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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
(Amendment No. 1)
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2022 OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 001-3473 |
|
|
|
“COAL KEEPS YOUR LIGHTS ON” |
|
“COAL KEEPS YOUR LIGHTS ON” |
|
|
|
HALLADOR ENERGY COMPANY
(www.halladorenergy.com)
|
|
Colorado |
84-1014610 |
(State of incorporation) |
(IRS Employer Identification No.) |
|
|
1183 East
Canvasback Drive, Terre Haute, Indiana |
47802 |
(Address of principal executive offices) |
(Zip Code) |
|
|
|
Issuer’s telephone number: 812.299.2800
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common Stock, $0.01 par value per share |
|
HNRG |
|
Nasdaq Capital Market |
Securities registered pursuant to Section 12(g) of
the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act. Yes ¨ No
x
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 x No
¨
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company.
See the definitions of "Large accelerated filer," "accelerated filer", "smaller reporting company,"
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
¨ Large accelerated filer |
x Accelerated filer |
¨ Non-accelerated filer |
x Smaller reporting company |
|
¨ Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant
to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant has filed a report on
and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ¨
If securities are registered pursuant to Section 12(b) of
the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ¨
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during
the relevant recovery period pursuant to §240.10D-1(b). ¨
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The aggregate market value of the common stock held by non-affiliates
(public float) on June 30, 2022 was $116,685,277, based on the closing price reported that date by the NASDAQ of $5.41 per share.
As of March 16, 2023, we had 32,982,605 shares outstanding.
Our Annual Meeting of Shareholders will be held on June 1, 2023, in Terre Haute, IN.
Auditor Name |
Auditor Location |
Auditor Firm Id |
GRANT THORNTON LLP |
Tulsa, Oklahoma |
248 |
EXPLANATORY NOTE
Hallador Energy Company (the “Company”)
is filing this Form 10-K/A (Amendment No. 1) (the “Form 10-K/A”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as originally filed with the United States Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “Original Report”), to amend the disclosure contained in Items 7 and 15 of the Original Report
pursuant to correspondence with the staff (the “Staff”) of the SEC in connection with the Staff’s review of the Original
Report, including the Staff’s review of property disclosure requirements for registrants engaged in mining operations. The following
items were impacted by these amended disclosures:
| • | Item 7 of the Original Report has been amended to (i) add a summary paragraph of all Mining Properties with appropriate references
to the Technical Report Summary (as defined below), with the accompanying map of all Mining Properties; (ii) include additional disclosures
of the Company’s mineral reserve estimates by incorporating by reference certain sections of the Technical Report Summary; (iii) revise
certain of the disclosures of mineralization under “Other Properties” (specifically, to remove the 1.0 million controlled
saleable tons for the Ace in the Hole Mine #2, the 0.3 million tons of low sulfur coal at Prosperity, and the 1.7 million tons of saleable
coal with an additional 0.6 million available at Freelandville); and (iv) add disclosure of the Company’s internal controls
used in reserve estimates. |
| • | Item 15 of the Original Report has been amended to contain: (i) currently dated certifications from the Company’s Chief
Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as required by Securities Exchange
Act Rule 13a-14(a) and 13a-14(b), attached as Exhibits 31.1, 31.2 and 32.1 to this Form 10-K/A; (ii) an updated Technical
Report Summary from John T. Boyd Company dated October 2023 in accordance with Subpart 1300 of Regulation S-K (Coal Resources and
Coal Reserves, Oaktown Mining Complex, Indiana and Illinois) attached as Exhibit 99.1 to this Form 10-K/A (the “Technical
Report Summary”), together with a consent of the qualified person author (John T. Boyd Company) to such Technical Report Summary
attached as Exhibit 23.3; and (iii) a letter, dated February 10, 2023, from John T. Boyd Company providing an update of
estimated coal reserves at the Oaktown Mining Complex as of December 31, 2022, attached as Exhibit 99.2 to this Form 10-K/A. |
This Form 10-K/A sets forth only those Items
of the Company’s Annual Report that have been amended since the filing of the Original Report, as set forth above. Other than
these amendments, none of the disclosure contained in any other Item of the Original Report has been amended, updated or otherwise revised.
For the avoidance of doubt, the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended
December 31, 2022 as included in the Original Report have not been restated or amended in any manner. Furthermore, none of the Items,
including the amendments to Items 7 and 15 as noted above, have been amended, updated or otherwise revised to reflect material subsequent
events occurring after the filing date of the Original Report on March 16, 2023. Such subsequent matters are or will be addressed
in subsequent reports filed by the Company with the SEC.
TABLE OF CONTENTS
Page
PART II
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. The following analysis includes a discussion of metrics on a per ton basis derived from the condensed
consolidated financial statements, which are considered non-GAAP measurements. These metrics are significant factors in assessing
our operating results and profitability.
OVERVIEW
Hallador Energy Company (the "Company" or "Hallador")
is an energy company operating in the state of Indiana. Historically, the largest portion of our business has been devoted
to coal mining in the State of Indiana through Sunrise Coal, LLC (a wholly-owned subsidiary) serving the electric power generation industry.
On October 21, 2022, the Company, through its subsidiary Hallador
Power Company, LLC, completed its acquisition of the one Gigawatt ("GW") Merom Generating Station ("Merom")
located in Sullivan County, Indiana pursuant to an Asset Purchase Agreement (the "Purchase Agreement") with Hoosier
Energy (the "Seller").
As a result of the Merom acquisition, commencing with this Form 10-K,
the Company has two reportable segments: coal operations (operated by Sunrise Coal, LLC) and electric operations (operated by Hallador
Power Company, LLC).
In addition to our reportable segments, the remainder of our operations
are presented as "Corporate and Other" and primarily are comprised of unallocated corporate costs in addition to activities
such as a 50% interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, accounted for using
the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.
Fiscal year 2022 was a transitional year for Hallador.
The market price for coal approached all-time highs. We were successful in signing 2.2 million tons of new coal sales contracts
at an average price of ~$125 per ton in the summer of 2022, of which a small percentage of deliveries were completed in 2022 and
will continue through 2025 with the majority contracted to be delivered in 2023. To fulfill these obligations, we invested substantially in
2022 to expand our coal production capacity from ~6 million tons annually to ~7.5 million tons in 2023.
In addition to our acquisition of Merom in Q4 2022 described above,
we also expanded our coal production capacity by adding more units of production at our Oaktown Mining Complex, opening a small surface
mine pit near Freelandville, Indiana ("Freelandville"), and moving our Ace in the Hole production to a small surface
mine pit near Petersburg, Indiana ("Prosperity"). Freelandville and Prosperity production began in Q3 2022.
Volumes from these new pits are expected to be higher cost, and our newer workforce and surface pits will require a ramp to reach peak
productivity. We will continue to evaluate the productivity of these mines in connection with market conditions to determine
the appropriate operational balance.
To help fund our investment in expanded mine production, improve our
liquidity, and position us to efficiently operate Merom, we issued $29 million of convertible notes, $10 million in Q2
2022 and $19 million in Q3 2022. The $10 million of notes issued in Q2 2022 have been converted into the Company's common
stock, bringing our outstanding share count to 33.0 million shares as of December 31, 2022. If the additional notes issued in
Q3 2022 were to also convert, our outstanding share count would increase to approximately 36.1 million shares, representing an approximate 17%
increase in share count.
Bank debt was reduced during the year by $26.5 million bringing
the balance owed at the end of fiscal 2022 to $85.2 million, bringing the Debt to EBITDA covenant under our credit agreement to 2.05X at the
end of fiscal 2022. See Note 5 to our consolidated financial statements for additional discussion about our bank debt and related
liquidity.
Internal Controls Disclosure
The preparation
of coal reserve and resource estimates is conducted by independent individuals who are by virtue of their education, experience and professional
association considered qualified persons (as defined in SEC rules). Company personnel meet on an annual basis with the independent qualified
person to provide updates to the reserve and resource estimates. Company personnel review the work of the qualified person to ensure such
work is prepared in accordance with applicable rules and regulations and that the data and assumptions provided were properly applied
to the final reserve and resource model. The Company’s engineering personnel ensure estimates are based on current mine plans, incorporate
the most recent drilling and lab data, properly reflect changes in permitting status, consider known encumbrances, and are consistent
with operating knowledge and expectations in terms of mining methods, recovery rates, minimum seam heights or maximum strip ratios, and
saleable qualities.
An American National Standards Institute-certified
third-party laboratory is utilized to support reserve and resource estimates. The laboratory follows standard sample preparation, security
and environmental procedures. In addition, the Company’s qualified person performs independent data verification procedures to ensure
data is of sufficient quantity and reliability to reasonably support the coal reserve and resource estimates.
Estimates of any mineral reserve and resources
are always subject to a degree of uncertainty. The level of confidence that can be applied to a particular estimate is a function of,
among other things, the amount, quality, and completeness of exploration data; geological complexity of the deposit; and economic, legal,
social and environmental factors associated with mining the reserve/resource. The Company’s current coal reserves and resource estimates
are based on the best information available and are subject to updates as conditions change. Also refer to Item 1A. Risk Factors for discussion
of risks associated with the estimates of the Company’s reserves and resources.
Summary of All Mining Properties
The Company has six total mining properties. These properties are the
Oaktown Mining Complex, which is comprised of Oaktown Fuels No. 1 Mine and Oaktown Fuels No. 2 Mine, the Ace in the Hole Mine,
the Ace in the Hole Mine #2 Reserves, Prosperity, and Freelandville. The Oaktown Fuels No. 1 Mine is an underground mine in the Illinois
Basin located near Oaktown in Knox County, Indiana. Oaktown Fuels No. 1 Mine utilizes continuous mining units operating in room
and pillar mining techniques to produce high-sulfur coal. The Oaktown Fuels No. 2 Mine is an underground mine in the Illinois Basin
located near Oaktown in Knox County, Indiana. The Oaktown Fuels No. 2 Mine utilizes continuous mining units operating in room
and pillar mining techniques to produce high-sulfur coal. The preparation plant at the Oaktown Mine Complex has a throughput capacity
of 1,600 tons of raw coal per hour. Freelandville is a surface mine in the Illinois Basin located near Freelandville in Knox County, Indiana.
Freelandville utilizes surface mining techniques to produce high-sulfur coal from as many as three seams. The coal is trucked to the Carlisle
Washplant for washing before being shipped by rail at the Carlisle loadout, by truck to other Sunrise Coal logistic facilities or directly
to customers. Prosperity is a surface mine in the Illinois Basin located near Petersburg in Pike County, Indiana. Prosperity utilizes
surface mining techniques to produce low-sulfur coal. The low-sulfur coal is trucked to the Oaktown Complex and other Sunrise Coal logistic
facilities where it is blended with coal from the Oaktown Mines. Ace in the Hole Mine is now depleted. Ace in the Hole Mine #2 Reserves
is a leased coal reserve being held for potential future development and is not in production.
These properties and further summaries concerning property description,
purpose, property overview, geology, background, processing operations, mine infrastructure, and market analysis can be found and are
hereby incorporated by reference from Sections 1.1, 1.2, 1.3, 1.6, 2.1, 3, 4, 5, 6, 7.1, 7.3, 7.4, 8, 9, and 10 from the October 2023
Technical Report Summary prepared by the John T. Boyd Company, attached as Exhibit 99.1 to this Form 10-K/A.
The following figure shows the general location of All Mining Properties
discussed above:
Individual Mining Properties
The following information concerning our mining properties has been
prepared in accordance with the requirements of subpart 1300 of Regulation S-K, which first became applicable to us for the fiscal year
ended December 31, 2021. These requirements differ from the previously applicable disclosure requirements of SEC Industry Guide
7. Among other differences, subpart 1300 of Regulation S-K requires us to disclose our mineral (coal) resources, which we have none, in
addition to our mineral (coal) reserves, as of the end of our most recently completed fiscal year both in the aggregate and for each of
our individually material mining properties.
As used in this Annual Report on Form 10-K, the terms “mineral
resources,” “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are defined
and used in accordance with subpart 1300 of Regulation S-K. Under subpart 1300 of Regulation S-K, mineral resources may not be classified
as “mineral reserves” unless the determination has been made by a qualified person (QP) that the mineral resources can be
the basis of an economically viable project. You are specifically cautioned not to assume that any part or all of the mineral deposits
(including any mineral resources) in these categories will ever be converted into mineral reserves, as defined by the SEC.
Internal qualified person(s) have estimated the Company’s
mineral reserves and mineral resources based on geologic data, coal ownership (control) information, and current and/or proposed operating
plans. Periodic updates occur to mineral reserve and mineral resource estimates attributable to revised mine plans, new exploration
data, depletion from coal production, property acquisitions or dispositions, and/or other geologic or mining data. Sunrise’s
estimates of mineral reserves are proven and probable reserves that could be extracted or produced at the time of the reserve determination,
economically, legally, and after considering all material modifying factors. Modifications or updates of the estimates of the Company’s
mineral reserves is limited to qualified geologists and mining engineers. All modifications or updates of the estimates of recoverable
coal reserves are documented. The John T. Boyd Company, a qualified person firm, has assessed the Company’s estimates of mineral
reserves and mineral resources and supporting information. Based upon the review, John T. Boyd Company provided modification to
the Company’s estimates of mineral reserves where warranted.
The information
that follows is derived, for the most part, from, and in some instances is extracted from, the Oaktown Mining Complex technical report
summary (“TRS”) from John T. Boyd Company dated October, 2023 in accordance with Subpart 1300 of Regulation S-K (Coal
Resources and Coal Reserves, Oaktown Mining Complex) attached hereto as Exhibit 99.1 to this Form 10-K/A; and a letter, dated
February 10, 2023, from John T. Boyd Company providing an update of estimated coal reserves at the Oaktown Mining Complex as of December 31,
2022, attached as Exhibit 99.2 to this Form 10-K/A. The Oaktown Mining Complex is the Company’s individually material
property. Sections of the following information provided herein do not fully describe assumptions, qualifications, and procedures.
Reference should be made to the full text of the TRS which is made a part of this Annual report on Form 10-K and incorporated hereby
by reference. The Oaktown Mining Complex TRS was prepared by the John T. Boyd Company in compliance with the Item 60(b)(96) and
subpart 1300 of Regulation S-K.
The Company
hereby incorporates by reference Section 6.3 “Coal Reserves” from the TRS, attached as Exhibit 99.1 to this Form 10-K/A,
as to the mineral price, cut-off grade, and metallurgical recovery factors utilized in John T. Boyd Company’s preparation of the
mineral reserve estimates. The Company hereby incorporates the letter, dated February 10, 2023, from John T. Boyd Company,
attached as Exhibit 99.2 to this Form 10-K/A, providing an update of the Company's mineral reserves at the Oaktown Mining Complex
as of December 31, 2022 and including a comparison of the Company’s mineral reserves at the Oaktown Mining Complex as of December 31,
2022 and as of December 31, 2021. The following table provides a summary of all of the Company’s mineral reserves determined
by the John T. Boyd Company as of the end of the fiscal year ended December 31, 2022:
SUMMARY MINERAL RESERVES AT END OF THE
FISCAL YEAR ENDED DECEMBER 31, 2022
| |
Mineral Reserves (tons in millions) | |
| |
Proven | | |
Probable | | |
Total | |
Oaktown Mining Complex | |
| | | |
| | | |
| | |
Oaktown Fuels No. 1 Mine | |
| 36.2 | | |
| 0.5 | | |
| 36.7 | |
Oaktown Fuels No. 2 Mine | |
| 28.5 | | |
| 1.1 | | |
| 29.6 | |
Total | |
| 64.7 | | |
| 1.6 | | |
| 66.3 | |
Oaktown Mining Complex
The Oaktown Mining Complex is a coal mining and processing operation
located in Knox and Sullivan counties, Indiana, and Crawford and Lawrence counties, Illinois. The following figure shows
the general location of the Oaktown Mining Complex:
Comprising 118 square miles within the ILB coal-producing
region of the mid-western United States, the Oaktown Mining Complex is one of the largest underground Room-and-Pillar (R&P) coal mining
complexes in North America. The Oaktown Mining Complex operations currently consist of two active underground mines - Oaktown Fuels
No. 1 Mine and Oaktown Fuels No. 2 Mine - and related infrastructure. Geographically, the Oaktown Complex Coal Preparation
Plant is located at approximately 28°51’24.7” N latitude and 87°25’30.9” W longitude. Within the
Oaktown Mining Complex area and immediate vicinity, our Company controls approximately 75,000 acres of mineral rights. This control
exists as a complex collection of leases that apply to more than 2,000 tracts. Each of which range from less than an acre to several
hundred acres in size. Ownership of the surface rights and the mineral rights is often severed for the properties and the estates
are often fractions, in which mineral rights are split between several owners. The Company and its predecessors have acquired the
necessary rights to support development and operations through purchase or lease agreements with predominately private owners or entities.
As part of the Oaktown Mining Complex, the Company controls surface rights through fee simple ownership for over 1,700 permitted
acres. Upon those acres resides the surface facilities for mine accesses, processing, storing, shipping, and refuse disposal facilities
(i.e., refuse impoundment site and fine refuse injection sites). Our involvement with the Oaktown Mining Complex dates to 2014
with the acquisition of Oaktown Fuels No. 1 and No. 2 Mines from Vectren Fuels.
Each mine of the Oaktown Mining Complex utilizes R&P mining (employing
Continuous Miners, or CM) for primary production. This mining method is highly productive and commercially demonstrated; it
has been one of the primary approaches to underground mining the Indiana V Seam for decades. Oaktown Mining Complex has utilized
this mining method since the inception of each operation. To date, Oaktown Mining Complex has produced a combined 64.7 million
tons of clean coal. The complex is configured to operate up to 7 CM sections, with an annual production target of approximately
7 million product tons. The Oaktown Complex Coal Preparation Plant serves as the coal washing and shipment facility for the
Oaktown Mining Complex’s two R&P mines. The plant was commissioned in 2009 to wash coal by the Oaktown Fuels No. 1
Mine. The Oaktown Complex Coal Preparation Plant's processing capacity is in the process of being upgraded to 1,800 raw
tons-per-hour (TPH) from its current 1,600 raw TPH. Product coal from the Oaktown Mining Complex is transported to its customer
base via rail, truck, or a combination of both. The Oaktown Complex Coal Preparation Plant is served by both the CSX Railroad
and Indiana Railroad (INRD) via a rail spur and rail loop that connects the complex with the mainline rail just north of Oaktown, Indiana.
Additionally, the Oaktown Complex Coal Preparation Plant can facilitate
the loading of trucks for direct transport to select customers, or to our transload facility in Princeton, Indiana serviced by the
Norfolk Southern (NS) Railroad.
Sources of electrical power, water, supplies, and materials are readily
available. Electrical power is provided to the mines and facilities by regional utility companies. Water is supplied by public
water services, surface impoundments, or water wells.
Multiple permits are required by federal and state law for underground
mining, coal preparation and related facilities, and other incidental activities. All necessary permits to support current operations
are in place or pending approval. New permits or permit revisions may be necessary from time to time to facilitate future operations.
Given sufficient time and planning, we should be able to secure new permits, as required, to maintain our planned operations within the
context of the current regulations.
Permits generally require that the Company post a performance bond
in an amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during mining
operation is properly mitigated, and (2) assure that all regulation requirements of the permit are fully satisfied. We hold surety
bonds to cover obligations relating to mining and reclamation, road repair, etc. Those obligations are currently estimated at $6.8
million.
Additional information is provided in the following table regarding
the Oaktown Mining Complex mineral reserves:
OAKTOWN MINING COMPLEX |
Recoverable Coal Reserves as of December 31, 2022 and 2021 |
| |
As Received | | |
As Received | | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Heat | | |
SO2 | | |
| | |
| | |
| | |
| | |
| | |
| |
| |
Value | | |
Content | | |
| | |
| | |
| | |
| | |
| | |
| |
| |
(Btu/lb) | | |
(lbs/MMBtu) | | |
Owned | | |
Leased | | |
Recoverable
Coal Reserves (As-Received) | |
Mine/Reserve | |
Approximate | | |
Approximate | | |
(%) | | |
(%) | | |
Proven | | |
Probable | | |
12/31/2022 | | |
12/31/2021 | |
Oaktown Mining Complex | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Oaktown
Fuels No. 1 Mine | |
| 11,522 | | |
| 6.1 | | |
| — | | |
| 100.0 | | |
| 36.2 | | |
| 0.5 | | |
| 36.7 | | |
| 40.5 | |
Oaktown
Fuels No. 2 Mine | |
| 11,534 | | |
| 5.7 | | |
| — | | |
| 100.0 | | |
| 28.5 | | |
| 1.1 | | |
| 29.6 | | |
| 30.9 | |
Total | |
| | | |
| | | |
| | | |
| | | |
| 64.7 | | |
| 1.6 | | |
| 66.3 | | |
| 71.4 | |
Oaktown Fuels No. 1 Mine
As of December 31, 2022, the assigned and accessible reserve base
for the Oaktown Fuels No. 1 Mine contains 36.7 million tons of recoverable Indiana V seam coal, of which 36.7 million tons
are currently permitted. The reserve contains saleable tons which average heating content of approximately 11,522 Btu per pound
with approximately 6.1 pounds of sulfur dioxide per MMBtu on an as-received basis. Access to the Oaktown Fuels No. 1 Mine is
via a 90-foot-deep box cut and a 2,200-foot slope, which facilitates the egress of coals being mined in excess of 375 feet below the surface.
Since beginning first commercial coal production in 2009, the mine workings have substantially grown, and an additional mine access (elevator)
was constructed for employee and supply ingress/egress closer to the active production faces.
Oaktown Fuels No. 2 Mine
As of December 31, 2022, the assigned and accessible reserve base
for the Oaktown Fuels No. 2 Mine contains 29.7 million tons of recoverable Indiana V seam coal, of which 23.8 million tons
are currently permitted. The reserve contains saleable tons which average heating content of approximately 11,534 Btu per pound
with approximately 5.7 pounds of sulfur dioxide per MMBtu on an as-received basis. Access to the Oaktown Fuels No. 2 Mine
is via an 80-foot-deep box cut and 2,600-foot slope, which facilitates the egress of coals being mined in excess of 400 feet below the
surface. Since beginning first commercial coal production in 2013 the mines workings have substantially grown and, during 2021,
an additional mine access (elevator) has been constructed for employee and supply ingress/egress closer to the active production faces.
Tonnages are
reported on a clean recoverable basis with average long-term pricing based on available third-party forecasts and historical pricing adjusted
for quality at the end of 2022, with the coal sales price estimated over the life of the reserve averaging approximately $47 (ranging
from $42.50 to $64 per short ton), which are the coal sales prices used by John T. Boyd Company to estimate the amount of coal
mineral reserves for the Oaktown Fuels No. 1 Mine and Oaktown No. 2 Mine as listed above. Coal sales prices vary based on coal
quality, access to transportation, and other factors at each location. All reserves are classified as underground mineable in the production
stage.
The Company
hereby incorporates by reference the TRS, attached as Exhibit 99.1 to this Form 10-K/A, including Section 6.3 thereof titled
“Coal Reserves”, as to the recoverable coal reserves reported above for the Oaktown Fuels No. 1 Mine and Oaktown No. 2
Mine; and (ii) letter, dated February 10, 2023, from John T. Boyd Company, attached as Exhibit 99.2 to this Form 10-K/A,
providing an update of the Company's mineral reserves at the Oaktown Mining Complex as of December 31, 2022 and including a comparison
of the Company’s mineral reserves at the Oaktown Mining Complex as of December 31, 2022 and as of December 31, 2021.
Historical production for our Oaktown Mining Complex during the years
ended December 31, 2022, 2021, and 2020 is provided in the following table:
| |
Annual Saleable Production Tons | |
| |
(Million Tons) | |
Mine/Reserve | |
| 2022 | | |
| 2021 | | |
| 2020 | |
Oaktown Mining Complex | |
| | | |
| | | |
| | |
Oaktown Fuels No. 1 Mine | |
| 3.9 | | |
| 3.5 | | |
| 3.4 | |
Oaktown Fuels No. 2 Mine | |
| 2.5 | | |
| 2.1 | | |
| 1.8 | |
Total Oaktown Mining Complex Production | |
| 6.4 | | |
| 5.6 | | |
| 5.2 | |
Other Properties
The Company holds other recoverable coal reserves in the ILB, which
are not deemed individually material.
Ace in the Hole Mine (Ace)
(surface) - Assigned
Ace in the Hole Mine is now depleted. Remaining inventory of coal and base is scheduled to be moved to our Carlisle and Oaktown wash plants
in early 2023. Reclamation will resume in the Spring of 2023. We expect Phase 1 reclamation should be substantially complete by the end
of 2023.
Our Coal Contracts
In 2022, Sunrise sold 6.3 million tons of coal to 14 power
plants in five different states across nine different customers.
During 2022, we derived 90% of our revenue from five customers
(10 power plants), with each of the five customers representing at least 10% of our coal sales. During 2021, we derived 95%
of our revenue from five customers (10 power plants), with each of the five customers representing at least 10% of our
coal sales.
Significant customers in 2022 include Vectren Corporation, a wholly-owned
subsidiary of CenterPoint Energy (NYSE: CNP), Orlando Utility Commission (OUC), Alcoa Power Generating, Inc., a subsidiary of Alcoa
Corporation (NYSE: AA), Indianapolis Power & Light Company (IPL), a wholly-owned subsidiary of The AES Corporation
(NYSE: AES), and Duke Energy Corporation (NYSE: DUK).
Of our 2022 sales, 74% were shipped to locations in the State of Indiana.
In the summer of 2022, customer coal inventories and natural gas (a
competitor to coal) inventory levels were lower than normal. Customers paid near record prices in 2022 to secure limited fuel
supply. We invested in expanding our mining production to meet the demand. As discussed above we have opened the Prosperity and
Freelandville surface mines to meet the demand resulting in contracts being signed raising our estimated average sales price for 2023
to $58.70 per ton.
| |
Contracted | | |
Estimated | |
| |
tons | | |
price | |
Year | |
(millions)* | | |
per ton | |
2023 | |
| 7.5 | | |
$ | 58.70 | |
2024 - 2027 (total) | |
| 7.3 | | |
| ** | |
Total | |
| 14.8 | | |
| | |
* Contracted
tons are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce
tonnage if such option exists in the customer contract.
** Unpriced or partially
priced tons
As of December 31, 2022, we are
committed to supplying our customers up to a maximum of 14.8 million tons of coal through 2027 of which 10.8 million tons
are priced.
