|09 November 2017|
|SGX’s Indonesia-Focused Coal Plays Average 50.7% Gain YTD|
Singapore Exchange lists four thermal coal miners – Golden Energy and Resources (GEAR), Geo Energy Resources, BlackGold Natural Resources and Resources Prima Group.
GEAR, Geo Energy and BlackGold mine thermal coal, also known as steam coal, which is used for power and heat generation. Their mining operations are conducted in Indonesia, and all companies report in US dollars.
Also listed on SGX are companies involved in downstream coal activities, such as trading and distribution. They include Noble Group, Abterra and Manhattan Resources.
The three listed Indonesia-focused coal miners GEAR, Geo Energy and BlackGold have averaged a price change of 50.7% in the 2017 year-to-date and 29.6% in the last 12 months.
Singapore’s Energy Sector (by Company Count)
Source: Bloomberg, (data as of 8 November 2017)
Companies are classified by their MSCI Global Industry Classification Standard (GICS®) Sub-Industries
The three coal mining stocks have a combined market capitalisation of S$1.6 billion. Together, they account for 26% of Singapore’s Energy Sector, which has a market capitalisation of S$6.2 billion. At the end of October 2017, the Energy sector had a YTD market capitalisation weighted total return of 8%, ranking it third amongst Singapore’s Defensive sectors. To read more about the YTD performance of Singapore’s other sectors, click here.
A Vital Energy Source in Indonesia and the Region
Indonesia was ranked the fifth largest producer of coal in the world in 2016, after China, US, Australia and India, data from BP Statistical Review of World Energy 2017 showed. By 2005, Indonesia had overtaken Australia as the largest exporter of thermal coal, with its position in Southeast Asia enabling the country to meet China and India’s fast-growing appetites.
Coal is also expected to remain a vital source in meeting Indonesia's growing domestic electrification needs, as urbanisation and an expanding middle class boost demand across the archipelago. In 2015, Indonesian President Joko Widodo unveiled an ambitious 35,000-megawatt (MW) program to boost the country's electrification ratio to 97% by 2019, with about 25,000 MW of capacity expected to come from coal-fired power plants.
Indonesia’s Coal Prices Surge in the Past Year
In October, Indonesia's benchmark coal price jumped 2.1% month-on-month to US$93.99 per metric tonne, after soaring 9.6% month-on-month in September, according to data from the country's Ministry of Energy and Mineral Resources. The reference coal price, also referred to as Harga Batubara Acuan (HBA), is now at its highest since December 2016.
The average HBA price so far in 2017 stands at US$84.22 per tonne, up significantly from an average US$61.84 per tonne in 2016, according to data from Indonesia Investments.
Harga Batubara Acuan (US$)
Source: Bloomberg, (data as of 8 November 2017)
The table below details the three listed coal mining plays, sorted by market capitalisation. Click on the stock name to visit its profile page on StockFacts.
Source: Bloomberg & SGX StockFacts (data as of 8 November 2017). *Last price of companies are denoted in their respective trading currencies. **Price Change from IPO date on 12 Dec 2016
Golden Energy and Resources (GEAR)
Background: GEAR was formed through the completion of the reverse takeover of Mainboard-listed United Fiber System. The Group is principally engaged in the exploration, mining, and marketing of thermal coal sourced from its coal mining concession areas, covering an aggregate of approximately 42,904 hectares in South and Central Kalimantan, Jambi and South Sumatra Basin, Indonesia.
Latest Quarterly Results: For the second quarter ended 30 June 2017, GEAR swung to a net attributable profit of US$11.8 million from a net attributable loss of US$1.17 million in the year-ago period, while revenue rose 54.9% YoY to US$139.6 million.
Company Outlook: In its 2QFY17 results statement, GEAR noted that coal demand in its key export markets of China and India remained robust in the first half of 2017, and the Indonesian government’s electrification programme to add 35,000 megawatts in power generation capacity across the country by 2019 also continues to drive demand growth. In the current operating landscape, GEAR believes it is well-positioned to capture opportunities from increased coal demand with its raised production capacity and the established branding of its BIB 4,000-4,200 GAR coal.
Geo Energy Resources
Background: Geo Energy’s operations are primarily located in Indonesia. Geo Energy is a coal mining specialist with an established track record in the operation of coal mining sites for the purpose of coal production and coal sales since 2008. It now owns major mining concessions and coal mines in East and South Kalimantan, Indonesia with JORC coal reserves of over 90 million tonnes.
Latest Quarterly Results: For the three months ended 30 June 2017, Geo Energy reported a 136% YoY jump in net profit from continuing operations to US$10.0 million, while revenue gained 176% to US$58.9 million.
Company Outlook: Geo Energy noted in its results statement that the Group expects a higher volume of coal sales for the second half of 2017 given better weather conditions. Demand for Indonesian’s high-calorific, low-sulphur and low-ash coal in the region continues to rise due to the potential tightening of rules by Chinese government on low-quality, high-ash coal imports, in line with its strict environmental initiatives. As most countries head into winter season, the Group expects demand from inventory stocking to gather pace during the July- October period, which in turn should sustain or boost current coal prices.
Geo Energy is constantly exploring opportunities to acquire additional coal mining concessions to complement its portfolio of assets. The Group is also exploring opportunities to divest stakes in its coal mining concessions as a means to collaborate with strategic partners and raise capital, it added.
To read the kopi-C profile of Geo Energy CEO Tung Kum Hon, click here.
