SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[ x ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: December 31, 2012 OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 0-14731
“COAL KEEPS YOUR LIGHTS ON”
“COAL KEEPS YOUR LIGHTS ON”
HALLADOR ENERGY COMPANY
(www.halladorenergy.com)
COLORADO
(State of incorporation)
1660 Lincoln Street, Suite 2700, Denver, Colorado
(Address of principal executive offices)
Issuer's telephone number: 303.839.5504
84-1014610
(IRS Employer Identification No.)
80264-2701
(Zip Code)
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, $.01 par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:1)
No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes (cid:1) No (cid:3)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:3) No (cid:1)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. (cid:1)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes (cid:3) No (cid:1)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "larger accelerated filer," "accelerated filer" and "smaller reporting company" in Rule
12b-2 of the Exchange Act.
(cid:1) Large accelerated filer
(cid:1) Non-accelerated filer (do not check if a small reporting company)
(cid:1) Accelerated filer
(cid:3) Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes (cid:1) No (cid:3)
The aggregate market value of the common stock held by non-affiliates (public float) on June 30, 2012 was $64 million based on
the closing price reported that date by the NASDAQ of $8.48 per share.
As of March 6, 2013 we had 28.5 million shares outstanding. Portions of our information statement to be filed with the SEC in
connection with our annual stockholders’ meeting to be held on Thursday, April 18, 2013 are incorporated by reference into Part III
of this Form 10-K.
1
ITEM 1. BUSINESS.
General Development of Business
PART 1
In December 2009 we changed our name from Hallador Petroleum Company to Hallador Energy Company. We are a Colorado
corporation organized by our predecessor in 1949. 70% of our stock is held by officers, directors and their affiliates. Our stock is
thinly traded (average daily volume is 19,000 shares) on the NASDAQ Capital Market listing under the symbol HNRG.
The largest portion of our business is devoted to coal mining in the state of Indiana through Sunrise Coal LLC (a wholly-owned
subsidiary) serving the electric power generation industry. We also own a 45% equity interest in Savoy Energy, L.P., a private oil
and gas (O&G) exploration and production (E&P) company with operations in Michigan and a 50% interest in Sunrise Energy,
LLC, a private O&G E&P company with operations in Indiana. We account for our investments in Savoy and Sunrise Energy using
the equity method. Historically, through our Denver operations, we also lease oil and gas mineral rights with the intent to sell the
prospects to third parties and retain an overriding royalty interest (ORRI) or carried interest. In mid-July 2012 we decided to
substantially reduce these activities and our geologist who developed these prospects now works for us on a part-time basis.
Active Reserve (assigned) - Carlisle Mine (underground)
Our coal reserves at December 31, 2012 assigned to the Carlisle mine were 43.5 million tons (34.2 proven and 9.3 probable)
compared to beginning of year reserves of 46 million tons. Primarily through the execution of new leases, our reserve additions of
1.18 million tons replaced about 40% of our 2012 production of three million tons. We reduced our reserves by 700,000 tons due
to revised mining plans. The mine is located near the town of Carlisle, Indiana in Sullivan County and became operational in
January 2007. The coal is accessed with a slope to a depth of 340'. The coal is mined in the Indiana Coal V seam which is highly
volatile bituminous coal and is the most economically significant coal in Indiana. The Indiana V seam has been extensively mined
by underground and surface methods in the general area. The coal thickness in the project area is 4’ to 7’.
The mine has several advantages as listed below:
·
·
·
SO 2 - Historically, Carlisle has guaranteed a 6.0lb SO product, however, with the addition of Ace we can blend lower
sulfur coal with Carlisle coal and guarantee a mid-sulfur product which should command a higher price. Few mines in
the ILB have the ability to offer their customers various ranges of SO 2 . The Carlisle Mine has supplied coal to 11
different power plants. With the addition of low sulfur blend coal from Ace we expect our list of customers to grow.
Chlorine - Our reserves have lower chlorine (<0.10%) than the average ILB of 0.22%. Much of the ILB’s new production
is located in Illinois and possesses chlorine content in excess of .30%. The relatively low chlorine content of our
reserves is attractive to buyers given their desire to limit the corrosive effects of chlorine in their power plants.
Transportation - The Carlisle mine has a double 100 rail car loop facility and a four-hour certified batch load out facility
connected to the CSX railroad. The Indiana Rail Road (INRD) also has limited running rights on the CSX to our
mine. Dual rail access gives us a freight advantage to more customers. Long term, the CSX anticipates our coal being
shipped to southeast markets via their railroad. We sell our coal FOB the mine and substantially all of our coal is
transported by rail. However, on occasion we have shipped to three power plants via truck.
New Mine (assigned) - Ace-in-the-Hole Mine (surface)
In November of 2012 we purchased for $6 million permitted fee coal reserves, coal leases and surface properties near Clay City,
Indiana in Clay County. The Ace-in-the-Hole Mine is 42 road miles northeast of the Carlisle Mine. We control 3.1 million tons of
proven coal reserves of which we own 1.2 million tons in fee. We 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# SO 2 ). Mine development began in late
December 2012 and we expect to be shipping coal in March of 2013. We plan 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# SO 2 )
which cannot accept the higher sulfur contents of the Illinois Basin (ILB) (6# SO 2 ). Blending Carlisle coal to a lower sulfur
specification will enable us to market Carlisle coal to more customers. We currently have a contract at Carlisle which will require
us to blend coal from Ace to meet sulfur specifications. We also expect to ship low sulfur coal from Ace direct to unscrubbed
customers that require low sulfur (2# SO 2 ). We expect the maximum capacity of Ace to be 500,000 tons annually. Ace currently
has 20% of its capacity contracted for 2013 and 2014. We have invested $3 million in equipment and development as of
December 31, 2012 and we anticipate investing an additional $5.5 million in equipment and development in 2013.
2
New Reserve (unassigned) - Bulldog Mine
We have leased roughly 19,300 acres in Vermillion County, Illinois near the village of Allerton. Based on our reserve estimates
we currently control 35.6 million tons of coal reserves (19.5 proven and 16.1 probable). A considerable amount of our leased
acres has yet to receive any exploratory drilling, thus we anticipate our controlled reserves to grow as we continue drilling in
2013. The permitting process was started in the summer of 2011 and we filed the formal permit with the state of Illinois and the
appropriate Federal regulators during June 2012. We currently expect to receive an approved mining permit in the first quarter of
2014.
Full-scale mine development will not commence until we have a sales commitment.
New Reserve (unassigned) - Russellville
We have leased roughly 11,000 acres in Lawrence County, Illinois near the village of Russellville. Based on our reserve
estimates we currently control 29.4 million tons of coal reserves (15.5 proven and 13.9 probable). The permitting process will start
this fall and we anticipate filing the formal permit with the appropriate regulators during the second quarter of 2014. This reserve
is located about twenty miles southwest of the Carlisle mine. Our initial testing indicates that this reserve’s minability and coal
quality is very similar to the Carlisle reserve.
Unassigned reserves represent coal reserves that would require new mineshafts, mining equipment and plant facilities before
operations could begin on the property. The primary reason for this distinction is to inform investors which coal reserves will
require substantial capital expenditures before production can begin.
Reserve Table - Controlled Tons (in millions ):
Annual
Capacity
Year End Reserves
2012
2011
Carlisle (assigned)
Ace-in-the-Hole
(assigned)
Bulldog
(unassigned)
Russellville
(unassigned)
Total
3.3
.5
-
-
3.8
43.5
46.0
3.1
-
35.6
32.3
29.4
111.6
-
78.3
For 2012, we were able to increase our controlled reserves by 33.3 million tons or 43%. Additionally, we increased our production
capacity, through the addition of Ace, by .5 million tons annually or 15%.
Our Coal Contracts
Over the past three years we sold over 90% of our coal to three investment-grade customers. We have close relationships with
these customers: Duke Energy Corporation (NYSE:DUK), Hoosier Energy, an electric cooperative, and Indianapolis Power & Light
Company, a wholly-owned subsidiary of The AES Corporation (NYSE:AES). During 2011 we sold 300,000 tons of coal to
Jacksonville Electric Authority (JEA). The addition of JEA is noteworthy as this was the first time we have sold coal to a customer
as far as Jacksonville, Florida. We have no more contracts with JEA. During 2012 we sold 185,000 tons to an Orlando utility
through an arrangement we have with an affiliate of JP Morgan. We believe these sales are an indication of the trend of ILB coal
replacing CAAP coal that has traditionally supplied the southeast markets. We sell about one million tons per year to each of our
three major customers.
The table below illustrates the status of our current coal contracts:
Year
Contracted Tons
Average Price/Ton
2013
2014
Total
3,221,000
1,700,000
4,921,000
$40.49
$45.01
3
We expect to continue selling a significant portion of our coal under supply agreements with terms of one year or longer. Our
approach is to selectively renew, blend and extend existing contracts, or enter into new, coal supply contracts when we can do so
at prices we believe are favorable. It is our goal to maintain or increase our traditional average sales price per ton.
Typically, customers enter into coal supply agreements to secure reliable sources of coal at predictable prices while we seek
stable sources of revenue to support the investments required to open, expand and maintain or improve productivity at the mines
needed to supply these contracts. The terms of coal supply agreements result from competitive bidding and extensive
negotiations with customers.
