Hallador Energy Company — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed March 8, 2021. Hallador produces thermal coal in Indiana through Sunrise Coal, primarily for electric utilities, and holds a 50% equity interest in Sunrise Energy.
Financial and operating performance
| Metric | FY2020 | FY2019 |
|---|---|---|
| Total revenue and other income | $245.3 million | $323.5 million |
| Coal sales | $242.1 million | $317.4 million |
| Net loss | $6.2 million; $0.20 per share | $59.9 million; $1.95 per share |
| Adjusted EBITDA (non-GAAP) | $53.5 million | $68.8 million |
| Cash provided by operations | $52.6 million | $38.2 million |
| Capital expenditures | $20.7 million | $35.5 million |
- Coal shipments were 6.0 million tons, down from 8.1 million; average realized price rose to $40.56/ton from $39.34.
- Production cost averaged $31.07/ton versus $30.69. Coal operating margin per ton increased to $9.49 from $8.65, while total coal margin declined to $56.7 million from $69.8 million due to lower sales volume.
- Q4 2020: Total revenue was $65.5 million, coal sales were $64.9 million, and net loss was $4.7 million ($0.15 per share). Coal shipments were 1.61 million tons at $40.25/ton; margin was $6.38/ton.
Balance sheet, debt and liquidity
- At year-end, cash and cash equivalents were $8.0 million, restricted cash $4.0 million, and current assets $63.3 million versus current liabilities of $71.2 million.
- Bank debt was $137.7 million, down $42.4 million during 2020. Total reported liabilities also included a $10 million PPP loan, classified between current and long-term liabilities.
- Reported liquidity was $51.8 million, comprising cash and $43.8 million of additional revolver availability after letters of credit.
- Leverage ratio was 2.68x against a 3.50x year-end limit; debt-service coverage was 1.22x against a 1.05x minimum. The leverage ceiling tightens to 3.25x in the first half of 2021, 3.00x in the second half, and 2.50x from 2022. Dividends are suspended until leverage falls below 2.0x.
- Reclamation obligations were $16.3 million, supported by $27 million of surety bonds. The 2021 capital expenditure budget is $23 million, including $9 million maintenance spending.
Material changes and unusual items
- Revenue fell 24% year over year, largely reflecting pandemic-related reductions in power demand, customer inventory build-up, shipment deferrals, and lower volume. Operating cash flow nevertheless rose, primarily due to favorable changes in receivables and inventory.
- Hallador permanently closed the higher-cost Carlisle mine in 2020 and is redeploying approximately $23 million of its equipment and parts to Oaktown. It recorded no additional Carlisle impairment in 2020; Carlisle-related impairment was $65.7 million in 2019. A further $9.2 million impairment of Bulldog reserves was also recorded in 2019.
- Hallador ceased Hourglass Sands plant operations in August 2020 and recorded a $1.8 million impairment. It had recorded a $2.9 million impairment there in 2019.
- Operations generated $52.6 million in cash, while capital spending was $20.7 million. Coal production costs increased modestly; management attributed a difficult fourth quarter partly to Oaktown 2 mining conditions.
Outlook, management commentary and risks
- Management expects coal-market conditions to improve with economic recovery and higher natural gas prices, potentially creating sales opportunities in the second half of 2021 and especially 2022. This is a conditional outlook, not formal earnings guidance. Management expects coal production costs to return to $29–$30/ton in 2021 and SG&A of approximately $12 million.
- For 2021 and 2022, contracted volumes were 5.1 million tons each, at estimated prices of $39.40 and $39.25 per ton, respectively. These volumes may change under customer options or force majeure provisions. Management expects to fund maintenance capital spending and debt service from operating cash flow and, if needed, revolver borrowings.
- Hoosier Energy announced plans to close its Merom station in 2023; it represented about 700,000 tons, or 11% of 2020 sales volume. Customer concentration is substantial: four customers generated 79% of 2020 revenue, versus 70% in 2019. About 97% of 2020 sales were under contracts longer than one year.
- COVID-19 reduced power demand and shipments; at times up to 25% of the workforce was unable to work due to exposure issues. Rail delays in the second and third quarters improved by year-end. Management noted that elevated customer inventories and uncertain demand continued to challenge markets.
- The lender approved forgiveness of the full $10 million PPP note in January 2021 and forwarded it to the SBA for final approval. Final government approval remained pending at the filing date; Hallador disclosed eligibility, repayment, audit, and penalty risks.
- Key risks include coal demand and price declines, utility plant retirements and emissions regulation, customer concentration and contract repricing or termination, operating and permitting interruptions, mine reclamation and bonding costs, debt covenant compliance, and access to financing. The filing reports no pending legal proceedings. The auditor issued an unqualified opinion on the financial statements; management concluded disclosure controls and internal control over financial reporting were effective.
Important facts for investors to verify
- Whether the SBA gave final approval for forgiveness of the $10 million PPP loan, and whether any repayment or other liability arose.
- Subsequent coal shipments, realized prices, customer inventory levels, and progress toward management’s 2021–2022 market expectations.
- Merom’s closure timing and the effect of customer concentration, contract options, and future plant-retirement decisions on committed volumes.
- Compliance with progressively tighter leverage and debt-service covenants, revolver availability, and the ability to fund capital spending and debt service.
- Oaktown cost and production performance, reserve estimates, reclamation obligations, and the condition of surety-bond availability.