Geo Energy kept at 'buy' on expanding war chest

Geo Energy kept at 'buy' on expanding war chest

Stanislaus Jude Chan
28/11/17, 01:13 pm

SINGAPORE (Nov 28): Phillip Securities Research is keeping its positive stance on coal producer Geo Energy Resources on the back of an improving war chest amid robust production.

The brokerage is keeping its “buy” call on Geo Energy with an unchanged target price of 44 cents.

The group in early October issued a new senior note with aggregate principal amount of US$300 million ($404 million). The proceeds were used to partially redeem the $100 million medium term notes due in Jan 2018, as well as repay advances from Engelhart Commodities Trading Partners (Singapore).

“Issuance of the new note enhanced solvency and liquidity,” says Phillip analyst Chen Guangzhi in a Tuesday report.

“The balance of roughly US$200 million, together with the cash on hand of US$36 million as of Sept 2017, will fund working capital or to fund potential acquisitions of coal mining assets,” he adds.

Geo Energy saw its earnings climb 16% to US$8.6 million in the 3Q ended September, from US$7.4 million a year ago, while revenue jumped 32% to US$74.9 million.

According to Chen, the “stunning performance” was driven by soaring coal price and production volume.

See: Geo Energy Resources posts 16% increase in 3Q earnings to $11.7 mil on higher revenue

However, the coal miner is not expected to hit its sales target of 10 million tonnes of coal, which was set at the start of the year, due to a prolonged monsoon season in the second and third quarters.

Looking ahead, Geo Energy has raised its production target in FY18 to 12-15 million tonnes. This will include production from the expected commencement of operations at its recently acquired PT Tanah Bumbu Resources (TBR) mine in 1Q18.

“As of now, the group is offered three proposals of offtake agreements for TBR mine, and the prepayment price of which will be at least US$4 per tonne, comparable to the offer for SDJ mine in FY16,” says Chen.

“If it pans out, the new offtake will provide more visibility to production volume and further improve the cash position,” he says.

As at 1.09pm, shares of Geo Energy are trading half a cent higher at 26 cents, implying an estimated price-to-earnings ratio of 4.3% in FY18.

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