Geo Energy outsources most of its mining operations to contractors in Indonesia, allowing it to keep production costs low. Most of its coal is exported to China, its largest market by revenue, and several other Asian countries through long-term offtake agreements with Macquarie Bank and commodity traders Trafigura and EP Resources. Indonesia is its next largest market.
Output last year slipped to 7.9 million tonnes from 8.4 million in 2023 due to prolonged extreme rainfall in Indonesia. Production for 2025 is expected to increase to between 10.5 million and 11.5 million tonnes as the company made a concerted effort last year to remove overburden - rocks or soil lying on top of a mineral deposit - ahead of time to ease future coal extraction.
Output starting from next year is poised to go up even more. The catalyst for this is Geo Energy's maiden integrated infrastructure development, a massive project that will comprise an extensive haul road stretching 92km as well as a jetty, which will provide access to export markets for all producing coal mines in South Sumatra's North Musi Rawas Regency, a region spanning more than 6,000 sq km.
Purpose-built to unlock South Sumatra's coal-rich heartland, the development is slated for completion in the first half of 2026. It will have a road haulage capacity of up to 50 million tonnes of coal annually. TRA, a Geo Energy subsidiary, will claim half of that capacity for its own coal, while the rest will be leased to surrounding coal miners.
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'A cash cow'
This business model effectively turns Geo Energy into a critical logistics powerhouse in the region. The idea behind this is as strategic as it is ambitious. Operating the haul road and jetty will allow Geo Energy to collect tolls and fees, giving it new revenue streams beyond coal mining.
The payback is perpetual and potentially astounding, considering the area surrounding TRA's mining concession in South Sumatra is home to over two billion tonnes of untapped coal reserves. TRA itself has about 273 million tonnes of coal reserves.
Any coal miner looking to monetise these reserves will find Geo Energy's infrastructure development indispensable, as the area currently lacks suitable logistics and transport solutions.
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'With the new haul road, we will have a monopoly. It's a captive market,' says Philip Hendry, Geo Energy's chief operating officer / Photo: Albert Chua
"It is a cash cow," Philip Hendry, Geo Energy's chief operating officer, tells The Edge Singapore. An accountant by training, Hendry assumed his current appointment in early 2023 and has held finance and senior leadership roles in companies in the energy, shipping, transport and logistics sectors.
"With the new haul road, we will have a monopoly. It's a captive market," he says. While there is an existing 137km road in the area shared by several mining companies, it's not ideal for heavy haulage, he adds.
Geo Energy expects to reap cost savings of more than US$10 per tonne ($13.08 per tonne) for its own coal transportation once the haul road is ready. According to Hendry, this will undergird its profitability and give it a strong competitive edge over other miners, even if coal prices fall more than 20% from current levels of just over US$50 per tonne.
"Our cost base will be very competitive after the road is done. We own the infrastructure, the logistics and the whole supply chain. Even if coal prices go down to US$35 per tonne, where many coal mining companies will not be able to produce, we will still be making money."
Geo Energy's production cash cost last year was US$40.32 per tonne. With an average selling price of US$50.69 per tonne, it made a cash profit of US$10.37 for every tonne of coal produced in 2024.
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With the haul road and jetty in place, and if coal prices remain at current levels, it expects to generate US$400 million to US$500 million annually in ebitda. Ebitda last year amounted to about US$100 million.
No lack of backers
Geo Energy will spend about US$150 million on the haul road and jetty. Last year, it appointed two Chinese state-owned enterprises - CCCC First Harbor Consultants and Norinco International Cooperation - to build the integrated development.
The funding structure for the project is skewed in favour of Geo Energy, which will bear less than 15% of the entire cost at the onset. The two Chinese contractors will fund the remaining project costs and get paid two years after the development is fully completed. This gives Geo Energy a valuable runway to monetise the new infrastructure before repayments kick in.
"The beauty of this is, in addition to the two-year deferred payment plan, we shifted most of the operational risks from Geo Energy to the contractors. This is a very significant risk mitigation for our company," says Hendry.
But why are the Chinese amenable to such terms? "The Chinese have their KPIs. This road is part of their portfolio for the One Belt, One Road programme. They have a lot of cash to allocate to projects that can enhance this programme," he lets on.
In a further display of support for this project, China Export & Credit Insurance Corporation, an entity under China's Ministry of Finance, is providing full insurance coverage for the construction of the haul road and jetty.
While the entire integrated infrastructure will be ready only next year, Geo Energy has already signed term sheets with a few major coal producers to lease out part of the haul road to them.
Thriveni, a mine developer with projects in India, Indonesia and Africa, wants to use the road to move 15 million tonnes of coal annually for up to 50 years starting from January 2028.
Another coal miner, Astaka Dodol, is eyeing a haulage capacity of up to 10 million tonnes of coal annually for 10 years beginning July 2026.
Embedding sustainability
Besides scaling up, Geo Energy is also embedding sustainability into the infrastructure development. Plans include electric vehicles (EVs) for coal hauling, charging and battery-swap stations, and even solar farms.
"Once the EVs are in place, your operating costs will only decrease because you'll save on fuel. You'll see our operating costs, if anything, get lesser and lesser as we utilise EVs more and more, and our road will become more and more profitable," says Hendry.
While incorporating green features into the infrastructure development may not be enough to appease some coal critics, it is a significant step by Geo Energy to align itself with rising environmental expectations even as global coal demand remains unshaken by calls for a phase-out.
Still, will the current economic slowdown in China and Indonesia throw a spanner in the works for Geo Energy, which gets more than 90% of its revenue from these two markets?
"The way I see it, this is just cyclical. We can't control the economy. But the long-term prospect of coal remains very positive," says Hendry.
From the looks of it, Geo Energy appears on track to continue digging deeper into Indonesia's rich coal reserves while paving the way - both literally and figuratively - for growth in a future where coal, for all its controversy, remains indispensable to emerging markets.
Things are already looking up, even with its infrastructure development still months away from completion. The company issued a profit guidance on April 28, saying it expects to report a substantial increase in earnings for 1Q2025 as production volumes swelled to about 3.6 million tonnes from 1.8 million tonnes a year earlier. After-tax profit for 1Q2024 fell 46% y-o-y to US$8.7 million on lower output and selling prices.
"Advance overburden removal was carried out last year. That allows us easier access to coal this year, which is when we start reaping the benefits," says Hendry.
Geo Energy pays at least 30% of its annual earnings as dividends every quarter. Its share price is up about 20% so far this year, giving it a market cap of around $500 million. The company makes no secret of its ambition to become one of Indonesia's top five coal producers with a valuation of at least $1 billion.
"Looking at our current share price, I believe Geo Energy is significantly undervalued," says Hendry.
Analysts from KGI Securities, Phillip Securities and Lim & Tan Securities have an "outperform" or "buy" rating on the stock. KGI has the highest target price of 71 cents, followed by Lim & Tan with 60 cents and Phillip Securities with 47 cents.
