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Condensed Interim Consolidated Financial Statements For the six months and full year ended 31 December 2021

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Condensed Interim Consolidated Financial Statements For the six months and full year ended 31 December 2021


Profit & Loss Statement


Balance Sheet




Review of Performance


Review of Statement of Comprehensive Income

2H2021 vs 2H2020

Revenue

The Group's revenue comprises revenue generated from Energy Coal and Metallurgical Coal segments as well as Non-coal Businesses. Total revenue increased by US$496.65 million or 87.0% from US$570.73 million in 2H2020 to US$1,067.38 million in 2H2021.

Energy Coal Segment

Revenue from the Group's Energy Coal segment reported an increase in revenue by US$362.67 million or 74.1% from US$489.70 million in 2H2020 to US$852.36 million in 2H2021. This was mainly due to an increase in Average Selling Price ("ASP") (energy coal - mining) of 139.9% from US$28.68 per metric tonne in 2H2020 to US$68.81 per metric tonne in 2H2021, partially offset with a decline in sales volume from 16.64 million tonnes in 2H2020 to 11.96 million tonnes in 2H2021. The average Indonesia Coal Index 4 ("ICI4") in 2H2021, a better proxy for the majority of the Group's coal quality, was US$82.66 per metric tonne (2H2020: US$28.31 per metric tonne). The Group's Energy Coal segment production volume decreased from 16.93 million tonnes in 2H2020 compared to 12.53 million tonnes in 2H2021 due to unfavourable weather conditions in South Kalimantan.

Metallurgical Coal Segment

Revenue from the Metallurgical Coal segment reported a significant increase in revenue by US$133.90 million or 166.4% from US$80.45 million in 2H2020 to US$214.35 million in 2H2021. This was mainly due to an increase in realised ASP of 102.9% from US$79.17 per metric tonne in 2H2020 to US$160.65 per metric tonne in 2H2021, with a slight increase in sales volume from 1.18 million tonnes in 2H2020 to 1.35 million tonnes in 2H2021.

Non-coal Businesses

Revenue from non-coal businesses comprises plywood and rubber sales. The increase of US$0.09 million from US$0.59 million in 2H2020 to US$0.68 million in 2H2021 is mainly due to better performance from forestry division during the period under review.

Cost of Sales

The Group reported an increase in cost of sales of US$174.42 million or 42.6% from US$409.52 million in 2H2020 to US$583.94 million in 2H2021. This was due to (i) higher royalty incurred as a result of higher ASP realised from the both Energy Coal and Metallurgical Coal segments; (ii) higher cash cost (excluding royalty) of Energy Coal segment from US$19.54 per metric tonne in 2H2020 to US$33.11 per metric tonne in 2H2021, attributable to higher strip ratios and contractor rate, which have certain elements linked to movement in ICI4 Index; and (iii) higher expenses relating to the expensing of the remaining overburden in advance inventories for Isaac Plains (for which mining will cease in first quarter of 2022).

Other income

The Group’s other income decreased by US$6.40 million or 44.5% from US$14.37 million in 2H2020 to US$7.98 million in 2H2021, mainly due to the absence of a business interruption insurance claim in 2H2020.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$20.65 million or 21.4% from US$96.7 million in 2H2020 to US$117.34 million in 2H2021 mainly due to the higher demurrage costs incurred resulting from unfavourable weather conditions in 2H2021.

Administrative expenses

The Group's administrative expenses increased by US$19.77 million or 47.7% from US$41.50 million in 2H2020 to US$61.27 million in 2H2021 mainly due to higher remuneration in line with better performance, higher cost incurred in relation to the Group's commitment on Corporate Social Responsibilities and professional fees incurred for on-going corporate exercise.

Finance costs

The Group's finance costs increased by US$3.59 million or 18.4% from US$19.54 million in 2H2020 to US$23.14 million in 2H2021 mainly due to higher Bond interest incurred due to the increase in principal amount of the Bond from US$150.00 million to US$285.00 million.

Other operating expenses

The Group's other operating expenses increased by US$9.69 million or 122.6% from US$7.91 million in 2H2020 to US$17.59 million in 2H2021 mainly due to the foreign exchange loss of US$5.13 million resulted from appreciation of the United States Dollar against Singapore Dollar and Australian Dollar, exploration expenses of US$1.40 million and the provision for mining activities of US$0.27 million in 2H2021 instead of reversal of mining activities of US$6.64 million in 2H2020.