Suppliers
The main types of goods we purchase are mining equipment and replacement parts, steel-related (including roof control)
products, belting products, lubricants, electricity, fuel and tires. Although we have many long, well-established relationships with
our key suppliers, we do not believe that we are dependent on any of our individual suppliers other than for purchases of
electricity. The supplier base providing mining materials has been relatively consistent in recent years. Purchases of certain
underground mining equipment are concentrated with one principle supplier; however, supplier competition continues to develop.
Illinois Basin (ILB)
The coal industry underwent a significant transformation in the early 1990s, as greater environmental accountability was
established in the electric utility industry. Through the U.S. Clean Air Act, acceptable baseline levels were established for the
release of sulfur dioxide in power plant emissions. In order to comply with the new law, most utilities switched fuel consumption to
low-sulfur coal, thereby stripping the ILB of over 50 million tons of annual coal demand. This strategy continued until mid 2000
when a shortage of low-sulfur coal drove up prices. This price increase combined with the assurance from the U.S. government
that the utility industry would be able to recoup their costs to install scrubbers caused utilities to begin investing in scrubbers on a
large scale. With scrubbers, the ILB has reopened as a significant fuel source for utilities and has enabled them to burn lower
cost, high sulfur coal.
The ILB consists of coal mining operations covering more than 50,000 square miles in Illinois, Indiana and western Kentucky. The
ILB is centrally located between four of the largest regions that consume coal as fuel for electricity generation (East North Central,
West South Central, West North Central and East South Central). The region also has access to sufficient rail and water
transportation routes that service coal-fired power plants in these regions as well as other significant coal consuming regions of
the South Atlantic and Middle Atlantic.
U. S. Coal Industry
According to the EIA, coal is expected to remain the largest energy source of electric power generation in the United States for the
foreseeable future.
The major coal production basins in the U.S. include Central Appalachia (CAPP), Northern Appalachia (NAPP), Illinois Basin
(ILB), Powder River Basin (PRB) and the Western Bituminous region (WB). CAPP includes eastern Kentucky, Tennessee, Virginia
and southern West Virginia. NAPP includes Maryland, Ohio, Pennsylvania and northern West Virginia. The ILB includes Illinois,
Indiana and western Kentucky. The PRB is located in northeastern Wyoming and southeastern Montana. The WB includes
western Colorado, eastern Utah and southern Wyoming.
Coal type varies by basin. Heat value and sulfur content are important quality characteristics and determine the end use for each
coal type.
Coal in the U.S. is mined through surface and underground mining methods. The primary underground mining techniques are
longwall mining and continuous (room-and-pillar) mining. The geological conditions dictate which technique to use. The Carlisle
mine uses the continuous technique. In continuous mining, rooms are cut into the coal bed leaving a series of pillars, or columns
of coal, to help support the mine roof and control the flow of air. Continuous mining equipment cuts the coal from the mining
face. Generally, openings are driven 20’ wide and the pillars are rectangular in shape measuring 40’x 40’. As mining advances, a
grid-like pattern of entries and pillars is formed. Roof bolts are used to secure the roof of the mine. Battery cars move the coal to
the conveyor belt for transport to the surface. The pillars can constitute up to 50% of the total coal in a seam.
The United States coal industry is highly competitive, with numerous producers selling into all markets that use coal. We compete
against large producers and hundreds of small producers. Peabody Energy Corporation (NYSE:BTU) and Alliance
(NASDAQ:ARLP) are the two largest operators in the ILB producing slightly less than half the ILB’s coal production.
4
There are some that believe natural gas (natgas) will overtake coal as the most economic way to produce electricity in the U.S. In
the event the government places a price tag on carbon emissions, natgas would gain another advantage over coal since electricity
from coal produces more carbon. The potential exists for natgas producers and utilities to develop a new relationship that has not
been possible historically.
Employees
Our coal operations currently employ about 330 people. We use a consulting geologist when evaluating new coal mine
projects. We also use a consultant to sell our coal, find new buyers and help in contract negotiations. The mine currently operates
two production shifts and one maintenance shift while coal is produced 265-275 days of the year. All of our mines are non-union.
Safety and Environmental Regulations
Our operations, like operations of other coal companies, are subject to extensive regulation, primarily by federal and state
authorities, on matters such as: air quality standards; reclamation and restoration activities involving our mining properties; mine
permits and other licensing requirements; water pollution; employee health and safety; management of materials generated by
mining operations; storage of petroleum products; protection of wetlands and endangered plant and wildlife protection. Many of
these regulations require registration, permitting, compliance, monitoring and self-reporting and may impose civil and criminal
penalties for non-compliance.
Additionally, the electric generation industry is subject to extensive regulation regarding the environmental impact of its power
generation activities, which could affect demand for our coal over time. The possibility exists that new legislation or regulations
may be adopted or that the enforcement of existing laws could become more stringent, causing coal to become a less attractive
fuel source and reducing the percentage of electricity generated from coal. Future legislation or regulation or more stringent
enforcement of existing laws may have a significant impact on our mining operations or our customers’ ability to use coal.
While it is not possible to accurately quantify the expenditures we incur to maintain compliance with all applicable federal and
state laws, those costs have been and are expected to continue to be significant. Federal and state mining laws and regulations
require us to obtain surety bonds or post letters of credit from our banks to guarantee performance or payment of certain long-
term obligations, including mine closure and reclamation costs.
Reclamation
The Carlisle mine began commercial production in February 2007 and is operating in compliance with all local, state, and federal
regulations. We have no old mine properties to reclaim, other than the Howesville mine, which was operated for only eight
months before it was closed in June 2006 due to safety concerns. During 2007, we finished Phase I of the reclamation of the
Howesville mine. We expect the final phase to be completed by the end of 2015.
Mining Permits and Approvals
Numerous governmental permits or approvals are required for mining operations. When we apply for these permits and approvals,
we may be required to prepare and present to federal, state or local authorities data pertaining to the effect or impact that any
proposed production or processing of coal may have upon the environment. The authorization, permitting and implementation
requirements imposed by any of these authorities may be costly and time consuming and may delay commencement or
continuation of mining operations. Regulations also provide that a mining permit or modification can be delayed, refused or
revoked if an officer, director or a shareholder with a 10% or greater interest in the entity is affiliated with another entity that has
outstanding permit violations. Thus, past or ongoing violations of federal and state mining laws could provide a basis to revoke
existing permits and to deny the issuance of additional permits.
In order to obtain mining permits and approvals from state regulatory authorities, mine operators must submit a reclamation plan
for restoring, upon the completion of mining operations, the mined property to its prior condition, productive use or other permitted
condition. Typically, we submit the necessary permit applications several months before we plan to begin mining a new area.
Some of our required permits are becoming increasingly more difficult and expensive to obtain, and the application review
processes are taking longer to complete and becoming increasingly subject to challenge. Under some circumstances, substantial
fines and penalties, including revocation or suspension of mining permits, may be imposed under the laws described above.
Monetary sanctions and, in severe circumstances, criminal sanctions may be imposed for failure to comply with these
laws. Compliance with these laws has increased the cost of coal mining for domestic coal producers.
5
Mine Health and Safety Laws
We are proud of our safety record. We comply with the rules and regulation issued by the Mine Safety and Health Administration
(MSHA) and also state rules and regulations. We applaud all reasonable rules and regulation that promote mine safety and keep
our miners out of harm’s way. Complying with these existing rules and proposed rules add to our mining costs.
Clean Air Act and Related Regulations
The federal Clean Air Act and similar state laws and regulations which regulate emissions into the air, affect coal mining, coal
handling and processing, primarily through permitting and/or emissions control requirements.
The Clean Air Act also indirectly affects coal mining operations by extensively regulating the air emissions of the coal-fired electric
power generating plants operated by our customers. Coal contains impurities, such as sulfur, mercury and other constituents,
many of which are released into the air when coal is burned. Carbon dioxide, a greenhouse gas (GHG), is also emitted when coal
is burned. Environmental regulations governing emissions from coal-fired electric generating plants could affect demand for coal
as a fuel source and affect the volume of our sales. For example, the federal Clean Air Act places limits on sulfur dioxide, nitrogen
dioxide, and mercury emissions from electric power plants.
The installation of additional control measures to achieve regulatory emission reductions makes it more costly to operate coal-fired
power plants and could make coal a less attractive fuel.
Other
We have no significant patents, trademarks, licenses, franchises or concessions.
Other than the 330 Sunrise Coal employees in Indiana, our CEO, CFO, controller, land person and two part time administrative
staff work in the Denver office.
Our Denver office is located at 1660 Lincoln Street, Suite 2700, Denver, Colorado 80264, phone 303.839.5504 and Sunrise Coal's
corporate office is located at 1183 Canvasback Drive, Terre Haute, Indiana 47802, phone 812.299.2800. Terre Haute is
approximately 70 miles west of Indianapolis. Our website is www.halladorenergy.com and Sunrise Coal’s is www.sunrisecoal.com.
ITEM 1A. RISK FACTORS.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Smaller reporting companies are not required to provide the information required by this item; however, there were none.
ITEM 2. PROPERTIES.