Beginning in 2024, with the acquisition of the Merom power plant, we
have the optionality to sell up to 3.0 million tons of our coal directly to the Merom plant, which would be in addition to the contracted
tons to our third party customers described above. We anticipate our mines will need to produce at a 7 million-ton annualized pace
for the foreseeable future to meet the Merom plant and third party market demand.
We expect to continue selling a significant portion of our coal under
supply agreements with terms of one year or longer. 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.
Some utility customers have proposed shuttering certain plant units
or entire plants in the coming years. It remains to be seen whether these plans will be implemented.
Liquidity and Capital Resources
As set forth in our Consolidated Statements of Cash Flows, cash provided
by operations was $54.2 million and $48.0 million for the years ended December 31, 2022 and 2021 respectively. Operating
cash flow increased primarily due to an increase in operating margins at our coal mines brought on by the addition of higher
priced contracts in the summer of 2022. Operating margin per ton at our coal mines increased in 2022 to $8.35 per ton from
$7.35 per ton in 2021, increasing operating cash flow by $7.6 million.
Our capital expenditure budget for 2023 is $69 million, of
which $35 million is for maintenance capex. Of the $69 million, the budget for coal operations is $34 million and the
budget for electric operations is $35 million.
We paid down debt of $26.5 million in 2022. As of December 31,
2022, our bank debt was $85.2 million. On March 13, 2023, we executed an amendment to our credit agreement with PNC Bank,
National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit
agreement. The primary purpose of the amendment is to convert $35 million of the revolver into a new term loan with a maturity
of March 31, 2024 (with principal payments of $10.0 million due by June 30, 2023; $10.0 million by September 30,
2023; $10.0 million by December 31, 2023, and $5.0 million by March 31, 2024), and extend the maturity date of the
revolver to May 31, 2024. The effect of the amendment on our future cash flow is to extend the maturity date of $44.7 million
of our outstanding debt as of December 31, 2022 to May 2024. In addition, the amendment reduced the total capacity
under the revolver to $85.0 million (previously $120 million). Subsequent to the amendment, the current portion of our outstanding
debt as of December 31, 2022, is $35.5 million.
We expect cash from operations generated primarily by our expected
higher coal margins in 2023 to fund our capital expenditures and our debt service.
See Note
5 to our consolidated financial statements for additional discussion about our bank debt and related liquidity.
Off-Balance Sheet Arrangements
Other than our surety bonds for reclamation, we have no material off-balance
sheet arrangements. We have recorded the present value of reclamation obligations of $20.8 million, including $7.2 million at Merom, presented
as asset retirement obligations (ARO) in our accompanying balance sheets. In the event we are not able to perform reclamation, we
have surety bonds in place totaling $36.9 million to cover ARO.
Capital Expenditures (capex)
For the year ended December 31, 2022, our capex was $54.0 million
allocated as follows (in millions):
Oaktown – maintenance capex | |
$ | 21.0 | |
Oaktown – investment | |
| 22.1 | |
Prosperity mine | |
| 3.6 | |
Freelandville mine | |
| 2.5 | |
Merom plant | |
| 3.7 | |
Other | |
| 1.1 | |
Capex per the Consolidated Statements of Cash Flows | |
$ | 54.0 | |
Results of Operations
Presentation of Segment Information
Our operations are divided into two primary reportable segments:
coal operations and electric operations. The remainder of our operations, which are not significant enough on a stand-alone basis
to warrant treatment as an operating segment, are presented as "Corporate and Other" within the Notes to the Consolidated Financial
Statements and primarily are comprised of unallocated corporate costs and activities, including a 50% interest in Sunrise Energy,
LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned
subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River.
Coal Operations
| |
2022 | | |
2021 | |
OPERATING REVENUES: | |
$ | 293,344 | | |
$ | 246,396 | |
| |
| | | |
| | |
EXPENSES: | |
| | | |
| | |
Operating expenses | |
| 236,416 | | |
| 198,442 | |
Depreciation, depletion and amortization | |
| 43,612 | | |
| 39,829 | |
Asset impairment | |
| — | | |
| 1,588 | |
Asset retirement obligations accretion | |
| 1,010 | | |
| 1,504 | |
Asset retirement obligations change in estimate | |
| — | | |
| (3,510 | ) |
Exploration costs | |
| 651 | | |
| 482 | |
General and administrative | |
| 7,919 | | |
| 6,069 | |
Total operating expenses | |
| 289,608 | | |
| 244,404 | |
| |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| 3,736 | | |
| 1,992 | |
Operating revenues from coal operations increased 19% over 2021 due
in large part to unprecedented increases in natural gas prices. As a result, higher priced contracts sold in the summer of 2022 and delivered
in Q4 of 2022 increased our average sales price by over $6 per ton from 2021. We also sold 168,000 additional tons over 2022 at the higher
average price due to lower inventories and the higher gas prices.
Operating expenses increased, however, by ~$5 per ton. The addition
of the higher cost Freelandville and Prosperity surface mines as well as significant inflationary pressures contributed significantly
to the increased costs. We continue to experience significant onboarding of new employees which takes time provide training and gain the
experience to reach maximum productivity which is also contributing to higher costs.
Depreciation, depletion, and amortization increased 9% as a significant
amount of our assets are depreciated and amortized based on production which increased approximately 13% over 2021.
Changes
in asset retirement obligation accretion and change in estimate are a result of a review in 2021 that determined the liabilities
we have recorded and the future liabilities were overstated due to a change in estimate when factoring time to reclamation, discount rates
used, and inflationary factors used. Our review in 2022 did not result in any significant adjustments.
General and administrative expenses increased 30% over 2022 due in
large part to additional professional fees related to bank refinancing and additional audit requirements. Increased wages due to bonuses
and incentives to retain and attract talent also contributed to the increased costs.
Electric Operations
| |
2022 | | |
2021 | |
OPERATING REVENUES: | |
$ | 66,316 | | |
$ | — | |
| |
| | | |
| | |
EXPENSES: | |
| | | |
| | |
Operating expenses | |
| 29,608 | | |
| — | |
Depreciation, depletion and amortization | |
| 3,117 | | |
| — | |
General and administrative | |
| 2,086 | | |
| — | |
Total operating expenses | |
| 34,811 | | |
| — | |
| |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| 31,505 | | |
| — | |
A comparative discussion is not relevant as the Electric Operations
did not begin until the Merom Acquisition closed in October 2022.
Operating revenue is derived from a power purchase agreement signed
with Hoosier in conjunction with the Merom Acquisition at fixed prices which were below market prices at the date we entered
into the agreement. The power purchase agreement expires in 2025 and requires us to provide a fixed amount of power over the term
of the agreement. As a result of the below market contract, we recorded a contract liability at the close of the acquisition totaling
$184.5 million that will be amortized over the term of the agreement as the contract is fulfilled. For the year ended December 31,
2022, we recorded $23.3 million of revenue as a result of amortizing the contract liability.
Operating expenses include coal purchased under an agreement signed
with Hoosier in conjunction with the Merom acquisition at fixed prices which were below market prices at the date we entered
into the agreement. The coal purchase agreement expires in May 2023 and requires us to purchase a fixed amount of coal over
the term of the agreement. As a result of the below market contract, we recorded a contract asset at the close of the acquisition
totaling $34.3 million that will be amortized over the term of the agreement as the contract is fulfilled. For the year ended
December 31, 2022, we recorded $3.6 million in additional operating expense for coal purchased and used and an additional $11.2
million to inventory for coal purchased and unused as a result of amortizing the contract asset.
The following tables presenting our quarterly results of operations
should be read in conjunction with the consolidated financial statements and related notes included in Item 8 of this Form 10-K.
We have prepared the unaudited information on the same basis as our audited consolidated financial statements. Our operating results for
any quarter are not necessarily indicative of results for any future quarters or for a full year. The tables present our unaudited
quarterly results of operations for the eight quarters ended December 31, 2022, and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for fair presentation of our consolidated operating results for the quarters presented.
| |
Mar-31 | | |
Jun-30 | | |
Sep-30 | | |
Dec-31 | | |
| |
| |
2022 | | |
2022 | | |
2022 | | |
2022 | | |
Total 2022 | |
SALES AND OPERATING REVENUES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Coal sales | |
$ | 57,010 | | |
$ | 64,161 | | |
$ | 83,562 | | |
$ | 84,643 | | |
$ | 289,376 | |
Electric sales | |
| — | | |
| 0 | | |
| — | | |
| 66,252 | | |
| 66,252 | |
Other revenues | |
| 1,897 | | |
| 1,768 | | |
| 1,522 | | |
| 1,176 | | |
| 6,363 | |
Total revenue | |
| 58,907 | | |
| 65,929 | | |
| 85,084 | | |
| 152,071 | | |
| 361,991 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
EXPENSES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| 54,601 | | |
| 51,394 | | |
| 64,557 | | |
| 96,056 | | |
| 266,608 | |
Depreciation, depletion and amortization | |
| 9,531 | | |
| 11,164 | | |
| 11,187 | | |
| 14,993 | | |
| 46,875 | |
Asset retirement obligations accretion | |
| 246 | | |
| 250 | | |
| 255 | | |
| 259 | | |
| 1,010 | |
Exploration costs | |
| 57 | | |
| 215 | | |
| 121 | | |
| 258 | | |
| 651 | |
General and administrative | |
| 3,149 | | |
| 3,722 | | |
| 3,569 | | |
| 5,977 | | |
| 16,417 | |
Total operating expenses | |
| 67,584 | | |
| 66,745 | | |
| 79,689 | | |
| 117,543 | | |
| 331,561 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME (LOSS) FROM OPERATIONS | |
| (8,677 | ) | |
| (816 | ) | |
| 5,395 | | |
| 34,528 | | |
| 30,430 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Bank debt and other interest | |
| (1,710 | ) | |
| (1,770 | ) | |
| (2,360 | ) | |
| (2,438 | ) | |
| (8,278 | ) |
Amortization and swap related interest | |
| (74 | ) | |
| (567 | ) | |
| (995 | ) | |
| (1,098 | ) | |
| (2,734 | ) |
Equity method investment income | |
| 150 | | |
| 188 | | |
| 168 | | |
| (63 | ) | |
| 443 | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (10,311 | ) | |
| (2,965 | ) | |
| 2,208 | | |
| 30,929 | | |
| 19,861 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME TAX EXPENSE (BENEFIT): | |
| | | |
| | | |
| | | |
| | | |
| | |
Current | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Deferred | |
| (177 | ) | |
| 421 | | |
| 596 | | |
| 916 | | |
| 1,756 | |
Total income tax expense (benefit) | |
| (177 | ) | |
| 421 | | |
| 596 | | |
| 916 | | |
| 1,756 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (10,134 | ) | |
$ | (3,386 | ) | |
$ | 1,612 | | |
$ | 30,013 | | |
$ | 18,105 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) PER SHARE: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | (0.33 | ) | |
$ | (0.11 | ) | |
$ | 0.05 | | |
$ | 0.91 | | |
$ | 0.57 | |
Diluted | |
$ | (0.33 | ) | |
$ | (0.11 | ) | |
$ | 0.05 | | |
$ | 0.83 | | |
$ | 0.55 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 30,785 | | |
| 30,785 | | |
| 32,983 | | |
| 32,983 | | |
| 32,043 | |
Diluted | |
| 30,785 | | |
| 30,809 | | |
| 33,268 | | |
| 36,428 | | |
| 33,649 | |
| |
Mar-31 | | |
Jun-30 | | |
Sep-30 | | |
Dec-31 | | |
| |
| |
2021 | | |
2021 | | |
2021 | | |
2021 | | |
Total 2021 | |
SALES AND OPERATING REVENUES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Coal sales | |
$ | 45,879 | | |
$ | 54,600 | | |
$ | 79,036 | | |
$ | 64,388 | | |
$ | 243,903 | |
Other revenues | |
| 816 | | |
| 1,038 | | |
| 786 | | |
| 1,123 | | |
| 3,763 | |
Total revenue | |
| 46,695 | | |
| 55,638 | | |
| 79,822 | | |
| 65,511 | | |
| 247,666 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
EXPENSES: | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| 34,009 | | |
| 42,456 | | |
| 67,792 | | |
| 54,583 | | |
| 198,840 | |
Depreciation, depletion and amortization | |
| 10,307 | | |
| 9,715 | | |
| 9,842 | | |
| 10,109 | | |
| 39,973 | |
Asset impairment | |
| — | | |
| — | | |
| — | | |
| 1,588 | | |
| 1,588 | |
Asset retirement obligations accretion | |
| 363 | | |
| 373 | | |
| 380 | | |
| 388 | | |
| 1,504 | |
Asset retirement obligations change in estimate | |
| — | | |
| — | | |
| — | | |
| (3,510 | ) | |
| (3,510 | ) |
Exploration costs | |
| 58 | | |
| 159 | | |
| 96 | | |
| 169 | | |
| 482 | |
General and administrative | |
| 2,821 | | |
| 3,383 | | |
| 3,067 | | |
| 5,562 | | |
| 14,833 | |
Total operating expenses | |
| 47,558 | | |
| 56,086 | | |
| 81,177 | | |
| 68,889 | | |
| 253,710 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (863 | ) | |
| (448 | ) | |
| (1,355 | ) | |
| (3,378 | ) | |
| (6,044 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
Bank debt and other interest | |
| (2,135 | ) | |
| (2,307 | ) | |
| (2,167 | ) | |
| (1,901 | ) | |
| (8,510 | ) |
Amortization and swap related interest | |
| 237 | | |
| 125 | | |
| 59 | | |
| 41 | | |
| 462 | |
Gain on extinguishment of debt | |
| — | | |
| — | | |
| 10,000 | | |
| — | | |
| 10,000 | |
Equity method investment income | |
| — | | |
| 63 | | |
| 90 | | |
| 211 | | |
| 364 | |
INCOME (LOSS) BEFORE INCOME TAXES | |
| (2,761 | ) | |
| (2,567 | ) | |
| 6,627 | | |
| (5,027 | ) | |
| (3,728 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
INCOME TAX EXPENSE (BENEFIT): | |
| | | |
| | | |
| | | |
| | | |
| | |
Current | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | |
Deferred | |
| (1,729 | ) | |
| 397 | | |
| (1,359 | ) | |
| 2,717 | | |
| 26 | |
Total income tax expense (benefit) | |
| (1,729 | ) | |
| 397 | | |
| (1,359 | ) | |
| 2,717 | | |
| 26 | |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) | |
$ | (1,032 | ) | |
$ | (2,964 | ) | |
$ | 7,986 | | |
$ | (7,744 | ) | |
$ | (3,754 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | |
NET INCOME (LOSS) PER SHARE: | |
| | | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.03 | ) | |
$ | (0.10 | ) | |
$ | 0.26 | | |
$ | (0.25 | ) | |
$ | (0.12 | ) |
Quarterly coal sales and cost data follow (in 000’s, except for
per ton data and wash plant recovery percentage):
All Mines | |
1st 2022 | | |
2nd 2022 | | |
3rd 2022 | | |
4th 2022 | | |
T4Qs | |
Tons produced | |
| 1,397 | | |
| 1,762 | | |
| 1,663 | | |
| 1,721 | | |
| 6,543 | |
Tons sold | |
| 1,377 | | |
| 1,595 | | |
| 1,705 | | |
| 1,664 | | |
| 6,341 | |
Coal sales | |
$ | 57,010 | | |
$ | 64,161 | | |
$ | 83,563 | | |
$ | 84,641 | | |
$ | 289,375 | |
Average price per ton | |
$ | 41.40 | | |
$ | 40.23 | | |
$ | 49.01 | | |
$ | 50.87 | | |
$ | 45.64 | |
Wash plant recovery in % | |
| 67 | % | |
| 71 | % | |
| 69 | % | |
| 68 | % | |
| | |
Operating costs | |
$ | 54,443 | | |
$ | 50,776 | | |
$ | 63,876 | | |
$ | 67,319 | | |
$ | 236,414 | |
Average cost per ton | |
$ | 39.54 | | |
$ | 31.83 | | |
$ | 37.46 | | |
$ | 40.46 | | |
$ | 37.28 | |
Margin | |
$ | 2,567 | | |
$ | 13,385 | | |
$ | 19,687 | | |
$ | 17,322 | | |
$ | 52,961 | |
Margin per ton | |
$ | 1.86 | | |
$ | 8.39 | | |
$ | 11.55 | | |
$ | 10.41 | | |
$ | 8.35 | |
Capex | |
$ | 9,082 | | |
$ | 13,821 | | |
$ | 15,096 | | |
$ | 12,368 | | |
$ | 50,367 | |
Maintenance capex | |
$ | 4,481 | | |
$ | 7,600 | | |
$ | 6,625 | | |
$ | 5,748 | | |
$ | 24,454 | |
Maintenance capex per ton | |
$ | 3.25 | | |
$ | 4.76 | | |
$ | 3.89 | | |
$ | 3.45 | | |
$ | 3.86 | |
All Mines | |
1st 2021 | | |
2nd 2021 | | |
3rd 2021 | | |
4th 2021 | | |
T4Qs | |
Tons produced | |
| 1,592 | | |
| 1,292 | | |
| 1,440 | | |
| 1,447 | | |
| 5,771 | |
Tons sold | |
| 1,174 | | |
| 1,403 | | |
| 2,042 | | |
| 1,554 | | |
| 6,173 | |
Coal sales | |
$ | 45,879 | | |
$ | 54,600 | | |
$ | 79,036 | | |
$ | 64,388 | | |
$ | 243,903 | |
Average price per ton | |
$ | 39.08 | | |
$ | 38.92 | | |
$ | 38.71 | | |
$ | 41.43 | | |
$ | 39.51 | |
Wash plant recovery in % | |
| 74 | % | |
| 69 | % | |
| 73 | % | |
| 70 | % | |
| | |
Operating costs | |
$ | 33,907 | | |
$ | 42,364 | | |
$ | 67,694 | | |
$ | 54,583 | | |
$ | 198,548 | |
Average cost per ton | |
$ | 28.88 | | |
$ | 30.20 | | |
$ | 33.15 | | |
$ | 35.12 | | |
$ | 32.16 | |
Margin | |
$ | 11,972 | | |
$ | 12,236 | | |
$ | 11,342 | | |
$ | 9,805 | | |
$ | 45,355 | |
Margin per ton | |
$ | 10.20 | | |
$ | 8.72 | | |
$ | 5.55 | | |
$ | 6.31 | | |
$ | 7.35 | |
Capex | |
$ | 5,720 | | |
$ | 5,117 | | |
$ | 7,238 | | |
$ | 9,975 | | |
$ | 28,050 | |
Maintenance capex | |
$ | 2,343 | | |
$ | 1,049 | | |
$ | 2,324 | | |
$ | 3,302 | | |
$ | 9,018 | |
Maintenance capex per ton | |
$ | 2.00 | | |
$ | 0.75 | | |
$ | 1.14 | | |
$ | 2.12 | | |
$ | 1.46 | |
Critical Accounting Estimates
We believe that the estimates of our coal reserves, our asset retirement
obligation liabilities, our deferred tax accounts, our valuation of inventory, our treatment of business combinations, and the estimates
used in our impairment analysis are our critical accounting estimates.
The reserve estimates are used in the depreciation, depletion and amortization calculations
and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our depreciation, depletion
and amortization expense and impairment test may be affected. The process of estimating reserves is complex, requiring significant
judgment in the evaluation of all available geological, geophysical, engineering and economic data. The reserve estimates are prepared
by professional engineers, both internal and external, and are subject to change over time as more data becomes available. Changes
in the reserves estimates from the prior year were nominal.
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. We
believe that our income tax filing positions and deductions would be sustained on audit and do not anticipate any adjustments that will
result in a material change to our consolidated financial position. We have not taken any significant uncertain tax positions
and our tax provision and returns are prepared by a large public accounting firm with significant experience in energy related industries.
Changes to the estimates from reported amounts in the prior year were not significant.
Inventory is valued at lower of cost or net realizable value (NRV).
Anticipated utilization of low sulfur, higher-cost coal from our Ace in the Hole, Freelandville, and Prosperity mines has the potential
to create NRV adjustments as our estimated needs change. The NRV adjustments are subject to change as our costs may fluctuate
due to higher or lower production and our NRV may fluctuate based on sales contracts we enter into from time to time. There were
no significant changes to our NRV adjustment estimates from the prior year.
We account
for business acquisitions as either asset acquisitions or business combination depending on the circumstances as outlined in ASC 805-50. For
acquisitions accounted for as a business combination, we record the assets acquired, including identified intangible assets and liabilities
assumed at their fair value. For acquisitions accounted for as asset acquisitions, we allocate the fair value of consideration
exchanged in the transaction to each of the acquired assets based upon their relative fair value. Fair value in many instances
involves estimates based on third-party valuations, such as appraisals, or internal valuations based on discounted cash flow analyses
or other valuation techniques. Those estimates are subject to a high degree of uncertainty, thus we typically will retain professionals
in the relevant industries of the acquiree to assist us with our analysis and valuations. See "Item 8. Financial
Statements - Note 16 - Acquisition" for more information on the Merom Acquisition.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See Item 8
for an index of our financial statements.
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 (2) |
4.1 |
Description of Securities (3) |
10.1 |
2009 Stock Bonus Plan (4) |
10.2 |
Third Amended and Restated Credit Agreement dated May 21,
2018 (5) |
10.3 |
Second Amendment to the Third Amended and Restated
Credit Agreement and Waiver dated September 30, 2019 (6) |
10.4 |
Third Amendment to the Third Amended and Restated Credit
Agreement and Waiver (7) |
10.5 |
Sixth Amendment to the Third Amended and Restated Credit
Agreement dated March 25, 2022 (10) |
10. |
Seventh Amendment to the Third Amended and Restated
Credit Agreement dated May 20, 2022 (12) |
10.6 |
Eighth Amendment to the Third Amended and Restated
Credit Agreement dated August 5, 2022 (14) |
10.7 |
Ninth Amendment to the Third Amended and Restated Credit
Agreement dated September 28, 2022 (16) |
10.8 |
Tenth Amendment to the Third Amended and Restated Credit
Agreement dated March 13, 2023† |
10.9 |
US SBA Loan (PPP) dated April 16, 2020 (7). |
10.10 |
Amended and Restated Hallador Energy Company 2008 Restricted
Stock Unit Plan (8) |
10.11 |
Form of Hallador Energy Company Restricted Stock
Unit Issuance Agreement** (8) |
10.12 |
Hallador Energy Company 2020 Compensation Plan adopted
March 5, 2020** (2) |
10.13 |
2022 Executive Officer Compensation Plan**(17) |
10.14 |
Asset and Purchase Agreement dated February 14,
2022 (9) |
10.15 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 2, 2022 - Charles R. Wesley, IV Revocable Trust U/A dated October 30, 2020 (11) |
10.16 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 2, 2022 - Lubar Opportunities Fund I, LLC (11) |
10.17 |
Hallador Energy Company Unsecured Convertible Promissory
Note - dated May 2, 2022 - NextG Partners LLC (11) |
10.18 |
Hallador Energy Company Unsecured Convertible Promissory
Note - dated May 2, 2022 - Hallador Alternative Asset Fund, LLC (11) |
10.19 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 20, 2022 - NextG Partners, LLC (12) |
10.20 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 20, 2022 - Hallador Alternative Asset Fund, LLC (12) |
10.21 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 20, 2022, - Lubar Opportunities Fund I, LLC (12) |
10.22 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated May 20, 2020 - Murchison Capital Partners, LP (12) |
10.21 |
Hallador Energy Company Convertible Note Purchase Agreement
dated July 29, 2022 (13) |
10.23 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated July 29, 2022 - Lubar Opportunities Fund I LLC (13) |
10.24 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated August 8, 2022 - Lubar Opportunities Fund I, LLC (14) |
10.25 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated August 8, 2022 - Hallador Alternative Assets Fund, LLC (14) |
10.26 |
Hallador Energy Company Unsecured Convertible Promissory
Note dated August 12, 2022 - ALJ (15) |
14.1 |
Code of Ethics for Senior Officers (18) |
21.1 |
List of Subsidiaries† |
23.1 |
Consent of Grant Thornton LLP† |
23.2 |
Consent of Plante & Moran, PLLC† |
23.3 |
Consent of John T. Boyd Company* |
31.1 |
SOX 302 Certification - President and CEO* |
31.2 |
SOX 302 Certifications - CFO* |
31.3 |
SOX 302 Certifications - CAO* |
32 |
SOX 906 Certification* |
95 |
Mine Safety Disclosure† |
101.INS |
Inline XBRL Instance Document† |
101.SCH |
Inline XBRL Schema Document† |
101.CAL |
Inline XBRL Calculation Linkbase Document† |
101.LAB |
Inline XBRL Labels Linkbase Document† |
101.PRE |
Inline XBRL Presentation Linkbase Document† |
101.DEF |
Inline XBRL Definition Linkbase Document† |
104* |
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101) |
(1) |
IBR to Form 8-K dated December 31, 2009 |
(2) |
IBR to Form 10-K/A amendment 1, filed June 12, 2020 |
(3) |
IBR to Form 10-K filed March 9, 2020 |
(4) |
IBR to Form S-8 dated December 1, 2009 |
(5) |
IBR to Form 10-Q filed August 6, 2018 |
(6) |
IBR to Form 10-Q filed November 4, 2019 |
(7) |
IBR to Form 10-Q filed May 11, 2020 |
(8) |
IBR to Form DEF 14A dated April 11, 2017 |
(9) |
IBR to Form 8-K/A filed February 18, 2022 |
(10) |
IBR to Form 10-K filed March 28, 2022 |
(11) |
IBR to Form 8-K filed May 6, 2022 |
(12) |
IBR to Form 10-Q filed May 23, 2022 |
(13) |
IBR to Form 8-K filed August 4, 2022 |
(14) |
IBR to Form 8-K dated August 11, 2022 |
(15) |
IBR to Form 10-Q filed August 15, 2022 |
(16) |
IBR to Form 8-K filed October 4, 2022 |
(17) |
IBR to Form 10-Q filed November 14, 2022 |
(18) |
IBR to Form 10KSB dated April 14, 2006 |
* |
Filed herewith. |
** Management Agreements
† Previously filed as an exhibit to the Original 10-K.
