Geo Energy Resources

Geo Vs GEAR! + Options Update

There hasn’t been regular updates as this is traditionally a really busy time of the year for me, work-wise. School holidays + everyone wants to get work done before going for summer vacations. In fact, I too, am planning my CNY getaway next year right now as we speak.

557) Summer.jpg

(Just inserting a random summer vacation pic so that email pic below doesn’t become picked up as the heading pic by other aggregating websites!)

Well, I’m actually ok with visiting and doing all the CNY stuff. It’s all great fun for the kids too. It’s just that my schedule tends to be really really tight these days, and going around visiting lazily just seems to be a huge waste of time. Increasingly, time is the major consideration when it comes to planning my travels, instead of cost. And every year as I waste time go around saying hi to relatives, I’d always feel like precious time is being wasted.

And here’s a major heads up: CNY 2018 falls on a friday and saturday, making it a prime period to travel with the long weekend.

I’m looking at Europe or Scandinavia to kick off 2018; the Stonehenge (UK) sits high on my to do list, but wife is not too keen on freezing temperatures. Actually, neither am I. As I get older, the homeostatic system doesn’t work as well and my tolerance for temperature variance is hugely narrowed. Anyway, UK is best seen during autumn. No debate about that.

Anyhow, although there hasn’t been any updates of late, I have been communicating via email with some readers. 1 particular email that I received a couple of weeks back, stands out. I’ve permission to publish it in full, so no blocking out of names this time around:

549) Email from peter.jpg

Oh wow. I am incredibly flattered.

And as frequent a traveller as I am, I have never ever had a random stranger on a flight discuss investing with me. Not once. How nice would that be.

Anyway, aside from this, it seems I’ve had quite a few individuals discuss about the coal plays on SGX with me. Here, I’ll share my thoughts on the 2 largest listed coal players on SGX. (There are 4 in all)

I’ve already previously written extensively about Geo Energy, so this won’t be exactly about Geo only, rather, I’d do a comparison between Geo and Golden Energy And Resources (GEAR). At the point of writing this, I own 600,000 shares of Geo Energy at an average price of $0.1825.

Now, since Geo and GEAR have  many similarities, if one wants to own a coal player listed on SGX, one would’ve to at least compare both.

Based on most common parameters, GEAR is actually superior to Geo in many aspects. Yet, prior to the recent mini crash in Geo’s share price, Geo was actually rising rapidly unabated whereas GEAR’s share price has done nothing but gone down.

Why the difference?

I’ll take the lazy way out and link to an article on NextInsight that perfectly illustrates this:

Now, the only thing that I disagree with this article, is the conclusion:

“GEAR lags behind Geo Energy in share price performance maybe due to the market’s unfamiliarity with GEAR. Hopefully, this will be resolved to some extent by its continual delivery on its results (supported by a positive macro outlook), coupled with its investment seminars and site visit.”

I don’t think these days, you can attribute a chronic underperformance or deviation from peers to simply “market unfamiliarity”. That really is way too simplistic. Unless the company is hawking quantum physics kinda products where nobody understands, then perhaps, you could attribute it to unfamiliarity.

But coal? Come on. There must be something else.

The article has a nice table comparing various parameters between the 2 companies, so do go look at it. It’s self explanatory.

Aside from what’s already been mentioned, I’ll discuss some other parameters.

Origin Of Revenue

The bulk of Geo’s coal goes to end clients in China, whereas the bulk of GEAR’s (57.5%) goes to end clients in Indonesia. The coal demand in Indonesia is much more predictable currently, with Indonesia’s electrification plans and building of coal power stations. The 1st coal power plant in Indonesia will be coming online sometime in 2019, and that’ll be followed quickly by a stream of coal power stations, so we can expect demand to be present for sure. Also, there is a geographic advantage to have your end client situated in close proximity to your coal mines. Some power plants can even be mine mouth plants.

