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With the completion of the acquisition of Stanmore Resources Limited ("Stanmore")(formally known as Stanmore Coal Limited) on 18 May 2020, the Group has embarked into metallurgical coal business and changed its reportable segment into Energy Coal, Metallurgical Coal and Non-Coal Businesses (as compare to Coal Mining, Coal Trading and Non-Coal Businesses in 1H2020, with the combination of Coal Mining and Coal Trading into the Energy Coal segment).
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$214.76 million or 36.3% from US$591.96 million in 1H2020 to US$806.71 million in 1H2021.
Energy Coal Segment
Revenue from the Group's Energy Coal segment reported an increase in revenue by US$159.06 million or 27.7% from US$574.54 million in 1H2020 to US$733.59 million in 1H2021. This was mainly due to an increase in average selling price (“ASP”) (energy coal - mining) of 27.5% from US$33.38 per tonne in 1H2020 to US$42.56 per tonne in 1H2021, with a slight increase in sales volume from 16.70 million tonnes in 1H2020 to 16.84 million tonnes in 1H2021. The average Indonesia Coal Index 4 ("ICI4") in 1H2021, a better proxy for the majority of the Group's coal quality, was US$47.89 per tonne. The Group's Energy Coal segment production volume remained relatively stable at 16.58 million tonnes in 1H2021 compared to 16.54 million tonnes in 1H2020.
Metallurgical Coal Segment
Metallurgical Coal segment registered an increase in revenue of US$55.46 million from US$16.79 million in 1H2020 to US$72.25 million in 1H2021 contributed by consolidation of Stanmore’s financial results for full 6 months as compared to 1.5 months a year ago (when the Group gained control on 18 May 2020).
Revenue from non-coal businesses comprises plywood and rubber sales. The increase of US$0.23 million from US$0.64 million in 1H2020 to US$0.87 million in 1H2021 is mainly due to better performance from forestry division during the period under review.
The Group reported an increase in cost of sales of US$96.46 million or 25.6% from US$376.56 million in 1H2020 to US$473.02 million in 1H2021. This was mainly due to increase in royalty expenses on account of higher ASP from Energy Coal segment and due to the consolidation of Stanmore’s financial results for full 6 months compared to 1.5 months in 1H2020. Despite the surge in revenue, cash cost (excluding royalty) from Energy Coal segment (mining) remained at US$22.53 per tonne for both reporting periods as the Group continued to focus on cost optimisation and strict control.
The Group's gross profit increased by US$118.30 million or 54.9% from US$215.40 million in 1H2020 to US$333.70 million in 1H2021 as a result of the above factors.
Selling and distribution expenses
The Group's selling and distribution expenses increased by US$3.77 million or 3.6% from US$104.69 million in 1H2020 to US$108.46 million in 1H2021 mainly due to the consolidation of Stanmore's financial results for full 6 months, which has been partially offset by the decrease in barging expenses from Energy Coal segment.
The Group's administrative expenses increased by US$14.39 million or 38.0% from US$37.84 million in 1H2020 to US$52.23 million in 1H2021 mainly due to higher remuneration in line with better performance and the consolidation of Stanmore's financial results for full 6 months.
Other operating expenses
The Group's other operating expenses increased by US$3.62 million or 52.1% from US$6.94 million in 1H2020 to US$10.56 million in 1H2021 mainly due to the impairment loss of goodwill and property, plant and equipment of US$6.00 million and US$0.80 million respectively, and exploration expenses of US$0.38 million. The increase has been offset by the reversal on provision of mining activities and lower foreign exchange loss.
The Group's finance costs increased by US$14.29 million or 80.0% from US$17.86 million in 1H2020 to US$32.15 million in 1H2021 mainly due to one off expenses aggregating to US$10.52 million consisting of (i) Noteholder consent fee of US$0.42 million, (ii) redemption premium of US$6.75 million, and (iii) non-cash items totalling US$3.35 million in relation to write-off of unamortised debts issuance cost of US$2.58 million and unamortised discount on 2023 Notes of US$0.77 million.
Share of loss of a joint venture (net of tax)
The Group's share of loss of a joint venture (net of tax) increased by US$2.64 million or 68.4 % from US$3.86 million in 1H2020 to US$6.51 million in 1H2021 as Ravenswood Gold’s production cost were not fully optimised due to ongoing expansion plan for increase in production capacity. A part of the losses is also contributed from higher interest expense arising on account of draw down and utilisation of project financing facility for the expansion plan.
Income tax expenses
Income tax expenses increased by US$34.12 million or 200.4% from US$17.02 million in 1H2020 to US$51.14 million in 1H2021 mainly due to higher profit generated from Energy Coal segment and the withholding tax expense in relation to dividends received from overseas subsidiary during the period under review.
Profit after tax
Due to the factors above, the Group's net profit increased by US$45.21 million or 129.1% to US$80.23 million in 1H2021 as compared to US$35.03 million in 1H2020, and profit attributable to owners of the Company increased by US$12.59 million or 76.3% to US$29.09 million in 1H2021 as compared to US$16.5 million in 1H2020.