SIGNATURES
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.
|
HALLADOR ENERGY COMPANY |
|
|
|
|
Date: November 1, 2023 |
/s/ Lawrence D. Martin |
|
Lawrence D. Martin, CFO |
|
|
|
|
|
/s/ R. Todd Davis |
Date: November 1, 2023 |
R. Todd Davis, 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 |
|
Director |
|
November 1, 2023 |
|
|
|
|
|
|
|
|
|
|
/s/ Bryan Lawrence |
|
|
|
|
Bryan Lawrence |
|
Director |
|
November 1, 2023 |
|
|
|
|
|
|
|
|
|
|
/s/ Brent Bilsland |
|
|
|
|
Brent Bilsland |
|
Board Chairman, President and CEO |
|
November 1, 2023 |
|
|
|
|
|
|
|
|
|
|
/s/ Steven Hardie |
|
|
|
|
Steven Hardie |
|
Director |
|
November 1, 2023 |
|
|
|
|
|
|
|
|
|
|
/s/ Charles Ray Wesley IV |
|
|
|
|
Charles Ray Wesley IV |
|
Director |
|
November 1, 2023 |
Exhibit 23.3
Chairman
James W. Boyd
President and CEO
John T. Boyd II
Managing Director and COO
Ronald L. Lewis
Vice Presidents
Robert J. Farmer
Jisheng (Jason) Han
John L. Weiss
Michael F. Wick
William P. Wolf
Managing Director - Australia
Jacques G. Steenekamp
Managing Director - China
Rongjie (Jeff) Li
Managing Director – South America
Carlos F. Barrera
Pittsburgh
4000 Town Center Boulevard, Suite 300
Canonsburg, PA 15317
(724) 873-4400
(724) 873-4401 Fax
jtboydp@jtboyd.com
Denver
(303) 293-8988
jtboydd@jtboyd.com
Brisbane
61 7 3232-5000
jtboydau@jtboyd.com
Beijing
86 10 6500-5854
jtboydcn@jtboyd.com
Bogota
+57-3115382113
jtboydcol@jtboyd.com
www.jtboyd.com
November
1, 2023
File: 3467.002
| Subject: | CONSENT OF JOHN T. BOYD COMPANY
TO BE NAMED IN REGISTRATION
STATEMENT |
Ladies and Gentlemen,
The undersigned hereby consents to the references to our firm in the
form and context in which they appear in this Annual Report on Form 10-K for the year ended December 31, 2022, as amended (the “Annual
Report”). We hereby further consent to (i) the use in the Annual Report of information relating to our Technical Report Summary,
Coal Resources and Coal Reserves, Oaktown Mining Complex (the “Report”) and (ii) the incorporation by reference of the Report
in the Registration Statements on Form S-3 (Nos. 333-273325 and 333-273327) and the Registration Statements on Form S-8 (Forms S-8 (Nos.
333-171778 and 333-261930) of Hallador Energy Company, including any amendment thereto, any related prospectus and any related prospectus
supplement of such information.
Respectfully submitted,
JOHN T. BOYD COMPANY
By:
Ronald L. Lewis
Managing Director and COO
Exhibit 31.1
Certification
I, Brent K. Bilsland, certify
that:
1.
I have reviewed this annual report on Form 10-K/A 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 officers 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 officers 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. |
November 1, 2023 |
By: |
/s/ Brent K. Bilsland |
|
|
Brent K. Bilsland |
|
|
Chairman, President and CEO |
Exhibit 31.2
Certification
I, Lawrence D. Martin, certify that:
1.
I have reviewed this annual report on Form 10-K/A 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 officers 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 officers 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. |
November 1, 2023 |
By: |
/s/ Lawrence D. Martin |
|
|
Lawrence D. Martin |
|
|
CFO |
Exhibit 31.3
Certification
I, R. Todd Davis, certify that:
1.
I have reviewed this annual report on Form 10-K/A 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 officers 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 officers 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. |
November 1, 2023 |
By: |
/s/ R. Todd Davis |
|
|
R. Todd Davis |
|
|
CAO |
Exhibit 32
Certification Pursuant
to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with this Annual
Report (the “Report”), of Hallador Energy Company (the “Company”), on Form 10-K/A
for the period ended December 31, 2022 as filed with the Securities and Exchange Commission on the date hereof 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) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company. |
November 1, 2023 |
By: |
/s/ Brent K. Bilsland |
|
|
Brent K. Bilsland |
|
|
Chairman, President and CEO |
November 1, 2023 |
By: |
/s/ Lawrence D. Martin |
|
|
Lawrence D. Martin |
|
|
CFO |
November 1, 2023 |
By: |
/s/ R. Todd Davis |
|
|
R. Todd Davis |
|
|
CAO |
Exhibit 99.1
TECHNICAL REPORT SUMMARY
COAL RESOURCES AND COAL RESERVES OAKTOWN MINING COMPLEX
Indiana and Illinois
Prepared
For
SUNRISE COAL, LLC
By
John T. Boyd Company
Mining and Geological Consultants
Pittsburgh, Pennsylvania, USA
Report No. 3467.002
OCTOBER 2023
|
John T. Boyd Company
Mining and Geological Consultants
|
Chairman |
October 27, 2023 |
James W. Boyd |
File: 3467.002 |
|
|
President and CEO |
|
John T. Boyd II |
|
|
|
Managing Director and COO |
Sunrise Coal, LLC. |
Ronald L. Lewis |
1183 E. Canvasback Drive |
|
Terre Haute, IN 47802 |
Vice Presidents |
|
Robert J. Farmer |
Attention: |
Mr. Todd Davis |
Jisheng (Jason) Han |
|
Chief Accounting Officer |
John L. Weiss |
|
Michael F. Wick |
|
Mr. Scott McGuire |
William P. Wolf |
|
Corporate Engineering
|
|
|
|
Managing Director - Australia |
Subject:
| Technical Report Summary
|
Jacques G. Steenekamp |
|
Coal Resources and Coal Reserves
|
|
|
Oaktown Mining Complex
|
|
|
|
Managing Director - China |
|
Indiana and Illinois
|
Rongjie (Jeff) Li |
|
|
|
Ladies and Gentlemen:
|
Managing Director – South America |
|
|
Carlos F. Barrera |
This technical report summary provides the results of John T. Boyd Company’s (BOYD) independent technical assessment of the coal resource and coal reserve estimates reported by Sunrise Coal, LLC (Sunrise) for the Oaktown Mining Complex as of December 31, 2021. |
|
|
Pittsburgh
4000 Town Center Boulevard, Suite 300
Canonsburg, PA 15317
(724) 873-4400
(724) 873-4401 Fax
jtboydp@jtboyd.com
| We wish to acknowledge the cooperation of Sunrise management and staff for providing the technical, financial, and legal information used in completing this project. Our findings are based on BOYD’s extensive experience in preparing coal reserve estimates used in US Securities and Exchange Commission (SEC) filings, and our knowledge of coal mining operations in the Illinois Basin (ILB) and throughout the world.
|
|
|
|
Respectfully submitted, |
|
|
|
|
Denver | JOHN
T. BOYD COMPANY |
(303) 293-8988 |
|
jtboydd@jtboyd.com
Brisbane
61 7 3232-5000
jtboydau@jtboyd.com
| By: |
|
Beijing | John T. Boyd II |
86 10 6500-5854 |
President and CEO |
jtboydcn@jtboyd.com |
|
|
|
Bogota |
|
+57-3115382113 |
|
jtboydcol@jtboyd.com |
|
|
|
www.jtboyd.com |
|
TABLE OF CONTENTS
|
Page |
LETTER OF TRANSMITTAL |
|
|
|
TABLE OF CONTENTS |
|
|
|
GLOSSARY AND ABBREVIATIONS |
|
|
|
|
1.0 |
EXECUTIVE SUMMARY |
1-1 |
|
1.1 |
Introduction |
1-1 |
|
1.2 |
Property Description |
1-1 |
|
1.3 |
Geology |
1-3 |
|
1.4 |
Exploration |
1-3 |
|
1.5 |
Coal Resources/Reserves |
1-4 |
|
1.6 |
Operations |
1-5 |
|
|
1.6.1 |
Mining |
1-5 |
|
|
1.6.2 |
Processing |
1-6 |
|
|
1.6.3 |
Other Infrastructure |
1-6 |
|
1.7 |
Financial Analysis |
1-7 |
|
|
1.7.1 |
Market Analysis |
1-7 |
|
|
1.7.2 |
Capital and Operating Costs |
1-7 |
|
|
1.7.3 |
Economic Analysis |
1-8 |
|
1.8 |
Regulation and Liabilities |
1-8 |
|
1.9 |
Conclusions |
1-9 |
|
|
|
|
2.0 |
INTRODUCTION |
2-1 |
|
2.1 |
Registrant and Purpose |
2-1 |
|
2.2 |
Terms of Reference |
2-1 |
|
2.3 |
Expert Qualifications |
2-2 |
|
2.4 |
Principal Sources of Information |
2-3 |
|
|
2.4.1 |
Site Visits |
2-4 |
|
|
2.4.2 |
Reliance on Information Provided by the Registrant |
2-4 |
|
2.5 |
Effective Date |
2-4 |
|
2.6 |
Units of Measure |
2-5 |
|
|
|
|
3.0 |
PROPERTY OVERVIEW |
3-1 |
|
3.1 |
Description and Location |
3-1 |
|
3.2 |
History |
3-3 |
|
3.3 |
Property Control |
3-3 |
|
|
3.3.1 |
Coal Ownership |
3-4 |
|
|
3.3.2 |
Surface Ownership |
3-4 |
JOHN T. BOYD COMPANY
TABLE OF CONTENTS - Continued
|
|
|
Page |
|
|
|
|
|
3.4 |
Adjacent Properties |
3-4 |
|
3.5 |
Regulation and Liabilities |
3-5 |
|
3.6 |
Accessibility, Local Resources, and Infrastructure |
3-6 |
|
3.7 |
Physiography |
3-6 |
|
3.8 |
Climate |
3-7 |
|
|
|
|
4.0 |
GEOLOGY |
4-1 |
|
4.1 |
Regional Geology |
4-1 |
|
4.2 |
Local Stratigraphy |
4-2 |
|
|
4.2.1 |
McLeansboro Group |
4-2 |
|
|
4.2.2 |
Carbondale Group |
4-3 |
|
|
4.2.3 |
Racoon Creek Group |
4-3 |
|
4.3 |
Coal Seam Geology |
4-3 |
|
|
4.3.1 |
Lithology |
4-3 |
|
|
4.3.2 |
Structure |
4-5 |
|
|
4.3.3 |
Coal Quality |
4-5 |
|
|
|
|
|
5.0 |
EXPLORATION DATA |
5-1 |
|
5.1 |
Background |
5-1 |
|
5.2 |
Procedures |
5-1 |
|
|
5.2.1 |
Drilling |
5-1 |
|
|
5.2.2 |
Coal Quality Sampling |
5-2 |
|
|
5.2.3 |
Coal Washability Testing |
5-4 |
|
|
5.2.4 |
Other Exploration Methods |
5-4 |
|
5.3 |
Results |
5-4 |
|
5.4 |
Data Verification |
5-6 |
|
|
|
|
6.0 |
COAL RESOURCES AND RESERVES |
6-1 |
|
6.1 |
Applicable Standards and Definitions |
6-1 |
|
6.2 |
Coal Resources |
6-2 |
|
|
6.2.1 |
Methodology |
6-2 |
|
|
6.2.2 |
Criteria |
6-3 |
|
|
6.2.3 |
Classification |
6-3 |
|
|
6.2.4 |
Coal Resource Estimate |
6-4 |
|
6.3 |
Coal Reserves |
6-4 |
|
|
6.3.1 |
Methodology |
6-4 |
|
|
6.3.2 |
Parameters and Assumptions |
6-5 |
|
|
6.3.3 |
Classification |
6-6 |
|
|
6.3.4 |
Coal Reserve Estimate |
6-6 |
|
|
6.3.5 |
Validation |
6-11 |
|
|
6.3.6 |
Reconciliation with Previous Coal Reserve Estimate |
6-14 |
JOHN T. BOYD COMPANY
TABLE OF CONTENTS - Continued
|
|
Page |
|
|
|
7.0 |
MINING OPERATIONS |
7-1 |
|
7.1 |
Mining Method Description |
7-1 |
|
7.2 |
Mine Equipment and Staffing |
7-5 |
|
|
7.2.1 |
Mine Equipment |
7-5 |
|
|
7.2.2 |
Staffing |
7-6 |
|
7.3 |
Mine Production |
7-7 |
|
|
7.3.1 |
Historical Mine Production |
7-7 |
|
|
7.3.2 |
Forecasted Production |
7-8 |
|
|
7.3.3 |
Mining Recovery and Dilution Factors |
7-10 |
|
|
7.3.4 |
Expected Mine Life |
7-11 |
|
7.4 |
Other Mining Considerations |
7-12 |
|
|
7.4.1 |
Mine Design |
7-12 |
|
|
7.4.2 |
Mining Risk |
7-13 |
|
|
|
|
|
8.0 |
PROCESSING OPERATIONS |
8-1 |
|
8.1 |
Overview |
8-1 |
|
8.2 |
Historical Operation |
8-2 |
|
8.3 |
Future Operations |
8-2 |
|
8.4 |
Conclusion |
8-5 |
|
|
|
|
9.0 |
MINE INFRASTRUCTURE |
9-1 |
|
9.1 |
Mine Surface Facilities |
9-1 |
|
9.2 |
Oaktown Complex Refuse Facility |
9-2 |
|
|
|
|
10.0 |
MARKET ANALYSIS |
10-1 |
|
10.1 |
Indiana Coal Industry Background |
10-1 |
|
|
10.1.1 |
Coal Reserves |
10-1 |
|
|
10.1.2 |
Coal Quality |
10-2 |
|
|
10.1.3 |
Transportation |
10-3 |
|
|
10.1.4 |
Production Evolution |
10-4 |
|
|
10.1.5 |
Mining Methods |
10-4 |
` |
|
10.1.6 |
Coal Demand by Market |
10-5 |
|
10.2 |
Sunrise Coal |
10-7 |
|
|
10.2.1 |
Product Specifications |
10-7 |
|
|
10.2.2 |
Primary Markets |
10-7 |
|
|
10.2.3 |
Market Outlook |
10-8 |
|
|
10.2.4 |
Future Sales |
10-9 |
|
|
10.2.5 |
Price Forecast |
10-10 |
|
|
|
|
|
11.0 |
CAPITAL AND OPERATING COSTS |
11-1 |
|
11.1 |
Historical Financial Performance |
11-1 |
|
11.2 |
Estimated Costs |
11-3 |
|
|
11.2.1 |
Forecasted Production |
11-4 |
|
|
11.2.2 |
Projected Operating Costs |
11-5 |
|
|
11.2.3 |
Projected Capital Expenditures |
11-7 |
JOHN T. BOYD COMPANY
TABLE OF CONTENTS - Continued
|
|
Page |
|
|
|
12.0 |
ECONOMIC ANALYSIS |
12-1 |
|
12.1 |
Approach |
12-1 |
|
12.2 |
Assumptions and Limitations |
12-2 |
|
12.3 |
Financial Model Results |
12-3 |
|
12.4 |
Sensitivity Analysis |
12-6 |
|
|
|
|
13.0 |
PERMITTING AND COMPLIANCE |
13-1 |
|
13.1 |
Permitting Requirements and Status |
13-1 |
|
13.2 |
Environmental Studies |
13-3 |
|
13.3 |
Waste Disposal and Water Management |
13-3 |
|
13.4 |
Compliance |
13-3 |
|
13.5 |
Plans, Negotiations, or Agreements |
13-4 |
|
13.6 |
Mine Closure |
13-4 |
|
13.7 |
Local Procurement and Hiring |
13-4 |
|
|
|
|
14.0 |
INTERPRETATION AND CONCLUSIONS |
14-1 |
|
14.1 |
Findings |
14-1 |
|
14.2 |
Significant Risks and Uncertainties |
14-1 |
JOHN T. BOYD COMPANY
TABLE OF CONTENTS - Continued
|
|
Page |
|
|
|
List of Tables
|
|
1.1 |
Coal Reserves Summary |
1-4 |
1.2 |
Coal Reserves by Category |
1-5 |
3.1 |
Monthly Average Climate Data, Vincennes, Indiana |
3-7 |
5.1 |
Indiana V Seam Thickness (feet) Statistics |
5-4 |
5.2 |
Descriptive Statistics, Indiana V Seam Coal Quality |
5-6 |
6.1 |
Coal Resource Classification Criteria |
6-4 |
6.2 |
Estimated Coal Reserves by Mine as of 31 December 2021 |
6-9 |
6.3 |
Coal Reserves Summary |
6-10 |
6.4 |
Coal Reserves Product Quality Summary |
6-11 |
7.1 |
Projected Number of Operating CM Sections |
7-5 |
7.2 |
Summary of Production Unit Equipment |
7-5 |
7.3 |
Historical Employment |
7-6 |
7.4 |
Historical Mine Production |
7-7 |
7.5 |
Life-of-Mine Plan Coal Production Summary |
7-9 |
7.6 |
Life-of-Mine Plan Coal Quality Summary |
7-10 |
7.7 |
Mine Life Projection |
7-11 |
9.1 |
CRDA Capacity |
9-2 |
10.1 |
Historical Indiana Production by County |
10-1 |
10.2 |
2020 Quality Specifications for Indiana Coal Shipped to Domestic Utilities |
10-2 |
10.3 |
Indiana Coal Quality by County of Origin |
10-2 |
10.4 |
Historical Indiana Coal Production and Mine Count |
10-4 |
10.5 |
Distribution of Indiana Coal Shipments by Market Sector |
10-6 |
10.6 |
Historical Indiana Coal Deliveries to Utility Market by Destination State |
10-6 |
10.7 |
Indicative Thermal Coal Quality Specifications by Mine |
10-7 |
10.8 |
Sunrise Coal Deliveries to Utility Market by Destination State |
10-8 |
10.9 |
Coal Price Forecast |
10-11 |
11.1 |
Historical Financials |
11-1 |
11.2 |
Estimate of Cash Operating Costs |
11-6 |
11.3 |
Estimate of Capital Expenditures |
11-8 |
12.1 |
Discounted Cash Flow – Net Present Value Analysis |
12-4 |
12.2 |
Financial Results |
12-5 |
12.3 |
DCF-NPV Results |
12-5 |
12.4 |
After-Tax NPV12 Sensitivity Analysis |
12-6 |
13.1 |
Summary of Current Permits |
13-2 |
JOHN T. BOYD COMPANY
TABLE OF CONTENTS - Continued
|
Page |
|
|
List of Figures |
|
1.1 |
General Location Map |
1-2 |
3.1 |
Map Showing General Layout and Mineral Control |
3-2 |
4.1 |
Generalized Stratigraphic Chart, Southwestern Indiana |
4-2 |
4.2 |
Map Showing Indiana V Seam Isopachs |
4-4 |
5.1 |
Map Showing Drill Hole Locations Indiana V Seam |
5-5 |
6.1 |
Relationship Between Coal Resources and Coal Reserves |
6-2 |
6.2 |
Map Showing Product Yield Isopleths, Indiana V Seam |
6-7 |
6.3 |
Map Showing Reserve Classification, Indiana V Seam |
6-8 |
6.4 |
Map Showing Product Ash Isopleths, Indiana V Seam |
6-12 |
6.5 |
Map Showing Product Sulfur Isopleths, Indiana V Seam |
6-13 |
6.6 |
Reconciliation with Previous Coal Reserves Estimate |
6-14 |
7.1 |
Room-and-Pillar Mining Method |
7-1 |
7.2 |
Historic Mining Productivity Levels |
7-8 |
8.1 |
Aerial Map Showing Oaktown Complex Preparation Plant Facilities |
8-3 |
8.2 |
Generic Flowsheet, Dense Medium Cyclone/Spiral/Flotation, Oaktown Complex
Preparation Plant Facility |
8-4 |
10.1 |
Indiana Coal Production by Mining Method |
10-5 |
10.2 |
Future Coal Sales by Order Type |
10-9 |
11.1 |
Historical Operating Costs by Mine |
11-2 |
11.2 |
Oaktown Mining Complex Projected Saleable Production |
11-4 |
JOHN T. BOYD COMPANY
1
GLOSSARY OF ABBREVIATIONS AND DEFINITIONS
$ |
: |
US dollar(s) |
|
|
|
% |
: |
Percent or percentage |
|
|
|
AC |
: |
Alternating current |
|
|
|
ARO |
: |
Asset Retirement Obligations |
|
|
|
As-Received Basis |
: |
Data or results are calculated to the moisture condition of the coal sample when it arrived at the testing facility. |
|
|
|
ASTM |
: |
ASTM International (formerly American Society for Testing and Materials) |
|
|
|
BOYD |
: |
John T. Boyd Company |
|
|
|
Btu |
: |
British thermal unit. A unit of heat; it is defined as the amount of heat required to raise the temperature of one pound of water by one degree Fahrenheit. |
|
|
|
CM |
: |
Continuous Miner |
|
|
|
CPP |
: |
Coal Preparation Plant |
|
|
|
Coal |
: |
Combustible sedimentary rock in which organic matter, including residual moisture comprises more than 50% by weight and more than 70% by volume of carbonaceous material formed from altered plant remains. |
|
|
|
Coal Reserve |
: |
An estimate of tonnage and grade or quality of indicated and measured coal resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated coal resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted. |
|
|
|
Coal Resource |
: |
A concentration or occurrence of coal of economic interest in or on the Earth's crust in such form, quality, and quantity that there are reasonable prospects for economic extraction. A coal resource is a reasonable estimate of mineralization, considering relevant factors such as cut-off grade, likely mining dimensions, location, or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled. |
|
|
|
CRDA |
: |
Coal Refuse Disposal Area |
|
|
|
CSX |
: |
CSX Corporation. A rail-based freight transportation company |
JOHN T. BOYD COMPANY
2
GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued
CY |
: |
Cubic yards |
|
|
|
DCF |
: |
Discounted Cash Flow |
|
|
|
DOR |
: |
Indiana Department of Natural Resources’ Division of Reclamation |
|
|
|
Dry Basis |
: |
Data or results are calculated to a theoretical base as if there were no moisture in the coal sample. |
|
|
|
EIA |
: |
U.S. Energy Information Administration |
|
|
|
FOB |
: |
Free-on-Board |
|
|
|
Hallador |
: |
Hallador Energy Company and its subsidiaries |
|
|
|
ILB |
: |
Illinois Basin. Coal producing region consisting of Illinois, Indiana, and Western Kentucky. |
|
|
|
IL-EPA |
: |
Illinois’s Environmental Protection Agency |
|
|
|
IN-DNR |
: |
Indiana’s Department of Natural Resources |
|
|
|
Indicated Coal Resource |
: |
That part of a coal resource for which quantity and quality are estimated based on adequate geological evidence and sampling. The level of geological certainty associated with an indicated coal resource is sufficient to allow a qualified person to apply modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Because an indicated coal resource has a lower level of confidence than the level of confidence of a measured coal resource, an indicated coal resource may only be converted to a probable coal reserve. |
|
|
|
INRD |
: |
Indiana Railroad Company. A rail-based freight transportation company |
|
|
|
Inferred Coal Resource |
: |
That part of a coal resource for which quantity and quality are estimated based on limited geological evidence and sampling. The level of geological uncertainty associated with an inferred coal resource is too high to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Because an inferred coal resource has the lowest level of geological confidence of all coal resources, which prevents the application of the modifying factors in a manner useful for evaluation of economic viability, an inferred coal resource may not be considered when assessing the economic viability of a mining project, and may not be converted to a coal reserve. |
|
|
|
IRR |
: |
Internal rate-of-return |
JOHN T. BOYD COMPANY
3
GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued
ISO |
: |
International Organization for Standardization |
|
|
|
lb |
: |
Pound |
|
|
|
LOM |
: |
Life-of-Mine |
|
|
|
LW |
: |
Longwall |
|
|
|
Measured Coal Resource |
: |
That part of a coal resource for which quantity and quality are estimated based on conclusive geological evidence and sampling. The level of geological certainty associated with a measured coal resource is sufficient to allow a qualified person to apply modifying factors, as defined herein, in sufficient detail to support detailed mine planning and final evaluation of the economic viability of the deposit. Because a measured coal resource has a higher level of confidence than the level of confidence of either an indicated coal resource or an inferred coal resource, a measured coal resource may be converted to a proven coal reserve or to a probable coal reserve |
|
|
|
Mineral Reserve |
: |
See “Coal Reserve” |
|
|
|
Mineral Resource |
: |
See “Coal Resource” |
|
|
|
Modifying Factors |
: |
The factors that a qualified person must apply to indicated and measured coal resources and then evaluate to establish the economic viability of coal reserves. A qualified person must apply and evaluate modifying factors to convert measured and indicated coal resources to proven and probable coal reserves. These factors include, but are not restricted to: mining; processing; infrastructure; economic; marketing; legal; environmental compliance; plans, negotiations, or agreements with local individuals or groups; and governmental factors. The number, type and specific characteristics of the modifying factors applied will necessarily be a function of and depend upon the mineral, mine, property, or project. |
|
|
|
MSHA |
: |
Mine Safety and Health Administration. A division of the U.S. Department of Labor |
|
|
|
NPDES |
: |
National Pollutant Discharge Elimination System |
|
|
|
NS |
: |
Norfolk Southern Corporation. A rail-based freight transportation company. |
|
|
|
NPV |
: |
Net Present Value |
JOHN T. BOYD COMPANY
4
GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued
Oaktown Mining Complex |
: |
Oaktown Mining Complex. Includes the Oaktown Fuels No. 1 Mine, Oaktown Fuels No. 2 Mine, and Oaktown Complex Coal Preparation Plant |
|
|
|
OSD |
: |
Out-of-Seam Dilution. Rock, impurities recovered from above and below the coal seam with the coal seam during the normal mining process |
|
|
|
OSMRE |
: |
Office of Surface Mining, Reclamation and Enforcement |
|
|
|
Probable Coal Reserve |
: |
The economically mineable part of an indicated and, in some cases, a measured coal resource. |
|
|
|
Production Stage Property |
: |
A property with material extraction of coal reserves. |
|
|
|
Proven Coal Reserve |
: |
The economically mineable part of a measured coal resource which can only result from conversion of a measured coal resource. |
|
|
|
QP |
: |
Qualified Person |
|
|
|
Qualified Person |
: |
An individual who is:
1. A
mineral industry professional with at least five years of relevant experience in the type of mineralization and type of deposit under
consideration and in the specific type of activity that person is undertaking on behalf of the registrant; and
2. An
eligible member or licensee in good standing of a recognized professional organization at the time the technical report is prepared. For
an organization to be a recognized professional organization, it must:
a. Be
either:
i. An
organization recognized within the mining industry as a reputable professional association; or
ii.
