Fitch Affirms Golden Energy and Resources at 'B+'; Outlook Stable

12 APR 2021 Fitch Affirms Golden Energy and Resources at 'B+'; Outlook Stable Fitch Ratings - Singapore - 12 Apr 2021: Fitch Ratings has affirmed the Long-Term Issuer Default Rating (IDR) on Golden Energy and Resources Limited (GEAR) at 'B+'. The Outlook is Stable. The agency also affirmed GEAR's senior unsecured US dollar bond at 'B+' with a 'RR4' Recovery Rating, which reflects average recovery prospects for bondholders. The affirmation reflects the strong business profile of GEAR's key thermal coal mining subsidiary, PT Golden Energy Mines Tbk (GEMS, B+/Stable). GEMS' production volumes rose, and it maintained its profitability in spite of coal price weakness in 2020. GEAR's rating also benefits from its diversification via investments in metallurgical coal and gold in Australia. The acquisitions are expected to enhance the group's credit profile over the medium term, although contribution to GEAR's cash flow is likely to remain minimal over the next two years. GEAR's rating is based on the credit metrics with proportionate consolidation of 62.5%-owned GEMS, as we assess GEAR's linkage with GEMS as moderate, and full consolidation of Stanmore Coal after adjusting for minority leakages. GEAR's standalone holding company credit metrics are moderate, mitigating structural subordination risk. Key Rating Drivers Cost Flexibility: We expect GEMS' flexibility to manage its costs in line with coal price movements and its low-cost structure with life-of-mine strip ratio of 4.2x to support its operating cash flows. GEMS EBITDA per tonne improved modestly to USD4.4 in 2020 from USD4.0 in 2019, driven by its ability to meaningfully curtail cash costs by reducing the strip ratio and cutting contract mining rates to third- party contractors, and the benefits from declining fuel costs. Fitch expects GEMS to maintain its EBITDA per tonne a USD4-5 after peaking at USD5.5 in 2021. Increasing Production Scale: We expect GEMS's production to increase to close to 40 million tonnes (mt) in 2022 (2021E: 35mt, 2020: 34mt), in line with management expectations, subject to regulatory approval of the production quota. Fitch believes GEMS' strong compliance with requirements, including domestic market obligations (DMO), mitigate the regulatory risk. GEMS needs minimal capex on infrastructure to support rising volumes, and will spend USD20 million-25 million annually over the next three years to upgrade the capacity of hauling roads, coal handling plants and barge loading facilities. Robust Financial Profile: We expect GEAR's consolidated financial profile to improve as EBITDA