Share of loss of a joint venture (net of tax)

The Group's share of loss of joint ventures (net of tax) increased by US$15.11 million from US$1.04 million in 2H2020 to US$16.15 million in 2H2021 mainly as Ravenswood Gold’s production cost were not fully optimized due to ongoing expansion plan to increase production capacity (expected completion in 1H2022) and higher interest expenses incurred on account of utilisation of project financing facility for the expansion plan.

Income tax expenses

Income tax expenses increased by US$64.28 million from US$15.23 million in 2H2020 to US$79.51 million in 2H2021 mainly due to higher profit generated from Energy Coal segment and the withholding tax expense in relation to higher dividends received from overseas subsidiary during the financial period.

Profit after tax

Due to the factors above, the Group has recorded a net profit of US$171.03 million in 2H2021 as compared to a net loss of US$0.56 million in 2H2020 and registered a profit attributable to owners of the Company of US$85.23 million in 2H2021 versus an attributable loss of US$8.41 million in 2H2020.

Other comprehensive income

The Group's other comprehensive income decreased by US$64.67 million from a net gain of US$14.93 million in 2H2020 to a net loss of US$49.73 million in 2H2021. The net loss arose from the fair value loss from the investment in quoted shares, the foreign currency translation differences and share of other comprehensive income from a joint venture arising from fair value loss of hedging contracts.

FY2021 vs FY2020

Revenue

The Group's revenue comprises revenue generated from Energy Coal and Metallurgical Coal segments as well as Non-coal Businesses. Total revenue increased by US$711.41 million or 61.2% from US$1,162.69 million in FY2020 to US$1,874.10 million in FY2021.

Energy Coal Segment

Revenue from the Group's Energy Coal segment reported an increase in revenue by US$521.72 million or 49.0% from US$1,064.23 million in FY2020 to US$1,585.95 million in FY2021. This was mainly due to an increase in ASP (energy coal - mining) of 72.3% from US$31.03 per metric tonne in FY2020 to US$53.46 per metric tonne in FY2021, partially offset with a decline in sales volume from 33.33 million tonnes in FY2020 to 28.80 million tonnes in FY2021. The average ICI4 in FY2021 was US$65.27 per metric tonne (FY2020: US$29.43 per metric tonne). The Group's Energy Coal segment production volume decreased from 33.46 million tonnes in FY2020 compared to 29.11 million tonnes in FY2021 negatively impacted by unfavourable weather condition in South Kalimantan.

Metallurgical Coal Segment

Metallurgical Coal segment registered an increase in revenue of US$189.36 million or 194.7% from US$97.23 million in FY2020 to US$286.60 million in FY2021. The higher revenue is attributed to the higher coal sales volume in FY2021, with consolidation of Stanmore’s full year results as compared to FY2020 which only included about 7.5 months’ results, as well as higher ASP realisation in FY2021 of US$132.78 per tonne as compared to FY2020 of US$80.50 per metric tonne. The average Hard Coking Coal index price (Source: Platts Coal Trader International - Hard Coking Coal) has increased from US$110.61 per metric tonne in the period from 18 May 2020 to 31 December 2020 to US$208.09 per metric tonne in FY2021.

Non-coal Businesses

Revenue from non-coal businesses comprises plywood and rubber sales. The increase of US$0.32 million from US$1.22 million in FY2020 to US$1.55 million in FY2021 is mainly due to better performance from forestry division during the financial year.

Cost of Sales

The Group reported an increase in cost of sales of US$270.88 million or 34.5% from US$786.08 million in FY2020 to US$1,056.95 million in FY2021. This was due to (i) higher cash cost (excluding royalty) of Energy Coal segment from US$21.04 per metric tonne in FY2020 to US$26.93 per metric tonne in FY2021, attributable to higher strip ratios and increase in contractor rate, which have certain elements linked to movement in ICI4 Index; (ii) higher royalty as a result of higher ASP realised from both Energy Coal and Metallurgical Coal segments; (iii) higher expenses relating to the expensing of the remaining overburden in advance inventories for Isaac Plains (for which mining will cease in first quarter of 2022); and (iv) the consolidation of Stanmore’s results for 12 complete months.