China, on the other hand, is cracking down on low quality coal, and in fact, what’s not been mentioned often enough is that China actually wants lesser coal imports to support their own coal industry. Their conundrum though, is that Chinese coal mines are much more inefficient than Indonesia’s, simply because they are underground mines where costs are much higher.

All that just means that Geo is more vulnerable to changes in chinese coal prices compared to GEAR.


GEAR relies on minimal debt, and their BS looks solid currently. Gearing is at a negligible 0.07 times right now, and as of last quarter, they have a healthy cash holdings of >$100mil.

GEAR’s financials:

550) GEAR financials.jpg

Geo’s BS has also improved considerably, but they still have a MTN that’s due in Jan 2018. As of a few minutes ago though, Geo’s latest announcement indicated that their MTN refinancing is proceeding as planned, as existing noteholders have already green lighted their plans.

So Geo is not exactly in distress either, but if you compare, obviously GEAR has a stronger balance sheet, with less debt.

Average Selling Prices

GEAR also seems to be able to command better prices for its coal compared to Geo. I’m guessing it’s cos of GEAR’s larger production volumes.

In FY17Q1, GEAR’s ASP is US$40.86 per tonne, whereas Geo achieved US$39.45

Cash Costs

As stated in the NextInsight article, GEAR’s cash costs is considerably lower than that of Geo’s.

I consider this a particularly important metric to look at, as it directly affects the cash profit / tonne, aka EBITDA.

Look at GEAR’s cash costs and EBITDA tables:

551) GEAR's cash costs.jpg

Cash profit per tonne shot up to $15.32 in FY17Q1.

That same figure for Geo is $13.52 for FY17Q1.

All these beg the question: Why then, do I prefer Geo over GEAR?

The answer is simple: Valuation.

Let’s look at the FY17Q1 figures for both the companies.

GEAR’s FY17Q1:

552) GEAR's FY17Q1.jpg

GEAR’s GPM for the quarter is a very cool 50.4%. That compares favorably to Geo’s GPM which is merely half of that at 25.5%

Yet when it comes to NPM, GEAR’s NPM is 13.3% vs Geo’s 14.74%

Why is GEAR’s GPM so much >>> Geo’s, yet it’s NPM comes in below that of Geo?

The answer lies in the substantial non controlling interests in GEAR.

For FY17Q1, GEAR reported EPS of 0.35 cents:

553) GEAR's earnings.jpg

Let me digress a bit. Actually, I’m not sure why they used 5,373,548,000 shares to calculate the EPS. The company has 2,353,100,000 shares outstanding.

I didn’t understand the explanation given either. It says:

“The weighted average number of ordinary shares is calculated based on:

(a) the number of ordinary shares outstanding from the beginning of the prior period, up to the completion of the RTO (“RTO Completion Date”) is computed based on the weighted average number of ordinary shares of the GEMS Group outstanding before the RTO Completion Date multipled by the exchange ratio established in the share purchase agreement of the RTO; and

(b) the number of ordinary shares outstanding from the RTO Completion Date up to 31 March is the actual number of ordinary shares of the Company outstanding.”

well, that’s just bad english cos I read it a few times and I still don’t know what it says.

When you have a heading “The weighted average number of ordinary shares is calculated based on:”, whatever comes after that is supposed to be a continuation of the heading, but in this case, it becomes a super long sentence that doesn’t make sense.

Anyway, to their credit, they did work out EPS based on the issued shares in a separate statement:

“Applying the weighted average number of shares in issue of GEAR at 2,353,100,380 ordinary shares (31 March 2017) and 2,170,120,082 ordinary shares (31 March 2016), the basic and diluted earnings per share for the 3 months ended 31 March 2017 and 31 March 2016 are 0.81 US cents and 0.08 US cents respectively.”

Alright, so let’s assume the EPS is now 0.81 US cents for Q1.

Geo, on the other hand, reported EPS of 1.21 US cents.

