Geo Energy hits coal reserves threshold; purchase of outstanding notes not needed

Singapore

GEO Energy Resources has reached the minimum threshold for its coal reserves, and will not have to make a mandatory offer to purchase US$59.2 million worth of outstanding 8 per cent senior notes.

In a bourse filing on Wednesday evening, the mainboard-listed company said that it has 86.4 million tonnes of coal reserves in its two Indonesian mining concessions, Sungai Danau Jaya (SDJ) and Tanah Bumbu Resources (TBR), as at end-October.

This exceeds the minimum requirement of 80 million tonnes of coal reserves that it had to meet under a covenant of the 8 per cent notes. Due in 2022, the notes were issued by Geo Energy's wholly-owned unit, Geo Coal International.

If the covenant had not been fulfilled, Geo Coal International would have had to make a mandatory offer to purchase all of the outstanding notes, worth US$59.2 million as at Wednesday.

The company has thus far used US$128.8 million in cash on the repurchases of US$240.8 million of the notes. It had US$32.7 million in cash as at end-September.

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

"This has removed the uncertainty surrounding the put option on the notes which affected our company and created an overhang on its shares 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," said Geo Energy's executive chairman Charles Antonny Melati.

Geo Energy has reduced its gearing by 78 per cent through the repurchases of the notes in the past year, when it was approached by noteholders, Mr Melati added. Market liquidity on the notes had been lacking amid the Covid-19 pandemic.

In August, Geo Energy had extended the licences of SDJ and TBR to May 2027 and January 2028 respectively, helping it to meet the requirement.

The coal reserves needed to be based on a Joint Ore Reserves Committee (JORC) report issued no earlier than six months from April 4, 2021, from qualified mines with licences expiring no earlier than Oct 4, 2025.

Geo Energy chief executive Tung Kum Hon is optimistic about the company's upcoming financial performance. He noted that the Indonesian Coal Index price has improved in recent months. The ICI 4 price was at US$31.78 as at Nov 27, a 32.7 per cent increase from the average ICI 4 price of US$23.95 for the three months ended September.

"Based on our cash cost of US$19.58 per tonne for Q3 2020, we expect increases in our cash profit per tonne for Q4 2020 if coal prices remain or continue to strengthen. This would put us in good stead for our cash flow generation in the coming months," he said.

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 initial public offering.

Geo Energy will consider the payment of a final dividend, based on its based on its dividend policy of at least 30 per cent of net profit. This is subject to debt covenants and capital requirements for growth.

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