Singapore lists four Coal mining plays – Golden Energy and Resources, Geo Energy Resources, Resources Prima Group and BlackGold Natural Resources. All four stocks mine thermal coal – used to generate electricity, with mining conducted in Indonesia, and all companies report in US Dollars.
The YTD returns of the four Coal miners have been mixed, with average returns of 1% in the 2016 year thus far. Geo Energy Resources has been the best performing of the four stocks with a 57% return.
Following a 3Q16 turnaround profit of US$11.6 million, the RTO of Golden Energy and Resources debuted this week on SGX Mainboard. As part of the RTO, the company placed out S$123 million of shares to institutions. The share price closed yesterday at a 28% discount to the S$0.67 share placement price. The Group’s coal business held by the PT Golden Energy Mines Tbk Group was valued at US$3.01 billion as of 31 August 2016.
The SGX Listing Rules for Mining plays recognise international best practices in reporting standards – specifically JORC and NI43-101. Typically these reports will include the technical basis on which statements of reserves, resources or exploration results are made, and are available on all four Coal plays.
The aims of coal exploration are to discover new deposits or to extend existing ones, and to quantify the amount and quality of the coal in order to assess if it can be profitably extracted for sale.
With the debut of Golden Energy and Resources on Monday, Singapore Exchange (SGX) now lists four companies focused on coal mining. The other three coal plays are Geo Energy Resources, Resources Prima Group and BlackGold Natural Resources.
The combined market capitalisation of the four stocks is S$1.5 billion, with Golden Energy and Resources representing 75% of the combined market capitalisation. The recent returns of the four stocks are tabled below. To see the profile of three of the below stocks in SGX StockFacts, click on the relevant link below. The SGX StockFacts profile for Golden Energy and Resources is scheduled to be set up within a week.
|Name||SGX Code||Market Cap in S$M||Total Return MTD %||Total Return YTD %||Full Qualified Persons Report|
|Golden Energy & Resources*||AUE||1130||-26.7||-26.7||Click Here|
|Geo Energy Resources||RE4||267||-6.4||57.1||Click Here**|
|Resources Prima Group||5MM||72||18.2||-44.3||Part 1, 2 ,3|
|BlackGold Natural Resources||41H||45||-17.4||18.8||Click Here|
*IPO Date on 12 Dec 2016 **note QPR accompanied by Annual Report and an update to Reserves was noted in the 3Q16 earnings release. Source: SGX, Bloomberg & SGX StockFacts (data as of 14 December 2016)
All four stocks mine thermal coal in Indonesia. Modern large-scale mining of coal deposits in Indonesia began in the late 1980s and the business has increased exponentially to the extent that Indonesia is now the world’s largest exporter of thermal coals. The majority of Indonesia’s coals occur on the islands of Kalimantan and Sumatra – where the four SGX listed coal miners are exploring, developing and producing thermal coal.
BlackGold Natural Resources cites a PLN report (PLN is an Indonesian government-owned corporation providing electricity in Indonesia), demand for electricity in Indonesia is expected to rise, as the country’s political and business leaders are prioritising energy, infrastructure and electrification projects in the immediate future. In 2014, Indonesia’s national electrification rate rose to 84% with national electricity consumption expected to grow at 8.7% annually from 2015 to 2025.
Meanwhile, Geo Energy Resources’ CEO, Mr. Tung Kum Hon recently noted that China’s policy of reducing its domestic coal production by cutting the number of days allowed for coal mining from 330 to 276 days, has inevitably caused coal prices to rally. This situation has shifted China to rely on imported coal to keep up with its energy demands.
SGX lists also lists companies involved in more downstream coal activities – such as trading & distribution. Downstream coal plays include Noble Group, Abterra and Manhattan Resources.
Golden Energy and Resources (GEAR)
Golden Energy and Resources (GEAR) which owns 67% of PT Golden Energy Mines Tbk was formed through the a Reverse Takeover (RTO) of SGX Mainboard-listed United Fiber System. The opening price of the shares was S$0.71, following on from a S$0.67 per share placement to institutional investors. The share price ended yesterday at S$0.48.
The Group is principally engaged in the exploration, mining, and marketing of thermal coal sourced from its coal mining concession areas, covering an aggregate of approximately 38,165 hectares in South Kalimantan, Central Kalimantan and Jambi (a province in Sumatra), Indonesia.