A board authorized by U.S. federal, state, or foreign statute to regulate professionals in the
mining, geoscience, or related field;
b. Admit
eligible members primarily based on their academic qualifications and experience;
c. Establish
and require compliance with professional standards of competence and ethics;
d. Require
or encourage continuing professional development;
e. Have
and apply disciplinary powers, including the power to suspend or expel a member regardless of where the member practices or resides; and
f. Provide
a public list of members in good standing. |
JOHN T. BOYD COMPANY
5
GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued
R&P |
: |
Room-and-pillar |
|
|
|
RC |
: |
Ram cars |
|
|
|
ROM |
: |
Run-of-Mine. The as-mined material including coal, in-seam rock partings mired with the coal, and out-of-seam dilution. |
|
|
|
SC |
: |
Shuttle cars |
|
|
|
SGF |
: |
Specific gravity float |
|
|
|
SEC |
: |
U.S. Securities and Exchange Commission |
|
|
|
S-K 1300 |
: |
Subpart 1300 and Item 601(b)(96) of the U.S. Securities and Exchange Commission’s Regulation S-K |
|
|
|
SMCRA |
: |
Surface Mining Control and Reclamation Act of 1977 |
|
|
|
Sunrise |
: |
Sunrise Coal, LLC and its subsidiaries |
|
|
|
Ton |
: |
Short Ton. A unit of weight equal to 2,000 pounds |
|
|
|
TPH |
: |
Tons per Hour |
|
|
|
TPEH |
: |
Tons per Employee-Hour |
JOHN T. BOYD COMPANY
1-1
1.0 EXECUTIVE
SUMMARY
1.1 Introduction
Sunrise’s Oaktown Mining Complex is a mining complex that includes
two active underground room-and-pillar (R&P) mines—Oaktown Fuels No. 1 Mine and Oaktown Fuels No. 2 Mine—and
the Oaktown Complex Coal Preparation Plant (CPP). BOYD was retained by Sunrise to complete an independent technical assessment of coal
resource and coal reserve estimates for the Oaktown Mining Complex.
BOYD’s findings as a result of the audit of Oaktown Mining Complex’s
coal resource and coal reserve estimates are based on our detailed examination of the supporting geologic, technical, and economic information
obtained from: (1) Sunrise files, (2) discussions with Sunrise personnel, (3) records on file with regulatory agencies,
(4) public sources, and (5) nonconfidential BOYD files.
This technical report identifies and summarizes the results of our
audit of the Oaktown Mining Complex coal reserves and independent assessment of the economic viability of extracts of the Oaktown Mining
Complex coal reserves over the life of the mine and satisfies the requirements for Sunrise’s disclosure of coal reserves set forth
in Subpart 1300 and Item 601(b)(96) of the SEC's Regulation S-K (S-K 1300). This is the first technical report summary for the Oaktown
Mining Complex. BOYD is a qualified person as defined in Regulation S-K 1300.
Weights and measurements are expressed in US customary units. Unless
noted, the effective date of the information, including estimates of coal reserves, is December 31, 2021.
1.2 Property
Description
The Oaktown Mining Complex is an active underground coal mining and
processing operation located in Knox and Sullivan counties, Indiana, and Lawrence County, Illinois. The general location of
the Oaktown Mining Complex is provided in Figure 1.1, following this page. The project lies in a well-developed region with a robust infrastructure.
JOHN T. BOYD COMPANY
1-2
JOHN T. BOYD COMPANY
1-3
Located within the ILB coal-producing region of the midwestern US,
the Oaktown Mining Complex is one of the largest underground R&P coal mining complexes in North America.
The Oaktown Mining Complex mines coal exclusively from the Indiana
V Seam (Illinois No. 5 Springfield Seam). Within the Oaktown Mining Complex mine plan boundaries, Sunrise currently maintains the
right to mine and remove approximately 78% of the Indiana V Seam through lease agreements. Several small adverse (uncontrolled) tracts
exist within the proposed life-of-mine (LOM) plan; however, Sunrise has demonstrated success in acquiring these as required during the
ordinary course of business. BOYD is not aware of any encumbrances, litigation, or orders that would hinder the continued development
of the property.
The Indiana V Seam has been extensively mined in the ILB region and
is one of two predominant coal seams of economic interest. Sunrise has demonstrated a history of successfully mining the Indiana V Seam
at the Oaktown Mining Complex, with initial mining at the complex dating to 2009.
1.3 Geology
The Oaktown Mining Complex is situated in the Carbondale Group (Formation)
of the Pennsylvania System. Near-surface geology of this area primarily consists of the overlying Quarternary System. Coal seams mined
in this region are generally classified as medium- to high-sulfur content and moderate ash thermal coal products.
The Indiana V Seam is the only coal seam of economic interest on the
property. Structurally, the Indiana V Seam consists of a singular and relatively consistent horizon averaging between 4 ft to 8 ft thick
containing little in-seam parting. The Indiana V Seam globally dips in the general westerly direction and experiences localized areas
where the seam elevations vary. Pronounced gradients can occur periodically in the form of rolls in the seam. Depths for the Indiana V
Seam range from approximately 300 ft to 450 ft below ground surface within the Oaktown Mining Complex area.
The Indiana V Seam coal bed is characterized as high sulfur and moderate
ash coal that is used for steam purposes.
JOHN
T. BOYD COMPANY
1-4
1.4 Exploration
The Indiana V Seam has been extensively explored and mined in the region,
with drilling records dating prior to the inception of the Oaktown Mining Complex. Sunrise provided data for 1,895 drill holes that have
intercepted the Indiana V Seam and have been complied for defining the lateral extent, thickness, and qualities (both raw and clean) of
the Indiana V Seam in the immediate Oaktown Mining Complex project area.
BOYD’s audit indicates that in general: (1) Sunrise has
performed extensive drilling and sampling work on the subject property, (2) the work completed has been done by competent personnel,
and (3) the amount of data available combined with wide-spread knowledge of the Indiana V Seam, is sufficient to confirm the thickness,
lateral extents, and quality characteristics of the Indiana V Seam.
1.5 Coal
Resources/Reserves
Sunrise’s estimated underground mineable coal reserves for the
Oaktown Mining Complex total 71.4 million recoverable (clean) product tons remaining as of December 31, 2021. The coal reserves
controlled by Sunrise are summarized in Table 1.1.
Table 1.1: Coal Reserves Summary
| |
| | |
| | |
| |
| |
| | |
| | |
Average Product Quality (As Received Basis) | |
| |
| | |
Product | | |
| | |
% | | |
| | |
Heating | | |
SO2 | |
| |
| | |
Tons | | |
Total | | |
| | |
| | |
Value | | |
(lbs per | |
Mine | |
Classification | | |
millions | | |
Moisture | | |
Ash | | |
Sulfur | | |
(Btu/lb) | | |
MMBtu) | |
Oaktown Fuels No. 1 | |
Proven | | |
| 40.1 | | |
| 13.00 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
| |
Probable | | |
| 0.4 | | |
| 13.00 | | |
| 7.4 | | |
| 3.6 | | |
| 11,525 | | |
| 6.2 | |
| |
Total | | |
| 40.5 | | |
| 13.00 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
Oaktown Fuels No. 2 | |
Proven | | |
| 29.7 | | |
| 13.00 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.7 | |
| |
Probable | | |
| 1.1 | | |
| 13.00 | | |
| 8.0 | | |
| 3.2 | | |
| 11,520 | | |
| 5.6 | |
| |
Total | | |
| 30.9 | | |
| 13.00 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.6 | |
Total - Oaktown Mining Complex | |
Proven | | |
| 69.8 | | |
| 13.00 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
| |
Probable | | |
| 1.6 | | |
| 13.00 | | |
| 7.8 | | |
| 3.3 | | |
| 11,522 | | |
| 5.8 | |
| |
Total | | |
| 71.4 | | |
| 13.00 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
JOHN
T. BOYD COMPANY
1-5
Table 1.2, below, provides a breakdown of the coal reserves by control
type and permit status.
Table 1.2: Coal Reserves by Category | |
| |
Product Tons | | |
| |
| |
(millions) | | |
% | |
Control Type | |
| | | |
| | |
Owned | |
| - | | |
| - | |
Leased | |
| 71.4 | | |
| 100.0 | |
Permit Status | |
| | | |
| | |
Permitted | |
| 66.1 | | |
| 92.6 | |
Not Permitted | |
| 5.3 | | |
| 7.4 | |
It is BOYD’s opinion that extraction of the reported coal reserves
is technically achievable and economically viable after the consideration of potentially material modifying factors. Periodic amendments
to existing mining permits to add additional acreage (reserve tonnage) in order to sustain coal production is common practice. We are
not aware of any issues that would impact or prevent the present “Not Permitted” reserves to be permitted as future mining
needs dictate. We are also not aware of any prohibition against the proposed mining and processing activities.
There are no reportable coal resources excluding those converted to
coal reserves for the Oaktown Mining Complex.
1.6 Operations
1.6.1 Mining
The Oaktown Mining Complex is comprised of the Oaktown Fuels No. 1
and Oaktown Fuels No. 2 underground mines. Each mine utilizes R&P mining (employing continuous miners [CMs]) for primary production.
This mining method is highly productive and commercially demonstrated; it has been one of the primary approaches to mining the Indiana
V Seam for decades. Oaktown Mining Complex has utilized this mining method since the inception of each operation. To date, Oaktown Mining
Complex has produced a combined 58.3 million tons of clean coal. The complex is configured to operate up to seven CM sections, with an
annual production target of approximately 8 million product tons. The Oaktown Mining Complex is generally considered an industry leader
in terms of mining productivity and mining costs when compared to other R&P underground operations.
JOHN
T. BOYD COMPANY
1-6
It is BOYD’s opinion that the forecasted production levels for
the Oaktown Mining Complex operations are reasonable, logical, and consistent with typical R&P mining practices in the Indiana V
Seam and historical practices utilized by Sunrise. The Oaktown Mining Complex LOM plans developed by BOYD show a relatively stable production
output until individual production sections are retired corresponding to reserve exhaustion. In the aggregate, the Oaktown Mining Complex
LOM plan projects the complex will produce approximately 131.6 million tons of run-of-mine (ROM) coal (91.6 million saleable tons after
processing) during the next 17 years (through 2038).
1.6.2 Processing
The Oaktown Complex CPP serves as the coal washing facility for the
Oaktown Mining Complex’s two R&P mines. The plant was commissioned in 2009 to wash coal produced by the Oaktown Fuels No. 1
Mine. The Oaktown Complex CPP has a current processing capacity of 1,600 raw tons-per-hour (TPH).
The beneficiation process utilized at the Oaktown Mining Complex has
a proven performance record and has remained relatively unchanged for decades. The plant’s ability to blend raw coal production
from the two underground mines into a singular plant feed allows for both more consistent plant operation and the ability to achieve differing
clean coal qualities for various customer specifications.
1.6.3 Other
Infrastructure
The Oaktown Mining Complex underground mines and CPP are supported
by several surface infrastructure sites. Major surface infrastructure includes ancillary buildings, high-voltage power distribution stations,
ROM coal conveyor belts, CPP refuse facilities, underground access and ventilation structures, and truck/rail loading systems.
Product coal from the Oaktown Mining Complex is transported to its
customer base via rail, truck, or a combination of both. The Oaktown Complex CPP is served by both the CSX Railroad and Indiana Railroad
(INRD) via a rail spur and rail loop that connects the complex with the mainline rail just north of Oaktown, Indiana. Additionally,
the Oaktown Complex CPP can facilitate the loading of trucks for direct transport to select customers, or to Sunrise’s transload
facility in Princeton, Indiana serviced by the Norfolk Southern (NS) Railroad.
The Oaktown Complex refuse facility serves as the disposal location
for all waste rock (coarse coal refuse) and portions of the fine coal slurry (fine coal refuse) produced during the processing of coal.
The majority of the fine coal slurry is transported overland via a network of pumps and pipelines for underground disposal within mined-out
void areas of the Oaktown Fuels No. 1 and No. 2 mines.
JOHN
T. BOYD COMPANY
1-7
1.7 Financial
Analysis
1.7.1 Market
Analysis
The Oaktown Mining Complex’s product is thermal coal that is
directed into the US coal-fired generation market. Historically, this market accounts for all of the Oaktown Mining Complex annual sales.
Coal use among domestic power generators has fallen out of favor in
several of the individual states of the US and is being replaced by natural gas and renewable forms of generation. However, several states
are positioned to remain largely reliant upon coal for power generation, such as Indiana. Sunrise anticipates its geographical location,
reputation for sustained production, and well-capitalized infrastructure well position the complex to continue supplying coal into the
Indiana market and other domestic coal markets when opportunities present.
1.7.2 Capital
and Operating Costs
The ILB is widely recognized as being ideally suited for commercial
scale mining through R&P mining methods. The region’s Indiana V Seam is conducive to efficient, low-cost production R&P
operations. In terms of total dollars expended per year, cash operating costs for R&P mines contain a mixture of variable and fixed
costs. Unit costs, therefore, will vary mostly due to changes in production and less so with regard to general inflation and major mine
site changes.
During the historical review period of 2018 through 2021, total cash
operating costs per saleable ton for the Oaktown Mining Complex were within the range of $27 to $31 per saleable ton. While each of the
individual mines may have realized higher or lower operating costs annually, their operation in parallel aids in the complex’s ability
to minimize short-term periods of individual mine coal production decreases and/or increases in operating costs.
The Oaktown Mining Complex is regarded as being well-capitalized comparatively
to industry peers. Continual capital expenditures have been ongoing by Sunrise in recent years to support mine infrastructure expansions,
maintenance of production equipment, refuse placement, etc. Historical annual capital expenditures were found to be within the range
of $4 to $5 per saleable ton for the Oaktown Mining Complex.
JOHN
T. BOYD COMPANY
1-8
BOYD found Sunrise’s forecasted operating and capital costs to
be indicative of the complex’s historical performance and in general agreement with BOYD’s independent LOM forecasts.
1.7.3 Economic
Analysis
The results of our indicative economic analysis for Oaktown Mining
Complex over the 15-year period (2022 to 2036) shows an after-tax net present value (NPV) of $400 million for the expected case at
a 12% discount rate. The coal sales price estimated over the life of the reserves averages approximately $47 (ranging from $42.50 to $64).
The cash flow estimates are positive even after performing independent sensitivity analyses of up to 10% variation in operating costs
and sales prices. Based on this analysis, BOYD concludes that the stated coal reserves are economically viable under reasonable market
price expectations for the coal produced from the Oaktown Mining Complex.
The NPV estimate was made for purposes of confirming the economic viability
of the reported coal reserves and not for purposes of valuing Sunrise or its assets. Internal rate-of-return (IRR) and project payback
were not calculated, as there was no initial investment considered in the financial model.
1.8 Regulation
and Liabilities
Multiple permits are required by federal and state law for underground
mining, coal preparation and related facilities, and other incidental activities. Sunrise reports that all necessary permits to support
current operations are in place or pending approval. New permits or permit revisions may be necessary from time to time to facilitate
future operations. Given sufficient time and planning, Sunrise should be able to secure new permits, as required, to maintain its planned
operations within the context of the current regulations.
Permits generally require that Sunrise post a performance bond in an
amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during mining operation
is properly mitigated, and (2) assure that all regulation requirements of the permit are fully satisfied. Sunrise reports holding
surety bonds to cover its current obligations relating to mining and reclamation, road repair, etc. Those obligations currently equate
to $5.8 million.
JOHN
T. BOYD COMPANY
1-9
1.9 Conclusions
It is BOYD’s overall conclusion that Sunrise’s estimates
of coal reserves, as reported herein: (1) were prepared in conformance with accepted industry standards and practices, and (2) are
reasonably and appropriately supported by technical evaluations, which consider all relevant modifying factors. We do not believe there
is other relevant data or information material to the Oaktown Mining Complex that would render this technical report summary misleading.
Our conclusions represent only informed professional judgment.
Given the operating history and status of evolution, residual uncertainty
for this project is considered minor under the current and foreseeable operating environment. A general assessment of risk is presented
in the relevant sections of this report.
The ability of Sunrise, or any mine operator, to recover all of the
reported coal reserves is dependent on numerous factors that are beyond the control of, and cannot be anticipated by, BOYD. These factors
include mining and geologic conditions, the capabilities of management and employees, the securing of required approvals and permits in
a timely manner, future coal prices, etc. Unforeseen changes in regulations could also impact performance. Opinions presented in
this report apply to the site conditions and features as they existed at the time of BOYD’s investigations and those reasonably
foreseeable.
JOHN
T. BOYD COMPANY
2-1
2.0 INTRODUCTION
2.1 Registrant
and Purpose
This technical report summary was prepared for Hallador Energy (Hallador)
in support of their disclosure of their subsidiary, Sunrise’s, coal resources and coal reserves for the Oaktown Mining Complex.
Hallador is a US-based energy solutions company headquartered in Terre
Haute, Indiana, and is listed on the National Association of Securities Dealers Automated Quotations (NASDAQ:HNRG) stock exchange.
A large portion of Hallador’s business focuses upon coal mining through their subsidiary Sunrise. Sunrise is actively engaged in
the production and export of thermal coal from mines located in the ILB. The company also owns and operates the Princeton Rail Loop, which
is located near Princeton, Indiana on the NS Railroad. Additional information regarding Hallador (and Sunrise) can be found on their
website at www.halladorenergy.com.
2.2 Terms
of Reference
Sunrise retained BOYD to complete an independent technical assessment
of mineral resource and mineral reserve estimates and supporting information for the Oaktown Mining Complex. Our objective was to obtain
reasonable assurance that the coal resource and coal reserve statements for Oaktown Mining Complex are free from material misstatement.
The results of our third-party study, presented in report form herein,
were prepared in accordance with the disclosure requirements set forth in Subpart 1300 and Item 601(b)(96) of the SEC’s Regulation
S-K. The purpose of this report is: (1) to summarize available information for the subject mining properties, (2) to provide
the conclusions of our technical assessment, (3) to provide a statement of coal resources and/or coal reserves for the Oaktown Mining
Complex, and (4) provide our conclusion of the economic viability of the Oaktown Mining Complex’s coal reserves. This is the
first technical report summary filed by Sunrise for the Oaktown Mining Complex.
BOYD’s findings are based on our detailed examination of the
supporting geologic and other scientific, technical, and economic information provided by Sunrise, as well as our assessment of the methodology
and practices applied by Sunrise in formulating the estimates of coal resources and coal reserves disclosed in this report. We did not
independently estimate coal resources or coal reserves from first principles.
JOHN
T. BOYD COMPANY
2-2
We used standard engineering and geoscience methods, or a combination
of methods, that we considered to be appropriate and necessary to establish the conclusions set forth herein. As in all aspects of mining
property evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions
necessarily represent only informed professional judgment.
The ability of Sunrise, or any mine operator, to recover all of the
estimated coal reserves presented in this report is dependent on numerous factors that are beyond the control of, and cannot be anticipated
by, BOYD. These factors include mining and geologic conditions, the capabilities of management and employees, the securing of required
approvals and permits in a timely manner, future coal prices, etc. Unforeseen changes in regulations could also impact performance.
Opinions presented in this report apply to the site conditions and features as they existed at the time of BOYD’s investigations
and those reasonably foreseeable.
This report is intended for use by Sunrise subject to the terms and
conditions of its professional services agreement with BOYD. The agreement permits Sunrise to file this report as a technical report summary
with the SEC pursuant to Subpart 1300 and Item 601(b)(96) of Regulation S-K. Except for the purposes legislated under US securities law,
any other uses of our reliance on this report by any third party is at that party’s sole risk. The responsibility for this
disclosure remains with Sunrise. The user of this document should ensure that this is the most recent disclosure of coal resources and
coal reserves for the subject property as it is no longer valid if more recent estimates have been issued.
2.3 Expert
Qualifications
BOYD is an independent consulting firm specializing in mining-related
engineering and financial consulting services. Since 1943, BOYD has completed over 4,000 projects in the United States and more than 60
other countries. Our full-time staff comprises mining experts in: civil, environmental, geotechnical, and mining engineering; geology;
mineral economics; and market analysis. Our extensive experience in coal resources/reserve estimation and our knowledge of the subject
coal properties, provides BOYD an informed basis on which to opine on the reasonableness of the estimates provided by Sunrise. An overview
of BOYD can be found on our website at www.jtboyd.com.
JOHN
T. BOYD COMPANY
2-3
The individuals primarily responsible for this independent technical
assessment and the preparation of this report are by virtue of their education, experience, and professional association considered qualified
persons as defined in Subpart 1300 of Regulation S-K.
Neither BOYD nor its staff employed in the preparation of this report
have any beneficial interest in Sunrise, and are not insiders, associates, or affiliates of Sunrise. The results of our audit were not
dependent upon any prior agreements concerning the conclusions to be reached, nor were there any undisclosed understandings concerning
any future business dealings between Sunrise and BOYD. This report was prepared in return for fees based upon agreed commercial rates,
and the payment for our services was not contingent upon our opinions regarding the project or approval of our work by Sunrise and its
representatives.
2.4 Principal
Sources of Information
Information used in this assignment was obtained from: (1) Sunrise
files, (2) discussions with Sunrise personnel, (3) records on file with regulatory agencies, (4) public sources, and (5) nonconfidential
BOYD files.
The following information was provided by Sunrise:
| · | Year-end reserve statements and reports for 2021. |
| · | Exploration records (e.g., drilling logs, lab sheets). |
| · | Geologic databases of lithology and coal quality. |
| · | Computerized geologic models. |
| · | Mapping data, with: |
| - | Mineral tenure boundaries. |
| - | Permit boundaries. |
| - | Limits of previous mining. |
| · | LOM plans and supporting documentation. |
| · | Financial forecasting models. |
| · | Historical information, including: |
| - | Production reports and reconciliation statements. |
| - | Financial statements. |
| - | Product sales and pricing. |
Information from sources external to BOYD and/or Sunrise are referenced
accordingly.
The data and work papers used in the preparation of this report are
on file in our offices.
JOHN
T. BOYD COMPANY
2-4
2.4.1 Site
Visits
A personal inspection of the Oaktown Fuels No. 1 and No. 2
mines was made by two of BOYD’s senior mining engineers—qualified persons and co-authors of this report—on December 2,
2021. The site visit included: (1) observation of both mine’s active underground workings, belt lines, outby areas, and portal
(mine access) locations; (2) a tour of the mine site’s surface infrastructure; and (3) a tour of the Oaktown Complex CPP,
truck and rail loadout, and refuse disposal facility. BOYD’s representatives were accompanied by senior Sunrise management personnel
who openly and cooperatively answered questions regarding, but not limited to: site geology, mining conditions and operations, equipment
usage, labor relations, operating and capital costs, current coal washing operations, and coal marketing.
2.4.2 Reliance
on Information Provided by the Registrant
In the preparation of this report we have relied, without independent
verification, upon information furnished by Sunrise with respect to: property interests; exploration results; current and historical
production from such properties; current and historical costs of operation and production; and agreements relating to current and future
operations and sale of production.
BOYD exercised due care in reviewing the information provided by Sunrise
within the scope of our expertise and experience (which is in technical and financial mining issues) and concluded the data are valid
and appropriate considering the status of the subject properties and the purpose for which this report was prepared. BOYD is not qualified
to provide findings of a legal or accounting nature. We have no reason to believe that any material facts have been withheld, or that
further analysis may reveal additional material information. However, the accuracy of the results and conclusions of this report are reliant
on the accuracy of the information provided by Sunrise.
While we are not responsible for any material omissions in the information
provided for use in this report, we do not disclaim responsibility for the disclosure of information contained herein which is within
the realm of our expertise.
2.5 Effective
Date
The coal resources and coal reserves presented in this technical report
summary are effective as of December 31, 2021. The report effective date is December 31, 2021.
JOHN
T. BOYD COMPANY
2-5
2.6 Units
of Measure
The US customary measurement system has been used throughout this report.
Tons are short tons of 2,000 pounds-mass. Unless otherwise stated, all currency is expressed in constant 2021 US Dollars ($).
JOHN
T. BOYD COMPANY
3-1
3.0 PROPERTY
OVERVIEW
3.1 Description
and Location
The Oaktown Mining Complex is a coal mining and processing operation
located in Knox and Sullivan counties, Indiana, and Crawford and Lawrence counties, Illinois. Comprising almost 118 square
miles within the ILB coal-producing region of the midwestern US, the Oaktown Mining Complex is one of the largest underground R&P
coal mining complexes in North America. The Oaktown Mining Complex operations currently consist of two active underground mines—Oaktown
Fuels No. 1 Mine and Oaktown Fuels No. 2 Mine—and related infrastructure.
While each of the two mines operate under a unique Mine Safety and
Health Administration (MSHA) mine identification number and has a separate direct management team, the Oaktown Mining Complex is commercially
operated as a single entity. All mine output is delivered by belt conveyors to a central coal processing facility, the Oaktown Complex
CPP, that is rated at 1,600 raw TPH and reports to MSHA under its own identification number. The ROM coal is segregated by mine, and refined
analysis and processing systems are utilized to meet customer specifications. Plant reject-material reports to the coarse and fine refuse
disposal facilities or is placed into abandoned mine void areas through slurry (fine refuse) injection. Saleable output is shipped to
a diverse customer base via truck or rail facilitated by the rail load-out on a dedicated rail spur serviced by CSX and INRD.
The Oaktown Mining Complex is located approximately 44 miles south
of Terre Haute, Indiana near the town of Oaktown, Indiana. The city of Vincennes, Indiana lies about 14 miles to the
southwest. The project area is essentially bisected by U.S. Route 41.
Geographically, the Oaktown Complex CPP is located at approximately
38°51’24.7” N latitude and 87°25’30.9” W longitude. Figures 1.1 (page 1-2) and 3.1, following this
page, illustrate the location and general layout of the Oaktown Mining Complex.
JOHN
T. BOYD COMPANY
3-2
JOHN
T. BOYD COMPANY
3-3
3.2 History
Vectren Fuels was the original developer of the property. Construction
of the Oaktown No. 1 Mine slope, surface mine infrastructure and CPP began in 2008. Following development of the slope, commercial
coal production began in 2009. Processing of the Oaktown No. 1 Mine coals was facilitated by the then 800 raw feed TPH capacity CPP.
