Costs will go up, selling prices might come down
Golden Energy and Resources, which mines coal and gold, has reported earnings of US$279 million for 1HFY2022 ended June, up 859% y-o-y, as contributions from its newly acquired stake in an Australian coal mine kicks in.
Revenue in the same period was up 201% y-o-y to US$2.43 billion, as the company benefitted from not just higher selling prices of coal but also a two-month contribution upon completion of taking a 80% stake Stanmore SMC, the Australian miner, for US$1.35 billion.
The remaining 20% stake, now held by Mitsui, will also be sold to Stanmore for US$380 million.
The coal industry has seen higher prices over the last year or so because of the recovery from the pandemic followed by spillover effects from energy supply chain disruption triggered by the war between Russia and Ukraine.
Gear warns that cost of diesel, labour, explosives, and so on, have increased significantly too.
Cash costs (excluding royalties) for the energy coal – used to generate power - increased from US$23 per tonne in 1H2021 to US$34.1 per tonne in 1H2022.
On the other hand, cash costs (excluding royalties) for metallurgical coal – used to refine iron - decreased from US$100 per tonne to US$87.3 per tonne due to better efficiency and contribution from SMC, which is more cost effective.
Gear’s finance costs was up from US$32.1 million in 1H2021 to US$41.3 million in 1H2022, mainly due to financing costs incurred on the US$625 million loan taken out to fund the SMC deal.
As at June 30 2022, Gear’s total debt amounted to US$1.6 billion, versus cash and equivalents of US$932.9 million, up from US$379.8 million as of Dec 31 2021.
Gear says that benchmark coal price in Indonesia, which hit US$105.1 per tonne in March this year, has dropped to US$83.6 per tonne last month and is likely to further drop to US$52.1 per tonne next year.
The drop in supply originally seen, triggered by the war between Russia and Ukraine, is “unlikely” to be “as large as previously expected,” the company says on Aug 12.
Gear shares closed at 54 cents on Aug 12, up 1.89%.