And THIS, is the gist of what I’m driving at.

It seems that GEAR has superior operational capabilities compared to Geo, but the actual earnings accrued to shareholder of the company is substantially lesser than that for Geo, because a big chunk of the earnings derived from GEAR’s “superior machine”, actually belongs to non controlling interests, and not to shareholders of the company.

So if I’m a car salesman, and I tell you that there’re 2 cars. Car A is a sports car that can run quickly, such that the maximum mileage is 100km over the next year, but at the same time, it’d likely break down at the 50km mark.

Car B is a utility vehicle, it moves more slowly, and so the projected mileage over the next year is only 70km. But Car B is not going to break down, and hence, will travel the entire 70km.

If you’re buying a car for the next 1 year, and your objective is to travel as far as possible, which car would you get? Obviously car B.

The function of all the superior parameters of GEAR, is to derive earnings for the shareholders. But if the shareholders only get to keep a fraction of the earnings generated, then it becomes much less attractive.

To illustrate this yet further, let’s assume that hypothetically, GEAR has no controlling interests, aka the sports car A doesn’t break down. The total earnings that accrue to shareholders in Q1 would be US$29.6mil, based on 2,353,100,380 shares, that works out to be an EPS of 1.26 US cents, which would be close to what Geo is doing.

All these have the effect of depressing the valuations of GEAR.

As an academic exercise, let’s just extrapolate Q1 into full year earnings. GEAR’s FY 17 EPS would thus be 3.24 US cents or 4.37 SG cents. At a share price of $0.41, that gives an implied PE of 9.4 times.

Geo’s FY17 EPS would be 4.8 US cents or 6.48 SG cents. At the current share price of $0.25, that gives an implied PE of a mere 3.9 times!

So there we have it.

The reason for the big difference in share price performance between the 2 peers, is not “market unfamiliarity”. It’s simply valuation.

Geo’s management knows that too, which is why they came up with this nice little table in their latest briefing deck:

554) Comparison.jpg

Everything that I’ve explained at the top, basically culminates to this table.

Also, note that it says average PE of its peer group is 11.8. I’ve used 10x in my projections for Geo previously, to be conservative.

Moving on to something different now, I’ve previously said I’m monitoring the results of my options activities. I’ve reported the results from the 1st month, and yesterday concludes the 2nd month. So this is a continuation of the previous post:

BBR Holdings FY17Q1, Geo Energy Resources FY17Q1, Results From Options Strategy (1 month)

Total cashflow received from 12/04/2017 – 12/05/2017: US$13,657.25

Since then, I’ve done this:

555) Options for May 1.jpg

556) Options for May 2.jpg

Total cashflow received from 13/05/2017 – 13/06/2017: US$13,911.82

Pretty consistent.

Frankly, I’m tabulating the results right now as I write this post, for the 1st time. And I’m surprised. Cos it felt like the progress is slower and results are poorer compared to the prior month. Cos this month has been a more of a down period compared to the prior month, and my 1st impression is that my strategy seems to sputter a bit when markets are severely down.

In fact, I realized there’s a slight flaw in what I’m doing. I’ve been keeping the call options that’ve been exercised as open columns, and thus, been compelled to sell put options on those positions. Going forward, I’ll be attempting to keep it more “asset lite” (if I can put it that way), by eliminating exercised call option positions, so that when the market goes down, I’d have more capital to capitalize.

Also, this months results were somewhat artificially bumped up by the last day (13/06/2017) when several things went my way and I managed to pocket almost US$2.9k worth of premiums in a single night. (I set up positions, went to put my son to bed, and 15mins later viola! Called it a day.)

I have not increased my overall allocation, but am still waiting for more data. My overall positions, despite having several options that were exercised, have not changed much. In fact, it’s pretty much the same as 2 months before.