Development of Oaktown No. 2 Mine followed shortly after, with commercial coal production beginning in 2013. The commercial production
status of Oaktown No. 2 Mine coincided with the expansion of the CPP’s 800 TPH capacity to its present 1,600 TPH capacity.
Sunrise’s involvement with the Oaktown Mining Complex dates to
2014 with the acquisition of Oaktown Fuels No. 1 and No. 2 mines from Vectren Fuels. Since the acquisition, Sunrise has steadily
increased annual production from the Oaktown Mining Complex—now averaging between 6 to 7 million product tons annually. The mine
workings have substantially grown since 2014, and both mines have installed new shafts (mine accesses) for employee ingress/egress from
the active production faces. The new Oaktown No. 1 Mine portal location is approximately 4.5 miles southeast of the town of Oaktown, Indiana
while the new Oaktown No. 2 Mine portal location is approximately 1.5 miles northwest of the village of Russellville, Illinois.
There are no significant Indiana V Seam mining activities known to
have occurred within the Oaktown Mining Complex bounds preceding Vectren Fuel’s and Sunrise’s involvement.
3.3 Property
Control
Within the Oaktown Mining Complex area and immediate vicinity, Sunrise
controls approximately 75,000 acres of mineral rights. This control exists as a complex collection of leases that apply to more than 2,000
tracts. Each of which range from less than an acre to several hundred acres in size. Ownership of the surface rights and the mineral rights
is often severed for the properties and the estates are often fractional, in which mineral rights are split between several owners. Sunrise
and its predecessors have acquired the necessary rights to support development and operations through purchase or lease agreements with
predominantly private owners or entities.
BOYD has not independently verified ownership of the Oaktown Mining
Complex area and the underlying property agreements. Ownership data provided to BOYD, including maps and summaries of lease agreements,
have been accepted as being true and accurate for the purpose of this report.
JOHN T. BOYD COMPANY
3-4
3.3.1 Coal
Ownership
Sunrise maintains the right to mine and remove approximately 77% of
the Indiana V Seam within the Oaktown Mining Complex area, with the balance (approximately 18,400 acres) currently reported as adverse.
Sunrise currently controls approximately 78% of the coal within projected
mine plan boundaries through lease agreements. Reportedly, lease terms generally extend until all the coal is removed from the subject
tract. Where applicable, royalty rates are typically based upon a percentage of the gross sales price of the coal. No material amounts
of mineral within the Oaktown Mining Complex mine plan boundaries is owned in fee.
Adverse (uncontrolled) tracts within the project limits are common;
however, it is generally reasonable to assume that such tracts can be acquired or leased in the ordinary course of business as has been
demonstrated historically by Sunrise. It is BOYD’s opinion that adverse coal control does not pose a material risk to the estimate
of coal reserves reported herein.
3.3.2 Surface
Ownership
As part of the Oaktown Mining Complex, Sunrise controls surface rights
through fee simple ownership for over 1,700 permitted acres. Upon those acres resides the surface facilities for mine accesses, processing,
storing, shipping, and refuse disposal facilities (i.e., refuse impoundment site and fine refuse injection sites).
Sunrise reports it controls adequate surface rights to sustain current
mining operations in the near term. Additional surface property will likely be required during the life of the mine for the placement
of additional infrastructure. It is generally reasonable to assume the required property can be acquired or leased in the ordinary course
of business; as such, we do not believe there is any undue risk associated with surface ownership to the estimated reserves reported herein.
3.4 Adjacent
Properties
As illustrated in Figures 1.1 and 3.1, there are no other operating
mines or mines/properties controlled by Sunrise adjacent to the Oaktown Mining Complex. As shown, some existence of Indiana V Seam mining
has taken place near the Oaktown Mining Complex to the northeast. Sunrise’s mine plans include sufficient barrier zones to mitigate
any risk associated with prior mining activities of the adjacent properties.
JOHN T. BOYD COMPANY
3-5
3.5 Regulation
and Liabilities
Mining and related activities on the Oaktown Mining Complex properties
is regulated by both federal and state laws. The relevant federal laws include:
| · | Clean Air Act of 1970/1977. |
| · | Clean Air Act Amendments of 1990. |
| · | Clean Water Act of 1977. |
| · | Surface Mining Control and Reclamation Act of 1977. |
| · | Resource Conservation and Recovery Act of 1976. |
In Indiana and Illinois, responsibility for enforcing these acts, with
the aid of numerous state laws and legislative rules, lies with Illinois’s Environmental Protection Agency (IL-EPA) and Indiana’s
Department of Natural Resources (IN-DNR).
As mandated by these laws and regulations, numerous permits are required
for underground mining, coal preparation and related facilities, and other incidental activities. Sunrise reports that necessary permits
are in place or applied for to support current operations. New permits or permit revisions may be necessary from time to time to facilitate
future operations. Given sufficient time and planning, Sunrise should be able to secure new permits, as required, to maintain its planned
operations within the context of the current regulations.
Permits generally require that the permittee post a performance bond
in an amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during mining
operation is properly mitigated, and (2) assure that all regulations requirements of the permit are fully satisfied. Sunrise reports
holding surety bonds to cover its current obligations relating to mining and reclamation, road repair, etc. Those obligations currently
equate $5.8 million.
Regular inspection of the mines and related facilities are conducted
by MSHA for health and safety compliance. On finding any violation of a health or safety standard, an inspector will issue a citation
that specifies the standard violated and evaluates the gravity of the violation by several factors, including likelihood of injury. Any
infraction that is reasonably likely to result in a serious injury or illness or is caused by the operator's unwarrantable failure to
comply with regulatory requirements will carry additional fines and could result in temporary closure. Typically, the civil penalties
for regular assessments are not considered material.
JOHN T. BOYD COMPANY
3-6
BOYD is not aware of any prohibition of mining and processing activities
for the Oaktown Mining Complex. However, the reported coal reserves may be materially impacted by: Sunrise’s failure to comply with
permit conditions and rules; delays in obtaining required government or other regulatory approvals or permits; Sunrise’s inability
to obtain such required approvals or permits; or changes in governmental regulations.
3.6 Accessibility,
Local Resources, and Infrastructure
The Oaktown Mining Complex lies within a rural but well-developed region
of southwestern Indiana and southeastern Illinois, with an extensive history related not only to coal mining, processing, and transportation,
but also many other industries and services. A reported 1.4 million people live within 75 miles of the Oaktown Mining Complex, according
to the U.S. Census of 2020.
General access to the Oaktown Mining Complex is via a well-developed
network of primary and secondary roads serviced by state and local governments. These roads offer direct access to the mine and processing
facilities and are generally open year-round.
Coal produced at the Oaktown Mining Complex is transported primarily
by rail, truck, or a combination of both. A rail load-out facility and dedicated rail spur loop facilitate transportation of the coal
on the INRD and CSX railroads. Additionally, Oaktown Mining Complex can facilitate the loading of trucks for direct transport to select
customers, or to Sunrise’s transload facility in Princeton, Indiana serviced by the NS Railroad.
Several regional airports are located near the Oaktown Mining Complex
and the Indianapolis International Airport is located approximately 100 miles northeast of the complex.
Sources of electrical power, water, supplies, and materials are readily
available. Electrical power is provided to the mines and facilities by regional utility companies. Water is supplied by public water services,
surface impoundments, or water wells.
3.7 Physiography
The Oaktown Mining Complex lies within the Southern Hills and Lowland
areas of the Southwest Indiana region. This region is characterized by relatively flat topography possessing gentle gradients associated
with drainages. Surface elevations within the Oaktown Mining Complex area range from approximately 410 ft to 590 ft above mean sea-level.
The region possesses a network of overlying tributaries and waterways flowing to the Wabash River; all of which overlay the complex area.
JOHN T. BOYD COMPANY
3-7
Land cover within the area consists predominantly of mixed crop/pastureland
and forest dotted with medium- to low-density (rural) residential areas.
3.8 Climate
Climate in and around the Oaktown Mining Complex is typical of southwestern
Indiana, with four distinct seasons: cold winters; hot and humid summers; and mild falls and springs. The average daily high temperatures
are above freezing 12 months of the year while the low temperatures drop below freezing 3 months of the year. Table 3.1 provides monthly
average climate data collected from 2020 through 2021 in Vincennes, Indiana.
Table 3.1: Monthly Average Climate Data, Vincennes,
Indiana
Average | |
Unit | |
Jan | |
Feb | |
Mar | |
Apr | |
May | |
Jun | |
Jul | |
Aug | |
Sep | |
Oct | |
Nov | |
Dec | |
High Temp | |
°F | |
38 | |
43 | |
54 | |
66 | |
76 | |
84 | |
88 | |
87 | |
81 | |
69 | |
56 | |
42 | |
Low Temp | |
°F | |
21 | |
24 | |
33 | |
44 | |
54 | |
63 | |
66 | |
64 | |
56 | |
44 | |
35 | |
25 | |
Source: US Climate Normals.
The area experiences on average 46 in. of rain and 9 in. of snowfall
per year. Adverse weather conditions seldom limit the Oaktown Mining Complex coal mining, processing, and loading operations; however,
extreme weather conditions may temporarily impact operations.
JOHN T. BOYD COMPANY
4-1
4.0 GEOLOGY
4.1 Regional
Geology
The Oaktown Mining Complex is located within the eastern portion of
the ILB region, a sedimentary basin which coal-bearing areas cover approximately 50,000 square miles across the majority of Illinois,
southwestern Indiana and portions of western Kentucky. The coal bearing members of the ILB consist of Pennsylvanian rocks, formed approximately
290 – 330 million years ago. The Indiana VI (Herrin) and Indiana V (Springfield) seams are accredited with the vast majority of
the economically mineable coals within the ILB.
The ILB has informally been subdivided into eight mining regions—Northern
Illinois, Western Illinois, West-central Illinois, East-central Illinois, Southwestern Illinois, Southeastern Illinois, Southwestern Indiana,
and Western Kentucky. The majority of current coal mining from the ILB occurs within the West-central Illinois, Southeastern Illinois,
Southwestern Illinois, Southwestern Indiana, and Western Kentucky regions. The Oaktown Mining Complex is located within the Southwestern
Indiana region of the ILB.
There are three predominant structural features within the ILB which
include the DuQuoin monocline, La Salle anticlinal belt, and the Cottage Grove-Rough Creek fault system. The features surround the Fairfield
Basin area which contain the deepest extents of the ILB. The DuQuoin monocline on the west, the La Salle anticlinal belt on the north,
and the Cottage Grove-Rough Creek fault system on the south, all flank the Fairfield Basin. In general, the Illinois and Indiana portions
of the ILB dip gently towards the interior, Fairfield Basin. The Southwestern Indiana mining region, in which the Oaktown Mining Complex
is located, experiences localized rolling of the coal seams but predominately dips in a westerly direction.
The Carbondale Formation is the primary coal-bearing formation containing
the majority of the ILB economically mineable bituminous coals. The Indiana VI (Herrin) and Indiana V (Springfield) seams that are heavily
exploited within the ILB, are typically between 2 ft and 6 ft in thickness. Coal in the region is classified as high-volatile bituminous
with rank increasing to the south. Sulfur content is generally related to the overlying strata of the coals within the ILB. Generally,
coals possess sulfur contents ranging from 3% to 5% and heating values above 11,000 Btu/lb.
JOHN T. BOYD COMPANY
4-2
4.2 Local
Stratigraphy
Pennsylvanian sedimentary strata comprise the uppermost stratigraphic
units of bedrock in and around the Oaktown Mining Complex. These units primarily include bedrock of, in descending stratigraphic order,
the McLeansboro, Carbondale and Racoon Creek Group.
The strata of the Pennsylvanian system are predominantly clastic and
contain subordinate amounts of coal and limestone. The Indiana V (Springfield) coal seam resides within the Carbondale Group, specifically
the Petersburg formation. The stratigraphic relationship between these groups is presented in Figure 4.1 as follows.
System |
Group |
Formation |
|
|
|
Mattoon |
|
|
|
Bond |
|
|
McLeansboro |
Patoka |
|
|
|
Shelbum |
|
|
|
Dugger |
|
|
Carbondale |
Petersburg |
|
Pennsylvanian |
|
Linton |
|
|
|
Staunton |
|
|
|
Brazil |
|
|
Raccoon
Creek |
|
|
|
|
Mansfield |
|
Figure 4.1 |
|
Generalized Stratigraphic Chart, |
|
Southwestern Indiana |
|
4.2.1 McLeansboro Group
The McLeansboro Group ranges in thickness of approximately 150 to 750
ft; beginning with the Mattoon Formation. The uppermost Mattoon Formation is predominately formed of sandstone and/or conglomerate type
rocks. The remaining Bond, Patoka, and Shelburn formations, in descending stratigraphic order, are characterized by sequences of shale,
mudstone, and siltstone with interspersed limestones. The predominant limestones of presence are the Livingston, Carthage, Vigo and West
Franklin. There are no bituminous coal beds present possessing economic value.
JOHN T. BOYD COMPANY
4-3
4.2.2 Carbondale
Group
The Carbondale Group extends from the Indiana VII (Danville) coal seam
to the base of the Indiana III (Seelyville) coal seam. The unit is divided into the Dugger, Petersburg, and Linton formations. The Carbondale
Group is a sedimentary sequence of non-marine rocks (sandstone, siltstone, mudstone, shale, limestone, and coal) ranging in thickness
from approximately 300 ft to 450 ft. Regionally, the Carbondale Group contains several commercial coal beds, including the Indiana VII
(Danville), Indiana VI (Herrin), Indiana V (Springfield) and others; however, within the vicinity of the Oaktown Mining Complex, only
the Indiana V Seam is of economic interest. The Indiana V coal seam possesses moderate continuity (instances of sandstone paleochannel
erosion) and ideal mining thickness (4 ft to 8 ft).
4.2.3 Raccoon Creek Group
The Raccoon
Group includes all strata below the base of the Indiana III (Seelyville) coal bed. It is made up of Staunton, Brazil, and Mansfield
formations. The Raccoon Group reaches a maximum thickness of about 1,000 ft in southwestern Indiana. Strata of the group are very similar
to those of the overlying Carbondale Group, except that the Raccoon Creek Group contains coal beds of little or no commercial value.
4.3 Coal
Seam Geology
The Indiana V Seam is the only coal seam of economic interest within
the Oaktown Mining Complex. The Indiana V Seam is fairly uniform in depositional nature (typically 4 ft to 8 ft thickness) and continuity
throughout much of the project’s surrounding area.
4.3.1 Lithology
The Indiana V Seam coal bed is relatively consistent containing a singular
interval of coal within minimal in-seam partings. Mining methods employed at the Oaktown Mining Complex generally extract the entirety
of the coal seam with minimal out-of-seam (OSD) dilution.
The coal thickness across the Oaktown Mining Complex area is generally
between the 4.0 ft to 8.0 ft range, averaging 4.8 ft over the extents of mine plan areas. Isolated pockets of both thinner and thicker
coal do exist, and extreme but generally isolated occurrences may range from less than a foot to above 12 ft thick. Figure 4.2, following
this page, provides a map of the Indiana V Seam thickness. The locations of thinner coal occurrences are generally well-defined by the
extensive exploration performed in and around the study area, and mine plans have been developed to avoid these low coal occurrences.
JOHN T. BOYD COMPANY
4-4
JOHN T. BOYD COMPANY
4-5
The immediate roof overlying the Indiana V Seam coal bed generally
consists of interbedded shales and sandy shales. Occasional instances of sandstone roof can occur within the project area, where paleochannel
sandstone fill has scoured and replaced part or all the normal roof strata. The most prominent existence of paleochannel sandstone fill
resides within the sandstone channel that divides the Oaktown Fuels No. 1 and No. 2 mines mineable reserves. Other, less prominent, localized
paleochannelization eroding of the typical roof strata and possibly portions of the Indiana V Seam are likely to be found within the Oaktown
Mining Complex mineable reserves. Areas of the deposit with sandstone channels in close proximity to the Indiana V Seam commonly exhibit
discontinuities and rolls in the coal bed. Poor roof conditions are also common along margins of the channels, where the roof type transitions
between the sandstone roof and normal shale roof. Sunrise has implemented various programs to identify and mitigate, where possible, problems
associated with poor roof conditions.
The immediate floor beneath the Indiana V Seam coal bed consists of
an interval of underclay. The underclay provides a generally competent floor, however poor floor conditions can develop when the underclay
is exposed to water.
4.3.2 Structure
The Indiana V Seam coal bed is located at depths ranging from approximately
150 ft to over 600 ft below ground surface, averaging 350 ft within the Oaktown Mining Complex area. Seam structure shows a general seam
dip of less than 2 degrees in a westerly direction. There are not any major structural faulting or tectonic features known to occur in
the deposit. Small-displacement faults and compaction-related faults may be present, but are not expected to materially affect mine plans.
The structural setting for the deposit is generally considered to
be simple in terms of geological complexity. Some areas exhibit evidence of localized channelization; as such, isolated areas of the
deposit may be considered moderate in geological complexity. Having been widely studied and extensively mined, the Indiana V Seam is
well-known and widely-accepted to be a uniform deposit.
4.3.3 Coal Quality
Overall, the Indiana V Seam coal bed is a high-sulfur moderate ash
coal that is used for steam purposes.
JOHN T. BOYD COMPANY
5-1
5.0 EXPLORATION
DATA
5.1 Background
The Indiana V Seam has been the subject of extensive exploration drilling
and sampling by Sunrise and other parties, over a timespan of decades. Records from exploration drilling comprise the primary data used
in the evaluation of coal resources on the property. A database compiling the results of 1,895 drill holes—covering Oaktown Mining
Complex and surrounding area Indiana V Seam—along with electronic copies of original drilling and sampling logs for a representative
sample (approximately 42%), was provided for our review.
Additionally, discussions were held between BOYD and Sunrise concerning
their standard exploration and sampling methodologies. Topics covered standard procedures ranging from site safety and mapping, to how
to select proper drilling equipment, recording accurate and detailed geological logs, performing coal sampling, supervising geophysical
logging, and plugging drill holes once work was complete. Sunrise’s provided explanation of exploration standards highlight their
focus on obtaining the highest accuracy of data possible from the various exploration campaigns they completed.
Due to archival storage of some physical records of drill holes and
detailed information on the drilling and sampling methodologies utilized, some documents were not provided for our review. While this
limits the ability to provide a completely transparent and detailed overview of the work completed in developing the Oaktown Mining Complex,
Sunrise has also demonstrated that they have been very thorough in exploring and sampling and the complex has been able to consistently
and economically mine coal from this deposit for more than a decade.
5.2
Procedures
5.2.1 Drilling
Drill holes on the subject property were completed using various drilling
procedures based on specific goals and data needs at various stages of planning and developing the Oaktown Mining Complex. Some drill
holes were rotary drilled for purposes of completing geophysical logging, while others were completed using continuous core drilling methods
to provide more detailed geologic records and sampling opportunities.
JOHN T. BOYD COMPANY
5-2
Sunrise technical staff were able to summarize the standard types of
equipment and procedures they generally utilized in exploration work completed on the property. This information, combined with information
BOYD was able to gather from our review of drilling records are as follows:
| · | Frequently used drilling equipment that is utilized during exploration is typical of the ILB region. Typical drilling equipment that
Sunrise uses for exploration, depending on the goal of a specific drilling and sampling program, may consist of one or both of: |
| - | Continuous NQ-sized (3.0 in. outside diameter) diamond core rigs. |
| - | Water rotary with 4.875 in. diameter barrels. |
| · | Presently, core logging activities are completed in the field. Reportedly current practices for Sunrise are for cored intervals to
be photographed, with special attention paid to the coal interval. Cored coal is initially photographed in its entirety. |
| · | Select intervals of coal roof rock and floor rock are photographed and then boxed for archival purposes. |
| · | Geophysical logging has been performed for some drill holes, while others may or may not have been completed/recorded. Sunrise has
noted that geophysical logging is currently completed on all holes drilled. |
Due to the large extent of historic exploration work, any recent drilling
is generally for infilling areas with lower geologic assurance or for establishing confidence of sandstone channel locations. In such
instances, nearby drill hole records are referenced prior to commencing any new drill holes, to show the anticipated depth to the coal
horizons.
Geophysical logs obtained from newly drilled holes are correlated by
Sunrise geologists by aligning known “marker beds”, and then checking coal seam depths, elevations, and thicknesses to ensure
seam continuity. These data are formatted and then imported into Sunrise’s geologic modeling programs.
BOYD’s review of the methodologies and procedures indicate the
data obtained and utilized by Sunrise for the Oaktown Mining Complex project area were carefully and professionally collected, prepared,
and documented, conforming with general industry standards, and are appropriate for use of evaluating and estimating coal resources and
reserves.
5.2.2 Coal Quality Sampling
The Oaktown Mining Complex coal quality testing was performed on a
large number of coal samples obtained from the Indiana V Seam, in and around the project area. The relatively dense core drilling coverage,
combined with channel samples being taken regularly from underground development areas, provides a thorough understanding of the clean
coal product that could be produced from the Oaktown Mining Complex.
JOHN T. BOYD COMPANY
5-3
All coal intercepts of Oaktown Mining Complex exploration were geologically
logged, photographed, and sampled in the field by competent geologists. Sampling methodologies consist of first pushing the cored intervals
of coal out of the core barrel, directly into a clean single-row wooden core box. Prior to removing coal core from the drilling barrel,
the core box is lined with durable plastic sheeting, which helps retain moisture content and minimize coal core oxidation. Once the coal
core is fully extruded from the core barrel, it is then inspected, photographed, and logged by the on-site geologist, and cardboard inserts
are installed in the wooden core box to maintain coal core integrity.
Upon completing detailed recording (geologic logging and photographing)
of the coal interval, coal cores are split into the desired intervals to be analyzed and bagged. An order sheet is placed inside the sample
bag, which specifies drill hole information, split information, and testing to be completed on the bagged sample. Sample bags are then
zip tied closed, labeled, and then double bagged to eliminate incidental core loss due to potential damage during transportation to the
testing lab.
Sunrise maintains all control of coal core samples, up to the point
that samples are handed over to the lab performing testing. Once logging and sampling is complete, the sampled coal core intervals are
transported to the selected lab that will perform the required analyses. Typically, washability analysis is performed on the majority
of drillhole samples with select drillholes being expanded to include full proximate or other analyses (i.e., ultimate, ash content, etc.).
The lab manager signs off on the return analysis sheet, indicating that testing results are accurate and that the sample provided was
sufficient for testing purposes.
Past programs utilized various accredited coal testing laboratories,
again depending on what testing needed to be completed on the coal core at a given time. All analytical work was conducted to International
Organization of Standardization (ISO) or American Society for Testing and Materials (ASTM) standards, and various available laboratory
sample sheets were provided for review with drilling log data.
Available testing sheets were reviewed by BOYD during our drill hole
data audit, and our review of the discussed field and sampling procedures noted above indicated that the general description and sampling
work were conducted to appropriate standards. Based on the stated standards and laboratory used, BOYD considers the sample preparation
and analytical procedures were adequate for the coal quality results for inclusion in geological modelling and coal resource estimation.
JOHN T. BOYD COMPANY
5-4
5.2.3 Coal Washability
Testing
Coal washability tests (proximate analysis) were conducted at various
specific gravities, generally ranging from 1.45 specific gravity float (SGF) through 1.55 SGF. Estimated coal reserves for the Oaktown
Mining Complex are currently reported using 1.55 SGF testing results over the entire Oaktown Mining Complex project area. Proximate
analysis test results were completed on 723 drill core samples, which were used in estimating quantity and quality of the remaining Oaktown
Mining Complex coal reserves.
Although it was noted that Sunrise generally does not perform any randomized
sample verification in order to conduct quality control testing of individual coal analyses, Sunrise will typically perform channel sampling
and quality analyses throughout mine workings. The channel sample data are then utilized to update quality models.
5.2.4 Other Exploration
Methods
There is no known ore reported via other methods of exploration (such
as airborne or ground geophysical surveys) completed for the project area.
5.3 Results
A total of 1,922 drill holes and in-mine samples are in and around
the Oaktown Mining Complex area. The distribution of these drill holes is shown on Figure 5.1. Lithologic and coal quality data from these
holes only were used for geologic modeling and coal resource assessment for the property.
General descriptive statistics for the Indiana V Seam thickness are
provided in Table 5.1 below.
Table 5.1: Indiana V Seam Thickness (feet) Statisitcs |
|
| |
Oaktown Fuels No. 1 Mine | | |
Oaktown Fuels No. 2 Mine | |
Mean | |
| 5.2 | | |
| 4.8 | |
Minimum | |
| 0.5 | | |
| 2.1 | |
Maximum | |
| 8.7 | | |
| 12.1 | |
Standard Deviation | |
| 0.8 | | |
| 0.9 | |
JOHN T. BOYD COMPANY
5-5
JOHN T. BOYD COMPANY
As shown, the thickness of the seam can range from less than a foot
to over 12 ft across the Oaktown Mining Complex area. Average thickness of the Indiana V Seam for the project area is approximately 5.2
ft for the Oaktown Fuels No. 1 Mine area and 4.8 ft for the Oaktown Fuels No. 2 Mine area.
The results of the coal quality analyses from 723 samples are summarized
in Table 5.2.