See pages two - three for a discussion of our mines.
Coal Reserve Estimates
“Reserves” are defined by the SEC Industry Guide 7 (Guide 7) as that part of a mineral deposit, which could be economically and
legally extracted or produced at the time of the reserve determination. “Recoverable” reserves mean coal that is economically
recoverable using existing equipment and methods under federal and state laws currently in effect. “Proven (measured) reserves”
are defined by Guide 7 as reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings
or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) the sites for inspection, sampling
and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content
of reserves are well-established. “Probable reserves” are defined by Guide 7 as reserves for which quantity and grade and/or
quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling,
and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that
for proven reserves, is high enough to assume continuity between points of observation.
Our reserve estimates were prepared by Samuel Elder and Jacob Gennicks, two of our mining engineers. Mr. Elder is a licensed
Professional Engineer in the State of Indiana and has over 25 years experience estimating coal reserves. Mr. Gennicks is a
licensed Professional Engineer in the State of Indiana and Illinois and has three years experience estimating coal reserves.
6
Standards set forth by the USGS were used to place areas of the mine reserves into the Proven (measured) and Probable
(indicated) categories. Under these standards, coal within 1,320' of a data point is considered to be proven, and coal within 1,320'
to 3,960' is placed in the Probable category. All reserves are stated as a final salable product.
ADDITIONAL DISCLOSURES FOR THE CARLISLE MINE
1.
The Carlisle mine currently has road frontage on State Highway 58, and is adjacent to the CSX railroad. The Carlisle mine
has a double 100 car loop facility. Substantially all of our coal is shipped by rail.
2. Currently only the Indiana V seam is planned to be mined, and all of the controlled tonnage is leased to Sunrise. Most
leases have unlimited terms once mining has begun, and yearly payments or earned royalties are kept current. Mineable
coal thickness used is greater than four feet. The current Carlisle mine plan is broken into four areas– North Main – South
Main – West Main – 2 South Main. It is believed that all additional property that would be required to access all lease areas
can be obtained but, if some properties cannot be leased, some modification of the current mine plan would be required. All
coal should be mined within the terms of the leases. Leasing programs are continuing by our staff.
3.
The Carlisle mine has a dual-use slope for the main coal conveyor and the moving of supplies and personnel. There are two
8' diameter shafts at the base of the slope for mine ventilation. Two additional air shafts (8’ and 10.5’ diameter) were
completed about three miles north of the original air shaft in 2009 to facilitate the mine expansion. The slope (9° or 15%
grade) is 18' wide with concrete and steel arch construction. A 16’ hoist is about four miles north of the main slope. The
hoist is currently facilitating two production units by efficiently moving personnel and materials into the north main and north
main addition areas of the reserve. All underground mining equipment is powered with electricity and underground
compliant diesel.
4.
The new slurry impoundment continues to be under construction, due in part to design modifications, but is currently
approved for, and being utilized for slurry disposal. When final construction is completed in 2013 the structure will handle
disposal for roughly 36 million clean tons of coal.
5. Current production capabilities are projected to be in the range of 3 to 3.3 million tons per year giving the mine a reserve life
of about 15 years. The mine plan is basic room-and-pillar using a synchronized continuous miner section with no retreat
mining. Plans are for pillars to be centered on a 60'x80' pattern with 18' entries for our mains, and pillars on 60'x60' centers
with 20' entries in the rooms.
6.
The Carlisle mine has been in production since February 2007. The North Main, Sub Main #1, and the South Main have
been developed with four units currently in production.
7. The Carlisle mine has two wash plants capable of 950 tons/hour of raw feed.
Inaccuracies in our estimates of our coal reserves could result in decreased profitability from lower than expected
revenues or higher than expected costs.
Our future performance depends on, among other things, the accuracy of our estimates of our proven and probable coal reserves.
We base our estimates of reserves on engineering, economic and geological data assembled, analyzed and reviewed by internal
engineers. We update our estimates of the quantity and quality of proven and probable coal reserves annually to reflect the
production of coal from the reserves, updated geological models and mining recovery data, the tonnage contained in new lease
areas acquired and estimated costs of production and sales prices. There are numerous factors and assumptions inherent in
estimating the quantities and qualities of, and costs to mine, coal reserves, including many factors beyond our control, including
the following:
• quality of the coal;
• geological and mining conditions, which may not be fully identified by available exploration data and/or may differ from our
experiences in areas where we currently mine;
• the percentage of coal ultimately recoverable;
7
• the assumed effects of regulation, including the issuance of required permits, taxes, including severance and excise taxes and
royalties, and other payments to governmental agencies;
• assumptions concerning the timing for the development of the reserves; and
• assumptions concerning equipment and productivity, future coal prices, operating costs, including for critical supplies such as
fuel, tires and explosives, capital expenditures and development and reclamation costs.
As a result, estimates of the quantities and qualities of economically recoverable coal attributable to any particular group of
properties, classifications of reserves based on risk of recovery, estimated cost of production, and estimates of future net cash
flows expected from these properties as prepared by different engineers, or by the same engineers at different times, may vary
materially due to changes in the above factors and assumptions. Actual production recovered from identified reserve areas and
properties, and revenues and expenditures associated with our mining operations, may vary materially from estimates.
ITEM 3. LEGAL PROCEEDINGS. None
ITEM 4. MINE SAFETY DISCLOSURES
See Exhibit 95 to this Form 10-K for a listing of our mine safety violations.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
Our common stock is traded on the NASDAQ Capital Market under the symbol HNRG. The following table sets forth the high and
low closing sales price for the periods indicated:
2013
(January 1 through March 6, 2013)
2012
Fourth quarter
Third quarter
Second quarter
First quarter
2011
Fourth quarter
Third quarter
Second quarter
First quarter
Special Cash Dividends
High
Low
$
8.35
$
7.34
10.11
8.51
9.01
10.83
10.47
10.22
12.05
11.43
8.03
7.25
6.56
8.70
8.55
8.25
9.42
9.79
During 2012 we paid three special dividends; April for $.14 per share, August for $.50 and December for $.16 for a total of $.80
per share.
During 2011 we paid one special dividend for $.12 and during 2010 we paid one special dividend for $.10. Over the last three
years we have paid out about $30 million in special dividends.
At March 6, 2013, we had 237 shareholders of record of our common stock; this number does not include the shareholders
holding stock in "street name.” We estimate we have over 900 street name holders.
8
Equity Compensation Plan Information
Restricted Stock Units
At December 31, 2012 we had 481,500 Restricted Stock Units (RSUs) outstanding and 870,000 available for future
issuance. The outstanding RSUs have a value of $3.8 million based on our current stock price of $8. During 2011, 30,000 RSUs
were granted with cliff vesting over three years; our stock closed at about $11 on grant date. In April 2012, we granted 143,000
RSUs with cliff vesting over three years; our stock closed at $9 on grant date. We expect 315,000 RSUs to vest during 2013 under
our current vesting schedule.
During 2012 and 2011, there were 297,500 and 345,000 RSUs that vested each year, respectively. On vesting date the shares
had a value of $2.2 million for 2012 and $3.7 million for 2011. Under our RSU plan participants are allowed to relinquish shares to
pay for their required minimum statutory income taxes.
Stock based compensation expense for 2012 was $2.7 million and for 2011 was $2.3 million. For 2013 based on existing RSUs
outstanding, stock based compensation expense will be $2.2 million.
Stock Options
On January 7, 2011 we allowed four Denver employees (non officers) the opportunity to exchange their remaining vested options
(234,167) for 140,000 shares of our common stock. The exchange ratio was based on the intrinsic value of their options. These
shares were issued under our Stock Bonus Plan. Under such plan our employees relinquished shares to pay for their required
minimum statutory income taxes.
On October 31, 2012 we paid our CEO $1.5 million in exchange for him relinquishing his 200,000 stock options with a $2.30 strike
price. The stock was selling for $9.50 on the transaction date. We no longer have any stock options outstanding.
Stock Bonus Plan
Our stock bonus plan was authorized by our BODs in late 2009 with 250,000 shares. As mentioned above under Stock Options,
during January 2011, 140,000 shares were issued. Currently, we have about 86,000 shares left in such plan.
ITEM 6. SELECTED FINANCIAL DATA.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our consolidated financial statements should be read in conjunction with this discussion.
Overview
The largest portion of our business is devoted to coal mining in the state of Indiana through Sunrise Coal LLC (a wholly-owned
subsidiary) serving the electric power generation industry. We also own a 45% equity interest in Savoy Energy, L.P., a private oil
and gas exploration company with operations in Michigan and a 50% interest in Sunrise Energy, LLC, a private gas exploration
company with operations in Indiana. We account for our investments in Savoy and Sunrise Energy using the equity
method. Historically, through our Denver operations, we also lease oil and gas mineral rights with the intent to sell the prospects
to third parties and retain an overriding royalty interest (ORRI) or carried interest. In mid-July 2012 we decided to substantially
reduce these activities and our geologist who developed these prospects now works for us on a part-time basis. Further below are
discussions of Savoy and our 2011 successful lease play in North Dakota.