Gross Profit

The Group's gross profit increased by US$440.53 million or 117.0% from US$376.61 million in FY2020 to US$817.15 million in FY2021 as a result of the above factors.

Other income

The Group's other income decreased by US$6.63 million or 32.7% from US$20.30 million in FY2020 to US$13.66 million in FY2021, mainly due to lesser dividend income received during the year and lower miscellaneous income in relation to the absence of a business interruption insurance claim in FY2020.

Expenses

Selling and distribution expenses

The Group's selling and distribution expenses increased by US$24.42 million or 12.1% from US$201.38 million in FY2020 to US$225.80 million in FY2021 mainly due to the higher demurrage costs incurred resulting from unfavourable weather conditions and consolidation of Stanmore's financial results for full 12 months.

Administrative expenses

The Group's administrative expenses increased by US$34.16 million or 43.1% from US$79.34 million in FY2020 to US$113.50 million in FY2021 mainly due to higher remuneration in line with better performance, higher cost incurred in relation to the Group's commitment on Corporate Social Responsibilities, professional fees incurred for to on-going corporate exercise and the consolidation of Stanmore's financial results for full 12 months.

Other operating expenses

The Group's other operating expenses increased by US$13.30 million or 89.6% from US$14.85 million in FY2020 to US$28.15 million in FY2021 mainly due to the impairment of goodwill and property, plant and equipment of US$13.40 million and US$0.88 million respectively, foreign exchange loss of US$8.86 million and exploration expenses of US$1.85 million.

Finance costs

The Group's finance costs increased by US$17.88 million or 47.8% from US$37.40 million in FY2020 to US$55.28 million in FY2021 mainly due to increase in overall debts position and one off expenses aggregating to US$10.35 million consisting of (i) Noteholder consent fee of US$0.42 million, (ii) redemption premium of Notes 2023 of US$6.75 million and (iii) non-cash items totalling US$3.18 million in relation to write-off of unamortised debts issuance cost of US$2.42 million and unamortised discount on Notes 2023 of US$0.76 million.

Share of loss of a joint venture (net of tax)

The Group's share of loss of joint ventures (net of tax) increased by US$17.76 million from US$4.90 million in FY2020 to US$22.66 million in FY2021, of this loss of US$20.85 million was attributable to Ravenswood Gold as its production cost were not fully optimized due to ongoing expansion plan to increase production capacity (expected completion in 1H2022) and higher interest expenses incurred on account of utilisation of project financing facility for the expansion plan.

Income tax expenses

Income tax expenses increased by US$98.40 million from US$32.26 million in FY2020 to US$130.65 million in FY2021 mainly due to higher profit generated from Energy Coal segment and the withholding tax expense in relation to higher dividends received from overseas subsidiary during the financial year.

Profit after tax

Due to the factors above, the Group's net profit increased by US$216.79 million or 629.0% to US$251.26 million in FY2021 as compared to US$34.47 million in FY2020, and profit attributable to owners of the Company increased by US$106.24 million or 1,314.0% to US$114.32 million in FY2021 as compared to US$8.09 million in FY2020.

Other comprehensive income

The Group's other comprehensive income decreased by US$65.57 million or 312.2% from a net gain of US$21.01 million in FY2020 to a net loss of US$44.57 million in FY2021. The net loss arose from the fair value loss from the investment in quoted shares, the foreign currency translation differences and share of other comprehensive income from a joint venture, which relate to the fair value loss arising from the hedging contracts.

