Geo Energy Group upbeat on coal mining business

Strong demand coming from China, India.

Geo Energy management told OCBC that both countries should continue to source coal from the company because of their vast needs, which should help offset the likely weakness of near-term coal prices due to rising supply.

Here's more from OCBC:

Geo Energy Group. Geo Energy Group (GEG) is a coal mining specialist in Indonesia, which started as a mining contractor, and has since moved on to become a mine owner. It currently owns the BEK Mining Concession (which we visited recently) and has entered into five other mining concessions.

Visit to BEK site. Located on a 4570ha site in Kutai Barat Regency, East Kalimantan, BEK has a 6-year mine life based on 12.5m tonnes of reserves (also has 30.7m tonnes of resources and a 20-year concession from Apr 2011). We understand that GEG has produced some 1.84m tonnes of coal from this site as of 30 Jun; and the company believes it is on track to achieve its 2m-tonne target by year end. While the caloric value is just above 3400 GAR, we understand that prices have been holding up pretty well (~US$31-34/ton) despite the slide in Newcastle coal prices; this as end customers switch down to cheaper inputs in wake of the still-sluggish economies in China and India.

Also went to BJPE site. We also visited a 739.9ha site where GEG provides mining services to the owner of the concession, BJPE. In addition, GEG has exclusive marketing rights over the semicoking and high-thermal coal produced there. According to management, GEG will continue to secure new mining services contracts like this. And it believes that it has an edge over its competitors as GEG owns its own equipment, thus giving the company greater flexibility and cost control.

Outlook for Indonesian coal remains upbeat. Going forward, GEG remains upbeat about its prospects, noting strong demand from countries like China and India, even though near-term coal prices are likely to remain relatively soft due to the supply growth. We do not have a rating on GEG. Currently, GEG is trading at a historical PER of 15x versus the simple average of 36x of its peers in Indonesia.