Our largest contributor to revenue and earnings is the Carlisle underground coal mine located in western Indiana, about thirty
miles south of Terre Haute. The Carlisle mine was in the development stage from April of 2006 through January of 2007. Coal
shipments began February 5, 2007. Over 90% of our coal sales are to customers with large scrubbed coal-fired power plants in
the state of Indiana. Our mines and coal reserves are strategically located in close proximity to our primary customers, which
reduces transportation costs and thus provides us with a competitive advantage with respect to those customers; our closest
customer’s plant is 13 miles away and the farthest Indiana customer is 100 miles away. We have access to our primary
customers directly through either the CSX Corporation (NYSE: CSX) or through the Indiana Rail Road, majority owned by the
CSX.
9
These plants have made or announced plans to make significant investments in pollution control equipment. Due to these large
investments none of these plants are scheduled for retirement; thus we expect to be supplying these plants for many years. It is
not economical for the smaller, older, less efficient power plants to install scrubbers and other pollution control devices;
accordingly, those type plants most likely will be retired in the coming years.
Headwinds and Tailwinds affecting our company:
Headwinds
1.
2.
3.
4.
5.
6.
Competition from low-priced natgas
The Obama’s administration dislike of burning coal to generate cheap and reliable electricity
Onerous environmental regulations and overzealous mislead environmentalists
Competition from new mines opening in the Illinois Basin
Mild weather
Slow economy
Tailwinds
1.
2.
3.
4.
Illinois Basin (ILB) coal replacing Central Appalachia (CAAP) coal
More power plants are installing scrubbers enabling them to burn high-sulfur coal
Coal can compete with natgas down to $2.75/Mcf
Coal is fastest growing fuel worldwide, thus U.S. exports are increasing rapidly
For 2013 we will continue to focus on maintaining our low cost structure and leasing and permitting new reserves.
We see an increasing demand for coal produced in the ILB in the future. Demand for coal produced in the 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 CAAP coal. Many utilities are scrubbing to meet emission requirements beyond just sulfur compliance,
even utilities that burn exclusively PRB. Once scrubbed, those utilities are usually capable of burning ILB coal. It is this trend of
new scrubber installations coupled with rising CAAP cost structure that is leading to increased switching from CAAP coal to ILB
coal. Some fuel switching will also occur from PRB to ILB in newly scrubbed utilities located near ILB coal supply.
Prospective Information
See page five of this report for a table that illustrates the status of our current coal contracts.
Yorktown Distributions
As previously disclosed, Yorktown Energy Partners and its affiliated partnerships (Yorktown) have made six distributions to their
numerous partners totaling 4.5 million (750,000 per distribution) shares since May 2011. In the past these distributions are made
soon after we file our Form 10-Qs and Form 10-K. Currently they own about 11 million shares of our stock representing about
39% of total shares outstanding.
We have been informed by Yorktown that they have not made any determination as to the disposition of their remaining Hallador
stock. While we do not know Yorktown’s ultimate strategy to realize the value of their Hallador investment for their partners, we
expect that over time such distributions will improve our liquidity and float.
If and when we are advised of another Yorktown distribution we will timely report such on a Form 8-K.
Liquidity and Capital Resources
Cash provided by operations was $37 million for 2012. This amount is less than last year due primarily to lower coal sales and
payment of income taxes. Our capex budget for 2013 is $27 million. We expect to spend $14 million at the Carlisle mine, of
which $3 million is for airshafts, and $5.5 million at the new Ace-in-the-Hole surface mine. The remainder is for other projects.
Funding will come from cash from operations and draws from our new credit facility.
We have no material off-balance sheet arrangements.
10
Special Cash Dividends
During 2012 we paid three special dividends; April for $.14 per share, August for $.50 and December for $.16 for a total of $.80
per share.
During 2011 we paid one special dividend for $.12 and during 2010 we paid one special dividend for $.10. Over the last three
years we have paid out $30 million in special dividends.
Projects Update
See pages two-three of this report for a discussion of our current projects.
MSHA Reimbursements
Some of our coal contracts allow us to pass on certain costs incurred resulting from changes in costs to comply with mandates
issued by MSHA or other government agencies. In late December 2010, we submitted an analysis of such costs which was
reviewed by an outside consulting firm engaged by our customers. In January 2011 the two customers agreed to reimburse
us $1.9 million for costs incurred by us during 2008 and 2009. During those years we were not able to accurately estimate what
the ultimate outcome of these reimbursable costs would be so we did not record them until we were certain of the amounts and
certain of collection. Such amounts were recorded during the first quarter of 2011.
We submitted our incurred costs for 2010 in September of 2011 for $4.2 million. One of our customers agreed with our analysis
and paid $2.3 million in February 2012 and the other agreed with our analysis in May 2012. Accordingly, $2.3 million was recorded
in the first quarter and the other $1.9 million was recorded in the second quarter of 2012.
We submitted our incurred costs for 2011 in October of 2012 for $4.2 million. We will not recognize any revenue until the
customers have notified us that they accept the charges. We were notified in February 2013 that one of the customers is
substantially in agreement with our billings; we are still waiting to hear from the other customer. The amount that was agreed
upon by the first customer will be recorded in the first quarter of 2013.
2011 North Dakota Lease Play
We invested about $2.5 million in a lease play located in Slope, Hettinger and Stark counties of North Dakota. We sold the
property during 2011 and recognized a gain of $10.7 million. We retained a 10% working interest and an approximate 3%
average ORRI. If and when a well is proposed, we expect to participate in the drilling.
11
Results of Operations
Quarterly coal sales and cost data (in 000’s):
Coal sales
Tons sold
Average price/ton
Operating costs
Average cost/ton
Margin
Margin/ton
Capex
Coal sales
Tons sold
Average price/ton
Operating costs
Average cost/ton
Margin
Margin/ton
Capex
1st
29,620 $
701
42.25 $
18,433 $
26.30 $
11,187 $
15.96 $
2,372 $
1st
33,965 $
816
41.62 $
18,708 $
22.93 $
15,257 $
18.70 $
6,858 $
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2nd
3rd
4th
32,487 $
743
43.72 $
36,152 $
810
44.63 $
Year 2012
131,370
3,006
43.70
33,111 $
752
44.03 $
18,816 $
25.32 $
13,671 $
18.40 $
1,857 $
20,745 $
25.61 $
15,407 $
19.02 $
4,993 $
21,745 $
28.91 $
11,366 $
15.11 $
16,987 $
79,739
26.53
51,631
17.18
26,209
2nd
3rd
4th
32,136 $
765
42.01 $
34,174 $
805
42.45 $
Year 2011
137,998
3,307
41.73
37,723 $
921
40.96 $
17,902 $
23.40 $
14,234 $
18.61 $
5,700 $
19,355 $
24.04 $
14,819 $
18.41 $
4,467 $
21,129 $
22.94 $
16,594 $
18.02 $
15,970 $
77,094
23.31
60,904
18.42
32,995
For 2012, we sold 3,006,000 tons at an average price of $43.70/ton. For 2011 we sold 3,307,000 tons at an average price of
$41.73/ton. The warm winter and low natgas prices were the primary reasons our tons sold decreased. Our contracted tons for
2013 are 3.2 million tons at an average price of $40.49.
Operating costs and expenses averaged $26.53/ton in 2012 compared to $23.31 in 2011. The increase was due primarily to poor
mining conditions that we experienced during several months of the year. At times we also operated the mine on reduced hours
due to lower customer demand, which has a negative effect on productivity which translates to higher costs. As the mine expands
our costs will increase as we have more area to maintain. The mine’s mains covered 11.4 miles at December 31, 2012 compared
to 9.6 miles at December 31, 2011.
Capex in the fourth quarter of 2012 includes $9 million for the purchase of the Ace-in-the-Hole surface mine and another $4 million
for land at Bull Dog and Carlisle. Capex in the fourth quarter of 2011 includes $9 million for the purchase of land for the Bull Dog
mine.
Other analyses of results of operations
The decrease in equity income from Savoy was due to higher expenses in all categories plus a nonrecurring expense of $1.4
million for stock based compensation. Further below is a table setting forth Savoy’s operations in more detail for the last two
years.
The decrease in equity income from Sunrise Energy was due to lower natgas prices.
The increase in other income is due to higher MSHA reimbursements as more fully explained above under the heading “MSHA
Reimbursements.”
The increase in DD&A was due to additions to plant and equipment.
The increase in coal exploration costs relates primarily to higher drilling expense associated with the Bulldog Mine and to new
drilling associated with the Russellville reserve.
SG&A increased primarily due to higher expenses associated with the Bulldog Mine and the new Russellville unassigned reserve
and 2012 political contributions of $225,000.
12
Income Taxes
Our 2012 effective tax rate was 31% and we expect such rate to be in the 31-33% range for 2013. We estimate that 55% of such
rate will be for taxes currently due.
45% Ownership in Savoy
Savoy operates almost exclusively in Michigan. They have an interest in the Trenton-Black River Play in Southern
Michigan. They hold 164,000 gross acres (about 82,000 net) in this area. During 2012 Savoy drilled 27 gross wells in this play of
which 12 were dry and 15 were successful. During 2013 Savoy plans on drilling 20 or more additional wells in the play. Drilling
locations in this play are identified based on the evaluation of extensive 3-D seismic shoots. Savoy operates their own wells and
their working interest averages between 40 and 50% and their net revenue interest averages between 34 and 42%. Savoy’s net
daily oil production currently averages 910 barrels of oil. Savoy has an interest in about 83 wells (31 net).
