Geo Energy says it has stopped dealing with coal mine owner that triggered US$15.4 million in allowances

COAL producer Geo Energy Resources on Monday (Mar 13) said it has stopped further transactions with the third-party coal mine owner whose inability to fulfil its obligations towards the company depressed its earnings for the second half of 2022.

This follows Geo Energy’s Feb 27 announcement that it had had to make US$15.4 million in allowances for expected credit losses based on dealings with this mine owner, which failed to deliver on coal which Geo Energy purchased. The mine owner had also not met the conditions for the conditional sale-and-purchase agreement for two mining concessions in 2019.

The allowances were related to receivables arising from advance payments for the coal purchase and a refundable deposit to acquire interest in the mining concessions.

Geo Energy, which has not named the mine owner in its filings so far, was responding to the queries from Singapore Exchange Securities Trading (SGX-ST) on the status of the advance payments and the refundable deposit.

For the avoidance of doubt, the company told The Business Times on Wednesday that fresh deals with the third party had stopped in 2020, and not recently.

To the query on whether due diligence was done before paying out the advances, the group said on Monday that standard due diligence was performed. This entailed engaging external consultants for technical due diligence on the coal mines and associated infrastructure, and a site visit. It added that the relevant permits and licences of the mines and associated infrastructure were also verified, and that financial statements were reviewed.

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Asked for the board’s assessment of the recoverability of the remaining current trade and other receivables, Geo Energy said discussions with the mine owner over several potential avenues of repayments for the settlement of the outstanding receivables are ongoing.

“The group continues to work closely with the counterparty for the settlement of the outstanding receivables,” it said.

Meanwhile, the group said it had made full allowance for credit loss on the receivables as at end-2022.

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Geo Energy H2 earnings down 56% to US$56.6m on expected credit loss allowance

The expected credit loss was assessed using the probability-weighted amount based on different scenarios, it pointed out. It took into account historical default experience, future prospects of the industry, various external sources of actual and forecast economic information, as appropriate, as well as time value of money in estimating the probability of default and loss upon default, it noted.