HALLADOR ENERGY CO Q3 FY2024 earnings call

• Signed a non-binding term sheet with a leading global data center developer, working to finalize definitive agreements. If successful, will secure long-term contracts for a substantial portion of plant's energy and capacity at improved margins.
• Power segment generated 1.1 million MWh in Q3, up from 800,000 MWh in Q2; gross margin improved to $16.36 per MWh sold vs $8.11 in Q2. Executed $60 million and $45 million PPAs.
• Sunrise Coal division completed project for 4 units to split air system, improving efficiency and reducing operational costs. Believes optimizations will increase tons mined per man hour and decrease cost per ton.
• MISO reduced capacity accreditation for intermittent resources, constraining supply and making coal, gas, and nuclear more valuable; influx of solar and wind projects overwhelms queue for dispatchable generation.

On a segment basis, electric sales for the third quarter were $71.7 million compared to $59.4 million in Q2 and $67.4 million in the prior year period. Coal sales were $48.3 million in Q3 compared to $45.7 million in Q2 and $134.4 million in the prior year period. Consolidated revenue was $105 million in Q3 compared to $93.5 million in Q2 and $165.8 million in the prior year period. Net income for Q3 was $1.6 million compared to a net loss of $10.2 million in Q2 and net income of $16.1 million in the prior year period. Adjusted EBITDA was $9.6 million in Q3 compared to a negative $5.8 million in Q2 and $35.9 million in the prior year period. Capital expenditures in Q3 were $11.6 million, with total YTD CapEx at $39.6 million. Forward energy and capacity sales position as of 9/30/2024 was $616.9 million compared to $664.1 million in Q2 and $516 million in prior year. Forward fuel sales were up over 50% to $320.3 million in Q2, and total forward sales book as of 9/30/2024 was $1.42 billion compared to $1.37 billion in Q2 and $942.1 million in prior year.

• Optimistic about finalizing long-term data center transaction given Indiana's business-friendly climate. Believes remaining unsold accredited capacity in MISO Zone 6 is valuable.
• Supply response in accredited capacity market restricted, making coal, gas, and nuclear more critical. Forward sales book strong, with total forward sales book at $1.42 billion as of 9/30/2024.
• Balance sheet strengthened with $60 million PPA proceeds used to pay down bank term debt and revolver, reducing total bank debt to $23.5 million by end of October.

• Forward-looking statements subject to risks, uncertainties, and assumptions in SEC filings.
• Regulatory challenges with behind the meter structures.
• MISO changing accredited capacity calculation may impact future capacity awards.
• Limited supply response from accredited capacity suppliers due to regulatory and environmental challenges.

Q: Could you quantify the magnitude of the non-binding term sheet in terms of plant output and pricing?

A: Volume is a majority of the plant's output; pricing is above the curve but complex to compare directly as it involves multiple factors like energy, capacity, and utility fees.

Q: What is the magnitude of the $60 million PPA, what years does it cover, and how does it fit into the hedge position?

A: The $60 million PPA is in the fourth quarter, covers 2025-2026, and is seen in subsequent events; it is separate but adds to the forward sales book.

Q: What was the coal production cost per ton during the quarter and outlook for cost productivity?

A: Costs were elevated, but seeing improvement in tons per man hour as a result of the split air system project, aiming to get cost structure back to historical levels.