Will investors back Geo Energy’s plan to buy new coal assets amid mounting climate pressure?

SINGAPORE – Shareholders of Singapore Exchange-listed Geo Energy Resources will soon have to decide whether to support the Indonesian coal producer’s recent move to acquire two major coal assets at a time when pressure to preserve the environment is mounting.

While it is among the cheapest fossil fuels used to generate energy, coal is often referred to as a dirty asset due to its contribution to air pollution and greenhouse gas emissions.

In Singapore, listed energy companies must now integrate climate reports into their annual sustainability reporting on a comply-or-explain basis. Meanwhile, regulators are seeking public feedback on making disclosures of climate-related financial information mandatory for listed companies.

The Monetary Authority of Singapore recently also closed a public consultation on the criteria for financing the early phasing-out of coal-fired power plants in the Asia-Pacific region, where coal accounts for nearly 60 per cent of power generation and about a third of greenhouse gas emissions.

Despite this, Geo Energy in July announced plans to acquire stakes in Indonesia-listed coal miner Golden Eagle Energy and coal infrastructure developer Marga Bara Jaya for US$154.1 million (S$208.5 million) and US$49,000 respectively.

Upon completion of an initial 58.7 per cent stake in Golden Eagle Energy, Geo Energy must also make an offer for the rest of Golden Eagle Energy’s shares and will acquire up to 75 per cent of the coal miner.

Should Geo Energy take its stake in Golden Eagle Energy to 75 per cent, the cost of the two transactions will add up to US$200 million, with financing from Indonesia’s Bank Mandiri already secured.

The moves must be approved by shareholders at an extraordinary general meeting, whose date has yet to be set.

In an interview last Friday, chairman Charles Melati told The Straits Times that he expects shareholders to approve the acquisitions as they would allow Geo Energy to boost its coal reserves by another 20 years from just five years now.

Mr Melati said Golden Eagle Energy produces high-quality coal, which commands a premium in the market due to its low sulphur and ash content.

He added that the acquisition of Marga Bara Jaya will also enable Geo Energy to build its own transport and logistics infrastructure, including a road and jetty, to service its mines. This will help it “substantially reduce costs” and also provide similar services to third parties for additional revenue.

All this could also give the company’s earnings a boost and enable it to continue paying regular dividends, Mr Melati said.

The company on Aug 10 declared an interim cash dividend of 0.5 cent per share for the six months ended June 30, which is lower than the dividend of two cents per share it declared for the corresponding year-earlier period.

This came after it posted a 74.1 per cent decline in net profit to US$27.1 million for the period on the back of a 34.9 per cent fall in revenue to US$239.8 million.

Following the

privatisation of Golden Energy and Resources in June,

Geo Energy is now the only coal producer listed on the Singapore Exchange.

Mr Melati said demand for coal is expected to remain strong for the next 20 to 40 years, given that it is the cheapest and most utilised fossil fuel in power generation.

He said Geo Energy sells 25 per cent of its coal at between US$70 and US$90 per tonne domestically, while the rest is sold to off-takers at prices benchmarked to the Indonesian Coal Index.

Meanwhile, coal supplies have fallen.

“In Indonesia, coal producers must now bid for mining concessions. However, this has been a difficult process as the country does not have a database of coal reserves, quality and pricing. As such, it is not easy to get access to new mines.”

Still, Mr Melati conceded that coal is a “sunset industry”, referring to a sector that is in decline amid falling demand, relevance and profitability.

As a result, the company is also exploring investments in renewable energy.

“We are finalising discussions with an Indonesian party on this front and will announce the outcome in due course.”

He noted that while international financing for coal investments is likely to dwindle, “for now, Indonesian banks are still willing to fund us”.

He added: “It is also still possible to issue bonds, and once we have acquired Marga Bara Jaya, we can approach funders as a logistics and infrastructure company, so we will still be able to find banks to fund us.”