – Resources, Reserves & Risks

Most of the world’s fossil fuels are still classified as resources and not yet as reserves. The distinction is important, with the International Energy Agency (IEA) maintaining that:

• Resources are those volumes that have yet to be fully characterised, or that present technical difficulties or are costly to extract, for example where technologies that permit their extraction in an environmentally sound and cost effective manner are still to be developed.
• Reserves are those volumes that are expected to be produced economically using today’s technology; they are often associated with a project that is already well-defined or on-going. As the more accessible, conventional supplies are exhausted, so more technically demanding.

The SGX Listing Rules for mining plays recognise international best practices in reporting standards - specifically JORC and NI43-101. Typically these reports will include the technical basis on which statements of reserves, resources or exploration results are made, and are available on all four coal plays.

The minerals industry offer  investors opportunities for substantial investment returns, but also the possibility of investment losses. The key sources of risk and reward are exploration, technical, financial, environmental, social, political, and sovereign issues.

Exploration by its very nature is a risky investment because there are no guarantees that a company exploring for minerals will find anything of value. For most minerals, exploration is expensive and the consequence of a failed exploration program is a financial loss. Exploration success discovering a new mineral deposit or finding additional mineralisation at an existing mine generates an asset that adds value to a company. Small companies with limited financial resources are relatively high risk/reward investment options because they cannot survive many failed exploration programs. However, they may generate large investment rewards if they are successful in exploration.

A comprehensive Investor’s guide to the terminology and reporting standards can be found here.

SGX lists also lists companies involved in more downstream coal activities – such as trading & distribution. Downstream coal plays include Noble Group, Abterra and Manhattan Resources.

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