Geo Energy chief's vision turns group's fortunes around

Mr Tung remains positive that the rebound in coal prices is sustainable and expects Geo Energy to do better.
Mr Tung remains positive that the rebound in coal prices is sustainable and expects Geo Energy to do better.

Growing up on a farm in Malaysia, the chief executive officer of SGX-listed Indonesian coal mining group Geo Energy Resources, Mr Tung Kum Hon, dreamed of becoming an architect.

"I eventually became an accountant, not an architect, but my passion is still in designing and building things."

Mr Tung, a certified public accountant and chartered accountant, spent more than 15 years with PwC. His previous appointments ranged from CEO of Bellzone Mining - which trades on London's AIM - to chief financial officer of Shanghai Asia Holdings and special assistant to executive chairman of New Toyo International Holdings, both listed on the Singapore Exchange (SGX).

Mr Tung, 56, played an instrumental role in turning around loss-making Geo Energy. When he came on board as CEO in December 2015, he faced a myriad of challenges and a ticking clock.

"The company had been losing money for two years and would have been transferred to the SGX watch-list if it incurred another annual loss. The share price had sunk to 13 cents a share and was being considered for the MTP watch-list," he recalled, referring to the minimum trading price rule of 20 cents imposed by SGX.

To make matters worse, the group was close to breaching its Medium Term Note financial covenants, and had no funding plans. It was also saddled with high receivables from customers languishing in the coal price slump. Engagement with stakeholders, including investors and staff, was noticeably lacking.

Eventually, after a restructuring exercise and as coal prices recovered, Geo Energy returned to the black, reporting its first profit in years for the three months ended June 30 last year. 

Established in 2008 and listed on the mainboard since 2012, Geo Energy has a current market capitalisation of over $350 million. It owns two coal mining concessions in East and South Kalimantan. 

To ensure a sustainable business, Mr Tung revamped Geo Energy's operations. When the firm was first founded by the Melati family, capital spending was high, with heavy investments in equipment leading to rising depreciation and leasing expenses. The firm had also expanded beyond its original plans, leading to poor returns on assets, he said. 

Mr Tung's vision involved transforming Geo Energy into a cost-competitive, low-capital expenditure, easily scalable business that could maximise profits in industry booms and withstand price shocks during depressed cycles.

The sum of these moves resulted in a net profit of more than US$2 million (S$2.8 million) for the second quarter of 2016, and earnings of over US$7 million in the subsequent quarter. "We expect to do better, as coal prices continued to rise in the fourth quarter of 2016," he noted. Geo Energy had set a 2016 production and sales target of 6 million tonnes of coal, with this figure rising to more than 10 million tonnes this year.

"At the current price of US$42 per tonne, this would generate revenues of more than US$400 million in 2017, and effectively propel Geo Energy into the ranks of Indonesia's top 10 coal producers by production volume," he added.

Last year, Geo Energy embarked on its expansion plan with a series of corporate activities. It announced conditional sale and purchase agreements for a stake in the PT Parisma Jaya Abadi (PJA) mine with 6,800 GAR (gross as received), which refers to calorific value, coal for US$18 million, and a stake in the PT Cahaya Lembusuana (CLS) mine with 7,000 GAR coal for US$13 million. Both are located in East Kalimantan.

Last July, it unveiled another conditional agreement to buy nearly 100 per cent of the PT Tanah Bumbu Resources (TBR) mining concession in South Kalimantan for US$90 million. When completed, the acquisition will double the group's mineable reserves to more than 100 million tonnes. The project is expected to start production of 4,200 GAR coal in the April-June quarter of this year. 

Geo Energy also entered the high calorific value (CV) coal market last November with the acquisition of PT Surya Tambang Tolindo.

Looking ahead, Geo Energy is working with a few large commodities trading houses on potential collaborations and continues to seek good acquisitions to grow and scale its operations.

Meanwhile, Mr Tung remains sanguine that the rebound in coal prices - from about US$28 per metric tonne for the 4,200 GAR grade last June to above US$40 per metric tonne in February - is sustainable. 

"We expect coal prices to remain range bound, supported by Chinese import demand following domestic coal production cuts," he said.

In April last year, China implemented a shorter, 276 working-day policy per year for coal miners that resulted in a supply crunch and low inventory levels. This has given imported coal a significant boost. 

Recovering coal prices have given Geo Energy a much-needed fillip. The stock has tripled in value over the past six months, but is still more than 50 per cent below its historical high of 63.5 cents reached on Jan 8, 2013. It hit a 52-week high of 29.5 cents on Feb 22 this year, up from the all-time low of 9.5 cents on Aug 1 last year. 

"We want to grow Geo Energy into a US$1 billion market cap company by doubling its capacity to generate over US$500 million in revenue, at the lowest cost, and with the highest productivity and efficiency," Mr Tung said.

The father of a son, 20, and daughter, 22, dreams of retiring on a farm, growing tomatoes, basil and chilli, with an orchard and a pond teeming with fish. "I would like to return to my roots. But first, I need to convince my wife!"

•This is an edited excerpt from Singapore Exchange's Kopi-C: The Company Brew column that features C-level executives of firms listed on SGX. A longer version can be found on SGX's My Gateway website:

A version of this article appeared in the print edition of The Straits Times on March 06, 2017, with the headline 'Geo Energy chief's vision turns group's fortunes around'. Print Edition | Subscribe