GEAR recorded a return in profitability with net profit of US$11.6 million for the three-month period ended 30 September 2016, compared to a net loss of US$5.5 million in the last corresponding period. The higher revenue was backed by higher sales volume in the Group’s Coal Mining Division, which recorded a 23.1% increase in revenue for the segment to US$87.1 million from US$70.8 million in 3Q 2015 – click here for more details. GEAR maintained a positive outlook for its coal business as it moves into the final quarter of the year in view of the current uptrend in coal prices that is expected to continue into 1Q 2017, driven by a resurgence in coal demand particularly among China, Japan, South Korea and other Asia-Pacific buyers.
The Group’s coal business held by the PT Golden Energy Mines Tbk Group was valued at US$3.01 billion as at 31 August 2016. Coal deposits can be classified as either resources (potentially valuable, with reasonable prospects for eventual economic extraction) or reserves (valuable, legal and can be economically extracted).
Of the US$3.01 billion in Aggregate Market Value GEMS Coal Concession Areas, there were 2,154 million tonnes in Aggregate Coal Resources Estimates of GEMS Coal Concession Areas and 711.9 million Aggregate Coal Reserves Estimates of GEMS Coal Concession Areas. The Independent Qualified Persons’ Report on GEAR’s Coal Resources and Reserves estimates can be found here.
Geo Energy Resources
Geo Energy Group is the second largest of the coal mining plays, and an established and experienced coal mining group operating out of Indonesia. The company is headquartered in Singapore with a Branch Office in Jakarta, Indonesia, Geo Energy Group was established in 2008. As noted in its Corporate Factsheet (click here) it’s key businesses are coal production, mining services and coal trading with coal assets in South Kalimantan.
Last month, Geo Energy Resources announced a net profit attributable to shareholders of US$7.4 million for the three months ending 30 September 2016 (compared to a US$1.4 million loss for the three months ending 30 September 2015). For the nine months ending 30 September 2016, Geo Energy Resources reported a net profit attributable to shareholders of US$7.5 million (compared to a US$10.0 million loss for the nine months ending 30 September 2015). As noted in its 3Q16 profit results its mining concessions and coal mines in East and South Kalimantan, Indonesia have JORC marketable coal reserves of 53.5 million tonnes. The 3Q16 results can be found here.
The Qualified Person report released in April with the latest Annual Report can be found here. The report was compiled by PT SMG Consultants independent from Geo Energy Resources and classified and reported in accordance with the guidelines of the JORC Code 2012. The report was as of 31 December 2015, with JORC Reserves of 42.4 million tonnes and Resources of 58.4 million tonnes at that time.
Geo Energy Resources’ most recent Analyst Briefing – entitled Harnessing Strengths, Driving Growth can be found here. Geo Energy Resources also issued S$100 million worth of senior fixed rate notes with coupon rate of 7% and the senior fixed rate notes will mature in January 2018. The Notes were issued pursuant to the S$300 million Multicurrency Medium Term Note Program that was established by the Group on 30 June 2014.
Resources Prima Group
Like GEAR, Resources Prima Group was also established through an RTO. Resources Prima Group with its subsidiaries, is a mine owner and primarily engages in the business of coal exploration and coal mining, currently, in East Kalimantan, Indonesia.
Last month Resources Prima Group reported a net profit attributable to equity holders of the company of US$6,000 for the three months ending 30 September 2016 as compared to a net profit of US$1.1 million in the
corresponding period a year ago. Resources Prima Group also reported a lower net profit attributable to equity holders of the Company of US$23,000 for the nine months ended 30 September 2016 as compared to US$7.8 million for the same period last year. For more information, click here.
The Group, through its Indonesia-incorporated subsidiary PT Rinjani Kartanegara, has been granted a production operation IUP which is valid for an initial term of 12 years until 24 November 2021 (extendable for up to two (2) additional ten (10)-year tenures) to carry out coal mining operations in the mining concession area (with an area of 1,933 ha). The Group has been issued with two “borrow-use” permits by the Indonesian Minister of Forestry, the first in respect of an area covering 308.54 ha (“IPPKH1”) and the second in respect of an area covering 897.56 ha (“IPPKH2”) of the mining concession area. The Group, through PT Rinjani, has commenced mining operations in IPPKH1 since June 2012 and subsequently in IPPKH2 West Block since August 2016.
