In 2014, Hallador Energy‘s Sunrise Coal LLC subsidiary sold 5,398,000 tons at an average price of $43.33/ton, against 2013 sales of 3,188,000 tons at an average price of $43.11/ton.
The increase is attributable to the acquisition in August 2014 of the Vectren Fuels coal mines in Indiana, Hallador noted in its March 6 annual Form 10-K report. Operating costs and expenses averaged $31.43/ton in 2014 compared to $29.52 in 2013.
In August 2014, Hallador consummated the acquisition of Vectren Fuels for $311 million. Vectren Fuels, headquartered in Evansville, Indiana, owned three underground coal mines in southwestern Indiana, including the Oaktown 1 and Oaktown 2 mines in Oaktown, Indiana, and the Prosperity Mine located in Petersburg, Indiana. The Prosperity Mine was idled on Aug. 29, 2014. The two underground mines located near Oaktown are seven miles south of Hallador’s mainstay Carlisle underground mine.
Oaktown 2 is contiguous to the Carlisle mine and the War Eagle coal reserve. Hallador intends to mine part of Oaktown 2’s reserve from the Carlisle portal and all of the War Eagle reserve from the Oaktown 2 portal.
Oaktown 1, Oaktown 2, Carlisle and War Eagle are now one large underground mining complex representing 160 million tons of controlled reserves, with three portals, two wash plants and two rail facilities, located on the CSX Transportation railroad. Hallador anticipates total capacity for the three mines to be roughly 9.7 million tons annually. Additionally, the capacity of its Ace in the Hole mine is 0.5 million tons annually. Thus, its total mining capacity is 10.2 million tons annually.
For 2014, over 80% of its coal sales were to customers with large scrubbed coal-fired power plants in the state of Indiana. Hallador’s mines and coal reserves are strategically located in close proximity to the primary customers, which reduces transportation costs and thus provides it with a competitive advantage with respect to those customers. The closest customer plant is 13 miles away and the farthest Indiana customer is 100 miles away. It has access to primary customers directly through either the CSX railroad or through the Indiana Rail Road, which is majority owned by the CSX.
Demand for coal produced in the Illinois Basin (ILB) is expected to grow at a rate faster than overall U.S. coal demand due to ILB coal having higher heating content than Powder River Basin (PRB) and lower cost structure than Central Appalachia (CAPP) coal, the Form 10-K noted. Many utilities are scrubbing to meet emission requirements beyond just sulfur compliance, even utilities that burn exclusively PRB coal. Once scrubbed, those utilities are usually capable of burning ILB coal.
Hallador/Sunrise Coal sell coal to the following customers: Duke Energy (NYSE:DUK); Hoosier Energy, an electric cooperative; Indianapolis Power & Light (IPL), a wholly-owned subsidiary of AES Corp. (NYSE:AES); Northern Indiana Public Service Co. (NIPSCO), a wholly-owned subsidiary of NiSource Inc. (NYSE: NI) and Vectren Corp.’s (NYSE: VVC) utility subsidiary in Indiana. Vectren Corp. told Vectren Fuels to Hallador. Hallador also delivers coal to three Florida utilities. “We believe these Florida sales are an indication of the trend of ILB coal replacing CAPP coal that has traditionally supplied the southeast markets,” the company noted.
The company has another 3 million tons per year of potential capacity at the Bulldog underground mine project, covering roughly 19,300 leased acres in Vermillion County, Illinois. The company currently controls 35.8 million tons of coal reserves here. A considerable amount of the leased acres has yet to receive any exploratory drilling, so that figure will grow as exploration continues. 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. In July 2014, it was notified by the Illinois Department of Natural Resources (ILDNR) that the permit application had been deemed complete, which starts the timeline for the ILDNR public review process. The permit may be issued this year.