Overall, I’m pretty pleased how this is turning out thus far. Not gonna complain about almost US$14k worth of CFs every month, and yet, as I dissect the activities and analyze them, I think this can be improved even further.

Alright, so that’s it for this long post. Going forward, the posts will likely get less frequent.

As always, happy hunting!

Geo Energy Resources – Dropped 23% In The Past Week. What’s In Store?

I typically do not reveal the location of my travel pics, unless the travelling took place some time ago. No prizes for guessing this time around though. LOL!

534) Taj Mahal.jpg

All I can say is, don’t go during summer!

It’s shit ass crazy hot, and no amount of air conditioning can save you. Amazingly enough, the locals can wear long sleeved shirts and look perfectly comfortable. I’m doing all I can to stop myself from stripping bare naked.

Still, I figured that the Taj Mahal is classic, and it’s something I wanna check off my to do list. Perfectly beautiful, I’m told it’d be even nicer in the quaint moonlight (there are night tours) but our schedule just didn’t allow for it.

This, together with watching a funeral procession in the famed Ganges River, are cultural events that I wanted to see before I’m dead. I’d include photos, but this link, has photos that are by far superior to mine:

When it comes to travelling, I’m not looking for leisure, not looking for comfort, not looking for the run of the mill stuff. I realized early on that what I really want, is to experience stuff.

Cos it is experiences that will lead to memories.

And it is the memories that are truly priceless.

I’ve been getting some email enquiries/requests for meet ups. I’m sorry to say that from now on, I’d have to decline politely. The last time I’ve done so is a couple of weeks ago, and it’s only cos the guy (you know who you are!) is a long time reader and would be a future colleague after he grads.

It’s just taking up too much of my time, and it’s not a productive endeavor.

TBH, I’m not that keen to share my thoughts or discuss about my options strategy right now anyway. It’s working out swimmingly for me thus far, I’ll post results here when I’ve longer term data.  I’ll reply any email questions about it too.

But to teach it… well, I’m not that keen. Sorry. It’s actually harder to put into words a specific thought process. I guess that’s what they call experience. You gotta try it, fail, rethink about it, experiment, implement changes, review, and ultimately, try again.

Now, on to Geo Energy. For some context, I’ve written extensively about the company previously:

Geo Energy Resources Investing Thesis – Part I

Geo Energy Resources Investing Thesis Part II

BBR Holdings FY17Q1, Geo Energy Resources FY17Q1, Results From Options Strategy (1 month)

Since the company released what looks like stellar results on paper, the share price has tanked 23% in a single week.

535) Geo Energy share price.jpg

Results were at the very least, expected, and in fact, the numbers look impressive. So what happened?

I’d attribute it to 2 main reasons.

China’s National Development and Reform Commission (NDRC) released new info about their plan to ban the import of low quality coal. This isn’t anything new; NDRC had previously gave indication that a reduction in the import of low calorific value coal is in the works.

Low calorific coal is unproductive, as lesser energy is derived per unit coal, as compared to higher calorific coal. Typically, Indonesia’s coal is associated with the low calorific, higher sulphur and higher ash content type of coal.

The 2nd reason relates to the drop in the chinese coal spot prices. For the past month, the coal prices for GAR 4,200 coal has been dropping.

As recent as the 21st April 2017 (1 month ago), prices for GAR 4,800 coal at the chinese end, was 610 yuan/tonne. Today, it’s at 530 yuan/tonne.

536) Chinese coal price may 2017.jpg

Associated with the drop in prices, at a most recent coal conference in Indonesia, experts and keynote speakers all warned that if all coal companies continue with their breakneck production expansion, inevitably the industry will swing to a situation of oversupply.

Now, let me address the 1st point above regarding China’s NDRC. It’s crucial that we understand a bit of background info, to try to ascertain what NDRC is trying to achieve and what their objective is when they’re crafting policies like these.

Pop quiz: Which are the 2 most indebted industries in China?