A comprehensive independent qualified persons report on Resources Prima Group’s Coal Resources and Reserves estimates, prepared by SMG Consultants, can be read at the following links: Part 1- click here, Part 2 – click here, Part 3 – click here.
BlackGold Natural Resources
BlackGold Natural Resources targets Indonesia’s rapidly-growing power plant industry with a specific focus on supplying coal to power plants located in Riau province, Sumatra, Indonesia. The Group, through its subsidiaries in Indonesia, holds the rights to three coal concessions in Riau, a region rich in natural resources. Currently, the Group, through its subsidiary, PT Samantaka Batubarahas total explored area of 10,000 hectares. This comprises of only 22% of its asset portfolio totaling 45,550 hectares.
Last month BlackGold Natural Resources reported a loss net of tax of US$746,818 for the three months ending 30 September 2016, compared to a net loss of US$553,234 in the corresponding period a year ago. For the nine months ended 30 September 2016, BlackGold Natural Resources reported a loss net of tax of US$2,359,410 compared to net loss of US$27,916,934 million for the same period last year. For more information, click here.
In July, BlackGold Natural Resources filed an independent qualified person’s report which was prepared by the Company’s independent consultant, PT GMT Indonesia, in respect of the Company’s financial year ended 31 December 2015 – the comprehensive report can be found here.
Best Practices in Reporting Standards & Differentiation of Resources to Reserves
The SGX Listing Rules for Mining plays recognise international best practices in reporting standards – specifically Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code), the National Instrument NI 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) from Canada, in addition to the Pan European Reserves and Resources Reporting Committee Code for the Reporting of Exploration Results, Mineral Resources and Pre Reserves (The PERC Code).
Typically these reports will include the technical basis on which statements of reserves, resources or exploration results are made. As noted above, Coal deposits can be classified as either resources (potentially valuable, with reasonable prospects for eventual economic extraction) or reserves (valuable, legal and can be economically extracted).
A Mineral Resource represents a concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust in such form, quality, and quantity that there are reasonable prospects for eventual economic extraction. Three categories of mineral resource are defined:
- An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which tonnage, grade, and mineral content can be estimated with a low level of confidence.
- An ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade, and mineral content can be estimated with a reasonable level of confidence.
- A ‘Measured Mineral Resource’ is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade, and mineral content can be estimated with a high level of confidence.
An Ore Reserve is the economically mineable part of a resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social, and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Two categories of ore reserve are defined:
- Probable Ore Reserve is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined.
- Proved (or Proven) Ore Reserve is the economically mineable part of a Measured Mineral Resource. It also includes diluting materials and allowances for losses which may occur when the material is mined.
The compiler of these reports must be a qualified person. A Qualified Person must have the appropriate experience in the type of activity undertaken or to be undertaken by a mineral, oil and gas company, meeting the following minimum requirements:
- Is professionally qualified and a member or licensee in good standing of a relevant Recognised Professional Association;
- Has at least five years relevant professional experience in the estimation, assessment and evaluation of:
– The mineral or minerals, oil or gas that is under consideration; and
– The activity which the issuer is undertaking; and
- Has not been found to be in breach of any relevant rule or law by any relevant regulatory authority or professional association and is not:
– Denied or disqualified from membership of;
– Subject of any sanction imposed;
– The subject of any disciplinary proceedings; or
– The subject of any investigation which might lead to disciplinary action.
A comprehensive Investor’s guide to the terminology and reporting standards can be found here.
The minerals industry offers retail investors opportunities for substantial investment returns, but also the possibility of investment losses. The key sources of risk and reward are exploration, technical, financial, environmental, social, political, and sovereign issues.
Exploration by its very nature is a risky investment because there are no guarantees that a company exploring for minerals will find anything of value. For most minerals, exploration is expensive and the consequence of a failed exploration program is a financial loss.
Exploration success discovering a new mineral deposit or finding additional mineralisation at an existing mine generates an asset that adds value to a company. Small companies with limited financial resources are relatively high risk/reward investment options because they cannot survive many failed exploration programs. However, they may generate large investment rewards if they are successful in exploration.
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