Geo Energy secures offtake, mining services MOUs to back coking coal push

[SINGAPORE] Coal producer Geo Energy Resources has secured two non-binding memorandums of understanding (MOUs) tied to its planned expansion into high value coking coal in Central Kalimantan.

The company announced on Monday (May 18) that it had agreed to a US$50 million to US$100 million prepayment amount with multinational commodities trader Trafigura, to secure the future offtake of coal from its newly acquired miner Harfa Taruna Mandiri (HTM).

The company had announced in April its acquisition of a majority stake in Indonesian coking coal concession holder HTM, through its parent company Mutiara Hitam Sukses.

HTM operates a 3,293-hectare mining concession in Central Kalimantan, featuring “2P” reserves – the industry standard for proven and probable commercially viable coal.

Under the proposed arrangement, Trafigura will offtake and market all export volumes from HTM, estimated at around 1.5 million tonnes annually, at prevailing hard premium coking coal prices less a marketing fee.

Geo Energy said the prepayment amount will strengthen its cash position and help finance the ramp-up and operational requirements of its upcoming HTM operations. The company added that the partnership could position Trafigura as a long-term strategic partner.

In addition, Geo Energy said it has secured an MOU with underground mining contractor East Wonders Indonesia (EWI) to perform HTM’s mining operations for the next 15 years. EWI is backed by the Chinese mining company Shanxi Yulong Group.

The contractor is expected to invest an initial US$60 million to set up underground mining up to first production and to provide full contractor services to HTM’s operations, including potential funding of certain capital expenditures and operational costs.

“Based on the initial preliminary feasibility study and analysis, the contractor is confident of the estimated reserves of 15 million to 20 million tonnes of premium hard coking coal, which is in high demand from the market,” said Geo Energy in its press release.

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Executive chairman and chief executive officer Charles Antonny Melati said the move into premium hard coking coal will diversify the company’s portfolio beyond thermal coal and strengthen its long-term growth prospects.

Hard coking coal, with a limited global supply and being an essential material in modern steel production, consistently commands a price premium over ordinary thermal coal, Geo Energy had said earlier in April.

“Beyond the immediate commercial benefits, the opportunity enhances the group’s ability to engage with top-tier institutional funds and investors, strengthening market visibility and credibility,” added Melati.

Geo Energy noted that the agreements remain subject to due diligence, negotiation of binding agreements and satisfaction of all precedent conditions.

Shares of Geo Energy closed S$0.015 or 2.6 per cent higher at S$0.59 on Monday, before the announcement.