The table below provides detail for Savoy’s operations for the last two years; such unaudited amounts are to the 100%, in other
words not shown proportionate to our 45% interest (financial statement data in thousands):
Revenue:
Oil
NGLs (natural gas liquids)
Gas
Contract drilling
Other
Total revenue
Costs and expenses:
LOE (lease operating expenses)
Severance tax
Contract drilling costs
DD&A (depreciation, depletion & amortization)
Geological and geophysical costs
Dry hole costs
Impairment of unproved properties
Other exploration costs
G&A (general & administrative)
Stock option expense
Total expenses
Net income
The information below is not in thousands:
Oil production in Bbls
4th quarter oil production in Bbls
Gas production in Mcf
Average oil prices/Bbl
Average NGL prices/Bbl
Average gas prices/Mcf
Oil reserves in Bbls
NGL reserves in Bbls
Gas reserves in Mcf
Oil prices used for SEC PV 10
PV 10: proved reserves
PV 10: proved developed reserves
13
$
2012
2011
25,830 $
926
368
4,555
373
32,052
2,659
2,015
3,161
6,387
3,208
3,244
3,778
340
1,287
1,448
25,781
868
566
4,336
446
31,997
2,257
2,037
2,559
4,733
1,973
1,852
2,963
357
1,166
27,527
19,897
$
4,525 $
12,100
295,000
76,000
126,000
88 $
47 $
2.92 $
283,000
76,600
134,500
91
$
62
$
$
4.20
1,545,000 1,921,000
95,000
2,448,000 2,491,000
$
94
91 $
$ 78,000,000 $ 97,000,000
$ 48,000,000 $ 44,000,000
64,000
Critical Accounting Estimates and Significant Accounting Policies
We believe that the estimates of our coal reserves and our deferred tax assets and liability accounts are our only critical
accounting estimates. The reserve estimates are used in the DD&A calculation, in our impairment test and in our internal cash
flow projections. If these estimates turn out to be materially under or over-stated; our DD&A expense and impairment test may be
affected. Furthermore, if our coal reserves are materially overstated our liquidity and stock price could be adversely affected.
We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns,
as well as all open tax years in these jurisdictions. We identified our Federal tax return and our Indiana state tax return as “major”
tax jurisdictions. The IRS recently completed an examination of our 2009 and 2010 federal tax returns and there were no
significant adjustments. During 2012 the state of Indiana completed their examination of our 2008-2010 returns and no
adjustments were proposed. We believe that our income tax filing positions and deductions will be sustained on audit and do not
anticipate any adjustments that will result in a material change to our consolidated financial position. Therefore, no reserves for
uncertain income tax positions have been recorded.
Our significant accounting policies are set forth in Note 1 to the Financial Statements.
New Accounting Pronouncements
None of the recent FASB pronouncements will have any material effect on us.
Political Contributions
During 2012 we donated $75,000 to the NMA (National Mining Association) Coal Values program which is to help elect pro-coal
mining candidates and to promote the use of coal. In April 2012 we made a $100,000 contribution to the Super PAC, Restore our
Future (ROF) and in September we made another $50,000 contribution to ROF. We expect such contributions to be minimal for
2013.
In future elections, we encourage all of our shareholders and employees to support those candidates who unequivocally promote
legislation and regulations that are favorable to the coal industry.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Smaller reporting companies are not required to provide the information required by this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheet
Consolidated Statement of Comprehensive Income
Consolidated Statement of Cash Flows
Consolidated Statement of Stockholders' Equity
Notes to Consolidated Financial Statements
Smaller reporting companies are not required to provide supplementary data.
14
15
16
17
18
19
20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Hallador Energy Company
Denver, Colorado
We have audited the accompanying consolidated balance sheet of Hallador Energy Company and Subsidiaries (the “Company”)
as of December 31, 2011 and 2012, and the related consolidated statements of comprehensive income, cash flows, and
stockholders' equity for each of the years in the two year period ended December 31, 2012. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Hallador Energy Company and Subsidiaries, as of December 31, 2011 and 2012, and the results of their operations and their
cash flows for each of the years in the two year period ended December 31, 2012, in conformity with accounting principles
generally accepted in the United States of America.
/s/ EKS&H LLLP
March 6, 2013
Denver, Colorado
15
Consolidated Balance Sheet
As of December 31,
(in thousands, except per share data)
I
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable
Coal inventory
Parts and supply inventory
Other
Total current assets
Coal properties, at cost:
Land and mineral rights
Buildings and equipment
Mine development
Less - accumulated DD&A
Investment in Savoy
Investment in Sunrise Energy
Other assets (Note 9)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of bank debt
Accounts payable and accrued liabilities
Income taxes
Other
Total current liabilities
Long-term liabilities:
Bank debt
Deferred income taxes
Asset retirement obligations
Other
Total long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.10 par value, 10,000 shares authorized; none issued
Common stock, $.01 par value, 100,000 shares authorized;
28,529 and 28,309 outstanding, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
See accompanying notes.
16
2012
2011
$
21,888 $
8,127
2,342
2,264
242
34,863
37,542
6,689
1,863
2,202
580
48,876
$
$
22,705
131,566
71,046
225,317
(58,479 )
166,838
12,230
3,969
11,307
229,207 $
16,465
121,242
66,614
204,321
(42,493 )
161,828
12,133
3,297
6,294
232,428
$
9,386
1,660
11,046
17,500
10,411
5,125
60
33,096
11,400
35,884
2,573
6,295
56,152
67,198
31,100
2,276
4,963
38,339
71,435
285
86,576
75,118
30
162,009
229,207 $
283
85,984
74,685
41
160,993
232,428
$
Consolidated Statement of Comprehensive Income
For the years ended December 31,
(in thousands, except per share data)
2012
2011
$
$
$
$
$
131,370
2,039
167
303
2,748
4,696
141,323
79,739
16,028
2,453
7,532
1,096
106,848
137,998
5,476
922
10,653
2,305
157,354
77,094
14,096
1,132
7,004
1,288
100,614
34,475
56,740
5,905
4,763
10,668
7,266
13,665
20,931
23,807 $
35,809
.84 $
.83 $
1.27
1.25
28,331
28,843
28,135
28,694
Revenue:
Coal sales
Equity income - Savoy
Equity income - Sunrise Energy
Gain on sale of unproved oil and gas properties
Gain on sale of land
Other income (Note 9)
Costs and expenses:
Operating costs and expenses
DD&A
Coal exploration costs
SG&A
Interest
Income before income taxes
Less income taxes:
Current
Deferred
Net income*
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
--------------------------------------------------------------------------------------
*There is no material difference between net income and comprehensive income.
17
See accompanying notes.
Consolidated Statement of Cash Flows
For the years ended December 31,
(in thousands)
Operating activities:
Net income
Gain on sale
Deferred income taxes
Equity income – Savoy and Sunrise Energy
Cash distributions from Savoy
DD&A
Stock-based compensation
Taxes paid on vesting of RSUs
Change in current assets and liabilities:
Accounts receivable
Coal inventory
Income taxes
Accounts payable and accrued liabilities
Other
Cash provided by operating activities
Investing activities:
Proceeds from sale of properties
Capital expenditures for coal properties
Investment in Sunrise Energy
Marketable securities
Other
Cash used in investing activities
Financing activities:
Payments of bank debt
Bank borrowings
Deferred financing costs
Dividends
Stock option buy-out
Tax benefit from stock-based compensation
Cash used in financing activities
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Cash paid for interest
Cash paid for income taxes
Changes in accounts payable for coal properties
See accompanying notes.
18
2012
2011
23,807 $
(3,051 )
4,763
(2,206 )
1,943
16,028
2,655
(739 )
(1,058 )
(479 )
(3,465 )
1,060
(2,216 )
37,042
7,630
(26,209 )
(506 )
(1,221 )
(48 )
(20,354 )
(7,500 )
1,400
(1,544 )
(23,374 )
(1,461 )
137
(32,342 )
(15,654 )
37,542
21,888 $
35,809
(10,653 )
13,665
(6,398 )
1,060
14,096
2,331
(1,661 )
221
236
8,978
1,751
1,285
60,720
13,195
(32,995 )
(2,257 )
865
(21,192 )
(10,000 )
(3,505 )
1,242
(12,263 )
27,265
10,277
37,542
622 $
9,250 $
(567 ) $
1,508
100
(358 )
$
$
$
$
$
Consolidated Statement of Stockholders’ Equity
(in thousands)
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
279 $
84,073 $
42,381
Shares
27,924 $
AOCI*
Total
126,733
$
Balance January 1, 2011
Stock-based compensation
Exercise of employee
stock
options for shares
Taxes paid for shares issued to
employees
Stock issued on vesting of RSUs
Taxes paid on vesting of RSUs
Tax benefit
from stock-based
compensation
Dividends
Net income
Other
11
2,331
181
1
(1 )
(41 )
345
(111 )
3
(469 )
(1,192 )
1,242
(3,505 )
35,809
$
74,685
41
41
Balance December 31, 2011
28,309
283
85,984
Stock-based compensation
Stock issued on vesting of RSUs
Taxes paid on vesting of RSUs
Stock option buy-out for cash
Tax benefit
from stock-based
compensation
Dividends
Net income
Other
20
290
(90 )
2
2,655
(739 )
(1,461 )
137
( 23,374 )
23,807
Balance December 31, 2012
28,529 $
285 $
86,576 $
75,118 $
(11 )
30 $
See accompanying notes.