BlackGold Natural Resources
Background: BlackGold is a coal mining company targeting Indonesia's rapidly growing power plant industry. It is focused on long-term, fixed offtake agreements and has a customer portfolio comprising state-owned and independent power plants and factories. The Group holds the rights to three coal concessions in Sumatra – PT Samantaka Batubara, PT Ausindo Andalas Mandiri, and PT Ausindo Prima Andalas, which span more than 45,550 hectares in combined acreage. The company has, to-date, explored a total area of about 10,000 hectares in the PT Samantaka Batubara concession.
Coal Reserves: As of June 2017, coal reserves at the PT Samantaka Batubara concession have more than tripled from last-reported estimates announced in August 2016, according to the latest Independent Qualified Person's Report (IQPR) prepared by BlackGold's independent consultant, PT GMT Indonesia.
Latest Quarterly Results: For the second quarter ended 30 June 2017, BlackGold reported a net attributable loss of US$1.82 million, versus a net attributable loss of US$976,000 in the year-ago period. Revenue surged to US$1.0 million from US$158,000 in the year-earlier quarter.
Company Outlook: BlackGold noted in its results statement that barring unforeseen circumstances, the gradual ramp-up of coal deliveries to its customers, combined with the continued dominance of coal in the development of domestic Indonesian power generation, would position the Group for further growth.
To read the kopi-C profile of BlackGold CEO Philip Rickard, click here.
Coal Mining Risks
The minerals industry offers investors opportunities for substantial investment returns as well as the possibility of losses. The key sources of risk and reward are exploration, technical, financial, environmental, social, political, and sovereign issues. A comprehensive investor’s guide to the terminology and reporting standards can be found here.
Exploration by its very nature is a risky investment because there are no guarantees that a company exploring for minerals will find anything of value. For most minerals, exploration is expensive and the consequence of a failed exploration program is a financial loss. Exploration success discovering a new mineral deposit or finding additional mineralisation at an existing mine generates an asset that adds value to a company. Small companies with limited financial resources are relatively high risk/reward investment options because they cannot survive many failed exploration programs. However, they may generate large investment rewards if they are successful in exploration.
Did You Know?
The SGX Listing Rules for mining plays recognise a number of national industry reporting standards. Typically, these reports will include the technical basis on which statements of reserves, resources or exploration results are made.
The three industry codes recognised by the SGX Listing Rules are:
|My Gateway & SGX StockFacts|
SGX’s investor education portal with market, product and investment information and events. Sign up now at sgx.com/mygateway to receive our investment updates and economic calendar.
Whether you are seeking new or established companies to invest in, SGX StockFacts can provide you with the information you need to identify and understand the stocks that best fit your investment strategy. Visit now at sgx.com/stockfacts.
This document is not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Singapore Exchange Limited (“SGX”) to any registration or licensing requirement. This document is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product. This document is for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Use of and/or reliance on this document is entirely at the reader’s own risk. Further information on this investment product may be obtained from www.sgx.com. Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While each of SGX and its affiliates (collectively, the “SGX Group Companies”) have taken reasonable care to ensure the accuracy and completeness of the information provided, each of the SGX Group Companies disclaims any and all guarantees, representations and warranties, expressed or implied, in relation to this document and shall not be responsible or liable (whether under contract, tort (including negligence) or otherwise) for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind, including without limitation loss of profit, loss of reputation and loss of opportunity) suffered or incurred by any person due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information, or arising from and/or in connection with this document. The information in this document may have been obtained via third party sources and which have not been independently verified by any SGX Group Company. No SGX Group Company endorses or shall be liable for the content of information provided by third parties. The SGX Group Companies may deal in investment products in the usual course of their business, and may be on the opposite side of any trades. SGX is an exempt financial adviser under the Financial Advisers Act (Cap. 110) of Singapore. The information in this document is subject to change without notice. This document shall not be reproduced, republished, uploaded, linked, posted, transmitted, adapted, copied, translated, modified, edited or otherwise displayed or distributed in any manner without SGX’s prior written consent.
Nikkei owns the copyright and any other intellectual property rights in the Nikkei Stock Average itself, and the method for calculating the Nikkei Stock Average and the like. All ownership of trademarks and any other intellectual property rights with respect to marks representing "Nikkei Inc.," "Nikkei," and "Nikkei Stock Average" belongs to Nikkei. Nikkei is not obliged to continuously publish the Nikkei Stock Average, nor is it liable for any error or delay in, or discontinuation of the publication thereof. Nikkei owns the right to change the content of the Nikkei Stock Average, such as the calculation method thereof, and the right to suspend the publication thereof. Nikkei does not give any warranty, nor is it responsible for any and all financial instruments and the like, which are based on, or otherwise refer to, the Nikkei Stock Average.
All rights in the FTSE China A50 Index (the “Index”) vest in FTSE International Limited (“FTSE”). “FTSE®” is a trademark of the London Stock Exchange Group companies and is used by FTSE under license.
The SGX FTSE China A50 Index Futures (the "Product") has been developed solely by Singapore Exchange Derivatives Trading Limited. The Index is calculated by FTSE or its agent. FTSE and its licensors are not connected to and do not sponsor, advise, recommend, endorse or promote the Product and do not accept any liability whatsoever to any person arising out of (a) the use of, reliance on or any error in the Index or (b) investment in or operation of the Product. FTSE makes no claim, prediction, warranty or representation either as to the results to be obtained from the Product or the suitability of the Index for the purpose to which it is being put by Singapore Exchange Derivatives Trading Limited.
Futures or options contract on any MSCI Index are not sponsored, guaranteed, endorsed, sold or promoted by MSCI, any affiliate of MSCI or any other party involved in, or related to, making or compiling any indexes (but expressly including the exchange) MSCI bears no liability of any kind with respect to such contracts