Backed by lofty coal prices, Geo Energy Resources will be making an early redemption of its outstanding US dollar-denominated bond, which will help save annual financing costs of US$4.8 million and leave the company largely debt-free.
The coal miner, which calls this a “win-win” opportunity, plans to redeem the bonds on Oct 10 at a price equal to 102% of the principal, plus accrued and unpaid interest. The bonds carry an interest rate of 8% and will mature next year.
Coal prices, driven by steady demand, has reached record levels, swelling the company’s cash balance to US$120 million as at Sept 5, up from US$84 million as at June 30.
The benchmark ICI4, for one, hit US$76.68 per tonne on Sept 10. In contrast, the average price for 1HFY2021 was just US$47.78 per tonne.
See also: KGI upgrades Geo Energy to 'outperform' with higher target price of 42 cents
Upon full redemption, the company will still have a cash balance of just over US$60 million and scant debt.
“The redemption of the USD bonds and a stronger balance sheet and capital structure will place the group in good stead to explore diversification opportunities not restricted by the bond covenants, as we seek to expand our revenue streams by way of potential joint ventures, trading and value accretive acquisitions that are self-funding,” says CEO Tung Kum Hon.
The company also claims that some of its remaining bondholders “may be seeking liquidity” and therefore looking to exit their holdings and therefore, the early redemption will give them this.
For the 1HFY2021 ended June 30, Geo Energy reported net earnings of US$48.5 million and EBITDA of US$77.5 million.
In just one month of July 2021, the company achieved an EBITDA of US$26.5 million and net earnings of US$18.6 million, as coal prices reach record levels. The company is expecting a stronger second half.
Geo Energy shares closed last Friday Sept 10 at 24 cents, down 2.08% for the day and up 23.68% year to date.
