Hallador Energy Company

Thank you everybody for joining us today. Yesterday afternoon, we released our full year 2022 financial and operating results on Form 10-K, which is now posted on our website. With me today on this call is Brent Bilsen, our president and CEO, and Larry Martin, our CFO. After the prepared remarks, we will open the call up to your questions. Before we begin, please note that the discussion today may contain certain forward-looking statements that are statements related to future, not past events. In this context, forward-looking statements often address our expected future business and financial performance, while these forward-looking statements are based on information currently available to us. If one or more of these risks or uncertainties materialize, or if our understanding assumptions prove incorrect, actual results may vary materially from those we projected or expected. For example, our estimates of mining costs, future sales, legislation and regulations, in providing these remarks, we have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, that may be required by law. For a discussion of some of those risks and uncertainties that may affect our future results, you should review the risk factors described from time to time in the reports we file with the SEC. As a reminder, this conference call is being recorded. In addition, a live and archived webcast of the earnings call is also available on HALADOR's website. We encourage you to ask questions during our Q&A. And if you are on the webcast and would like to ask a question, you will need to dial into the conference. And that toll-free number is 844-200-6205, access code 724924. And with that, I'll turn the call over to Larry. Thanks, Becky, and good afternoon, everyone.

Before I get into our review of operating results, I want to define adjusted EBITDA. We define this as operating cash flows, less the effects of certain subsidiary and equity method investment activity, plus bank interest, less effects of working capital period changes, plus cash paid on ARO, reclamation, plus other amortization. So for the year ended 2022, we ended with net income of 18.1 million or 57 cents per basic earned share, and our diluted earnings per share was 55 cents. The diluted earnings per share for us is if the converted debt was converted to equity. Our adjusted EBITDA for the year, is 56.2 million. Our bank debt decrease was 26.5 million. And our bank debt at the end of the year was 85.2 million, excluding letters of credit of 11 million. So we had 85 million of borrowed debt, 11 million of letters of credit. Our net bank debt at the end of the year was 82.2 million. And our leverage ratio, which is adjusted EBITDA debt to adjusted EBITDA was 2.05 times. I'll now turn the call over to Brent Bilsen for his review of the year and beyond. Thank you, Larry.

Building upon my comments from the third quarter investor call, the full year 2022 was transformational for Halidor. As the market price for coal approached all time highs, we were able to capture significant market opportunities through forward contracted coal sales of more than 2.2 million tons at an average price of $125 per ton. We delivered a small percentage of these tons in 2022, are contracted to deliver the majority in 2023, and will continue with longer term deliveries through 2025. to fulfill these new profitable obligations. We invested substantially in both operations and headcount growth to quickly expand our coal production capacity from approximately six million tons annually in 2021 to as much as seven and a half million tons in 2023. We expanded coal production capacity by adding more units at our Oak Town mining complex opening a small surface mine pit near Freelandville, Indiana, and moving our ace in the hole production to a small surface mine pit near Petersburg, Indiana, known as Prosperity. Freelandville and Prosperity production began in Q3 of 2022. Volumes from these new pits are expected to be higher cost. We will continue to evaluate the productivity of these mines in connection with market conditions to determine the appropriate operational balance. Our average coal sales price increased from $39.51 per ton in 2021 to $45.64 per ton in 2022, and will be approximately $58.70 per ton in 2023. Various factors, including inflation, operational challenge and new hire onboarding and training impacted our costs of production and margins. However, we closed the year with fourth quarter margins of $10.41 per ton and full year margins of $8.35 per ton compared with 2021 margins of $7.35 per ton. Looking at costs, Much like the rest of the world, we experienced and are experiencing increasing costs to produce. Our average coal cost increased from $32.16 per ton in 2021 to $37.28 in 2022, with fourth quarter costs just above $40 per ton. As we start to realize additional efficiencies from the experience Our added headcount continues to gain. Fewer production challenges and increased production. We expect these costs to levelize out or improve throughout 2023. Additionally, in Q4 of 2022, we completed the acquisition of a one gigawatt Mirum generation station. The transformational impact of acquiring Mirum is not just limited to adding new revenue generation opportunities for our business. While we expect sales of both capacity and energy to help drive growth, Merrim will add support to our coal business by providing flexibility for up to 40% of our coal production to capture the greatest value between the energy and coal market. Starting in 2024, We anticipate shipping up to 3 million tons of coal annually from our mines directly to Merham. The close proximity of the mines to the plant, about 20 miles, enables real-time adjustments that should promote additional efficiencies for both business segments. Moreover, at Merham, we anticipate 3 million tons of our coal will produce approximately 6.5 million megawatt hours that we anticipate selling into the MISO wholesale energy market. We expect to utilize funds from third-party sales of the annual capacity accreditation of MIRIAM to cover a significant portion of the annualized fixed costs of the plan. While the capacity market will fluctuate over time, we believe that at current capacity Merrim provides a low cost option to act as the highest value market for our coal production. The vertical integration also provides true optionality in terms of how and when we sell our coal and energy. In some instances, if coal prices remain high, it may make sense to divert coal away from Merrim and into the open coal market. In other situations, it may make sense to increase our shipments to minimum and sell additional energy in the wholesale energy market. In either case, flexibility is a key benefit that Halador did not have prior to the acquisition. We also recognize the challenges of operating a coal-fired generation station. Due to the volatility of power prices, our earnings will be lumpy, but we believe on the whole that our profit potential has significantly increased. Utilizing a strategy that incorporates offers into the day ahead power markets allows us to capture a significant portion of this potential while also limiting the outside risk. Additionally, for us to operate MERIM beyond 2025, there will be required investment in environmental controls prior to the end of 2025 that could exceed $45 million. Based on the present state of the energy markets, the declining capacity reserve margins of the grid, and increasing frequency of grid emergency events, we expect power markets to remain elevated. Over the course of 2023, we'll be transitioning into a company with much higher long-term profit potential, but one which will likely experience periods of great volatility. Demand is the downside risk of these volatile periods. We continue to focus on reducing bank debt. In 2022, bank debt was reduced by $26.5 million, bringing the balance owed at the end of fiscal 2022 to $85.2 million. As of December 31st, 2022, our liquidity stood at $32.1 million, and our leverage ratio has dramatically improved to 2.05 times. Subsequent to year end on March 13th of 2023, we executed an amendment with our credit facility, which converted 35 million of the outstanding revolver to term debt with final payment due in March of 2024 and extended maturity of the remaining 85 million revolver capacity to May of 2024. Looking at CapEx, our 2023 capital expenditure budget is $69 million, of which $35 million is maintenance CapEx. Of the $69 million, roughly half is associated with coal and the other half associated with power. Now, I'm going to flip the call back over to Larry Martin, our CFO, and asked him to walk everyone through the purchase accounting associated with the Merrimack position.