Geo Energy Resources Ltd., has submitted a revised non-binding proposal to acquire new coal assets for a producing coal mine in East Kalimantan - Photo by the Company

JAKARTA (TheInsiderStories) – Coal producer, Geo Energy Resources Ltd., has entered into a conditional share purchase agreement with two South Sumatra coal mines for US$25 million, the company announced today (09/23). It will buy PT Titan Global Energy (TGE) from PT Titan Infra Energy (TIE) and its affiliate, PT Jaya Utama Indonesia (JUI), giving Geo Energy a 51 percent stake in producing coal mines PT Bara Anugrah Sejahtera (BAS) and PT Banjarsari Pribumi (BP).

Geo Energy will pay for the deal with its existing cash $2.5 million for a refundable deposit payable upon execution of the purchase agreement, and $22.5 million once the deal is completed, it said. The deal must be completed by its long-stop date of Dec 31, 2019.

Titan Infra Energy was established in Indonesia in 2004 and is a vertical energy infrastructure and logistics companies with primary operations in South Sumatra, the company said. While Geo Energy is a coal mining group, established since 2008, with offices in Singapore and Jakarta and production operations in Kalimantan. The company has been listed on the Singapore Stock Exchange (RE4) since 2012 and is part of the Singapore FTSE index.

Based on a Joint Ore Reserves Committee Compliant report issued in 2018, BAS and BP have an estimated coal tonnage of 50 million tonnes and 39 million tonnes respectively, effectively increasing Geo Energy’s existing coal reserves to approximately 122 million tonnes2 as at 30 June 2019.

Collectively, both mines produced 3.8 million tonnes of coal with an average calorific value of 4,419 on a gross as received in 2018 and 2.3 million tonnes for the financial half-year ended 30 June 2019 coal and projected combined coal production of above 4.4 million tonnes in 2019.

South Sumatra has abundant coal and is located in close proximity to key export markets such as India, China and Southeast Asian countries and including Indonesian domestic markets. According to Indonesia’s Ministry of Energy and Mineral Resources, South Sumatra holds over 39 percent of Indonesia’s coal reserves but accounts for less than 10 percent of the country’s coal production in 2018.

Compared to Kalimantan coal, South Sumatra coal offers estimated freight and barging cost savings of $5-10 per tonne to supply coal to power plants in West Java and Sumatra due to shorter hauling and shipping distance from the mine to the buyers’ destination.

The Proposed Acquisition assumes that as of 30 June 2019, both BAS and BP had combined minimum coal reserves of 60 million tonnes with a calorific value of 4,550 on a GAR basis. The coal located at both mines have a low average ash content of less than 6 percent and low average sulfur content of 0.3 percent and such coal is mainly used in power plants to generate electricity.

PT Manggala Usaha Manunggal (MUM) will continue as the mining services contractor for both mines, whilst Geo Energy is in discussions with major trading houses to offtake the coal production.

The average strip ratio for both mines is estimated at a maximum of 7.0 times. Both mines have been in production since 2012. Both mines produced 3.8 million tonnes of coal in 2018. Upon the successful completion of the Proposed Acquisition, the Group is looking to increase the combined coal production at BAS and BP.

BAS and BP have a contract with TIE to supply coal to PT Perusahaan Listrik Negara, a state-owned electricity company to fulfill its domestic market obligation (DMO) requirements of 25 percent on its approved annual coal production per the Annual Work Plan and Budget.

BAS and BP’s DMO sales for the financial half-year ended 30 June 2019 was 1.8 million tonnes. The Consideration assumes a minimum coal reserve of 60 million tonnes with a calorific value of a minimum of 4,550 on a GAR basis and zeroes debt.

Based on the Consideration and the value of the other net assets of the TGE attributable to the Sale Shares, the average cost of the coal reserves of BAS and BP is calculated at approximately $0.57 per tonne. The Consideration will be funded by existing cash of the Group.

Commenting on the Proposed Acquisition, Charles Antony Melati, Executive Chairman of Geo Energy said Indonesia is one of the world’s largest producers and exporters of coal. There are numerous smaller pockets of coal reserves on the islands of Sumatra, Java, Kalimantan, Sulawesi, and Papua but the three largest regions of Indonesian coal resources are South Sumatra, South Kalimantan, and East Kalimantan. The Indonesian coal industry is rather fragmented with only a few big producers and many small players that own coal mines and coal mine concessions.

“Our Group is delighted to increase our total proven coal reserves, from 78 million tonnes of coal to approximately 122 million tonnes of coal as at 30 June 2019, by acquiring these two producing mines in South Sumatra. We are excited that Geo Energy will potentially own six coal mines in Indonesia with a potential projected annual production of more than 15 million tonnes of coal a year,” he said.

Geo Energy owns four mining concessions through its wholly-owned subsidiaries PT Bumi Enggang Khatulistiwa (BEK), PT Sungai Danau Jaya (SDJ), PT Tanah Bumbu Resources (TBR) and PT Surya Tambang Tolindo (STT) in East Kalimantan. In the first quarter of 2019, the company had a cash balance of US$206 million, which it plans to use to acquire a coal mine in the near term to improve its credit profile.

Written by Lexy Nantu, Email: lexy@theinsiderstories.com