Review of Statement of Financial Position

Non-current assets

  • Biological assets increased by US$0.79 million to US$7.38 million at 31 December 2021 due to fair value gain during the financial year.
  • Right-of-use-assets ("ROU") increased by US$1.68 million at 31 December 2021 as a result of addition and partially offset by the amortisation during the financial year.
  • Goodwill on consolidation decreased by US$13.40 million to US$84.80 million at 31 December 2021 as a result of impairment loss recorded during the financial year.
  • Investment in joint ventures decreased by US$13.70 million to US$34.31 million at 31 December 2021 mainly due to the share of loss and other comprehensive income, which is partially offset by additional investment in Ravenswood Gold project and new investment in MetRes Pty Ltd during the financial year.
  • The increase in non-current other receivables of US$13.95 million to US$16.03 million was mainly due to the interest receivables from Redeemable Preference Shares and a loan extended to a Joint Venture, which is interest bearing and repayable on the agreed term.
  • The increase in restricted funds of US$4.86 million to US$24.11 million at 31 December 2021 was mainly due to an additional funds deposited in the interest reserve account relating to the new bond issuance in May 2021.
  • The decrease in other non-current assets of US$8.25 million to US$65.68 million at 31 December 2021 was mainly due to a tax refund of US$8.02 million received during the financial year.
  • The increase in investment in securities of US$39.69 million to US$44.33 million at 31 December 2021 was due to new investments in quoted and unquoted shares during the financial year.

Current assets

  • The increase in trade and other receivables of US$74.11 million to US$213.75 million at 31 December 2021 was mainly due higher revenue generated from both Energy Coal and Metallurgical Coal segments during the financial year.
  • The decrease in other current assets of US$14.91 million to US$86.08 million at 31 December 2021 was mainly due to a decrease in advances to suppliers.
  • The decrease in inventories of US$32.35 million to US$38.83 million at 31 December 2021 was mainly due to the overburden in advance relating to Isaac Plains East mines being expensed off during the year.
  • The decrease in investment in securities of US$0.41 million to US$1.52 million as at 31 December 2021 was due to fair value loss recorded during the financial year.
  • The increase in cash and cash equivalents of US$117.02 million to US$379.82 million at 31 December 2021 was mainly due to cash generated from operations and the net proceeds from the Company's bond refinancing exercise.

Current liabilities

  • Trade and other payables increased by US$29.80 million to US$308.03 million at 31 December 2021 mainly due to higher business activities towards the end of financial year.
  • Loans and borrowings decreased by US$37.81 million to US$75.71 million at 31 December 2021 mainly due to loan repayment during the financial year.
  • Provision for taxation increased by US$62.70 million to US$73.40 million at 31 December 2021 mainly due to higher profits recorded by Indonesia subsidiaries during the financial year.
  • Provision for mining activities increased by US$0.25 million to US$2.14 million at 31 December 2021 is mainly due to the addition of the provision for mines rehabilitation, which partially offset by depletions through settlement during the year.

Non-current liabilities

  • Loans and borrowings increased by US$65.25 million to US$333.73 million at 31 December 2021 mainly due to the issuance of Notes 2026 amounting to US$285.00 million which is partially offset by the early redemption on Notes 2023 of US$150.00 million and repayment of the outstanding CS/Mandiri facility during the financial year.
  • Non-current other payables decreased by US$27.63 million to US$4.93 million at 31 December 2021 mainly due to settlement of other payable of US$26.26 million to a related party.
  • Provisions increased by US$6.32 million to US$32.47 million at 31 December 2021 is mainly due to the addition of provision for mine rehabilitation during the year.

As at 31 December 2021, the Group has net current assets of US$256.29 million and the Company has net current assets of US$350.15 million. The Group has loans and borrowings totalling US$409.43 million of which US$75.71 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$379.82 million as at 31 December 2021.

Review of Statement of Cash Flows

The Group had net cash inflows of US$121.25 million mainly due to the following:

Net cash generated from operating activities of US$377.67 million comprised of operating cash inflow before working capital changes of US$523.26 million, net working capital outflow of US$53.21 million, various taxes paid of US$53.81 million and interest and other financial charges paid of US$44.34 million. The Group also recorded interest income received of US$5.76 million. The net working capital outflow of US$53.21 million was mainly due to (i) an increase in trade and other receivables, advances and other current assets totalling US$78.63 million; (ii) decrease in trade and other payables of US$4.25 million; and (iii) a decrease in provisions of US$1.32 million, partially offset by a decrease in inventories of US$30.99 million.

Net cash flows used in investing activities of US$145.94 million mainly due to (i) additional investment in Ravenswood Gold project and new investment in MetRes Pty Ltd of US$46.79 million; (ii) purchase of investment securities of US$41.54 million; (iii) purchase of property, plant and equipment of US$18.51 million; (iv) additions to mining properties of US$36.68 million mainly related to Isaac Downs mine development; and (v) changes in restricted fund of US$2.67 million, partially offset by a decrease in other non-current assets of US$0.56 million.

