HALLADOR ENERGY CO Q4 FY2024 earnings call

Management Statement and Operational Highlights:

• Transformation to IPP: 2024 was a transformative year as Hallador evolved from a coal producer to a vertically-integrated power producer. Signed a non-binding term sheet and exclusivity agreement with a data center developer, with $5 million commitment during exclusivity.
• Sunrise Coal Optimization: Proactively reduced coal volumes and shed higher cost reserves, reducing operational cash costs. Completed annual impairment analysis, resulting in a $215.1 million long-lived asset impairment charge in Q4 2024.
• Hallador Power Performance: Q4 2024 generation up 5% with improved gross margin. Forward power prices indicate increasing margins, especially with data center development in Indiana. Focus on maximizing Merom Power plant value and acquiring additional dispatchable generators.
• 2025 Outlook: Merom Power plant to consume 2.3 million tons of coal from Sunrise Coal and third parties; Sunrise to sell 3 million tons to third parties. CapEx expected to be ~$66 million in 2025, ~20% for EPA ELG regulation.

Segment Performance:

• Hallador Power: In Q4 2024, generated 1.16 million megawatt hours, up 5% from Q3. Gross margin for the Power segment was $62.13 per megawatt hour sold in Q4, compared to $52.7 in Q3. For 2025, contracted 4.25 million megawatt hours at an average price of $37.24 per megawatt hour (approximately 71% of potential energy sales). For 2026, secured 3.4 million megawatt hours of sales at an average price of $44.43 per megawatt hour (approximately 57% of potential energy sales).
• Sunrise Coal: In Q4 2024, recorded a non-cash long-lived asset impairment charge of $215.1 million. In 2025, Merom Power plant is expected to consume 2.3 million tons of coal from Sunrise Coal and third parties, and Sunrise is expected to sell an additional 3 million tons of coal to third parties. Coal sales in Q4 were $23.4 million, down from $31.7 million in Q3 and $91.7 million in the prior year period.

Guidance:

• 2025 CapEx expected to be approximately $66 million, with ~20% related to EPA ELG regulation.
• Forward energy and capacity sales position at end of 2024 was $685.7 million, total forward sales book $1.6 billion.
• Reduced bank debt to $44 million in Q4 2024, with total liquidity at $37.8 million as of December 31, 2024.

Risks:

• Retirement of dispatchable generation and lower natural gas prices could reduce demand for coal supply, affecting Sunrise Coal value.
• Uncertainty in forward pricing curves and market dynamics impacting power generation margins.
• Complexity of regulatory and review processes for grid access and data center agreements.

Q: Nick Giles asked about the regulatory and review process with the grid operator and where it fits into reaching a definitive agreement.

A: Brent Bilsland said EPR filings are done by utilities, couldn't comment on specific projects but noted multiple access requests and backup opportunities.

Q: Jeff Gramp asked about risks with data center deal and buy box for power assets.

A: Brent Bilsland discussed MISO grid requirements, vertical integration benefits, and evaluating power assets on a case-by-case basis.

Q: Unidentified Analyst asked about pricing premium and progress on data center deal.

A: Brent Bilsland said they still expect a premium to forward curves and have made material progress with financial commitments from counterparties.

Q: Nick Giles followed up on CapEx and coal optimization.

A: Marjorie Hargrave said CapEx expected ~$66 million in 2025, ~20% for ELG; Brent Bilsland said coal cash costs down to low 40s and Merom buys fuel from multiple third-party suppliers.