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Hallador Energy pany(HNRG) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hallador experienced a net loss of $3.7 million for Q3 2019, equating to a loss of $0.12 per share, while year-to-date, the loss was $100,000 or essentially $0.00 per share [8] - Free cash flow for the quarter was $1.1 million, totaling $21.7 million for the year [8] - Adjusted EBITDA was $10.5 million for the quarter and $52.1 million year-to-date [9] - Bank debt at the end of Q3 was $172 million, with net debt at $163.4 million, and a debt-to-EBITDA coverage ratio of 2.43 times [10] Business Line Data and Key Metrics Changes - The Sunrise mine had strong shipments of 2.1 million tons during the quarter, positioning Hallador to ship a record 8 million tons in 2019 [12] - The Oaktown 2 mine faced challenging conditions but returned to good production by early October [13] - Carlisle mine improved its cost structure and achieved record production, up 40% in October [14] - The Ace in the Hole Mine had low production due to planned new box cut development [14] Market Data and Key Metrics Changes - The coal export market is pressured by cheap liquefied natural gas (LNG) and low-priced coal from Russia, with the seaborne market growing at about 36 million metric tons annually [16] - In 2018, the Illinois Basin produced approximately 106 million tons, with 10 million tons of production closures announced in 2019 [18] - Hallador has 7 million tons sold for 2020, representing 88% of its projected 8 million tons for that year [19] Company Strategy and Development Direction - Hallador anticipates a market correction in 2020, with potential consolidation in the Illinois Basin as high-cost producers exit [25] - The company is focused on paying down debt and plans to consider share buybacks once the debt-to-EBITDA ratio is below two times [59] - Investment in Hourglass Sands is on hold until market conditions are favorable [63] Management's Comments on Operating Environment and Future Outlook - Management views the current market conditions as temporary and expects a return to historical cost structures below $30 per ton [15] - The company believes that the export market will strengthen in the latter half of 2020 as high-cost producers exit the market [28] - Management expressed confidence in the long-term demand for Illinois Basin coal, despite current pressures [16][19] Other Important Information - Hallador's banking partners extended the credit facility to September 2023 and reduced the interest rate by 50 basis points, reflecting confidence in the company's cash flow [20] Q&A Session Summary Question: Where does Hallador fit in the M&A talks currently ongoing? - Management believes the Illinois Basin will continue to consolidate, with high-cost producers likely to sell contracts to lower-cost producers [25][27] Question: What are the catalysts for rising export prices? - The primary catalyst identified is a rise in LNG gas prices, which are currently viewed as unsustainable [30] Question: Are there plans to cut production below 8 million tons? - Currently, there are no plans to cut production below 8 million tons, with adjustments made based on sales cycles [49] Question: Will Hallador consider share buybacks given the depressed share price? - The primary goal remains debt reduction, with share buybacks considered once the debt-to-EBITDA ratio is under two times [59][60] Question: What is the perspective on natural gas and LNG market dynamics? - Management believes that the current low natural gas prices are unsustainable and anticipates a market correction as capital expenditures are cut [72][82]