Answer: Coal and Steel Industries

Many highly indebted coal companies in China are kept on life support, simply to avoid the contagion that comes with massive defaults that snowballs. Many chinese banks are on the hook for big writedowns if these coal companies fail.

The chinese government cannot allow that. In fact, it’s no secret that they have been trying to tame this tiger for several years now. It’s just not an easy issue to solve. Every policy action has unintended consequences. It’s kinda like you have an infection, and the dr gives you an antibiotic, but most commonly given antibiotics have side effects such as nausea.

A perfect example is what happened in 2016. NDRC tried to avoid an over capacity issue and closed down inefficient coal companies, cut the number of working days (from 333 days to i think, 276 days) that miners can operate and directly and indirectly, limited the total coal production. Total coal production was cut by 150 million tonnes in 2016.

Yet, this had the effect of causing a massive spike in coal prices in the summer of 2016. With the sudden drop in production, coupled with the spike in energy requirements for summer (air conditioning takes up a lot of energy!), the utility companies had to scramble for coal as coal stocks dropped to multi year lows, and all this lead to a rapid spike in coal prices. Eventually, NDRC did a rapid about turn, and reinstated the number of working days coal companies could operate.

NDRC’s stated plan, to deal with local over capacity, inefficiency and potential defaults, is to force the smaller miners to close, while forcing the moderately sized miners to consolidate and merge with other miners.

They’re also forcing the banks/lenders to do debt for equity swap deals, in order to remove debt from the balance sheets of these miners.

537) coal companies debt for equity swap.jpg

NDRC has an unenviable task. It is important to note that there are a few parties involved here: the coal mining companies, the utility companies, the banks that have lent money to the coal mining companies, and of course, the foreign miners that supply coal to the chinese utilities, usually through middlemen (like ECTP, in Geo Energy’s case)

If NDRC allows coal prices to drop too much, many of these mining companies would not survive. They’d cut down on operations, default, go bankrupt etc. All that leads to massive job layoffs, banks having to face big writeoffs, and certainly unrest and discontentment.

If coal prices rise too much, sure the miners would be delighted, but the utility companies wouldn’t. Layer on to all these is concern about excessive smog and air pollution.

With the massive rise in chinese coal prices at the end of 2016, many utility companies have complained to NDRC about their decimating profits, and NDRC has finally taken note.

Check out Huaneng Power’s financials. Huaneng is one of the 5 top power producers in China:

538) Huaneng power generation.jpg

The company generated almost 25% more power compared to 2016Q1.

Yet, profitability dropped almost 90%!

539) Huaneng profits.jpg

Emphasis on the last statement:

“The decrease is mainly attributable to the increase of fuel price”

What I’m trying to illustrate here, is the multiple concerns of NDRC. And once we understand what NDRC is trying to achieve, in the context of the macro picture, we will then be able to intelligently postulate where the coal market would go from here.

So now we know that NDRC can’t let coal prices drop too much, they can’t let coal prices runaway and jump too much either. To achieve stability in energy prices, it is also in the interest of NDRC to ensure that utilities have some predictability in the fuel costs.

Aside from the potential ban on the import of low calorific coal, (which is mainly for productivity and for environmental concerns), NDRC has also moved to encourage (read: enforce! That’s what communist countries can do. They have control but are compromised by inefficiency. Anyone played SimCity before? What happens when you switch governments to “Communist”?) coal miners to offer long term coal futures to the utilities, so that utilities can have more stable fuel costs and predictability.

For the miners, this is both good and bad. Good in the sense that they too, would have predictability in terms of their volume. Bad in the sense that they would not be able to capitalize if the coal prices shoots up rapidly.

Now, at this point, readers would probably find it confusing. So how does all this affect Geo Energy? It is a complicated issue. There are multiple parties, and NDRC has to do a delicate balancing act. Many variables, and each can drastically affect the accuracy of our analysis.

Fortunately, NDRC made it a lot simpler for TTI.