Net cash flows used in financing activities of US$110.48 million was mainly due to (i) payment for early redemption of Notes 2023 of US$156.75 million; (ii) repayment of loans and borrowings of US$151.37 million; (iii) payment of dividend to NCI of subsidiaries of US$118.82 million; (iv) lease payment of US$3.38 million; (v) repayment of other payable to a related party of US$26.26 million; and (vi) payment of acquisition of non-controlling interests of a subsidiary without a change in control of US$30.00 million, partially offset by (i) proceeds from issuance of Notes 2026, net of transactions cost of US$275.88 million; (ii) proceeds from loans and borrowings of US$50.23 million; and (iii) proceeds from disposal of non-controlling interest without a change in control of US$50.00 million.

Commentary


Energy Coal

Coal prices continued to soar and recorded all-time highs in early October 2021, underpinned by rebounds in global economic activity and as demand outstripped supply. For 2H2021, average ICI 4 prices increased to US$82.66 per tonne, as compared to US$47.89 per tonne in 1H2021 and US$28.31 per tonne in 2H2020.

Indonesian coal miners continue to be one of the key beneficiaries of a Chinese ban on Australian coal exports which is unlikely to be reversed in the short term. In the first 11 months of 2021, China sourced more than 60% of coal imports from Indonesia. However, China began to boost domestic coal production to record levels in late 2021 after coal shortages resulted in power cuts and factory shutdowns in October 2021. According to China’s National Bureau of Statistics, coal output hit a record 4.07 billion metric tonnes in 2021, up 4.7% from 2020. Based on reports by China Coal Transportation and Distribution Association, key Chinese utilities at coastal regions had stockpiled 33 million tonnes of coal stocks as of 1 January 2022, 57% more compared to a year ago. Continued strong domestic supply in China could lead to a more modest import demand and softer coal prices in China as the Chinese government signals at potential coal price regulation.

Indonesia, the world’s largest thermal coal exporter reported critically low coal stockpiles at its state-owned power plant on 1 January 2022, announced a one-month ban on the export of coal until it secured enough coal to avoid widespread domestic power outages, underscoring the demand-supply imbalance. Thereafter, Indonesia eased restrictions for companies who had fulfilled their domestic market obligation (“DMO”), which requires them to supply 25% of their annual production locally at a capped price. The Group remains in full compliance of the DMO and five subsidiaries of GEMS, including PT Borneo Indobara (“BIB”) were permitted to resume coal exports. BIB accounts for more than 80% of GEMS’ coal production and the Group saw minimal impact from the export ban.

However, Indonesia will continue to observe tight coal export rules, reviewing domestic supply monthly rather than on annual basis and is likely to impose penalties on coal miners who fail to meet their DMO for 2021. This could add pressure on Indonesian miners to fulfil their domestic obligations and reduce export supplies, creating greater uncertainties regarding the supply of coal. Coupled with weather conditions leading to reduced supply in the early part of 2022, coal prices are expected to remain robust in the short term.

Metallurgical Coal

Metallurgical coal prices (Platts Premium LV) surged from an average of US$128 per tonne in 2020 to an average of US$208 per tonne in 2021 and further recently hit a record high of approximately US$430+ per tonne in January and February 2022, on concerns over La Nina, rebounding global industrial production and continued supply tightness witnessed in Australia, Russia, US, Mozambique, Canada and Mongolia over the past several months. Covid restrictions, infrastructure limitations and weather have negatively impacted miners with several companies announcing lower than expected production or reductions to guidance. Companies are focusing on meeting sales to contract customers with low volumes available for spot market resulting in the current buoyant prices.

Long-term market fundamentals for metallurgical coal remain strong and supportive. Indian steelmakers have announced US$11 billion worth of projects over the next five years in response to government’s focus on infrastructure development. Significant increases in demand for steel infrastructure is also expected with growing pace of decarbonisation (steel driven by new energy applications such as electric vehicles and windfarms) and bodes well for GEAR following the Group’s expansion plans within the metallurgical coal segment.