SGX-listed double 'G' coal plays fired up and stoked

COAL, one of the world's dirtiest fossil fuels, is all the rage amid a global economic revival and an extraordinary electricity crunch facing the world's gargantuan consumers.

All that coupled with a climateinduced tight supply has sent coal prices on a tear, even as the world shifts away from carbon-intensive fossil fuels to alternative clean energy. The bursting demand has led to a shortage of the "black gold".

Nowhere is this more clear than in China and India - the world's largest coal consumers. China's largest energy crunch in more than a decade is fuelling demand for coal, but heavy rain has curbed its output, with domestic coal miners reportedly asked to raise outputs.

Wet weather has also been disrupting extraction in Indonesia, one of the world's largest coal exporters.

As Europe braces for a harsh winter, the continent too is set to face an unprecedented energy crisis, which in turn, has exacerbated the coal crunch. No surprise then that across the board, coal benchmarks have shot up.

The 4,200 GAR (gross as received) coal - a popular Indonesian coal grade among Chinese and Indian coal buyers - has more than doubled since January and is at record highs.

Australia's Newcastle coal prices - an index for Asia - has tripled to higher than pre-pandemic levels and recently hit a 13-year high whereas the AP12 benchmark, which covers north-west Europe, topped an all time high recently too, having jumped over 60 per cent over the last four weeks.

Double Gs

While coal prices, like oil, were largely expected to be buoyant this year, led by the economic rebound, the extent of the supply crunch and soaring demand seemed less expected.

On the back of such exuberance, Singapore-listed coal plays, Golden Energy & Resources (GEAR) and its smaller brethren by market capitalisation, Geo Energy Resources saw their shares scale multi-year highs this week.

On Monday (Oct 11), GEAR hit S$0.48 - a level not seen since 2017 - while Geo Energy scaled an 8-year high of S$0.375, as they put their lows of March 2020 of S$0.10 and S$0.075 respectively far behind. Collectively, both counters have a market value of S$1.64 billion.

According to data provided by Geoff Howie, a market strategist at SGX, these upstream coal duo are among the 25 stocks in the energy and food space - flavour sectors of the season, globally - that have enjoyed the highest net institutional inflows in October's first trading week.

GEAR, with a market value of some S$1.12 billion, has seen its stock jump 195 per cent or S$0.314 year to Monday. No less spectacular is Geo Energy, with a market worth of over half a billion dollars; the counter has risen 101.09 per cent or S$0.186 over the same period.

GEAR-ing up

Significantly higher average selling prices (ASP) of coal led mainboardlisted GEAR, which has mines in Indonesia, as well as Australia, to report sweet digits for the first half ended June this year. The miner reported a record half yearly net profit of some US$80 million - a 129 per cent year-on-year (yoy) jump - on the back of a record half-year revenue of US$807 million, up 36 per cent.

Group Ebitda (earnings before interest, taxes, depreciation and amortisation) jumped 125 per cent yoy to US$189 million over the same period, the highest level since GEAR's listing 5 years ago.

Noteworthy is that the firm, which upped its stake from some 20 per cent in Australia's Stanmore Coal to 75 per cent last year, has also expanded into gold, a countercyclical precious metal, last year with the acquisition of a 50 per cent stake in a gold mine in Australia.

Not to be left behind in the green transition, it also has set its gaze on renewables and has pumped US$4 million into a renewable energy fund that invests in solar photovoltaic systems in the target geographies of Taiwan, Japan and Australia.

All powered up

Meanwhile, Geo Energy, which owns four Indonesian mining concessions and has been listed on the mainboard since 2012, has had a streak of wins.

In what can be deemed spot-on timing, the firm recently got the nod to produce more coal in Indonesia, enabling it to tap "historically high" coal prices.

For the half-year period, Geo Energy turned around, posting a net profit of neary US$49 million from a loss of some US$9 million in H1FY2020 (excluding the gains from bonds repurchases).

It also made a record revenue of US$220 million, up 37 per cent from the previous corresponding period, while Ebitda jumped 181 per cent to US$78 million. With that, the firm is expected to post record earnings in 2021.

Just last month, Geo Energy said it will fully redeem its outstanding bond and with that, removed a lingering refinancing risk that was previously weighing on its stock. The move drew favourable responses from credit rating agencies S&P Global Ratings and Moody's Investors Service.

Even so, Moody's flagged Geo Energy's small scale, which makes it susceptible to slight changes in coal prices and production and the mines' short reserve life.

For now however, it appears that the shine on the Singapore-listed mining duos is unlikely to fade as coal's super cycle hots up.