GOLDEN ENERGY AND RESOURCESLTD
AUE.SI
GOLDEN ENERGY AND RESOURCES (GER SP) - Gearing Up For The Future
- With a total coal concession area of 42,904 ha in Indonesia, Golden Energy And Resources (GEAR) has been ramping up coal production from 4.4m tonnes in 2011 to 9.5m tonnes in 2016.
- The company is poised for a strong 2017 as coal prices have picked up.
- GEAR’s balance sheet remains strong with a net cash position of US$34m as of 30 Jun 17.
- Investors can expect to be rewarded as the company continues to ramp up.
VALUATION
Estimated market value of GEAR’s 67% stake in the PT Golden Energy Mines Tbk (GEMS) coal concession stands at approximately US$2b.
- In Aug 16, Salva Mining Resources Pty Ltd conducted an independent third party valuation on the GEMS coal resources and reserve estimates of three of the group’s coal concession mines.
- With a current market capitalisation of S$1.07b, Golden Energy And Resources (GEAR) would be trading at about a 60% discount to current coal resources and reserves. This does not take into account the PT Wahana Rimba Lestari coal concession or the PT Hutan Rindang Banua forestry concession right of 265,095 ha in South Kalimantan.
INVESTMENT HIGHLIGHTS
Low cash cost and stripping ratio makes GEAR one of the few producers that remained profitable while increasing production during coal’s downcycle.
- GEAR’s current cash cost of US$20.94/tonne as of 1H17 is significantly lower than the cash cost of US$24-28/tonne for peer mining companies operating in the same region. This can be attributable to GEAR’s proximity to transport infrastructure and its low stripping ratio.
- GEAR’s current stripping ratio stands at approximately 4.1 bcm/tonne which is lower than most other Indonesian coal companies’ as GEAR benefits from lower costing open cut mining methods.
- With Newcastle coal prices having seen a rebound from US$49 in Jan 16 to US$97 currently, GEAR is poised for a strong 2017.
Strong balance sheet, good dividends.
- As of 2Q17, GEAR’s net cash position stood at US$34m with a gross gearing ratio of only 0.2x. With significant debt headroom and a strong balance sheet, GEAR is well-poised to continue looking for additional strategic earnings-accretive acquisitions.
- GEAR recorded strong net profit growth of US$48.7m in 1H17 vs US$1.7m in 1H16 and declared a maiden interim dividend of 0.8 S cents.
- Given the rebound in coal prices and strong net profit growth, all signs point toward a possible generous full-year dividend for shareholders.
High demand for thermal coal in Asia.
- GEAR is able to sell its 4200 Gross As Received (GAR) grade coal to power producers in China, Indonesia, India and Thailand. Due to the movement towards clean energy, the demand shift to Asia from the western world for coal power generation is accelerating and will likely benefit strategically located coal miners such as GEAR.
Ambitious target of tripling 2016 coal production to 36m tonnes by 2021.
- Through both organic and inorganic means, GEMS intends to triple its 2016 production of 9.5m tonnes to 36m tonnes by 2021. In May 17, GEMS announced the planned acquisition of the PT Barasentosa Lestari (BSL) coal concession in South Sumatra. This will bring GEMS’ coal reserves to 973m tonnes.
- With a prudent balance sheet and strong cash flow from existing mines, GEAR is on track to meeting this ambitious goal.
NOT RATED
Target Price: N/A
Nicholas Leow
UOB Kay Hian
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http://research.uobkayhian.com/
2017-09-29
UOB Kay Hian
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