They’ve stated that they’d be comfortable with coal prices in the range of 500 – 570 yuan a ton, for calorific value 5,500 coal, at the port of QinHuangDao.

Well, that range is where QinHuangDao spot coal prices are at right now.

540) Qinhuangdao coal price.jpg

The black line indicates the benchmark QinHuangDao prices. It reached a high of 610 yuan, and has now fallen to 560 yuan.

The most logical conclusion here, must therefore be that chinese spot coal prices would stabilize at current levels, or if they dip substantially below this range (500 – 570 yuan), we’d see NDRC intervening in some way or form.

That’s a good start to understanding the complicated dynamics in this industry.

How about volume?

All reports currently point to a dearth of deals completed at the ports. Utilities are loathe to commit to sizable quantities, as NDRC is sending out all sorts of unclear signals about their intention to ban low calorific coal.

Nobody knows for sure what’s NDRC’s requirements  at this stage, but Geo Energy’s 4200 GAR coal is not exactly low calorific. It’s not high calorific either. But their coal has <1% sulphur content, and moderately low ash content, so that’s the good news.

All this uncertainty is showing up in the lack of buyer interest, as the end clients await more clarity from NDRC:

541) Utilities demand remain tepid.jpg

Coal stockpiles at the utilities have been rising, and as of last week, the data indicates that the 6 major coastal utilities together have 12.07mil tonnes of coal, an increase of 2.6% from a week earlier. This would account for 19.6 days of consumption, 2.2 days less than a week ago.

Alright, let us recap here a bit.

We know that NDRC wants to cap coal prices into a range. Prices were spiking above this range the past several months due to NDRC’s previous policy of limiting coal production, and this has since come crashing down.

We also know that the current price is within the range that NDRC would be comfortable with, but we don’t know whether prices would stay within this range, or would it drop below. If it does though, it is safe to conclude that NDRC would intervene to support prices.

Volume at the end client side has been thin too, and utilities are all reluctant to commit to large volume purchases.

With all this info in mind, I’m currently seeing an opportunity to add to my positions in Geo Energy, and in fact, has recently added 100,000 shares at $0.26.

Why so?

For starters, I’d be more worried if prices continue trending higher, because logic dictates that NDRC won’t allow that. At this current price, there’s some support if it falls below the range.

Volume has been thin, but I believe reprieve is coming soon. Specifically, in 2 weeks.

Now, summer and winter are traditionally the periods whereby China energy requirements spike up. It’s true year in, year out. Nothing changes.

For substantiation, I found a very nice paper, I’ll have to give credits to these guys:

“A study on the electric power load of Beijing and its relationships with meteorological factors during summer and winter”

(Zi Y. Zhang,a,b* Dao Y. Gonga and Jing J. Mab et al)

 Now, I won’t waste space and upload the paper here, because I’m pretty sure nobody wants to read it. It’s as dry as summer. LOL!

Instead, I’ll just cut out this 1 self explanatory table from the paper:

542) China's electricity power requirements.jpg

We can see Beijing’s power requirement is trending up over the years. More importantly, the 2 peaks within a year, coincide with the June-August (summer) and the November-January (winter) months.

The volatility is also greater during the summer months (you see massive spikes up and down and up and down), probably because air conditioning doesn’t have to be kept on 24hrs a day during the summer, and cooling requirements drop in the night.

Whereas there are less exaggerated peaks to troughs in the winter months because heating is more constant.

Well, that’s not in the paper. Just my personal observation and postulation here.

Anyway, this means that as we move into the June period, and with the start of summer, we should be expecting a pick up in demand for utilities.

But that’s not all there is to it.

Traditionally, utilities start stockpiling a month ahead of the peak summer months. But since, as I’ve shown above, they’ve delayed buying coal recently, there’s a pretty good chance that utilities would have to play catch up, and we start seeing coal volumes transacted increase at a breakneck pace moving into summer.