Table 5.2: Descriptive Statistics, Indiana V Seam Coal Quality |
|
| |
| |
| | |
Oaktown Fuels
No. 1 Mine | | |
Oaktown Fuels
No. 2 Mine | |
| |
| |
Units | | |
Raw | | |
Clean | | |
Raw | | |
Clean | |
Float (i.e., Yield) | |
Mean | |
| % | | |
| | | |
| 88.7 | | |
| | | |
| 87.9 | |
| |
Minimum | |
| % | | |
| | | |
| 59.1 | | |
| | | |
| 51.6 | |
| |
Maximum | |
| % | | |
| | | |
| 98.3 | | |
| | | |
| 97.9 | |
| |
Standard Deviation | |
| | | |
| | | |
| 3.1 | | |
| | | |
| 4.0 | |
Ash | |
Mean | |
| % | | |
| 14.5 | | |
| 8.5 | | |
| 14.5 | | |
| 8.9 | |
| |
Minimum | |
| % | | |
| 4.0 | | |
| 6.8 | | |
| 4.0 | | |
| 6.7 | |
| |
Maximum | |
| % | | |
| 62.5 | | |
| 13.8 | | |
| 62.5 | | |
| 12.5 | |
| |
Standard Deviation | |
| | | |
| | | |
| 0.8 | | |
| | | |
| 0.6 | |
Sulfur | |
Mean | |
| % | | |
| 4.9 | | |
| 3.5 | | |
| 4.9 | | |
| 3.1 | |
| |
Minimum | |
| % | | |
| 0.6 | | |
| 2.3 | | |
| 0.6 | | |
| 1.0 | |
| |
Maximum | |
| % | | |
| 14.0 | | |
| 5.0 | | |
| 14.0 | | |
| 5.6 | |
| |
Standard Deviation | |
| | | |
| | | |
| 0.3 | | |
| | | |
| 0.4 | |
Heating Value | |
Mean | |
| Btu/lb | | |
| 11,961 | | |
| 13,246 | | |
| 11,961 | | |
| 13,283 | |
| |
Minimum | |
| Btu/lb | | |
| 4,904 | | |
| 12,510 | | |
| 4,904 | | |
| 12,625 | |
| |
Maximum | |
| Btu/lb | | |
| 13,389 | | |
| 13,656 | | |
| 13,389 | | |
| 14,564 | |
| |
Standard Deviation | |
| | | |
| | | |
| 106 | | |
| | | |
| 120 | |
Note: Raw and Clean coal qualities are provided on a dry basis.
Raw and clean
(washed) coal quality data demonstrate the consistency of the Indiana V Seam as a high-sulfur, moderate ash coal.
5.4 Data Verification
For purposes of this report, BOYD did not verify historic drill hole
data by conducting independent drilling in areas already explored. It is customary in preparing coal resource and reserve estimates to
accept basic drilling and coal quality data as provided by the client subject to the reported results being judged representative and
reasonable.
JOHN T. BOYD COMPANY
BOYD’s efforts to judge the appropriateness and reasonability
of the source exploration data included reviewing a representative sample of drilling logs and coal quality test results for holes located
in unmined portions of the Oaktown Mining Complex area. These records were compared with their corresponding database records for transcription
errors, noting the vast majority of the information being consistent. Lithologic and coal quality data points were compared via visual
and statistical inspection with geologic mapping.
BOYD’s review indicates that in general, Sunrise has performed
extensive drilling and sampling work on the subject property, the work completed has been done so by competent personnel, and the amount
of data available combined with wide-spread knowledge of the Indiana V Seam, is sufficient to confirm seam uniformity and continuity throughout
the Oaktown Mining Complex deposit.
JOHN T. BOYD COMPANY
6.0 COAL
RESOURCES AND RESERVES
6.1 Applicable Standards
and Definitions
Unless noted, coal resource and coal reserve estimates disclosed herein
are done so in accordance with the standards and definitions provided by S-K 1300. It should be noted that BOYD considers the terms “mineral”
and “coal” to be generally interchangeable within the relevant sections of S-K 1300.
Estimates of coal resources and reserves are always subject to a degree
of uncertainty. The level of confidence that can be applied to a particular estimate is a function of, among other things: the amount,
quality, and completeness of exploration data; the geological complexity of the deposit; and economic, legal, social, and environmental
factors associated with mining the resource/reserve. By assignment, BOYD used the definitions provided in S-K 1300 to describe the varying
degree of certainty associated with the estimates reported herein.
The definition of mineral (coal) resource provided by S-K 1300 is:
Mineral resource is a concentration or occurrence of material
of economic interest in or on the Earth's crust in such form, grade or quality, and quantity that there are reasonable prospects for economic
extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade,
likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely
to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.
Estimates of coal resources are subdivided to reflect different levels
of geological confidence into measured (highest geologic assurance), indicated, and inferred (lowest geologic assurance). See Glossary
of Abbreviations and Definitions.
The definition of mineral (coal) reserve provided by S-K 1300 is:
Mineral reserve is an estimate of tonnage and grade or
quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically
viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting
materials and allowances for losses that may occur when the material is mined or extracted.
JOHN T. BOYD COMPANY
Estimates of coal reserves are subdivided to reflect geologic confidence,
and potential uncertainties in the modifying factors, into proven (highest assurance) and probable. See Glossary of Abbreviations and
Definitions.
Figure 6.1 shows the relationship between coal resources and coal
reserves.
In this report, the term “coal reserves” represents the
tonnage and coal quality of product coal that will be available for sale after beneficiation of the ROM coal.
6.2 Coal
Resources
6.2.1 Methodology
Based on provided information, Sunrise’s coal resources (and
coal reserves) estimation and modeling techniques consists of:
| 1. | Interpreted and correlated coal seam intercepts are compiled and validated. Seam thickness is aggregated and coal qualities are composited,
based on assumed mining methods, for each data point. |
| 2. | Boundaries of the respective resource classification regions are developed using the data points. |
| 3. | ROM coal thickness and coal qualities for each data point are derived from the application of dilution parameters. |
JOHN T. BOYD COMPANY
| 4. | Clean product qualities for each data point are derived from coal washability analysis and plant efficiency factors. |
| 5. | The approved LOM design is subdivided into small mining blocks and sequenced using mine planning software. |
| 6. | In-place, ROM, and clean product estimates of coal volume and qualities for each mining block are estimated within the mine planning
software by linear least squares interpolation of the data points developed in Steps 1 and 2. |
| 7. | The mining blocks (and associated volumetric data) are further subdivided by resource classification and property tract polygons. |
| 8. | Relevant and periodic summaries are prepared by Sunrise to support planning and coal resource/reserve reporting. |
6.2.2 Criteria
Development of the coal resource estimate for the Oaktown Mining Complex
assumes mining using standard underground R&P methods and equipment, which have been utilized successfully at the Oaktown Mining Complex
for over a decade.
Within the area of study, the Indiana V Seam exhibits consistent and
well-characterized clean (i.e., washed) coal qualities which are within existing marketable limits for ILB coal products. BOYD did not
discover any areas within the property where clean coal quality was deficient relative to Sunrise’s historical coal sales and current
sales contract specifications for high-sulfur thermal coal. As such, no reductions have been made to the coal resources due to coal quality.
A minimum mineable seam thickness of 4 ft was used to limit the coal
resources of the Indiana V Seam. This cut-off is a function of the employed mining techniques and equipment. Mining heights less than
4 ft result in operational difficulties and increase OSD, thereby reducing productivity and increasing costs.
There were not any other cut-offs applied.
6.2.3 Classification
Geologic assuredness is established by the availability of both structural
(thickness and elevation) and quality information for the Indiana V Seam. Classification is generally based on the concentration or spacing
of exploration data, which can be used to demonstrate the geologic continuity of the deposit. Table 6.1 provides
the general criteria employed in the classification of the coal resources.
JOHN T. BOYD COMPANY
Table 6.1: Coal Resource Classification Criteria |
|
Classification | |
Data Point Spacing | |
(Geologic Confidence) | |
Feet | | |
Miles | |
Measured | |
| 0 |
- |
2,000 | | |
| 0 |
- |
0.38 | |
Indicated | |
| 2,000 |
- |
4,000 | | |
| 0.38 |
- |
0.76 | |
Inferred | |
| 4,000 |
- |
16,000 | | |
| 0.76 |
- |
3.03 | |
Extrapolation or projection of resources in any category beyond any
data point does not exceed half the point spacing distance.
BOYD reviewed the classification criteria employed by Sunrise with
regards to data density, data quality, geological continuity and/or complexity, and estimation quality. The Indiana V Seam is well-known
and of low complexity. We believe these criteria appropriately reflect the interpreted geology and the estimation constraints of the deposit.
Coal resources in the Oaktown Mining Complex area are well-defined throughout nearly all areas of the mine plan. Observed drill hole spacing
averages approximately 1,995 ft and generally ranges between 444 ft and 8,000 ft.
BOYD is of the opinion that there is a high degree of certainty (assurance)
associated with each of the resource classifications.
6.2.4 Coal Resource Estimate
There are no reportable coal resources excluding those converted to
coal reserves for the Oaktown Mining Complex. Quantities of coal controlled by Sunrise within the defined boundaries of the Oaktown Mining
Complex which are not reported as coal reserves, are not considered to have potential economic viability; as such, they are not reportable
as coal resources.
6.3 Coal Reserves
6.3.1 Methodology
Estimates of coal reserves are derived contemporaneously with estimates
of coal resources for the LOM plans through the application of appropriate modifying factors. Economic viability of the coal reserves
is subsequently confirmed via a LOM financial forecast.
JOHN T. BOYD COMPANY
The coal reserve estimates have been prepared using generally accepted
industry methodology to provide reasonable assurance that the coal reserves are economic and recoverable at the time of evaluation.
6.3.2 Parameters and Assumptions
The following parameters and assumptions were relied upon to determine
the coal reserves:
| · | The underground operation is mined using R&P methods. |
| · | The mine plans were developed to address anticipated geologic, geotechnical, and hydrogeologic conditions. |
| · | Mining and processing parameters are revised periodically, to assure that the conversion of in-place coal to saleable product are:
(1) in reasonable conformity with present and recent historical operational performance, and (2) reflective of expected mining and processing
operations. |
Mining recovery, which is dependent on numerous factors associated
with R&P mining, historically ranges between 40 and 50% (averaging 44.4%) for the Indiana V Seam. Within the Oaktown Mining Complex’s
LOM plan areas, the estimated average mining recovery is 46.1% for the Oaktown Fuels No. 1 Mine and 41.6% for the Oaktown Fuels No. 2
Mine. Theses recoveries are considered reasonable.
Clean coal estimates are based on coal washability data. These estimates
have been conservatively adjusted downward to reflect practical yields achieved by the preparation plant. Salient coal preparation factors
used to estimate the coal reserves include:
| · | The preparation plant efficiency is 95%. |
| · | Sulfur content within clean coal estimates is adjusted upward by approximately 15% above washability data (consistent with historical
clean coal processing results). |
| · | Product moisture was estimated at 13.0% (as-received basis). |
| · | The average product yield for the coal reserves is 69.5%. |
Figure 6.2 depicts the estimated product yield for the Indiana V Seam
across the Oaktown Mining Complex deposit.
The Indiana V Seam across the Oaktown Mining Complex property exhibits
clean coal quality which is consistent with Sunrise’s historical production and current sales contract specifications. Furthermore,
the projected coal quality over the life of the coal reserves is consistent with coals produced by other ILB operators (please refer to
Chapter 10 for further information). As such, BOYD does foresee any quality deviations that would adversely affect the marketability future
coal production from the Oaktown Mining Complex.
JOHN T. BOYD COMPANY
The economic viability of the stated coal reserves is demonstrated
by the production and financial projections presented in Chapters 10 through 12 of this report. The forecasted sales prices (FOB CPP)
used in the estimation of coal reserves for the Oaktown Mining Complex vary by year, ranging from $42.50 to $63.99 and averaging $46.88
per clean ton (refer to Section 10.2.5 for further details).
6.3.3 Classification
Proven and probable coal reserves are derived from measured and indicated
coal resources, respectively, in accordance with S-K 1300. BOYD is satisfied that the stated coal reserve classification reflects the
outcome of technical and economic studies. Figure 6.3 illustrates the reserve classification of the Indiana V Seam within the Oaktown
Mining Complex.
6.3.4 Coal Reserve Estimate
Sunrise’s estimated underground mineable coal reserves for the
Oaktown Mining Complex total 71.4 million recoverable (clean) product tons remaining as of December 31, 2021. The coal reserves reported
in Table 6.2 are based on the approved LOM plan which, in BOYD’s opinion, is technically achievable and economically viable after
the consideration of all material modifying factors.
JOHN T. BOYD COMPANY
JOHN T. BOYD COMPANY
JOHN T. BOYD COMPANY
TABLE 6.2
ESTIMATED COAL RESERVES BY MINE
AS OF 31 DECEMBER 2021
OAKTOWN MINING COMPLEX
Indiana and Illinois
Prepared For
SUNRISE COAL. LLC
By
John T. Boyd Company
Mining and Geological Consultants
October 2023
| |
| |
Product
Tons (millions) | | |
Average
Product Quality (As Received Basis) | |
| |
| |
| | |
By Permit
Status | | |
% | | |
Heating | | |
SO2 | |
| |
| |
| | |
| | |
Not | | |
Total | | |
| | |
| | |
Value | | |
(lbs per | |
Control | |
Classification | |
Total | | |
Permitted | | |
Permitted | | |
Moisture | | |
Ash | | |
Sulfur | | |
(Btu/lb) | | |
MMBtu) | |
| |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Oaktown
Fuels No. 1 Mine | |
Owned | |
Proven | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Probable | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Subtotal | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Leased | |
Proven | |
| 40.1 | | |
| 40.1 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
| |
Probable | |
| 0.4 | | |
| 0.4 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.6 | | |
| 11,525 | | |
| 6.2 | |
| |
Subtotal | |
| 40.5 | | |
| 40.5 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
Total | |
Proven | |
| 40.1 | | |
| 40.1 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
| |
Probable | |
| 0.4 | | |
| 0.4 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.6 | | |
| 11,525 | | |
| 6.2 | |
| |
Total | |
| 40.5 | | |
| 40.5 | | |
| - | | |
| 13.0 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
Oaktown
Fuels No. 2 Mine | |
Owned | |
Proven | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Probable | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Subtotal | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Leased | |
Proven | |
| 29.7 | | |
| 25.3 | | |
| 4.4 | | |
| 13.0 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.7 | |
| |
Probable | |
| 1.2 | | |
| 0.3 | | |
| 0.9 | | |
| 13.0 | | |
| 8.0 | | |
| 3.2 | | |
| 11,520 | | |
| 5.6 | |
| |
Subtotal | |
| 30.9 | | |
| 25.6 | | |
| 5.3 | | |
| 13.0 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.6 | |
Total | |
Proven | |
| 29.7 | | |
| 25.3 | | |
| 4.4 | | |
| 13.0 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.7 | |
| |
Probable | |
| 1.2 | | |
| 0.3 | | |
| 0.9 | | |
| 13.0 | | |
| 8.0 | | |
| 3.2 | | |
| 11,520 | | |
| 5.6 | |
| |
Total | |
| 30.9 | | |
| 25.6 | | |
| 5.3 | | |
| 13.0 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.6 | |
Total
- Oaktown Mining Complex | |
Owned | |
Proven | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Probable | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
Subtotal | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Leased | |
Proven | |
| 69.8 | | |
| 65.4 | | |
| 4.4 | | |
| 13.0 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
| |
Probable | |
| 1.6 | | |
| 0.7 | | |
| 0.9 | | |
| 13.0 | | |
| 7.8 | | |
| 3.3 | | |
| 11,522 | | |
| 5.8 | |
| |
Subtotal | |
| 71.4 | | |
| 66.1 | | |
| 5.3 | | |
| 13.0 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
Total | |
Proven | |
| 69.8 | | |
| 65.4 | | |
| 4.4 | | |
| 13.0 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
| |
Probable | |
| 1.6 | | |
| 0.7 | | |
| 0.9 | | |
| 13.0 | | |
| 7.8 | | |
| 3.3 | | |
| 11,522 | | |
| 5.8 | |
| |
Total | |
| 71.4 | | |
| 66.1 | | |
| 5.3 | | |
| 13.0 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
JOHN T. BOYD COMPANY
Coal reserves for the Oaktown Mining Complex are summarized by mine
in Table 6.3.
Table 6.3: Coal Reserves Summary |
|
| |
Classification | |
Mine | |
Proven | | |
Probable | | |
Total | |
Oaktown Fuels No. 1 | |
| 40.1 | | |
| 0.4 | | |
| 40.5 | |
Oaktown Fuels No. 2 | |
| 29.7 | | |
| 1.1 | | |
| 30.9 | |
Total - Oaktown Mining Complex | |
| 69.8 | | |
| 1.5 | | |
| 71.4 | |
The
reported coal reserves include only coal that is controlled by the company under lease agreement as of December 31, 2021. It should be
noted that the Oaktown Mining Complex’s permitted underground mining area includes approximately 20.2 million product tons which
are currently uncontrolled (i.e., owned by other parties). Sunrise anticipates gaining control of the mineral rights to this uncontrolled
coal in due time and adjusting its mine plans accordingly. BOYD is not aware of any encumbrances, litigation, or orders that would
hinder the continued development of the property.
At the time of reporting, 66.1 million product tons, or over 92% of
the reported reserves, are permitted for mining by appropriate federal and state regulatory authorities. The remaining 5.3 million product
tons are not permitted. It is typical for mining permits to be periodically amended as mining progresses to add acreage (tonnage) in order
to sustain coal production. It is reasonable to expect that all necessary permits to recover the coal will be successfully obtained in
advance of mining.
The coal reserves of the Oaktown Mining Complex are well-explored and
defined. It is our conclusion that over 96% of the stated reserves can be classified in the proven reliability category (the highest level
of assurance) with the remainder classified as probable. Given the uniformity of the Indiana V Seam in and around the Oaktown Mining Complex,
it is reasonable to assume that further exploration and testing will confirm the occurrence of coal reserves, resulting in an increase
in the percentage of coal reported in the proven category.
JOHN T. BOYD COMPANY
Table 6.4 below summarizes the washed coal quality for each mine of
the Oaktown Mining Complex. The reported coal reserves generally consist of high-sulfur moderate ash coal that may be used for steam purposes.
Table 6.4: Coal Reserves Product Quality Summary |
|
| |
Average Product Quality (As Received Basis) | |
| |
% | | |
Heating | | |
SO2 | |
| |
Total | | |
| | |
| | |
Value | | |
(lb per | |
Mine | |
Moisture | | |
Ash | | |
Sulfur | | |
(Btu/lb) | | |
MMBtu) | |
Oaktown Fuels No. 1 | |
| 13.0 | | |
| 7.4 | | |
| 3.5 | | |
| 11,519 | | |
| 6.0 | |
Oaktown Fuels No. 2 | |
| 13.0 | | |
| 7.9 | | |
| 3.3 | | |
| 11,540 | | |
| 5.6 | |
Average | |
| 13.0 | | |
| 7.6 | | |
| 3.4 | | |
| 11,528 | | |
| 5.9 | |
Figures 6.4 and 6.5, respectively, illustrate the product ash and product
sulfur content over the Oaktown Mining Complex area. As shown, there are slight increases in both ash and sulfur content from southeast
to northwest across the property.
The Oaktown Mining Complex is an established underground coal mining
and processing complex with a consistent operating history. BOYD has assessed that sufficient studies have been undertaken to enable the
coal resources to be converted to coal reserves based on current operating methods and practices. Changes in the factors and assumptions
employed in these studies may materially affect the coal reserve estimate.
The extent to which the coal reserves may be affected by any known
geological, operational, environmental, permitting, legal, title, variation, socio-economic, marketing, political, or other relevant issues
has been reviewed as warranted. It is BOYD’s opinion that Sunrise has appropriately mitigated, or has the operational acumen to
mitigate, the risks associated with these factors. BOYD is not aware of any additional risks that could materially affect the development
of the reserves.
Based on our audit review, we have a high degree of confidence that
the estimates shown in this report accurately represent the available coal reserves controlled by Sunrise, as of December 31, 2021.
6.3.5 Validation
BOYD independently estimated coal reserves for the Oaktown Mining
Complex mine plan from geologic data and models provided by Sunrise. Based on our review of Sunrise’s well-documented geologic
modeling and estimation techniques and the results of our data validation efforts (described earlier), we are of the opinion that
Sunrises’ modeling procedures are reasonable and appropriate. We consider the LOM plan and economic forecast sufficiently
detailed to support the estimate of coal reserves reported herein. Furthermore, it is BOYD’s opinion that there is a high
degree of assurance associated with the stated coal reserves due to the current amount of exploration and sampling, mine planning,
and economic analyses that have been completed on the Indiana V Seam within the Oaktown Mining Complex area.
JOHN T. BOYD COMPANY
JOHN T. BOYD COMPANY
JOHN T. BOYD COMPANY
6.3.6 Reconciliation with
Previous Estimates
Figure 6.6 illustrates the comparison of Sunrise’s coal reserve
estimates as of December 31, 2021, with the historical estimate1 of December 31, 2020:
The net decrease in reserves reflects: (1) revisions to mine plans
and/or associated modifying factors as determined by Sunrise management or BOYD, (2) depletion through ordinary mining operations and
inventory sales, and (3) exclusion of a small block of coal for which BOYD opines there does not exist reasonable prospects for economic
extraction.
1
Note: BOYD has not done sufficient work to classify historical estimates as current coal resources or coal reserves
and the issuer is not treating the historical estimate as current coal resources or coal reserves.
JOHN T. BOYD COMPANY
7-1
7.0 MINING
OPERATIONS
7.1 Mining Method
Description
Coal is produced by the Oaktown Fuels No. 1 and No. 2 underground mines
using the R&P mining method. R&P mining is a partial extraction technique that recovers a portion of a coal seam. An illustration
of a typical R&P mining operation is provided in Figure 7.1
R&P mining utilizes the systematic development of interconnected
underground entries or openings with rectangular roadways that are driven in the coal seam and are typically supported by roof bolts installed
in the immediate roof. The parallel mine entries are connected by crosscuts which result in a series of mine openings separated by solid
coal pillars that support the main roof. R&P mining systems, which generally utilize CMs, can be used for coal production (like the
underground mines of the Oaktown Mining Complex) or as a development technique to support longwall (LW) production. This flexible mining
system is widely used across the US coal industry, at large and small mines with varying seam thicknesses and mining conditions.
JOHN T. BOYD COMPANY
7-2
A typical R&P production section will include one or two CM units,
one to three roof bolting machines, and between two and three coal haulage machines (most commonly either ram cars [RC] or shuttle cars
[SC]) per CM. The main piece of equipment is the CM, which is a heavy, steel framed machine (often over 40 tons) mounted on cat tracks,
that operates on AC power. Key components of a CM include:
| · | Electric and hydraulic motors that power the CM’s operation. |
| · | A tram mechanism that propels the machine. |
| · | A horizontally mounted, cylindrical cutting head used to cut the coal seam. |
| · | A pair of gathering arms that pick-up/clear away the mined material. |
| · | An internal conveyor system used to load the mined product into a haulage vehicle. |
Although there have been ongoing advances in CM equipment technology,
the basic R&P mining process has been utilized for decades and has remained largely unchanged over that time. The CM is used to extract
the coal seam by mining a rectangular opening or “cut”. The cut typically ranges from 18 ft to 20 ft in width and extends
the height2 of the coal seam plus some increment of extraneous non-coal roof and floor material extracted during the mining
process (known as OSD). The depth that the CM cuts into the coal seam (i.e., the cut length) is dependent upon mining conditions, regulations,
operating practices, etc. but is generally in the range of 15 ft to 40 ft. Shorter cuts are taken in areas where there are difficult roof
conditions.
A critical element of R&P mining is the interaction between the
CM, the roof-bolting machine and supporting haulage units. Known as “place-changing”, the following steps will typically occur
during mining cycle:
| 1. | The CM penetrates the cut. As the coal and associated OSD are extracted, the CM unit loads the broken material into one of the haulage
vehicles/RC. |
| 2. | Once fully loaded, the RC carries the product from the CM to a “feeder,” where the coal is discharged from the car and
gradually metered onto a conveyor belt for transport out of the mine. The empty RC then trams back to the CM to be reloaded. While this
is taking place, the second RC is subsequently loaded. If additional RCs are utilized, these units follow in sequence. This operating
pattern continues until the coal volume within the cut is fully extracted. |
| 3. | The CM then backs out of the cut and trams to the next location where the mining process is continued. |
| 4. | After a cut is completed, the exposed roof in the cut (just completed by the CM) must be supported. A roof bolting machine trams into
the freshly mined area, drills holes into the roof and installs roof bolts—steel rods that strengthen the integrity of the roof.
The principle of roof bolting is to physically tie together the weaker individual layers of roof strata to create a single “laminated”
unit of rock that is stronger than the unsupported strata. |
2
In instances where a CM is operating in thick seam conditions (i.e., the coal thickness is greater than 8 ft), the height
of the cut may be less than the full thickness of the seam.
JOHN T. BOYD COMPANY
7-3
Place-change
mining is an efficient form of R&P mining, although the process will routinely incur delays during a production shift (perhaps 5 to
20 minutes per occurrence, depending upon site-specific considerations). Where roof conditions permit (and approval is granted by
regulatory agencies), mine operators will employ "deep cut" mining plans to reduce the impact of place-changing delays.
Longer cuts (usually 30 ft to 40 ft in length) enable the CM to spend a greater portion of available shift time in cutting and loading
activities.
Place-changing CM equipment has steadily evolved over the years via
technological breakthroughs to become sophisticated, productive, and durable. Today’s state-of-the-art CM units are equipped with
efficient motors, computer diagnostics, solid-state electronics, advanced remote-control systems, and scrubbing mechanisms (which preserve
underground air quality by capturing a significant percentage of respirable dust that is generated by the breaking/grinding of coal and
rock during the mining process). Ever-improving technological gains have resulted in dramatic improvements in productivity, machine availability,
employee safety, and unit operating costs over the past four decades.
An R&P mine may operate a single production section, or multiple
sections (like the mines of the Oaktown Mining Complex). This is dependent upon the size of the reserve, supporting infrastructure, capitalization,
markets, etc. A variation of the traditional R&P place-changing method is the “super-section”. Under this system, the
CM production section is equipped with two CM machines, two sets of haulage vehicles, and multiple roof bolters. Under this variation,
each “super-section” essentially operates two production units per belt dumping point enhancing the productive output of the
mine section. This variation of traditional R&P mining is employed at both Oaktown Fuels No. 1 and No. 2 mines.
R&P extraction may be performed as either “first mining”
or “secondary extraction”. First or “advance-only” mining is where a system of entries or openings are driven/advanced
and the remaining coal pillars are left intact. Under this system, after a section has reached its intended advance distance, the section
equipment is recovered and relocated to a new area, leaving the developed pillars untouched (i.e., no secondary mining of the pillars
occurs). Reasons for employing this type of R&P mining may include equipment specifications, geological conditions, subsidence restrictions,
operator preferences, etc.
JOHN T. BOYD COMPANY
7-4
Secondary extraction or “retreat mining” is the process
whereby, after the mine workings have reached the end of the advance stage of mining, the direction of mining is reversed (i.e., the mine
operator retreats towards the mouth of the production section, employing a prescribed series of cuts to sequentially recover coal from
the pillars). Retreat mining systems can be complex and may include partial or full pillar extraction (which allows the roof to systematically
collapse and subsequently results in subsidence of the overlying surface).
