On May 31, Hallador Energy purchased for $2.8m a multi-commodity truck/barge terminal on the Ohio River, which is an outlet for the coal production from its Sunrise Coal LLC subsidiary.
Over 17 acres of secured area is available at this facility, said Hallador Energy in its Aug. 6 Form 10-Q report. The terminal is at mile point 743.8 on the Indiana bank of the Ohio River near the William Natcher Bridge between Rockport and Grandview, Ind. Currently the dock will handle third party commodities. In the long term, Hallador plans to ship its coal through the dock. The terminal is in close proximity to the Norfolk Southern and CSX Transportation railroads, and also American Electric Power‘s 2,600-MW Rockport power plant. Hallador does not expect significant revenue from this asset until late 2014.
The largest portion of its business is devoted to coal mining in the state of Indiana through Sunrise Coal. The largest contributor to revenue and earnings is the Carlisle underground coal mine located in western Indiana, about 30 miles south of Terre Haute. Over 84% of coal sales are to customers with large scrubbed coal-fired power plants in Indiana. It has access to primary customers directly through either CSX or the Indiana Rail Road, majority owned by CSX.
Due to large investments in emissions controls, none of these customer power plants are scheduled for retirement, Hallador noted.
The company’s current coal contract commitments are:
- Last half of 2013, 1.8 million tons contracted, at average of $43.28/ton;
- All of 2014, 2.9 million tons, $43.15/ton.
- All of 2015, 1.2 million tons, $41.40/ton.
For the month of July 2013 it sold 307,000 tons at an average price of $42.13/ton. Hallador expects mining costs for July will be similar to June’s costs which were $24.93/ton.
New Ace mine to provide low sulfur sweetener for the Carlisle coal
All of its underground coal reserves are high sulfur with a Btu content in the 11,500 range. The new Ace surface mine, by contrast, has low sulfur coal with a Btu content of 11,400.
Coal reserves at Dec. 31, 2012, assigned to the Carlisle mine were 43.5 million tons compared to beginning of year reserves of 46 million tons. Primarily through the execution of new leases, reserve additions of 1.2 million tons replaced 40% of 2012 production of 3 million tons. It reduced reserves by 700,000 tons due to revised mining plans. The mine is located near the town of Carlisle in Sullivan County and became operational in January 2007.
Historically, Carlisle has guaranteed a 6# SO2 product. However, with the addition of the Ace mine nearby, it can blend lower sulfur coal with Carlisle coal and guarantee a mid-sulfur product which should command a higher price and increase the company’s customer base. Few mines in the Illinois Basin have the ability to offer their customers various ranges of SO2. Carlisle has supplied coal to 11 different power plants.
In November 2012, the company purchased for $6m permitted fee coal reserves, coal leases, and surface properties near Clay City, Ind., in Clay County. The Ace mine is 42 road miles northeast of the Carlisle mine. Hallador controls 3.1 million tons of proven coal reserves of which its owns 1.2 million tons in fee. The company will mine two primary seams of low sulfur coal which make up 2.9 million of the 3.1 million tons controlled. Both of the primary seams are low sulfur (2# SO2).
Ace mine development began in late December 2012 and the company expects to ship coal in late August 2013. It plans to truck low sulfur coal from Ace to Carlisle to blend with Carlisle’s high sulfur coal. Many utilities in the southeastern U.S. have scrubbers with lower sulfur limits (4# SO2) which cannot accept the higher sulfur contents of the ILB (6# SO2). The company currently has a contract at Carlisle which will require it to blend coal from Ace to meet sulfur specifications. Hallador also expects to ship low sulfur coal from Ace direct to unscrubbed customers that require low sulfur (2# SO2). It expects the maximum capacity of Ace to be 500,000 tons annually. Ace currently has 20% of its capacity contracted for 2013 and 2014.
Two mine projects in the works in Illinois
Halldor has leased roughly 19,300 acres in Vermillion County, Ill., near the village of Allerton, for the Bulldog mine project. Based on reserve estimates it currently controls 35.6 million tons of coal reserves. It anticipates controlled reserves to grow as it continues exploratory drilling in 2013. The permitting process was started in the summer of 2011 and it filed the formal permit with the state of Illinois and the appropriate federal regulators during June 2012. Hallador currently expects to receive an approved mining permit in the first quarter of 2014.
Hallador has leased roughly 11,000 acres in Lawrence County, Ill., near the village of Russellville for a mine of the same name. Based on reserve estimates it currently controls 29.4 million tons of coal reserves. The permitting process will start this fall and it anticipates filing the formal permit with the appropriate regulators during the second quarter of 2014. This reserve is located about 20 miles southwest of the Carlisle mine. Initial testing indicates that this reserve’s minability and coal quality is very similar to the Carlisle reserve.
For the first half of 2013, Hallador/Sunrise sold 1,614,000 tons at an average price of $42.22/ton. For the first half of 2012, it sold 1,444,000 tons at an average price of $43/ton. The lower average price for the first half 2013 is due to the mix of various contracts.
Operating costs and expenses averaged $28.22/ton in 2013 compared to $25.79 in 2012. The increase was due primarily to poor mining conditions in the months of March and May. These conditions have since improved. It expects costs to average $25-26/ton for the remainder of 2013.
For the second quarter of 2013, the company sold 774,000 tons at an average price of $44.12/ton. For the first second quarter of 2012, it sold 743,000 tons at an average price of $43.72/ton.