Geo Energy (GERL SP): All fired up

  • BUY Entry – 0.21 Target – 0.24 Stop Loss – 0.18
  • GERL is one of Indonesia’s leading coal producers. The company has four mining concessions located in South and East Kalimantan. It is actively operating two mines and has recommenced mining operations at another mine, while planning to start exploration at another mine site. 
  • With the improvement of coal prices in 2021, the company is on track for a production of at least 10-11mn tonnes in 2021.
  • For 1Q2021, the company recorded its highest quarterly revenue of US$115mn on the back of higher average selling prices of US$41.84 per tonne for ICI4 (Indonesian Coal Index Price for 4,200 GAR coal), up from US$31.97 in 4Q2020 and US$34.44 in 1Q2020. The last time coal prices were this high, GEO Energy’s share price traded at between 22 and 35 Sing cents, compared to its current share price of 21.5 Sing cents.
  • As a result of the stronger performance, the group now has a net cash position of US$23mn as at 31 March 2021. 
  • On the industry outlook, this cycle is panning out differently but in a good way for coal miners’ balance sheets. Whereas previous cycles would lead to an increase in investments when coal prices were high, the shift towards renewables and cleaner forms of energy has instead curtailed current investment plans. Financing has also become more difficult for new coal mines. However, even as the world moves away from coal, demand is expected to remain strong through the 2030s, and without new coal mines, prices are likely to stay high. 

Indonesian Coal Price Reference (HBA) Chart

GERL SP (Source: Bloomberg)