Reserve recovery (extraction ratio) varies at R&P mines. Generally,
40% to 50% extraction of the in-place coal is typical, with extraction ratios ranging from 30% to 70%. Retreat mining may or may not offer
higher extraction ratios than advance only mining; actual recoveries are dependent upon pillar dimensions and a variety of operational
considerations.
The Oaktown Fuels No. 1 Mine typically operates as a three to four
super-section operation, and Oaktown Fuels No. 2 Mine typically operates as a two to three super-section operation. Currently, the mines
are performing first mining only; Sunrise has no projections for retreat mining in production panels within its LOM plan and has not historically
utilized “retreat mining” at the Oaktown Mining Complex.
R&P mining has been one of the predominant approaches to mining
the Indiana V Seam (within which Oaktown Mining Complex operates) for decades. Mining in the Oaktown Fuels No. 1 Mine, which first began
production in 2009 and is the oldest of the Oaktown Mining Complex’s two operations, is largely identical to the practices used
at the Oaktown Fuels No. 2 Mine. In terms of mining methodology, the application of R&P mining techniques at the Oaktown Fuels No.
1 and No. 2 mines is viewed as a prudent operating decision based on: (1) the extent of the complex’s overall coal reserve base,
(2) Sunrise’s targeted annual production levels, (3) the mines’ historic and expected mining conditions and seam orientation,
and (4) the successful application of R&P technology at nearby historical and active mining operations. The use of R&P mining
at the Oaktown Mining Complex is further justified based on Sunrise’s experience operating R&P mines and their reputation for
having refined the technical, operational, and financial elements of this mining technique for site specific conditions over the years.
JOHN T. BOYD COMPANY
7-5
7.2 Mine Equipment and
Staffing
7.2.1 Mine Equipment
The equipment utilized at the two Oaktown Mining Complex underground
R&P mines is nearly identical to one another. This allows for synergies between the operations, including the sharing of equipment
and critical spare parts. Additionally, mining equipment utilized by Oaktown Mining Complex is not unique to the ILB region (i.e., Oaktown
Mining Complex’s mining equipment is similar to the equipment commonly used by competitor underground mines in the region).
Table 7.1 presents Oaktown Mining Complex’s projected number
of CM super-sections for 2022 through 2036 according to BOYD’s conceptual LOM:
Table 7.1: Projected Number of Operating CM Sections | |
| |
| |
Year | |
Mine | |
2022-2031 | | |
2032-2034 | | |
2035 | | |
2036 | |
Oaktown Fuels No. 1 | |
| 4 | | |
| 3 | | |
| 2 | | |
| 0 | |
Oaktown Fuels No. 2 | |
| 3 | | |
| 3 | | |
| 3 | | |
| 2 | |
A listing of equipment typically employed by the two mines’
CM super-sections is shown in Table 7.2, below.
Table
7.2: Summary of Production Unit Equipment | |
| |
Section Type | |
Equipment
Type | |
Manufacturer | |
Quantity | |
CM Sections | |
Continuous Miner | |
Joy | |
| 2 | |
| |
Shuttle Car/Ram Car | |
Joy, Stamler | |
| 2-3 | |
| |
Bolter | |
Fletcher | |
| 1-3 | |
| |
Scoop | |
Fairchild | |
| 1-3 | |
| |
Power Center | |
Line Power | |
| 1-2 | |
| |
Feeder | |
Joy, Stamler | |
| 1 | |
Based on BOYD’s review of the Oaktown Mining Complex’s
equipment and asset listings, the operations’ current complement of equipment is sufficient to meet the production levels projected
for each of the operations over their conceptual LOM plans. Additionally, capital projections prepared by Sunrise have accounted for future
equipment related expenditures to maintain production at forecasted levels. In BOYD’s opinion, all mining equipment utilized on
the Oaktown Mining Complex’s CM super-sections is suitable for the mining conditions anticipated, as well as for the future proposed
rates of production.
JOHN T. BOYD COMPANY
7-6
7.2.2 Staffing
Oaktown Mining Complex’s underground mines and coal preparation
facility are staffed by a workforce primarily from the surrounding southwestern Indiana and southeastern Illinois areas. The workforce,
which is comprised of both hourly and salary employees, has no labor affiliation (i.e., the Oaktown Mining Complex is union-free). Table
7.3 provides recent historical employment for each operational site:
Table 7.3: Historical Employment | |
| |
| |
Employee | |
Employee Count by Year | |
Operational Site | |
Classifcation | |
2018 | | |
2019 | | |
2020 | | |
2021 | |
Oaktown Fuels No. 1 Mine | |
Underground | |
| 301 | | |
| 296 | | |
| 300 | | |
| 286 | |
| |
Surface | |
| 32 | | |
| 36 | | |
| 33 | | |
| 32 | |
| |
Office | |
| 8 | | |
| 11 | | |
| 11 | | |
| 10 | |
| |
Subtotal | |
| 341 | | |
| 343 | | |
| 344 | | |
| 328 | |
Oaktown Fuels No. 2 Mine | |
Underground | |
| 265 | | |
| 249 | | |
| 215 | | |
| 263 | |
| |
Surface | |
| 2 | | |
| 3 | | |
| 4 | | |
| 8 | |
| |
Office | |
| 5 | | |
| 6 | | |
| 5 | | |
| 3 | |
| |
Subtotal | |
| 272 | | |
| 258 | | |
| 224 | | |
| 274 | |
Oaktown Complex CPP | |
Surface | |
| 59 | | |
| 72 | | |
| 61 | | |
| 68 | |
Total - Oaktown Mining Complex | |
| |
| 672 | | |
| 673 | | |
| 629 | | |
| 670 | |
Source: MSHA Form 7000-2
Future employment levels are expected to resemble historical levels.
Given Sunrise’s ability to hire and retain employees, staffing is not expected to hinder the Oaktown Mining Complex operations’
ability to achieve forecasted production levels.
JOHN T. BOYD COMPANY
7-7
7.3 Mine Production
7.3.1 Historical Mine Production
Historical mine production data for the two Oaktown Mining Complex
underground R&P mines, based on publicly available information reported by MSHA, are detailed in Table 7.4, below.
Table 7.4: Historical Mine Production | |
| |
| |
Oaktown Fuels No. 1 Mine | | |
Oaktown Fuels No. 2 Mine | | |
Total - Oaktown Mining Complex | |
| |
Tons | | |
Hours | | |
| | |
Tons | | |
Hours | | |
| | |
Tons | | |
Hours | | |
| |
Year | |
(000) | | |
(000) | | |
TPEH | | |
(000) | | |
(000) | | |
TPEH | | |
(000) | | |
(000) | | |
TPEH | |
2008 | |
| - | | |
| 33 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 33 | | |
| - | |
2009 | |
| 47 | | |
| 145 | | |
| 0.3 | | |
| - | | |
| - | | |
| - | | |
| 47 | | |
| 145 | | |
| 0.3 | |
2010 | |
| 1,015 | | |
| 333 | | |
| 3.0 | | |
| - | | |
| 11 | | |
| - | | |
| 1,015 | | |
| 344 | | |
| 2.9 | |
2011 | |
| 2,668 | | |
| 715 | | |
| 3.7 | | |
| - | | |
| 26 | | |
| - | | |
| 2,668 | | |
| 741 | | |
| 3.6 | |
2012 | |
| 2,754 | | |
| 709 | | |
| 3.9 | | |
| - | | |
| 50 | | |
| - | | |
| 2,754 | | |
| 759 | | |
| 3.6 | |
2013 | |
| 3,376 | | |
| 741 | | |
| 4.6 | | |
| 1,039 | | |
| 176 | | |
| 5.9 | | |
| 4,415 | | |
| 917 | | |
| 4.8 | |
2014 | |
| 3,341 | | |
| 739 | | |
| 4.5 | | |
| 2,092 | | |
| 378 | | |
| 5.5 | | |
| 5,433 | | |
| 1,117 | | |
| 4.9 | |
2015 | |
| 3,519 | | |
| 780 | | |
| 4.5 | | |
| 2,180 | | |
| 480 | | |
| 4.5 | | |
| 5,699 | | |
| 1,260 | | |
| 4.5 | |
2016 | |
| 3,828 | | |
| 844 | | |
| 4.5 | | |
| 1,947 | | |
| 553 | | |
| 3.5 | | |
| 5,775 | | |
| 1,397 | | |
| 4.1 | |
2017 | |
| 3,684 | | |
| 784 | | |
| 4.7 | | |
| 2,547 | | |
| 608 | | |
| 4.2 | | |
| 6,231 | | |
| 1,392 | | |
| 4.5 | |
2018 | |
| 4,072 | | |
| 779 | | |
| 5.2 | | |
| 2,867 | | |
| 680 | | |
| 4.2 | | |
| 6,939 | | |
| 1,458 | | |
| 4.8 | |
2019 | |
| 4,167 | | |
| 816 | | |
| 5.1 | | |
| 2,298 | | |
| 637 | | |
| 3.6 | | |
| 6,464 | | |
| 1,453 | | |
| 4.4 | |
2020 | |
| 3,433 | | |
| 718 | | |
| 4.8 | | |
| 1,810 | | |
| 495 | | |
| 3.7 | | |
| 5,243 | | |
| 1,213 | | |
| 4.3 | |
2021 | |
| 3,489 | | |
| 732 | | |
| 4.8 | | |
| 2,147 | | |
| 626 | | |
| 3.4 | | |
| 5,636 | | |
| 1,358 | | |
| 4.2 | |
Total/Average | |
| 39,392 | | |
| 8,868 | | |
| 4.4 | | |
| 18,926 | | |
| 4,719 | | |
| 4.0 | | |
| 58,318 | | |
| 13,587 | | |
| 4.3 | |
Notes:
| (1) | Employee Hours for each operation includes Underground, Surface
at Underground, and Office Workers employees as listed by MSHA. |
| (2) | Employees Hours for Oaktow n Fuels includes all operational employee
hours and additionally all preparation/mill site employee hours for each operation as listed by MSHA. |
| (3) | Tons reported as Product (i.e., Clean Coal) Tons. |
| (4) | TPEH is tons per employee-hour. |
JOHN T. BOYD COMPANY
7-8
As a complex, Oaktown Mining Complex has produced a combined 58.3
million tons of clean coal during 2009 to 2021. Through the same period, the complex has recorded an average productivity level of
4.3 tons per employee-hour (TPEH). Figure 7.2 shows historic mining productivity for Oaktown Mining Complex and each mine
individually since their start.
Figure 7.2: Historic Mining Productivity Levels
7.3.2 Forecasted Production
BOYD developed LOM plans for each of the Oaktown Mining Complex underground
mines based on generally accepted engineering practices, and in alignment with historical and industry norms. It is BOYD’s opinion
that the forecasted production levels for the Oaktown Mining Complex operations are reasonable, logical, and consistent with typical CM
mining practices within the ILB and historical practices utilized by the Oaktown Mining Complex.
JOHN T. BOYD COMPANY
7-9
The Oaktown Mining Complex LOM plans, as shown in Table 7.5,
following this page, portray a consistent production output during 2022 through 2031 and then a decline in production as the number
of CM units are reduced gradually as the mining reserves are depleted. In the aggregate, the Oaktown Mining Complex LOM plan
projects the complex will produce approximately 101.8 million tons of ROM and approximately 71.4 million tons of clean coal over its
operational horizon.
Table 7.5: Life-of-Mine Coal Production Summary | |
| |
| |
Tons (000) | |
| |
Oaktown Fuels No. 1 Mine | | |
Oaktown Fuels No. 2 Mine | | |
Total - Oaktown Mining Complex | |
Year | |
ROM Coal | | |
Clean Coal | | |
ROM Coal | | |
Clean Coal | | |
ROM Coal | | |
Clean Coal | |
2022 | |
5,724 | | |
4,048 | | |
4,115 | | |
2,776 | | |
9,839 | | |
6,824 | |
2023 | |
| 4,084 | | |
| 2,973 | | |
| 4,267 | | |
| 2,921 | | |
| 8,351 | | |
| 5,894 | |
2024 | |
| 3,298 | | |
| 2,434 | | |
| 3,358 | | |
| 2,218 | | |
| 6,656 | | |
| 4,652 | |
2025 | |
| 4,312 | | |
| 3,159 | | |
| 2,959 | | |
| 1,953 | | |
| 7,271 | | |
| 5,112 | |
2026 | |
| 4,300 | | |
| 3,137 | | |
| 3,386 | | |
| 2,307 | | |
| 7,686 | | |
| 5,444 | |
2027 | |
| 4,140 | | |
| 3,041 | | |
| 2,836 | | |
| 1,897 | | |
| 6,976 | | |
| 4,938 | |
2028 | |
| 4,230 | | |
| 3,125 | | |
| 2,926 | | |
| 1,935 | | |
| 7,156 | | |
| 5,060 | |
2029 | |
| 4,549 | | |
| 3,328 | | |
| 3,088 | | |
| 2,040 | | |
| 7,637 | | |
| 5,368 | |
2030 | |
| 4,607 | | |
| 3,417 | | |
| 3,672 | | |
| 2,450 | | |
| 8,279 | | |
| 5,867 | |
2031 | |
| 4,541 | | |
| 3,327 | | |
| 2,835 | | |
| 1,923 | | |
| 7,376 | | |
| 5,250 | |
2032 | |
| 3,223 | | |
| 2,356 | | |
| 2,762 | | |
| 1,802 | | |
| 5,985 | | |
| 4,158 | |
2033 | |
| 2,981 | | |
| 2,163 | | |
| 2,839 | | |
| 1,902 | | |
| 5,820 | | |
| 4,065 | |
2034 | |
| 3,771 | | |
| 2,748 | | |
| 2,902 | | |
| 1,847 | | |
| 6,673 | | |
| 4,595 | |
2035 | |
| 1,778 | | |
| 1,278 | | |
| 2,544 | | |
| 1,714 | | |
| 4,322 | | |
| 2,992 | |
2036 | |
| - | | |
| - | | |
| 1,789 | | |
| 1,185 | | |
| 1,789 | | |
| 1,185 | |
Total | |
| 55,538 | | |
| 40,534 | | |
| 46,278 | | |
| 30,870 | | |
| 101,816 | | |
| 71,404 | |
JOHN T. BOYD COMPANY
7-10
Average clean yield and quality on an annual basis over the life of
the Oaktown Mining Complex is provided in Table 7.6, below.
Table 7.6: Life-of-Mine Plan Coal Quality Summary | |
| |
| |
| | |
Plant | | |
Average Clean Coal Quality (As-Received Basis) | |
| |
Production (Tons 000) | | |
Yield | | |
Ash | | |
Sulfur | | |
Heating Value | | |
SO2 | |
Year | |
ROM Coal | | |
Clean Coal | | |
(%) | | |
(%) | | |
(%) | | |
(Btu/lb) | | |
(lbs/MMBtu) | |
2022 | |
| 9,839 | | |
| 6,824 | | |
| 69.4 | | |
| 8.3 | | |
| 3.5 | | |
| 11,440 | | |
| 6.0 | |
2023 | |
| 8,351 | | |
| 5,894 | | |
| 70.6 | | |
| 7.4 | | |
| 3.3 | | |
| 11,560 | | |
| 5.8 | |
2024 | |
| 6,656 | | |
| 4,652 | | |
| 69.9 | | |
| 7.6 | | |
| 3.4 | | |
| 11,536 | | |
| 5.9 | |
2025 | |
| 7,271 | | |
| 5,112 | | |
| 70.3 | | |
| 7.5 | | |
| 3.3 | | |
| 11,544 | | |
| 5.8 | |
2026 | |
| 7,686 | | |
| 5,444 | | |
| 70.8 | | |
| 7.4 | | |
| 3.4 | | |
| 11,562 | | |
| 5.9 | |
2027 | |
| 6,976 | | |
| 4,938 | | |
| 70.8 | | |
| 7.5 | | |
| 3.4 | | |
| 11,558 | | |
| 6.0 | |
2028 | |
| 7,156 | | |
| 5,060 | | |
| 70.7 | | |
| 7.3 | | |
| 3.4 | | |
| 11,587 | | |
| 5.8 | |
2029 | |
| 7,637 | | |
| 5,368 | | |
| 70.3 | | |
| 7.1 | | |
| 3.3 | | |
| 11,586 | | |
| 5.8 | |
2030 | |
| 8,279 | | |
| 5,867 | | |
| 70.9 | | |
| 7.2 | | |
| 3.4 | | |
| 11,593 | | |
| 5.8 | |
2031 | |
| 7,376 | | |
| 5,250 | | |
| 71.2 | | |
| 7.4 | | |
| 3.4 | | |
| 11,561 | | |
| 5.8 | |
2032 | |
| 5,985 | | |
| 4,158 | | |
| 69.5 | | |
| 7.5 | | |
| 3.4 | | |
| 11,530 | | |
| 5.9 | |
2033 | |
| 5,820 | | |
| 4,065 | | |
| 69.8 | | |
| 7.4 | | |
| 3.4 | | |
| 11,552 | | |
| 5.9 | |
2034 | |
| 6,673 | | |
| 4,595 | | |
| 68.9 | | |
| 7.5 | | |
| 3.3 | | |
| 11,525 | | |
| 5.7 | |
2035 | |
| 4,322 | | |
| 2,992 | | |
| 69.2 | | |
| 8.1 | | |
| 3.2 | | |
| 11,454 | | |
| 5.5 | |
2036 | |
| 1,789 | | |
| 1,185 | | |
| 66.2 | | |
| 8.4 | | |
| 3.4 | | |
| 11,446 | | |
| 5.9 | |
Total/Average | |
| 101,816 | | |
| 71,404 | | |
| 70.1 | | |
| 7.5 | | |
| 3.4 | | |
| 11,542 | | |
| 5.8 | |
Minimum | |
| 1,789 | | |
| 1,185.0 | | |
| 66.2 | | |
| 7.1 | | |
| 3.2 | | |
| 11,440 | | |
| 5.5 | |
Maximum | |
| 9,839 | | |
| 6,824.0 | | |
| 71.2 | | |
| 8.4 | | |
| 3.5 | | |
| 11,593 | | |
| 6.0 | |
In general, Oaktown Mining Complex’s annual clean coal yield
and quality is relatively consistent over the 15-year period; this consistency is indicative of the local Indiana V Seam coal geology.
During the 15-year life of mine, the Oaktown Mining Complex is forecasted
to produce approximately 71.4 million tons of clean coal. While it is expected that the mines will encounter local areas of high ash and/or
sulfur from either individual mine, the aggregate product from Oaktown Mining Complex should see minimal impact. This reflects the fact
that Oaktown Mining Complex’s infrastructure allows for the blending of each the individual mines’ segregated ROM product,
thus mitigating the influence/impact that an individual mine or production unit (producing in a localized area of lesser coal quality)
could have on the complex’s overall product quality.
JOHN T. BOYD COMPANY
7-11
7.3.3 Mining Recovery and
Dilution Factors
The Oaktown Mining Complex’s underground R&P mines operate
within the same geological setting and coal seam with little distinguishable differences. As such, the design of each mine is largely
the same (e.g., mains width, panel width and length, and CM support pillars). As a result, mining recoveries within the individual mine
plans are largely similar. The estimated mining recoveries for Oaktown Mining Complex generally range from 40% to 50%. Based on our review
of Oaktown Mining Complex’s reserves by individual mining areas, it is BOYD’s opinion that the mining area recoveries utilized
are reasonable and align with general engineering principles.
The proximity of the operations within the same geologic setting and
coal seam also results in similar dilution factors for both Oaktown Mining Complex’s mines. The mining horizon targeted by each
of the mines includes the main bench of the Indiana V Seam and any in-seam partings. Both mines traditionally operate within the seam
as much as possible with little OSD.
The CM mains sections are more subject to sporadic OSD due to maintaining
proper ventilation airways, airway intersection locations with planned undercasts, provide adequate clearances for belt transfers, etc.,
regardless of the targeted mining horizon thickness. These variances are more likely a result of mine infrastructure and design rather
than fluctuations in geology.
7.3.4 Expected Mine Life
The LOM plan for each of the Oaktown Mining Complex mines’ operation
was developed with input from both Sunrise and BOYD. The LOM plan was developed with consideration taken for mineral control and timing
based upon forecasted production levels for each mine. The depicted general layout and mineral control for Oaktown Fuels No. 1 and No.
2 mines are shown in Figure 3.1.
The final year of the Oaktown LOM plan is 2036. While Oaktown Mining
Complex is forecasted to operate through 2036, each mine has a different expected mining life. Table 7.7 provides the expected mine life
for each of the individual underground R&P mines:
Table 7.7: Mine Life Projection |
|
| |
Expected | | |
Last Year of | |
Mine | |
Life (years) | | |
Mining | |
Oaktown Fuels No. 1 | |
| 14 | | |
| 2035 | |
Oaktown Fuels No. 2 | |
| 15 | | |
| 2036 | |
Production units will start to decrease following 2031 as the coal
reserves are gradually depleted at Oaktown Fuels No. 1 Mine with the final year of production being 2035 for the mine. The Oaktown Fuels
No. 2 Mine is scheduled to maintain three production units until its second to last year of operation in 2035. Coal reserve at the Oaktown
Fuels No. 2 Mine and resultantly, the Oaktown Mining Complex are expected to be exhausted in 2036.
JOHN T. BOYD COMPANY
7-12
7.4 Other Mining Considerations
7.4.1 Mine Design
Mines in the ILB region utilize a wide range of techniques for the
extraction of coal including both surface and underground mining methods. However, the majority of coal mining production from the ILB
region focuses largely on the Indiana V (Springfield) and Indiana VI (Herrin) seams extracted through underground mining methods.
Given the large extent of reported coal reserves, overall good mining
conditions, general coal seam consistency, consistent depth of cover, and relatively low population density on the overlying surface,
the Oaktown Mining Complex is well suited for underground R&P mining. Mining plans for R&P mines without secondary extraction
are relatively simple yet highly flexible. Unlike LW operations (having a rigid system), the Oaktown Fuels No. 1 and No. 2 mines’
mining method allows for the opportunity to alter the mining plan to avoid specific areas with adverse mining conditions (such as thin
coal, poor roof, etc.) or poor coal quality (such as high sulfur, etc.). Mains and sub-mains are typically established in areas where
confidence is highest regarding good mining conditions, roof conditions, coal thicknesses, etc. Panels are then developed out to a desired
length (whether that be operationally, or engineering based) or until adverse mining conditions or poor coal quality warrant the cessation
of development. When the mine panels reach the end of their advance stage of mining, the mine operator removes the production equipment
and reinstalls it to another location within the mine to commence production.
The Oaktown Mining Complex is approved for “first only”
mining, and Sunrise has no intentions of employing secondary (retreat) mining methods at either of the operations. The use of “first
only” mining is common for the ILB region R&P underground mines. There remains substantial public and environmental group opposition
to mining in general, however this is more particularly targeted towards LW mining and secondary mining (retreat mining) and the effects
of subsidence on surface structures and, more recently, perennial streams. The Oaktown Mining Complex is shielded from a portion of this
opposition given the implementation of “first only” mining methods. While there are likely to be some instances of heightened
environmental and communal concern regarding mining within the Oaktown Mining Complex plans, Sunrise has historically demonstrated the
ability to apply for and obtain the necessary permits for continued mining within their controlled coal reserves, even while being met
with some environmental pushback.
JOHN T. BOYD COMPANY
7-13
7.4.2 Mining Risk
Underground R&P mines face two primary types of operational risks.
The first category of risk includes those daily variations in physical mining conditions, mechanical failures, and operational activities
that can temporarily disrupt production activities. Several examples are as follows:
| · | Roof control problems and roof falls. |
| · | Water accumulations/soft floor conditions. |
| · | Ventilation disruption and concentrations of methane gas. |
| · | Variations in seam consistency, thickness, and structure. |
| · | Failures or breakdowns of operating equipment and supporting infrastructure. |
| · | Weather disruptions (power outages, inability to load barges due to flooding of rivers, etc.). |
The above conditions/circumstances can adversely affect production
on any given day, but are not regarded as “risk issues” relative to the long-term operation of a mining operation. Instead,
these are considered “nuisance items” that, while undesirable, are encountered on a periodic basis at virtually all mining
operations. Engineered mining plans and projections for the Oaktown Mining Complex appear to incorporate generally-accepted industry and
Sunrise historical performance levels as a basis, and thereby mitigate the likelihood that the mines will experience such disruptions
to production operations to the extent that they have previously occurred. BOYD does not regard the issues listed above as being material
to the Oaktown Mining Complex mining operations or otherwise compromising the forecasted performance.
The second type of risk is categorized as “event risk.”
Items in this category are rare, but significant occurrences that are confined to an individual mine, and ultimately have a pronounced
impact on production activities and corresponding financial outcomes. Examples of event risks are major fires or explosions, floods, or
unforeseen geological anomalies that disrupt extensive areas of underground mine workings and require alterations of mining plans. Such
an event can result in the cessation of production activities for an undefined but extended period (measured in months, and perhaps years)
and/or result in the sterilization of coal reserves.
JOHN T. BOYD COMPANY
7-14
The US mining industry has made tremendous strides in enhancing employee
safety and reducing the likelihood of fires, explosions, and other dramatic events over the past several decades. Underground R&P
mining is largely a predictable and safe industry. BOYD does not regard the Oaktown Fuels No. 1 and No. 2 mining operations and mine plans
as being particularly risky, inadequately managed, or otherwise susceptible to major events. There is no basis to predict or otherwise
anticipate major operational shortfalls and/or extraction of coal reserves at the subject mining operation.
JOHN T. BOYD COMPANY
8-1
8.0 PROCESSING
OPERATIONS
8.1 Overview
The centrally located Oaktown Complex CPP is designed to process the
combined ROM output produced by Oaktown Mining Complex’s two underground R&P mines. Comprised of ROM coal stockpile areas, a
coal processing plant, clean coal storage, a rail loadout facility, and truck scales/loading, the approximate 150-acre processing complex
is located within proximity of the active operations.
The Oaktown Complex CPP first began operation as the coal washing facility
for the Oaktown Fuels No. 1 Mine in 2009. In 2013, major renovations were made to the Oaktown Complex CPP to accommodate additional tonnage
supplied from the newly developed Oaktown Fuels No. 2 Mine. Major process upgrades focused on adding a second 800 TPH circuit, increasing
total CPP throughput capacity to 1,600 TPH.
