SINGAPORE: Geo Energy Resources Limited has entered into a conditional share purchase agreement (CSPA) with PT Titan Infra Energy (TIE) and PT Jaya Utama Indonesia (JUI) to acquire a 100% stake in PT Titan Global Energy (TGE) and an effective interest of 51% in each of BT Bara Anugrah Sejahtera (BAS) and PT Banjarsari Pribumi (BP), with two producing mines located in South Sumatra.

TIE was established in Indonesia in 2004 and is one of Indonesia’s major vertical energy infrastructure and logistic companies with its primary operations in South Sumatra, Indonesia.

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% of Indonesia’s coal reserves but accounts for less than 10% of the country’s coal production in 2018.

Compared to Kalimantan coal, South Sumatra coal offers estimated freight and barging cost savings of US$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 low average ash content of less than 6% and low average sulphur content of 0.3% and such coal is mainly used in power plants to generate electricity.

PT Manggala Usaha Manunggal (MUM), PT Servo Lintas Raya (SLR) and PT Swarnadwipa Dermaga Jaya (SDJ) are the current mining services contractor and logistics services provider to the BAS and BP mines. After completion of the proposed acquisition, MUM is to continue as the mining services contractor, and BAS and BP has the right to use a major hauling road owned by SLR and a port and stockpile facilities owned by SDJ.

MUM, SLR and SDJ are companies owned by TIE. The average strip ratio for both mines is estimated at a maximum 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 increasing the combined coal production at BAS and BP.

BAS and BP has a contract with TIE to supply coal to PT Perusahaan Listrik Negara (Persero), a state-owned electricity company to fulfil its domestic market obligation requirements of 25% on its approved annual coal production per the Annual Work Plan and Budget (Rencana Kerja dan Anggaran Biaya) (RKAB).

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 zero 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 US$0.57 per tonne. The Consideration will be funded by existing cash of the Group.

Commenting on the Proposed Acquisition, Mr Charles Antonny 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 (mainly in Sumatra and Kalimantan). 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.

The Proposed Acquisition is in line with the Company’s business strategy to expand its business operations and increase its coal reserves and production levels. Since the issuance of our US$300 million senior note in 2017, we have been actively looking an earnings accretive and in-production coal asset with ready infrastructure, right price and conditions. The Proposed Acquisition will bring together an experienced partner in TIE for Geo as we expand our business.”

Commenting further on the Proposed Acquisition, Mr Tung Kum Hon, Chief Executive Officer of Geo Energy said, “It always seems impossible until it’s done. The deal represents good value as we are paying around US$0.57 per tonne of coal reserves of a higher calorific value. From a business perspective, it could have been a lot more expensive to invest in 2018 or a greenfield coal mine and build up its infrastructure. In addition, it also allows us to work with TIE to supply coal to PLN to fulfil our Group’s DMO requirements of 25% on the RKAB.

The Proposed Acquisition, if successful, will diversify Geo Energy’s business with beneficial interest in a major infrastructure and port operations in South Sumatra, Indonesia and also enable us access to a diversified set of credits in a related infrastructure and logistics business”.

Edited by Kazim Rizvi