______________________________________
*Accumulated Other Comprehensive Income
19
2,331
(469 )
3
(1,192 )
1,242
(3,505 )
35,809
41
160,993
2,655
2
(739 )
(1,461 )
137
(23,374 )
23,807
(11 )
162,009
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The consolidated financial statements include the accounts of Hallador Energy Company (the “Company”) and its wholly-owned
subsidiary Sunrise Coal, LLC (Sunrise). All significant intercompany accounts and transactions have been eliminated. We are
engaged in the production of steam coal from mines located in western Indiana. We own a 45% equity interest in Savoy Energy
L.P., a private oil and gas company which has operations in Michigan and a 50% interest in Sunrise Energy LLC, a private entity
engaged primarily in natgas operations in the same vicinity as our coal mine.
Reclassification
To maintain consistency and comparability, certain amounts in the 2011 financial statements have been reclassified to conform to
current year presentation.
Inventories
Coal and supplies inventories are valued at the lower of average cost or market. Coal inventory costs include labor, supplies,
equipment costs and overhead.
Advance Royalties
Coal leases that require minimum annual or advance payments and are recoverable from future production are generally deferred
and charged to expense as the coal is subsequently produced.
Coal Properties
Coal properties are recorded at cost. Interest costs applicable to major asset additions are capitalized during the construction
period. Expenditures that extend the useful lives or increase the productivity of the assets are capitalized. The cost of
maintenance and repairs that do not extend the useful lives or increase the productivity of the assets are expensed as
incurred. Other than land and underground mining equipment, coal properties are depreciated using the units-of-production
method over the estimated recoverable reserves. Surface and underground mining equipment is depreciated using estimated
useful lives ranging from five to twenty years.
If facts and circumstances suggest that a long-lived asset may be impaired, the carrying value is reviewed for recoverability. If this
review indicates that the carrying value of the asset will not be recoverable through estimated undiscounted future net cash flows
related to the asset over its remaining life, then an impairment loss is recognized by reducing the carrying value of the asset to its
estimated fair value.
Mine Development
Costs of developing new coal mines, including asset retirement obligation assets, or significantly expanding the capacity of
existing mines, are capitalized and amortized using the units-of-production method over estimated recoverable (proved and
probable) reserves.
Asset Retirement Obligations (ARO) - Reclamation
At the time they are incurred, legal obligations associated with the retirement of long-lived assets are reflected at their estimated
fair value, with a corresponding charge to mine development. Obligations are typically incurred when we commence development
of underground mines, and include reclamation of support facilities, refuse areas and slurry ponds.
Obligations are reflected at the present value of their future cash flows. We reflect accretion of the obligations for the period from
the date they are incurred through the date they are extinguished. The asset retirement obligation assets are amortized using the
units-of-production method over estimated recoverable (proved and probable) reserves. We are using a 6% discount rate.
20
Federal and state laws require that mines be reclaimed in accordance with specific standards and approved reclamation plans, as
outlined in mining permits. Activities include reclamation of pit and support acreage at surface mines, sealing portals at
underground mines, and reclamation of refuse areas and slurry ponds.
We assess our ARO at least annually and reflect revisions for permit changes, changes in our estimated reclamation costs and
changes in the estimated timing of such costs.
The table below (in thousands) reflects the changes to our ARO:
Balance beginning of year
Accretion
Additions
Balance end of year
Statement of Cash Flows
2012
2011
$
$
2,276 $
138
159
2,573 $
1,150
76
1,050
2,276
Cash equivalents include investments with maturities when purchased of three months or less.
Income Taxes
Income taxes are provided based on the liability method of accounting. The provision for income taxes is based on pretax
financial income. Deferred tax assets and liabilities are recognized for the future expected tax consequences of temporary
differences between income tax and financial reporting and principally relate to differences in the tax basis of assets and liabilities
and their reported amounts, using enacted tax rates in effect for the year in which differences are expected to reverse.
Earnings per Share
Basic earnings per share are computed on the basis of the weighted average number of shares of common stock outstanding
during the period. Diluted earnings per share are computed on the basis of the weighted average number of shares of common
stock plus the effect of dilutive potential common shares outstanding during the period using the treasury stock method. Dilutive
potential common shares include restricted stock units.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted accounting principles requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual amounts
could differ from those estimates. The most significant estimates included in the preparation of the financial statements are
related to deferred income tax assets and liabilities and coal reserves.
Revenue Recognition
We recognize revenue from coal sales at the time risk of loss passes to the customer at contracted amounts and amounts are
deemed collectible.
Long-term Contracts
We evaluate each of our contracts to determine whether they meet the definition of a derivative and they do not. As of December
31, 2012, we are committed to supply to three customers 4.9 million tons of coal during the next two years. During 2012 and 2011,
three of our customers accounted for 90% or more of our coal sales: for 2012, one customer accounted for 46%, the second for
31%, and the third for 16%; for 2011, one customer accounted for 43%, the second for 29%, and the third for 17%.
We are paid every two to four weeks and do not expect any credit losses.
Stock-based Compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense over
the applicable vesting period of the stock award (generally three to four years) using the straight-line method.
21
New Accounting Pronouncements
None of the recent FASB pronouncements will have any material effect on us.
Subsequent Events
We have evaluated all subsequent events through the date the financial statements were issued. No material recognized or non-
recognizable subsequent events were identified.
(2) Bill and Hold
Earlier in 2012 two of our customers advised us that their coal stockpiles were increasing and asked us to consider storing their
coal on our property. In April 2012 we entered into a storage agreement with one customer to store 250,000 tons for a minimum of
one year and up to a maximum of two years. In June 2012 we entered into a similar storage agreement with the second customer.
We continue to sell the coal as contracted to these customers. The risks and rewards of ownership pass from us to them as coal
is placed into segregated storage. We are paid a nominal storage fee in addition to our contracted price at the time the coal is
placed in storage. As of December 31, 2012, we have stored 250,000 tons for the first customer and 155,000 tons for the second.
We have recognized about $20 million in revenue from these “bill and hold” arrangements. There were no change in payment
terms with our customers and, as of January 31, 2013, all receivables outstanding at December 31, 2012 have been collected.
(3) Income Taxes (in thousands)
Our income tax is different than the expected amount computed using the applicable federal and state statutory income tax
rates. The reasons for and effects of such differences for the years ended December 31 are below:
Expected amount
State income taxes, net of federal benefit
Other
2012
2011
$
$
12,064 $
1,723
(3,119 )
10,668 $
19,859
2,950
(1,878 )
20,931
The deferred tax assets and liabilities resulting from temporary differences between book and tax basis are comprised of the
following at December 31:
Long-term deferred tax assets:
AMT credit carryforwards
Stock-based compensation
Investment in Savoy
Oil and gas properties
Net long-term deferred tax assets
Long-term deferred tax liabilities:
Coal properties
Net deferred tax liability
2012
2011
$
- $
582
1,582
1,778
3,942
1,137
596
960
1,540
4,233
(39,826 )
35,884 $
(35,333 )
31,100
$
We have analyzed our filing positions in all of the federal and state jurisdictions where we are required to file income tax returns,
as well as all open tax years in these jurisdictions. We identified our federal tax return and our Indiana state tax return as “major”
tax jurisdictions. The IRS recently completed an examination of our 2009 and 2010 federal tax returns and there were no
significant adjustments. During 2012 the state of Indiana completed their examination of our 2008-2010 returns and no
adjustments were proposed. We believe that our income tax filing positions and deductions will be sustained on audit and do not
anticipate any adjustments that will result in a material change to our consolidated financial position. Therefore, no reserves for
uncertain income tax positions have been recorded.
22
(4) Stock Compensation Plans
Restricted Stock Units
At December 31, 2012 we had 481,500 Restricted Stock Units (RSUs) outstanding and 870,000 available for future
issuance. The outstanding RSUs have a value of $3.5 million based on our current stock price of $7.34. During 2011, we granted
30,000 RSUs with cliff vesting over three years; our stock closed at $11 on grant date. In April 2012, we granted 143,000 RSUs
with cliff vesting over three years; our stock closed at $9 on grant date. We expect 315,000 RSUs to vest during 2013 under our
current vesting schedule.
During 2012 and 2011, there were 297,500 and 345,000 RSUs that vested, respectively. On the vesting dates the shares had a
value of $2.2 million for 2012 and $3.7 million for 2011. Under our RSU plan participants are allowed to relinquish shares to pay
for their required minimum statutory income taxes.
Stock-based compensation expense for 2012 was $2.7 million and for 2011 was $2.3 million. For 2013 based on existing RSUs
outstanding, stock-based compensation expense will be $2.2 million.