Other comprehensive income
The Group's other comprehensive income decreased by US$0.91 million or 14.9% from a net gain of US$6.07 million in 1H2020 to a net gain of US$5.17 million in 1H2021. The net gain arose from the fair value gain from the investment in quoted shares, which was partially offset by the foreign currency translation differences.
As at 30 June 2021, the Group has net current assets of US$255.64 million and the Company has net current assets of US$298.78 million. The Group has loans and borrowings totalling US$408.74 million of which US$58.45 million is due within the next 12 months. The Group's cash and cash equivalents stood at US$248.28 million as at 30 June 2021.
The Group had net cash outflows of US$13.12 million mainly due to the following:
Net cash generated from operating activities of US$139.16 million comprised of operating cash inflow before working capital changes of US$190.76 million, net working capital outflow of US$13.46 million, various taxes paid of US$18.90 million, and interest and other financial charges paid of US$23.63 million. The Group also recorded interest income received of US$4.38 million. The net working capital outflow of US$13.46 million was mainly due to (i) an increase in trade and other receivables, advances and other current assets totalling US$19.51 million; and (ii) a decrease in provisions of US$1.02 million, partially offset by (i) an increase in trade and other payables of US$4.89 million; and (ii) a decrease in inventories of US$2.19 million.
Net cash flows used in investing activities of US$105.01 million mainly due to (i) additional investment in Ravenswood Gold project of US$47.57 million; (ii) purchase of investment securities of US$26.73 million; (iii) purchase of property, plant and equipment of US$6.28 million; (iv) additions to mining properties of US$17.98 million; (v) increase in other non-current assets of US$2.47 million; (vi) changes in restricted fund of US$3.86 million; and (vii) additions to biological assets of US$0.13 million.
Net cash flows used in financing activities of US$47.27 million was mainly due to (i) payment of US$156.75 million for early redemption of Notes; (ii) repayments of loans and borrowings of US$122.83 million; (iii) payment of dividend to NCI of subsidiaries of US$69.61 million; and (iv) lease payment of US$0.65 million, partially offset by (i) proceeds from issuance of Notes, net of transactions cost of US$275.88 million; (ii) proceeds from loans and borrowings of US$20.87 million; and (iii) proceeds from disposal of NCI without a change in control of US$5.82 million.
Coal prices have surged to their highest level in a decade, as rebounding electricity usage and a drought in China lifted demand for energy coal and crimped supplies due to a Chinese ban on Australian coal led to a demand supply imbalance. As a result, Indonesia coal miners have emerged as one of the key beneficiaries. For 1H2021, average prices for ICI4 increased to US$47.89 per tonne as compared to US$30.55 per tonne in 1H2020 and US$28.31 per tonne in 2H2020.
In 1H2021, China’s electricity consumption rose 16.2% year-on-year, with benchmark spot energy coal prices soaring as high as about US$153.89 per tonne in June 2021, before policymakers in China stepped-in in an attempt to steady prices by releasing 10 million tonnes of coal from its state reserves. This could lead to stable or softer prices domestically even as China’s industrial production picks up and as it enters the summer and winter months. According to the China National Development and Reform Committee, China has laid out plans to boost capacity to store national coal reserves to around 600 million tonnes or about 15% of its annual coal consumption, a huge step-up from the current capacity of 100 million tonnes and will boost restocking demand.
Ex-China, demand from Asia-Pacific have also remained strong, contributing to upward pressure on coal prices. While Indonesian exports have been soft and slower to respond to high coal prices due to heavy rains, Indonesia has raised its 2021 coal output target to 625 million from 550 million tonnes previously following a review from the Energy and Mineral Resources Ministry. In line with strong demand, GEAR’s subsidiary, PT Golden Energy Mines Tbk (“GEMS”) has received approval for coal output production quota of 39.6 million tonnes for FY2021, an 18% targeted increase from its production volume of 33.5 million tonnes in FY2020. In 1H2021, GEAR has also reduced its shareholding in GEMS by about 4.5% to approximately 62.5%.
Following the Group’s acquisition of Stanmore Resources Limited (“Stanmore”) in FY2020 as part of GEAR’s diversification strategy to include Metallurgical Coal, Stanmore has received a mining lease approval for its Isaac Downs Project and announced that its 50/50 joint venture with M Resources has completed the acquisition of Millennium and Mavis Downs Mine from Peabody Energy Australia. Operational expansion of Stanmore will allow the Group to further diversify its production and revenue mix.
India, world’s top steel producer after China, produced 57.9 million tonnes of steel in 1H2021, a 31.3% increase from a year ago. According to Argus Seaborne Coal Outlook Report (Issue 21-6 dated 16 June 2021), Indian imports of metallurgical coal have remained at very high levels and continue to grow at a faster pace than iron production, which has slowed in April and May 2021 as a result of Covid-19 related disruptions. This could signal stockpiling which could impact demand in 2H2021. Steel production in ex-China markets also continue to grow strongly against a weak base in 2020 following negative impact from Covid-19 and bodes well for GEAR’s Metallurgical Coal segment.
GEAR remains cautiously optimistic on the near to medium term outlook recovery for metallurgical coal demand and prices.