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Geo Energy inks coal off take, equity investment with Australia's Macquarie Bank

INDONESIAN coal miner Geo Energy Resources has scored a three-in-one with Australia’s Macquarie Bank that will see the Singapore-listed firm secure more than US$75 million in fresh funds by way of a pre-payment for a coal offtake deal for its mine and proposed equity investment alongside a trade finance facility for which the sum was not disclosed.

Macquarie was selected based on its scale, international presence and experience in commodity trading; and Geo Energy will tap Macquarie’s expertise to develop a market for PT Tanah Bumbu Resources' (TBR) coal, said Geo Energy executive chairman Charles Antonny Melati in an announcement on Thursday.

In the statement, the coal miner - founded and majority owned by Indonesia’s Melati family - said that its wholly owned unit Geo Coal International (HK) Limited (GCIHK) has inked a life-of-mine offtake contract with Macquarie for its mine in South Kalimantan.

In conjunction with the deal to buy TBR’s entire coal production subject to the Indonesian Domestic Market Obligation (DMO), Macquarie will make available to GCIHK a multi-year prepayment totalling US$60 million in three tranches and extend a trade finance facility to support its coal exports. 

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In addition, the bank - wholly owned by Australian-listed Macquarie Group, a diversified financial group with a A$40 billion market value - plans to subscribe for 70 million new Geo Energy shares representing 5 per cent of its enlarged capital at 29 Singapore cents apiece or for a total of S$20.3 million. Macquarie has agreed to hold the shares for at least one year.

Under the proposed subscription, Macquarie Bank also plans to subscribe for 74 million non-listed, transferable, free warrants in Geo Energy exercisable within two years from the issue date with each warrant carrying the right to subscribe for one Geo Energy share at an exercise price of 33 Singapore cents per share.

The price tag for the new shares and exercise price of the warrants represent a premium of 28.9 per cent and 46.7 per cent respectively to Geo Energy's volume weighted average share price of 22.5 Singapore cents last Friday, prior to Monday's trading halt pending the major announcement.

These proposed transactions that are inter-conditional will add a new substantial shareholder and investor and provide additional long-term recurrent revenue, said Geo Energy.

Upon subscribing to the equity and if Macquarie exercises the warrants, Geo Energy's net gearing will be cut from 38.6 per cent as at end-June 2018 to 16.4 per cent. "As such, the prepayment and equity investment will strengthen our existing cash balance and balance sheet and will put us in a good position to grow our revenue base," it added.

The proforma financial effects of the proposed transactions based on the group’s audited accounts for financial year ended December 2017 will see earnings per share reduced to 2.5 US cents (post issue of new subscription shares and warrant shares) from 2.8 US cents.