Fitch Affirms GEAR at 'B+'; Outlook Stable

Adequate Financial pro le: We expect GEAR's consolidated nancial pro le to improve from 2021 after weakening marginally in 2020. Stanmore's net cash position and modest earnings expectations post 2020 should support the group's nancial pro le over the medium term, in Fitch's view. We expect GEAR's consolidated group leverage, (with proportionate consolidation of GEMS and full consolidation of Stanmore adjusted for minority interests) (net debt/EBITDA) to fall to below 1.5x in 2021, after rising to around 2.0x in 2020 (2019: 1.8x). We also expect GEAR's holding company standalone interest cover to improve to about 3.0x in 2021, after weakening in 2019 and 2020 to around 1.5x.

DERIVATION SUMMARY

The ratings of GEAR are based on the nancial metrics of the group, adjusted to proportionately consolidate GEMS to incorporate the presence and in uence of signi cant minority shareholding. The ratings factors in the group's adequate nancial pro le, large reserve base of both its key assets, low-cost position of GEMS and limited but improving scale of operations and record. PT Indika Energy Tbk's (BB-/Negative) has more integrated operations across the thermal coal value chain, but GEAR bene ts from improving diversi cation after acquiring Stanmore, although the latter's contribution to cash ow will be minimal in the next two to three years. However, Indika's larger scale and well- established operations justify the one-notch difference in their IDRs, as GEAR's key assets, GEMS and Stanmore, are still boosting production. The Negative Outlook on Indika re ects the limited headroom in its rating because of our expectations of weakening nancial pro le following our revision in coal price and volume assumptions. In comparison with PT Bayan Resources Tbk (BB-/Stable), GEAR's business pro le bene ts from diversi cation into hard coking coal. Bayan's similar scale as GEMS but better cost structure supports its stronger operating cash ow, explaining the one-notch differential in their ratings. Both companies have strong nancial pro les.

KEY ASSUMPTIONS

- Index coal prices in line with Fitch's mid-cycle commodity price assumptions, adjusted for the difference in CV (thermal coal average Newcastle 6,000 kcal/kg,