Reuters seem to agree with me:

I’ll quote:

“Coal inventories at major utilities stand at 50 million tonnes, their lowest in April since at least 2014 when they were 72 million tonnes, according to a survey by consultancy Fenwei.

Utilities consumed 300 million tonnes of coal in the July to September period last year, Fenwei said.”

OK, thus far, I’ve given a birds eye view of the chinese coal markets, and it’s current situation. Notice I haven’t really brought Geo Energy into the picture much.

Here’s the kicker:

All this that I’ve just said, may not even affect Geo Energy that much!

Geo Energy has an offtake agreement with ECTP for 7mil tonnes in 2017. We don’t know the formula in the offtake agreement to determine the selling price of the coal, but we know it’s pegged to Indonesia’s HBA index.

And the HBA, albeit lower than the start of the year, hasn’t even dropped <10%.

543) Indonesia HBA index.jpg

Instead, the chinese demand and prices would more likely affect the middleman, which is ECTP.

I still monitor chinese coal news and developments closely though, cos let’s not forget that Geo is still in the midst of concluding the acquisition of TBR mine, and is also negotiating for an offtake agreement for TBR.

At this stage, I’m excitedly awaiting for more news on this front (supposed to be concluded by Q2 end).

When TBR is in production, that’s when Geo Energy’s true strengths would be utilized. TBR and SDJ are adjacent sites, and thus far, their synergy has not filtered into the financials.

It is possible though, that with tepid chinese demand, the negotiations for TBR would be tougher. ECTP would be less onerous in giving in when dictating terms for the offtake agreement, if the end client demand is not there.

At this stage though, knowing what I know, I personally feel that the markets are overhyping the supposed low calorific coal ban, the supposed potential oversupply of coal and accompanying drop in coal demand.

Prices and volume transacted can change quickly, at the drop of a dime.

I currently own 500,000 shares of Geo Energy at an average price of $0.177, and in 2 weeks, will be expecting to collect a 1 cent dividend for 400,000 of those shares. That’ll further lower my ave price to $0.17.

Now, there’s actually a lot more DD that I could share, but I feel compelled to stop here cos this post is getting too long, and well, I’m on holiday. LOL. (And it is getting tiring to go on)

So just very very briefly, I’ll throw out bullet points on the remaining thoughts/DD and you guys looking can do your own digging.

Hydropower! Part of the reason why utilities have been delaying coal stockpiling is because hydropower has been stepping up of late. As we approach the summer months, rainfall drops drastically, and hydropower correspondingly drops as well.

There is a new analyst report from KGI on Geo’s peer, GEAR. It makes a good read, so do read that. There are differences between Geo and GEAR, and I think many have tried to dissect these differences.

My own take is that GEAR is more efficient, more productive, but I don’t like their substantial minority interests. In short:

GEAR’s GPM >>> Geo’s GPM


GEAR’s NPM (attributable to shareholders) <<< Geo’s NPM

Go figure out why and you’d see what I mean.

It is important to note though, that geographically, the bulk of Geo’s coal ends up used in China’s power plants whereas 51% (if i remember correctly! writing all this off the top of my mind) of GEAR’s coal is used domestically in Indonesia.

NDRC’s environmental considerations. Many of the chinese states have banned coal burning. Yet, coal will remain as the main energy source for China in the immediate to mid term. China though, is trying to shift the energy generation far away from their cities.

Domestic mine safety and inspections. In the past 2 months, several domestic mines have been shut or their production curtailed as China conducts safety checks, upgrades their mine infrastructure, or even check on the transportation.

Shanxi province is where the bulk of these inspections are occurring, due to the poor safety track record. Go read up on that. It is significant cos Shanxi accounts for 25% of all domestic production, and their production has been curtailed with the safety inspections and what not.

OK, I’ll stop here, that should be enough information diarrhea for now.

For now, let me go do what people normally do during holidays.