SINGAPORE (May 18): Phillip Securities expects strong production growth at Golden Energy and Resources to outpace increasing cash cost.

“We remains positive on FY18 performance in view of a healthy ASP and phenomenal growth of sales volume,” says analyst Chen Guangzhi, adding GEAR’s annual target of 20 million tonnes still intact part of which will be contributed by the PT Barasentosa Lestari (BSL) mine.

GEAR benefited from buoyant coal prices in 1Q18 where revenue from coal mining segment accounted for 86.9% of total revenue. The stellar growth was mainly attributable to production ramp-up which yielded 56.7% higher production volumes at 4.7 tonnes. ASP for coal also rose 15.9% to US$47.4 per tonne.

GEAR is upgrading its port-loading capacity. Currently, there are two conveyor belts at Bunati Port – one with a capacity of 1,000 tonnes/hr and the other with 2,000 tonnes/hr. This will be upgraded to 4,200 tonnes/hr each, translating into a total annual capacity of 48 million tonnes. The total capex is expected to be around US$8 million to US$10 million.

Simultaneously, GEAR is also working on the road widening project which expands from two lanes to four lanes to increase traffic commuting to the jetty. The capex is expected to be around US$11 million to US$12 million. The group currently has a cash position of US$305 million to fund these upgrading projects.

In a Friday report, analyst Chen says GEAR’s higher cash cost was mainly due to the jump of strip ratio (SR) from 3.5 to 4.28 in PT Borneo Indobara (BIB) mine and higher fuel costs.

For FY18, overall cash cost is expected to average at US$25/tonne to US$26/tonne. In April, coal prices started to correct in anticipation of lower coal demand in China. Chen is keeping its FY18 forecast for coal price range unchanged at around US$40/tonne to US$42/tonne.

“Based on unchanged peer average forward PER of 10 times and the FX rate (USD/SGD) of 1.36 times, we keep the target price of $0.48 for FY18 and reiterate our ‘buy’ recommendation,” says Chen.

As at 11.45am, shares in GEAR are trading at 36 cents.

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