Stock Options
On January 7, 2011 we allowed four Denver employees (non officers) the opportunity to exchange their remaining vested options
(234,167) for 140,000 shares of our common stock. The exchange ratio was based on the intrinsic value of their options. These
shares were issued under our Stock Bonus Plan. Under such plan our employees relinquished shares to pay for their required
minimum statutory income taxes.
On October 31, 2012 we paid our CEO $1.5 million in exchange for him relinquishing his 200,000 stock options with a $2.30 strike
price. The stock was selling for $9.50 on the transaction date. We no longer have any stock options outstanding.
Stock Bonus Plan
Our stock bonus plan was authorized in late 2009 with 250,000 shares. As mentioned above under Stock Options, during January
2011, about 140,000 shares were issued. Currently, we have about 86,000 shares left in such plan.
(5) Bank Debt
During October 2012, Sunrise Coal, our wholly-owned subsidiary, entered into a new credit agreement (the “Credit Agreement”)
with PNC Bank, as administrative agent, and the lenders named therein. The Credit Agreement replaces the previous credit
agreement we had with PNC. Closing costs on this new facility were about $1.5 million which were deferred and are being
amortized over five years. Outstanding debt at December 31, 2012 was $11.4 million.
The Credit Agreement provides for a $165 million senior secured revolving credit facility. The facility matures in five years. The
facility is collateralized by substantially all of Sunrise’s assets and we are the guarantor. We will draw on the facility as needed for
development of our new projects in Illinois and Indiana.
All borrowings under the Credit Agreement bear interest, at LIBOR plus 2% if the leverage ratio is less than 1.5X, LIBOR plus
2.5% if the leverage ratio is over 1.5 but less than 2X and at LIBOR plus 3% if the leverage ratio is over 2X. The maximum
leverage ratio is 2.75X. The leverage ratio is equal to funded debt/EBITDA.The annual commitment fee is 50 BPS but falls to 37.5
BPS if we borrow more than 33% of the facility. The maximum that we can currently borrow is $125 million. The Credit Agreement
also imposes certain other customary restrictions and covenants as well as certain milestones we must meet in order to draw
down the full amount.
23
(6) Equity Investment in Savoy
We own a 45% interest in Savoy Energy L.P. (Savoy), a private company engaged in the oil and gas business primarily in the
State of Michigan. Savoy uses the successful efforts method of accounting. We account for our interest in Savoy using the equity
method of accounting.
Below (in thousands) to the 100% is a condensed balance sheet at December 31, for both years and a condensed statement of
operations for both years.
Condensed Balance Sheet
Current assets
Oil and gas properties, net
Other
Total liabilities
Partners' capital
Revenue
Expenses
Net income
(7) Equity Investment in Sunrise Energy
Condensed Statement of Operations
2012
2011
$
$
$
$
16,207 $
21,065
263
37,535 $
9,116 $
28,419
37,535 $
16,200
17,973
2,152
36,325
9,469
26,856
36,325
2012
2011
$
$
32,052 $
(27,527 )
4,525 $
31,997
(19,897 )
12,100
In late December 2010 we invested $2.4 million for a 50% interest in Sunrise Energy, LLC which then purchased existing gas
reserves and gathering equipment from an unrelated third party with plans to develop and operate such reserves. An additional
$506,000 was invested in January 2012. Sunrise Energy also plans to develop and explore for coal-bed methane gas reserves on
or near our underground coal reserves. Development is pending an increase in natgas prices. They use the successful efforts
method of accounting. We account for our interest using the equity method of accounting.
Below (in thousands) to the 100% is a condensed balance sheet at December 31, for both years and a condensed statement of
operations for both years. Sunrise Energy’s proved oil and gas reserves are not material.
Condensed Balance Sheet
Current assets
Oil and gas properties, net
Total liabilities
Members' capital
Revenue
Expenses
Net income
24
Condensed Statement of Operations
2012
2011
1,754 $
6,934
8,688 $
762 $
7,926
8,688 $
1,916
6,236
8,152
1,558
6,594
8,152
2012
2011
2,450 $
(2,117 )
333 $
3,951
(2,107 )
1,844
$
$
$
$
$
$
(8) Employee Benefits
We have no defined benefit pension plans or any post-retirement benefit plans. We offer our employees a 401(k) Plan, where we
match 100% of the first 4% that an employee contributes, a bonus plan based on meeting certain production levels and a
discretionary Deferred Bonus Plan for certain key employees. We also offer health benefits to all employees and their families.
We have 1,050 participants in our employee health plan. The plan does not cover dental, vision, short-term or long-term disability.
These coverages are available on a voluntary basis. We bear some of the risk of our employee health plans. Our health claims
are capped at $110,000 per person with a maximum annual exposure of $3.6 million. Our 2012 expense for the 401(k) matching
was $0.617 million and our expense for health benefits was $3.6 million. Our 2011 expense for the 401(k) matching was $0.486
million and our expense for health benefits was $3.2 million. The 2012 expense for the Deferred Bonus Plan was $367,000 and
the 2011 expense was $254,000. The expense for the production bonus plan was $684,000 for 2012 and $910,000 for 2011.
Our mine employees are also covered by workers’ compensation and such costs for 2012 and 2011 were about $0.875 million
and $1.3 million, respectively. Workers’ compensation is a no-fault system by which individuals who sustain work related injuries
or occupational diseases are compensated. Benefits and coverage are mandated by each state which includes disability ratings,
medical claims, rehabilitation services, and death and survivor benefits. Our operations are protected from these perils through
insurance policies. Our maximum annual exposure is limited to $1 million per employee with a $4 million aggregate deductible.
Based on discussions and representations from our insurance carrier we believe that our reserve for our workers’ compensation
benefits is adequate. We have a safety conscious work force and our worker’s compensation injuries have been minimal. Our
Carlisle mine has been in operation for six years.
(9) Other Long-term Assets and Other Income
Long-term assets:
Advance coal royalties
Deferred financing costs, net
Marketable equity securities available for sale at fair value (restricted)*
Miscellaneous
___________________________________________________________________
*Held by Sunrise Indemnity, Inc., our wholly-owned captive insurance company.
Other income:
MSHA reimbursements**
Miscellaneous
2012
2011
3,324 $
1,494
3,548
2,941
11,307 $
3,205
295
2,326
468
6,294
4,236 $
460
4,696 $
1,900
405
2,305
$
$
$
$
**See “MSHA Reimbursements” in the MD&A section for a discussion of these amounts.
(10) Self Insurance
In late August 2010 we decided to terminate the property insurance on our underground mining equipment. Such equipment is
allocated among five mining units spread out over 11 miles. The historical cost of such equipment is about $100 million.
(11) Gain on Sale
See “North Dakota Lease Play” in our MD&A section for a discussion of the $10.7 million gain on sale recognized in 2011.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable .
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls
We maintain a system of disclosure controls and procedures that are designed for the purposes of ensuring that information
required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in
the SEC's rules and forms, and that such information is accumulated and communicated to our CEO and CFO as appropriate to
allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of
our CEO and CFO of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that
evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective for the purposes discussed
above.
Internal Control Over Financial Reporting (ICFR )
We are responsible for establishing and maintaining adequate ICFR. We assessed the effectiveness of our ICFR based on
criteria for effective ICFR described in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on our assessment, we concluded that we maintained effective ICFR as of December 31, 2012.
There has been no change in our internal control over financial reporting during the quarter ended December 31, 2012 that has
materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This annual report does not include an attestation report from EKSH our auditors, regarding ICFR. Our report was not subject to
attestation by EKSH pursuant to existing rules of the SEC that permits us to provide only our report in this annual report.
ITEM 9B. OTHER INFORMATION None.
PART III
The information required for Items 10-14 are hereby incorporated by reference to that certain information in our Information
Statement to be filed with the SEC during March 2013.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
.
26
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
See Item 8 for an index of our financial statements.
PART IV
Because we are a smaller reporting company we are not required to provide financial statement schedules.
