SINGAPORE (May 18): RHB is initiating coverage on Golden Energy & Resources with a “buy” call and target price of 71 cents after booking strong 1Q17 coal production of 3 million tonnes, up 47.8% from a year ago.
(See also: Golden Energy and Resources 1Q earnings increase over 11-fold to $26.5 mil on revenue surge)
“We believe that there would be continued growth, after appointing two coal industry veterans to the board of directors of Golden Energy Mines earlier this year,” says RHB in a report out today.
GEAR is one of the largest thermal coal reserve owners in Indonesia, with 2 billion tonnes of thermal coal resources and 780 million tonnes of thermal coal reserves as at Dec 31 2016. Most of its coal production, coal reserves and earnings come from Borneo Indobara (BIB), with its coal mine sites located in South Kalimantan.
GEAR increased its thermal coal production by a CAGR of 32% 2010-2016 to 9.5 million tonnes in FY16. The company plans to ramp up BIB’s coal production to 13 million tonnes in 2018, 22 million tonnes in 2020 and 40 million tonnes from 2023 onwards.
To ensure it meets its coal production targets, GEAR appointed two coal industry veterans Bonifasius and Utoro as the president director and director of its 66.9%-owned subsidiary, Golden Energy Mines, effective Jan 1.
Utoro was formerly Kaltim Prima Coal’s (KPC) chief operating officer and instrumental in increasing that company’s coal production to more than 60 million tonnes pa (mtpa) from 2 mtpa.
GEAR also has a low stripping ratio with the average life of a mine stripping ratio at BIB’s concession areas ranging from 3-6x.
According to a valuation by Salva Resources, the average total operating cost over BIB’s life of mine is US$17.31 per tonne ($24.08 per tonne) of coal, excluding royalty.
GEAR through its subsidiary Golden Energy Mines, has a 25-year offtake agreement to sell up to 217.5 million tonnes of coal to GMR Coal Resources (GMR), a leading infrastructure group in India.
On top of that, as part of the Sinar Mas conglomerate, GEAR should benefit from its synergy with the other companies under this group.
Shares of GEAR are trading at 41 cents.
