Geo Energy hits coal reserves target, so does not have to make mandatory offer for notes

GEO Energy Resources has hit the minimum threshold for its coal reserves, such that the mainboard-listed firm will not have to make a mandatory offer to purchase the 8 per cent senior notes issued by its wholly-owned unit, Geo Coal International.

In a bourse filing on Wednesday evening, Geo Energy said that it had 87.5 million tonnes of coal reserves in its two Indonesian mining concessions, Sungai Danau Jaya (SDJ) and Tanah Bumbu Resources (TBR), as of end-April.

This exceeds the minimum requirement of 80 million tonnes of regulatory-compliant coal reserves that it had to meet. Under a covenant, Geo Coal International would have had to make a mandatory offer to purchase all of the outstanding notes, due 2022, if it did not meet the minimum coal reserve requirement.

The coal reserves needed to be based on a JORC (Joint Ore Reserves Committee) report issued no earlier than six months from April 4, 2021, from qualified mines with licences expiring no earlier than Oct 4, 2025. In August, Geo Energy had extended the licenses of SDJ and TBR to May 2027 and January 2028 respectively.

Geo Energy reduced its gearing by 78 per cent through repurchases of the notes in the past year, when approached by noteholders, said Charles Antonny Melati, executive chairman of Geo Energy. Market liquidity on the notes was lacking amid the Covid-19 pandemic.

The firm has thus far used US$128.8 million in cash on the repurchases of US$240.8 million of the notes. The outstanding notes as of Wednesday added up to US$59.2 million. Geo Energy had US$32.7 million in cash as of end-September.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

With the falling away of the mandatory offer to purchase, it now has around two years to repay the outstanding notes when due on Oct 4, 2022.

Mr Melati said: "This has removed the uncertainty surrounding the put option on the Notes, which affected our company and created an overhang on its share price. The markets have responded positively to the results of the group's liability-management exercise, as shown by the recent increases in the company's shares and notes prices."

Geo Energy chief executive Tung Kum Hon added: "Based on our cash cost of US$19.58 per tonne for Q32020, we expect increases in our cash profit per tonne for Q42020 if coal prices remain or continue to strengthen. This would put us in good stead for our cash-flow generation in the coming months.

The company expects to post "record net earnings" for 2020. Its net earnings for the nine months ended September was US$91.6 million, the highest since its 2012 IPO.

Shares of Geo Energy closed at S$0.125 on Wednesday, up 1.63 per cent.