Fitch Affirms GEAR at 'B+'; Outlook Stable

Free on board (FOB): USD63/tonne in 2020 and USD72/tonne in 2021, USD72/tonne in 2022 and USD70/tonne thereafter) and hard coking coal (Australia premium spot, FOB): USD 140/tonne throughout our forecast period.

- GEMS's total volume of coal sales to decline by 10% to 27.5mt in 2020; thereafter increasing by 3mt-5mt a year until 2023, reaching 40mt by 2023.

- Capex incurred by GEMS at USD10 million in 2020 and USD25 million during 2021-2023. - Out ow of USD90 million in 2020 at GEAR for the acquisition of Stanmore and Ravenswood gold mine. - Met coal sales volumes of 1.9mt in 2020, 2.5mt in 2021 and 2.9mt in 2022, and EBITDA contribution of around USD30 million-60 million from Stanmore from 2020-2023.

- Stanmore capex of USD25 million-30 million during 2020-2022, declining to USD12 million in 2023.

Key Recovery Rating Assumptions:

Recovery analysis for GEAR is on a going-concern basis in case of bankruptcy and assumes that the both their subsidiaries, GEMS and Stanmore, would be reorganised and not liquidated. We have assumed a 10% discount to enterprise value to account for bankruptcy-related administrative claims.

Going-Concern (GC) Approach

GEMS: The GC EBITDA estimate of USD106 million (FY19E USD130million) re ects Fitch's view of a sustainable, post-reorganisation EBITDA level upon which we base the enterprise valuation (EV). We have taken a lower sustainable EBITDA as a restructuring would most likely be a result of a coal market downturn. An EV multiple of 3.5x EBITDA is applied to the GC EBITDA to calculate a post- reorganisation EV. The choice of this multiple takes into consideration the EV/EBITDA multiple used in M&A transactions in the sector through the commodity cycle. In the recovery analysis, we assume repayment of all the debt at GEMS's level, which is all senior secured bank debt. We have assumed 67% of the remaining equity value (post the repayment of subsidiary debt) for the repayment of debt at GEAR level.