Our exhibit index is as follows:
3.1 Second Restated Articles of Incorporation of Hallador Energy Company effective December 24, 2009. (1)
3.2 By-laws of Hallador Energy Company, effective December 24, 2009 (1)
10.1 Purchase and Sale Agreement dated December 31, 2005 between Hallador Petroleum Company, as Purchaser and
Yorktown Energy Partners II, L.P., as Seller relating to the purchase and sale of limited partnership interests in Savoy
Energy Limited Partnership (2)
10.2 Letter of Intent dated January 5, 2006 between Hallador Petroleum Company and Sunrise Coal, LLC (3)
10.3 Subscription Agreement - by and between Hallador Petroleum Company and Yorktown Energy Partners VI, L.P., et al dated
February 22, 2006. (2)
10.4 Subscription Agreements - by and between Hallador Petroleum Company and Hallador Alternative Assets Fund LLC, et al
dated February 14, 2006. (3)
10.5 Continuing Guaranty, dated April 19, 2006, by Hallador Petroleum Company in favor of Old National Bank (6)
10.6 Collateral Assignment of Hallador Master Purchase/Sale Agreement, dated April 19, 2006, among Hallador Petroleum
Company, Hallador Petroleum, LLLP, and Hallador Production Company and Old National Bank (6)
10.7 Reimbursement Agreement, dated April 19, 2006, between Hallador Petroleum Company and Sunrise Coal, LLC (6)
10.8 Membership Interest Purchase Agreement dated July 31, 2006 by and between Hallador Petroleum Company and Sunrise
Coal, LLC. (7)
10.9 Subscription Agreements - by and between Hallador Petroleum Company and Yorktown Energy Partners VII, L.P., et al
dated October 5, 2007 (7)
10.10 Purchase and Sale Agreement dated effective as of October 5, 2007 between Hallador Petroleum Company, as Purchaser
and Savoy Energy Limited Partnership, as Seller (11)
10.11 First Amendment to Credit Agreement, Waiver and Ratification of Loan Documents dated June 28, 2007 by and between
Sunrise Coal, LLC, Hallador Petroleum Company and Old National Bank (9)
10.12 Amended and Restated Continuing Guaranty, dated as of June 28, 2007, between Hallador Petroleum Company, Sunrise
Coal, LLC, and Old National Bank. (10)
10.13 Hallador Petroleum Company Restricted Stock Unit Issuance Agreement dated as of June 28, 2007, between Hallador
Petroleum Company and Victor P. Stabio (10)*
10.14 Hallador Petroleum Company Restricted Stock Unit Issuance Agreement dated as of July 19, 2007, between Hallador
Petroleum Company and Brent Bilsland (11)*
10.15 Hallador Petroleum Company 2008 Restricted Stock Unit Plan. (12)*
10.16 Form of Amended and Restated Purchase and Sale Agreement dated July 24, 2008 to purchase additional minority interest
from Sunrise Coal, LLC's minority members (13)
10.17 Form of Hallador Petroleum Company Restricted Stock Unit Issuance Agreement dated July 24, 2008 (13)*
10.18 Credit Agreement dated December 12, 2008, by and among Sunrise Coal, LLC, Hallador Petroleum Company as a
Guarantor, PNC Bank, National Association as administrative agent for the lenders, and the other lenders party thereto. (14)
27
10.19 Continuing Agreement of Guaranty and Suretyship dated December 12, 2008, by Hallador Petroleum Company in favor of
PNC Bank, National Association (14)
10.20 Amended and Restated Promissory Note dated December 12, 2008, in the principal amount of $13,000,000, issued by
Sunrise Coal, LLC in favor of Hallador Petroleum Company (14)
10.21 Form of Purchase and Sale Agreement dated September 16, 2009 (15)
10.22 Form of Subscription Agreement dated September 15, 2009 (15)
10.23 Form of Hallador Petroleum Company Restricted Stock Unit Issuance Agreement. (15)*
10.24 2009 Stock Bonus Plan (16)*
10.25 $165,000,000 Revolving Credit Facility (17)
14
21.1 List of Subsidiaries (18)
23.1 Consent of EKSH, our auditors (18)
31 SOX 302 Certifications (18)
32 SOX 906 Certification (18)
95 Mine Safety Disclosure (18)
Interactive data files.
101
Code of Ethics For Senior Financial Officers (5)
---------------------------------------
(1) IBR to Form 8-K dated December 31, 2009.
(2) IBR to Form 8-K dated January 3, 2006.
(3 ) IBR to Form 8-K dated January 6, 2006.
(4) IBR to Form 8-K dated February 27, 2006.
(5) IBR to the 2005 Form 10-KSB.
(6) IBR to Form 8-K dated April 25, 2006.
(7) IBR to Form 8-K dated August 1, 2006.
(8) IBR to Form 10-QSB dated September 30, 2007.
(9) IBR to Form 10-QSB dated June 30, 2007.
* Management contracts or compensatory plans.
28
(10) IBR to Form 8-K dated July 2, 2007.
(11) IBR to Form 10-KSB dated December 31, 2007.
(12) IBR to March 31, 2007 Form 10-Q.
(13) IBR to Form 8-K dated July 24, 2008.
(14) IBR to Form 8-K dated December 12, 2008.
(15) IBR to Form 8-K dated September 18, 2009.
(16) IBR to Form S-8 dated December 1, 2009.
(17) IBR to Form 8-K dated October 18, 2012
(18) Filed herewith.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
HALLADOR ENERGY COMPANY
Date: March 6, 2013
/s/W. ANDERSON BISHOP
W. Anderson Bishop, CFO and CAO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
/ s/DAVID HARDIE
David Hardie
/ s/VICTOR P. STABIO
Victor P. Stabio
/s/BRYAN LAWRENCE
Bryan Lawrence
/ s/BRENT BILSLAND
Brent Bilsland
Chairman
March 6, 2013
CEO and Director
March 6, 2013
Director
March 6, 2013
President and Director
March 6, 2013
/s/JOHN VAN HEUVELEN
John Van Heuvelen
Director
March 6, 2013
29
Exhibit 21.1
List of Subsidiaries
Sunrise Coal LLC
Sunrise Energy, LLC
Sunrise Indemnity, Inc.
Savoy Energy, L.P.
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-
163431 and No. 333-171778) of Hallador Energy Company, of our report dated March 6, 2013, on the
consolidated financial statements of Hallador Energy Company which appears in this Form 10-K for the year
ended December 31, 2012.
March 6, 2013
Denver, Colorado
/s/ EKS&H LLLP
Exhibit 31.1
CERTIFICATION
I, Victor P. Stabio, certify that:
1. I have reviewed this annual report on Form 10-K of Hallador Energy Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
March 6, 2013
/s/VICTOR P. STABIO
Victor P. Stabio, CEO
Exhibit 31.2
CERTIFICATION
I, W. Anderson Bishop, certify that:
1. I have reviewed this annual report on Form 10-K of Hallador Energy Company;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant's internal control over financial reporting.
March 6, 2013
/s/W. Anderson Bishop
W. Anderson Bishop, CFO
EXHIBIT 32
CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Hallador Energy Company (the "Company"), on Form 10-K for the
period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), the undersigned, in the capacities and date indicated below, each hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his
knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
March 6, 2013
By:
/ s/VICTOR P. STABIO
Victor P. Stabio, CEO
/ s/W.ANDERSON BISHOP
W. Anderson Bishop, CFO
Exhibit 95 Mine Safety Disclosure
Our principles are safety, honesty, and compliance. We firmly believe that these values compose a dedicated workforce and with
that, come high production. The core to this is our strong training programs that include accident prevention, workplace inspection
and examination, emergency response, and compliance. We work with the Federal and State regulatory agencies to help
eliminate safety and health hazards from our workplace and increase safety and compliance awareness throughout the mining
industry. Sunrise has not had a fatality since its establishment in 2005.
Sunrise is regulated by the MSHA under the Federal Mine Safety and Health Act of 1977 (“Mine Act”). MSHA inspects our mine
on a regular basis and issues various citations and orders when it believes a violation has occurred under the Mine Act. We
present information below regarding certain violations which MSHA has issued with respect to our mine. While assessing this
information please consider that the number and cost of violations will vary depending on the MSHA inspector and can be
contested and appealed, and in that process, and are often reduced in severity and amount, and are sometimes dismissed. We
are currently contesting four citations with MSHA; some involve the amount of the assessments and some involve the citation
itself.
Sunrise has not been issued written notice from MSHA of a pattern of, or the potential to have a pattern of, violations of mandatory
health or safety standards that are of such a nature as could significantly and substantially cause and effect health or safety
standards under section 104(e) of the Mine Act.
The table that follows outlines citations and orders issued to us by MSHA during 2012. The citations and orders outlined below
may differ from MSHA`s data retrieval system due to timing, special assessed citations, and other factors.
Definitions:
Section 104(a) Significant and Substantial Citations “S&S”: An alleged violation of a mining safety or health standard or regulation
where there exists a reasonable likelihood that the hazard outlined will result in an injury or illness of a serious nature.
Section 104(b) Orders: Failure to abate a 104(a) citation within the period of time prescribed by MSHA. The result of which is an
order of immediate withdraw of non-essential persons from the affected area until MSHA determines the violation has been
corrected.
Section 104(d) Citations and Orders: An alleged unwarrantable failure to comply with mandatory health and safety standards.
Section 107(a) Orders: An order of withdraw for situations where MSHA has determined that an imminent danger exists.
Section 110(b)(2) Violations: An alleged flagrant violation issued by MSHA under section 110(b)(2) of the Mine Act.
Pattern or Potential Pattern of Violations: A pattern of violations of mandatory health or safety standards that are of such a nature
as could have significantly and substantially contributed to the cause and effect of coal mine health or safety hazards under
section 104(e) of the Mine Act or a potential to have such a pattern.
Contest of Citations, Orders, or Proposed Penalties: A contest proceeding may be filed with the Commission by the operator or
miners/miners representative to challenge the issuance or penalty of a citation or order issued by MSHA.
Month
January
February
March
April
May
June
July
August
September
October
November
December
Totals
Section
104(a)
Citations
Section
104(b)
Orders
Section
104(d)
Citation/Orders
Section
107(a)
Orders
Section
110(b)(2)
Violations
0
2
0
4
2
2
0
1
4
4
2
2
23
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
Proposed
MSHA
Assessments
(in thousands)
$6.60
7.00
3.60
9.80
4.20
8.90
2.50
4.70
5.50
10.30
3.80
2.80
$69.70