While the capacity of the facility has grown, the coal preparation
process at Oaktown Complex CPP, like other preparation plants in the ILB mining region, has largely remained unchanged since commissioning.
Processing circuits within the Oaktown Complex CPP consist of heavy media bath, heavy media cyclones, hydro-spirals, and froth flotation.
Straightforward when compared to many other mineral processing techniques, the coal process is largely based on separating rock material
from coal material contained in the raw coal feed by mechanically reducing the size of the feed and utilizing the materials’ different
densities to gravitationally separate one from the other. Largely, the process requires water, magnetite, and frothing agents.
ROM coal arrives directly to the complex from the Oaktown Fuels No.
1 and No. 2 mines via two independent slope conveyor belts. There are two ROM coal storage areas that provide approximately 1.2 million
tons of above-ground storage capacity for the Oaktown Mining Complex underground mines. The ROM coal storage areas enable each mine to
provide their plant feed separately to the preparation facility, or to be combined for a blended product. The clean coal product is dried
with screen-bowl centrifuges. Processed product is then transported via overland conveyor belt just over 1 mile to the north and stored
at the open-air clean coal storage area. The main clean coal storage area has a capacity of approximately 980,000 tons, with an auxiliary
clean coal storage located adjacently (capacity of approximately 290,000 tons) that can be utilized as necessary.
JOHN T. BOYD COMPANY
8-2
Clean coal is sampled and loaded into 120-car unit trains through a
flood load system. The Oaktown Complex CPP is served by both CSX and INRD via a short rail spur that connects the complex’s double
loop rail system with the mainline rail just north of Oaktown, Indiana. Two rail sidings are employed to facilitate railroad transportation
logistics and allowing the accommodation of two-unit trains at any time.
Following this page are Figure 8.1, which provides an aerial overview
of the preparation facility area, and Figure 8.2, which provides a generic flow sheet of the CPP and related facilities.
8.2 Historical
Operation
Due to the evolution and enlargement of Sunrise’s Oaktown Mining
Complex operations, the Oaktown Complex CPP underwent modification and expansion to accommodate the complex’s increased coal production
and washing requirements. The plant’s expanded capacity is evidenced by its current average annual plant feed, which has grown from
approximately 6.2 million tons processed in 2012 and 2013, to an average plant feed of 8.6 million ROM tons between 2017 to 2021.
The Oaktown Complex CPP has historically produced a very consistent
clean coal product that possesses medium ash and high sulfur characteristics and between 11,000 to 12,000 Btu per lb on an as received
basis. The plant’s ability to blend raw coal production from the two underground mines into a singular plant feed allows for both
more consistent plant operation and coal product qualities.
8.3 Future Operations
Sunrise intends to utilize the Oaktown Complex CPP throughout the
LOM. Table 7.6 (page 7-10) summarizes the planned production from the Oaktown Complex CPP over the expected life of the operations.
JOHN T. BOYD COMPANY
8-3
JOHN T. BOYD COMPANY
8-4
JOHN T. BOYD COMPANY
8-5
Annual plant feed (i.e., ROM coal) and clean coal production tonnages
over the balance of the LOM are within the capacities of the Oaktown Complex CPP.
8.4 Conclusion
Based on our review of historical processing data and forecasts of
future production, it is BOYD’s opinion that the present processing methods found at Oaktown Complex CPP will be sufficient for
future processing of coals at Oaktown Mining Complex.
JOHN T. BOYD COMPANY
9-1
9.0 MINE
INFRASTRUCTURE
9.1 Mine Surface
Facilities
Operations at each of the two Oaktown Mining Complex underground mines
are supported by multiple surface facilities located within the areal proximity of the mines’ reserve boundary. Major surface infrastructure
elements include: engineering and business offices, personnel bathhouses, parking areas, supply yards, warehouse buildings, ventilation
fan structures, ventilation air shafts, high voltage power distribution stations, and primary underground access points, including slope
tunnels (for transporting supplies underground/conveying ROM coal to the surface) and mine portals (shafts for transporting employees/supplies
underground). Figure 3.1 provides a general location map highlighting the layout of the two Oaktown Mining Complex underground mines and
the surface location of their primary deep mine access points. Each of the Oaktown Mining Complex underground R&P mines maintains
their own separate surface facilities. In terms of industry standards, the Oaktown Mining Complex operations’ surface infrastructure
is comparable to facilities typically found within the ILB mining region.
The current surface facilities located at each of the mines are well
constructed and have the necessary capacity/capabilities to support the Oaktown Mining Complex’s near-term mining plans. Longer
term, as the individual mines progress beyond their near-term mine plans and the location of future mining activities is centered outside
the physical and/or operationally efficient limitations of the existing infrastructure, additional surface facilities of comparable design
may be required to support continued mining (refer to Chapter 11 for a discussion regarding Sunrise’s expectations for future capital
expenditures).
Given Sunrise’s demonstrated ability to steadily construct its
expanding surface facility infrastructure in a timely fashion (relative to underground mine production), the need for continued surface
facilities at the mines of Oaktown Mining Complex is not seen as a hindrance for the execution of the LOM plans.
All ROM output from the Oaktown Mining Complex mines is processed
in the Oaktown Complex CPP, which is discussed in Chapter 8.
JOHN T. BOYD COMPANY
9-2
9.2 Oaktown Complex
Refuse Facility
The Oaktown Complex refuse facility serves as the disposal location
for all waste rock (coarse coal refuse) and a portion of fine coal slurry (fine coal refuse) produced during the processing of ROM coal
from the two Oaktown Mining Complex underground R&P mines. The majority of the fine coal slurry is transported overland via a network
of pumps and pipelines for underground disposal within mined-out void areas. The current Oaktown Complex refuse facility encompasses more
than 320 permitted acres located adjacent to the Oaktown Complex CPP and across the Oaktown Mining Complex surface (i.e., to facilitate
slurry injection).
The Oaktown Complex refuse facility includes one main disposal area
for coarse coal refuse and surface fine coal refuse disposal. In addition to the one main disposal area, multiple underground slurry injection
locations are located across the Oaktown Mining Complex to utilize void space within mined out areas of the Oaktown Fuels No. 1 and No.
2 mines. Table 9.1 details the capacity of the Coal Refuse Disposal Area (CRDA) sites servicing the Oaktown Mining Complex operations.
Table 9.1: CRDA Capacity | |
| |
| |
Remaining | |
Refuse Disposal Type | |
Capacity (000 CY) | |
Coarse Coal Refuse | |
| 13,641 | |
Fine Coal Refuse | |
| 12,345 | |
Note: Fine and Coarse Coal Refuse capacities as of September 2021. Numbers do not reflect fine coal refuse disposal space within the
current Impoundment Stage 5 or future Stage 7. |
According to forecasted LOM coal refuse disposal requirements, currently
permitted refuse areas can accommodate coarse disposal through approximately 2031 and fine coal refuse disposal through 2025.
Sunrise representatives indicated that the fine refuse disposal plan
post-2025 and coarse refuse disposal plan post-2031 will be based on proven practices and approaches. Sunrise has historically demonstrated
the ability to operate the refuse facility and injection sites in a prudent manner, obtain associated permits, and to execute construction
of disposal areas (injection sites) in a timely fashion. It is BOYD’s opinion that Sunrise’s staged injection disposal through
2025 will meet the practices demonstrated by other industry peers. At this time, lack of a properly staged and detailed fine coal refuse
disposal plan post-2025 and coarse refuse disposal plan post-2031 is not seen as a major hindrance to Oaktown Mining Complex meeting the
LOM plans.
JOHN T. BOYD COMPANY
10-1
10.0 MARKET ANALYSIS
10.1 Indiana Coal
Industry Background
The following section provides a brief description of the Indiana coal
mining industry.
10.1.1 Coal Reserves
The coalfield of Indiana covers an area of 6,500 square miles in the
southwestern portion of the state forming the east-central portion of the ILB. The configuration of the coal-bearing area in Indiana is
roughly triangular in shape, with a maximum east-west width of approximately 80 miles along the Ohio River and extending approximately
200 miles to the north to Benton County. The state’s coal-bearing strata dip in a southwesterly direction at about 30 ft per
mile toward the center of the ILB in southeastern Illinois.
According to the Indiana Geological Survey, Indiana’s total coal
geological resources are approximately 57 billion tons, of which 17 billion tons is recoverable
using current technology. A distribution by mining method suggests 88% of the state’s mineable resources (15 billion tons) are recoverable
by underground mining techniques with the balance recoverable by surface mining. Based on current production rates, Indiana's 17 billion
tons of available mineable coal resources could last more than 500 years. Twenty counties within, or partly within, the Indiana
coalfield have significant coal resources. As seen in Table 10.1, coal production within the state has been primarily centered within
Sullivan, Knox, and Gibson counties over the past five years:
Table 10.1: Historical Indiana Production
by County (Tons 000) | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
Through | |
County | | |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
Q3 2021 | |
Sullivan | | |
| 7,287.1 | | |
| 7,271.2 | | |
| 7,290.5 | | |
| 8,302.3 | | |
| 5,322.3 | | |
| 4,389.9 | |
Knox | | |
| 5,899.9 | | |
| 6,231.3 | | |
| 6,938.5 | | |
| 6,464.4 | | |
| 5,243.0 | | |
| 4,215.0 | |
Gibson | | |
| 8,192.3 | | |
| 10,115.5 | | |
| 11,985.7 | | |
| 10,210.7 | | |
| 4,469.1 | | |
| 3,521.8 | |
Warrick | | |
| 3,771.3 | | |
| 4,236.9 | | |
| 4,512.1 | | |
| 2,774.4 | | |
| 2,313.9 | | |
| 1,843.4 | |
Daviess | | |
| 1,112.8 | | |
| 1,371.7 | | |
| 2,189.2 | | |
| 2,063.1 | | |
| 2,101.2 | | |
| 48.6 | |
Clay | | |
| 334.7 | | |
| 381.1 | | |
| 265.8 | | |
| 272.0 | | |
| 253.0 | | |
| 108.7 | |
Pike | | |
| 852.1 | | |
| 223.2 | | |
| - | | |
| 363.5 | | |
| 118.4 | | |
| 10.2 | |
Dubois | | |
| 1,301.5 | | |
| 1,477.4 | | |
| 1,542.7 | | |
| 1,169.1 | | |
| 111.4 | | |
| 7.7 | |
Spencer | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10.1 | | |
| - | |
Greene | | |
| 14.9 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Ohio | | |
| 212.4 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Vigo | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Total | | |
| 28,979.1 | | |
| 31,308.2 | | |
| 34,724.5 | | |
| 31,619.5 | | |
| 19,942.4 | | |
| 14,145.3 | |
Source:
MSHA
JOHN T. BOYD COMPANY
10-2
Currently, the Indiana V (Springfield) and VII (Danville) are the Indiana
coal seams most extensively mined, although limited mining is also conducted in the Colchester and Survant seams. The Indiana VI (Herrin),
which is one of the predominant economically mineable seams of the ILB, has limited presence within Indiana.
10.1.2 Coal Quality
Coal produced in Indiana is typically a medium to high volatile (25%
to 30+%) bituminous rank coal with medium to high thermal content (i.e., ranges from approximately 11,000 to 11,500 Btu/lb) and relatively
high sulfur content. The primary market for Indiana coal is the in-state coal-fired utility market. The following lists the average Indiana
coal quality for coal shipped to domestic coal-fired generating plants that burned Indiana coal in 2020 (i.e., U.S. Energy Information
Administration [EIA] coal delivery data):
Table
10.2: 2020 Quality Specifications for Indiana Coal Shipped to Domestic Utilities
| |
| |
| |
Btu/lb | | |
Sulfur (%) | | |
Ash (%) | |
Wt. Avg | |
| 11,302 | | |
| 2.84 | | |
| 8.9 | |
Min | |
| 10,760 | | |
| 0.87 | | |
| 5.0 | |
Max | |
| 12,020 | | |
| 5.20 | | |
| 13.5 | |
Source:
EIA Form 923
Relative to chlorine content, Indiana coals are generally advantaged
by relatively low levels of chlorine across the mining region. A summary of Indiana coal quality, including available chlorine content
data derived from studies completed by the US Geological Survey and other sources, are summarized below:
Table 10.3:
Indiana Coal Quality by County of Origin | |
| |
County | | |
Btu/lb | | |
Sulfur (%) | | |
Ash (%) | | |
CI (%) | |
Clay | | |
| 10,855 | | |
| 0.75 | | |
| 9.0 | | |
| 0.025 | |
Daviess | | |
| 11,712 | | |
| 2.82 | | |
| 7.1 | | |
| 0.020 | |
Gibson | | |
| 11,395 | | |
| 2.64 | | |
| 8.0 | | |
| 0.031 | |
Dubois | | |
| 11,101 | | |
| 3.05 | | |
| 10.3 | | |
| 0.036 | |
Knox | | |
| 11,525 | | |
| 3.12 | | |
| 8.2 | | |
| 0.037 | |
Pike | | |
| 11,203 | | |
| 2.88 | | |
| 8.6 | | |
| 0.020 | |
Spencer | | |
| 10,544 | | |
| 1.65 | | |
| 9.2 | | |
| na | |
Sullivan | | |
| 11,134 | | |
| 2.80 | | |
| 9.2 | | |
| 0.032 | |
Warrick | | |
| 11,274 | | |
| 3.49 | | |
| 9.0 | | |
| 0.023 | |
By comparison, the chlorine content of the Illinois No. 5 (Springfield)
and No. 6 (Herrin) coal seams, which are the two seams mined extensively throughout Illinois, typically ranges from 0.1% to 0.6%. Coals
having chlorine content above 0.3% is found to cause damaging boiler corrosion, a fact that negatively impacts the marketability of high-chlorine
coal produced in Illinois.
JOHN T. BOYD COMPANY
10-3
10.1.3 Transportation
ILB coal producers are supported by a multi-modal transportation infrastructure
system capable of moving coal to end users by truck, rail, and barge (operating alone and/or in combination). Class I railroads operating
in the region include the Union Pacific, CSX, NS, and the Canadian National. The ILB is also supported by several regional short-line
railways. In many instances, due to geographic location of the mine in relation to the end-user or river loading facility, rail delivery
must be conducted via multi-line movements. Any coal movement could involve multiple rail-line hauls, third-party controlled river loading
facilities, short rail haul distances or long truck haul distances.
Multiple transportation carriers and multiple transportation modes
can have a significant influence on overall delivered costs. Situations can arise where two mines can be in fairly close proximity with
one another, but one has a decided transportation advantage based on its access to a particular rail service provider.
Several coal producers in the basin have direct or indirect access
to the inland waterway system providing river borne transportation options on the Green, Ohio, and/or Mississippi rivers. Mines located
in western Kentucky are generally better suited to direct river loading than those in Indiana and Illinois.
The Indiana coal fields are crossed by numerous roads and railroads.
Feeder lines from Class 1 railroads support numerous loadout facilities found in the State’s coal-producing counties. In addition,
a well-developed network of federal and state highways crosses the coal-producing region (as well as a supporting system of secondary
all weather roads) and provide adequate truck hauling capacity.
JOHN T. BOYD COMPANY
10-4
10.1.4 Production Evolution
The following table illustrates the progression of Indiana’s
coal producers and their associated mines operating over the period 2016 to Q3 2021:
Table 10.4: Historical Indiana Coal Production and Mine Count | |
| |
| |
| |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021
through Q3 | |
ARLP | |
Tons (000) | |
| 3,943 | | |
| 5,956 | | |
| 7,878 | | |
| 7,052 | | |
| 2,191 | | |
| 2,353 | |
| |
No. Mines | |
| 2 | | |
| 2 | | |
| 3 | | |
| 3 | | |
| 2 | | |
| 3 | |
Blackhawk/Triad Mining | |
Tons (000) | |
| 791 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | |
| |
No.
Mines | |
| 5 | | |
| 5 | | |
| - | | |
| - | | |
| - | | |
| - | |
Peabody Energy | |
Tons (000) | |
| 14,130 | | |
| 14,106 | | |
| 13,553 | | |
| 12,383 | | |
| 9,300 | | |
| 7,402 | |
| |
No. Mines | |
| 5 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | |
Sun Energy Group | |
Tons (000) | |
| 76 | | |
| 118 | | |
| 156 | | |
| 117 | | |
| 12 | | |
| - | |
| |
No. Mines | |
| 1 | | |
| 1 | | |
| 1 | | |
| 2 | | |
| 2 | | |
| - | |
Sunrise Coal | |
Tons (000) | |
| 6,113 | | |
| 6,612 | | |
| 7,609 | | |
| 8,221 | | |
| 5,636 | | |
| 4,324 | |
| |
No. Mines | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 4 | | |
| 3 | |
United Minerals Co. | |
Tons (000) | |
| 218 | | |
| 301 | | |
| 184 | | |
| - | | |
| - | | |
| - | |
| |
No. Mines | |
| 2 | | |
| 2 | | |
| 2 | | |
| - | | |
| - | | |
| - | |
White Stallion Energy | |
Tons (000) | |
| 3,480 | | |
| 4,134 | | |
| 4,925 | | |
| 3,659 | | |
| 2,329 | | |
| 66 | |
| |
No. Mines | |
| 5 | | |
| 5 | | |
| 5 | | |
| 5 | | |
| 5 | | |
| 5 | |
Other | |
Tons (000) | |
| 227 | | |
| 80 | | |
| 419 | | |
| 187 | | |
| 475 | | |
| - | |
| |
No. Mines | |
| 3 | | |
| 3 | | |
| 2 | | |
| 2 | | |
| 3 | | |
| - | |
Total | |
Tons (000) | |
| 28,979 | | |
| 31,308 | | |
| 34,725 | | |
| 31,620 | | |
| 19,942 | | |
| 14,145 | |
| |
No. Mines | |
| 27 | | |
| 26 | | |
| 21 | | |
| 20 | | |
| 20 | | |
| 15 | |
Source: MSHA
In 2016, Indiana’s coal industry produced
approximately 29 million tons from 27 mines. By 2020, the number of operating mines decreased by 26% (to 20) while coal production
from the State declined by 31% (to 20 million tons). The modest production rationalization that ensued over the fived-year period was
primarily driven by the closure of less productive, marginal operations. During this period, only Peabody Energy, Sunrise, and Alliance
Resource maintained relatively consistent operations in the Indiana coalfields.
JOHN T. BOYD COMPANY
10-5
10.1.5 Mining Methods
Indiana coal operators utilize traditional surface and underground
mining technology to produce nearly 20 million tons annually. Surface mines primarily employ truck/shovel operations and draglines (at
select mines); underground mines typically utilize continuous miners in R&P and/or super-section applications. There are no LW operations
in Indiana. Historical state coal production by mining method is shown in Figure 10.1:
Figure 10.1: Indiana Coal Production by Mining
Method
In 2001, Indiana coal output totaled 37 million tons. In that year,
approximately 80% (29.4 million tons) was produced from surface operations. Due to the depletion of mineable reserves with economic
stripping ratios, as well as the encroachment of urban and farm development over time, coal mining in Indiana has gradually shifted towards
underground operations. In 2020, of the 19.9 million tons produced, approximately 54% (10.8 million tons) was attributed to surface mines.
JOHN T. BOYD COMPANY
10-6
10.1.6 Coal Demand by Market
Historically, coal produced from mines in Indiana has been used
primarily for electric power generation with the balance directed into the industrial coal market (including process heat, steam,
and space heating). A major portion of the Indiana coal industry is located on or near major Class 1 railroads, enabling coal
suppliers to service the regional markets and/or some out of state customers. In 2020, Indiana coal mines supplied approximately
19.9 million tons into the general coal market. Of the total Indiana coal sales, approximately 19.1 million tons (or 96%)
went to electric generators, with the remaining balance shipped to industrial customers (e.g., cement and sugar plants). The
distribution of Indiana coal shipments by market sector for the past five years is shown in the following table:
Table 10.5 : Distribution of Indiana Coal Shipments by Market Sector | |
| |
| |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | |
| |
Tons | | |
| | |
Tons | | |
| | |
Tons | | |
| | |
Tons | | |
| | |
Tons | | |
| |
Market Segment | |
(000) | | |
% | | |
(000) | | |
% | | |
(000) | | |
% | | |
(000) | | |
% | | |
(000) | | |
% | |
Domestic Coke Plants | |
| 19 | | |
| 0.1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Electric Power Sector | |
| 28,321 | | |
| 95.9 | | |
| 28,331 | | |
| 92.8 | | |
| 28,290 | | |
| 85.9 | | |
| 26,024 | | |
| 90.1 | | |
| 19,133 | | |
| 95.1 | |
Industrial Plants * | |
| 956 | | |
| 3.2 | | |
| 753 | | |
| 2.5 | | |
| 728 | | |
| 2.2 | | |
| 668 | | |
| 2.3 | | |
| 670 | | |
| 3.3 | |
Commercial | |
| 53 | | |
| 0.2 | | |
| 43 | | |
| 0.1 | | |
| 50 | | |
| 0.2 | | |
| 52 | | |
| 0.2 | | |
| 35 | | |
| 0.2 | |
Export Market | |
| 172.00 | | |
| 0.6 | | |
| 1,400 | | |
| 4.6 | | |
| 3,860 | | |
| 11.7 | | |
| 2,147 | | |
| 7.4 | | |
| 285 | | |
| 1.4 | |
Total | |
| 29,521 | | |
| 100.0 | | |
| 30,527 | | |
| 100.0 | | |
| 32,928 | | |
| 100.0 | | |
| 28,891 | | |
| 100.0 | | |
| 20,123 | | |
| 100.0 | |
* Excluding coke.
In the past five years, Indiana coal had a limited
presence in the international export markets. The majority of Indiana produced thermal coal is shipped to electricity generating plants
in Indiana. Table 10.6 details historical Indiana thermal coal shipments by state and generating station:
Table 10.6 : Historical Indiana Coal Deliveries to Utility Market by Destination State
(Tons 000) | |
| |
| |
2017 | | |
2018 | | |
2019 | | |
2020 | | |
2021 (Jan-Oct) | |
| |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | |
Plant State | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | |
Indiana | |
| 21,183 | | |
| 10 | | |
| 20,981 | | |
| 9 | | |
| 19,006 | | |
| 10 | | |
| 15,619 | | |
| 9 | | |
| 11,947 | | |
| 8 | |
Kentucky | |
| 2,174 | | |
| 8 | | |
| 2,119 | | |
| 8 | | |
| 1,462 | | |
| 6 | | |
| 965 | | |
| 3 | | |
| 939 | | |
| 2 | |
Florida | |
| 1,851 | | |
| 5 | | |
| 1,183 | | |
| 3 | | |
| 1,246 | | |
| 3 | | |
| 984 | | |
| 3 | | |
| 1,180 | | |
| 3 | |
Ohio | |
| 1,706 | | |
| 2 | | |
| 1,399 | | |
| 2 | | |
| 763 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | |
Alabama | |
| 303 | | |
| 2 | | |
| 467 | | |
| 2 | | |
| 447 | | |
| 2 | | |
| - | | |
| - | | |
| - | | |
| - | |
Tennesse | |
| 667 | | |
| 2 | | |
| 746 | | |
| 2 | | |
| 998 | | |
| 3 | | |
| 389 | | |
| 2 | | |
| 197 | | |
| 2 | |
Georgia | |
| 24 | | |
| 2 | | |
| 354 | | |
| 2 | | |
| 1,153 | | |
| 2 | | |
| 509 | | |
| 1 | | |
| 208 | | |
| 1 | |
Illinois | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 1 | | |
| 165 | | |
| 1 | |
Michigan | |
| - | | |
| - | | |
| 53 | | |
| 1 | | |
| 107 | | |
| 1 | | |
| 106 | | |
| 1 | | |
| 53 | | |
| 1 | |
N Carolina | |
| 412 | | |
| 3 | | |
| 885 | | |
| 1 | | |
| 829 | | |
| 2 | | |
| 560 | | |
| 1 | | |
| 341 | | |
| 1 | |
New York | |
| 11 | | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
S Carolina | |
| - | | |
| - | | |
| 104 | | |
| 1 | | |
| 13 | | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | |
Total | |
| 28,332 | | |
| 36 | | |
| 28,291 | | |
| 32 | | |
| 26,025 | | |
| 33 | | |
| 19,133 | | |
| 21 | | |
| 15,030 | | |
| 19 | |
Percentage of Utility Deliveries by State | |
|
|
|
|
| |
Indiana | |
| 74.8 |
|
|
|
|
| | |
74.2 |
|
|
|
|
| | |
73.0 |
|
|
|
|
| | |
81.6 |
|
|
|
|
| | |
79.5 |
|
|
|
| |
Kentucky | |
| 7.7 |
|
|
|
|
| | |
7.5 |
|
|
|
|
| | |
5.6 |
|
|
|
|
| | |
5.0 |
|
|
|
|
| | |
6.2 |
|
|
|
| |
Florida | |
| 6.5 |
|
|
|
|
| | |
4.2 |
|
|
|
|
| | |
4.8 |
|
|
|
|
| | |
5.1 |
|
|
|
|
| | |
7.9 |
|
|
|
| |
Ohio | |
| 6.0 |
|
|
|
|
| | |
4.9 |
|
|
|
|
| | |
2.9 |
|
|
|
|
| | |
- |
|
|
|
|
| | |
- |
|
|
|
| |
Others | |
| 5.0 |
|
|
|
|
| | |
9.2 |
|
|
|
|
| | |
13.6 |
|
|
|
|
| | |
8.2 |
|
|
|
|
| | |
6.4 |
|
|
|
| |
Total | |
| 100.0 |
|
|
|
|
| | |
100.0 |
|
|
|
|
| | |
100.0 |
|
|
|
|
| | |
100.0 |
|
|
|
|
| | |
100.0 |
|
|
|
| |
Source: EIA Form 923
JOHN T. BOYD COMPANY
10-7
In 2020, Indiana thermal coal directed into the domestic US utility
market totaled 19.1 million tons. Of this amount, generating plants operating in Indiana consumed 15.6 million tons or approximately
82% of Indiana’s total thermal coal deliveries.
10.2 Sunrise Coal
10.2.1 Product
Specifications
Sunrise’s primary product from their main mining operations is
a thermal coal that is directed into the US generation market. Indicative quality specifications for Sunrise by mine are shown in Table
10.7, below.
Table 10.7: Indicative Thermal Coal Quality Specifications by Mine
(As Received Basis) | |
| |
| |
| | |
Mine | |
Quality | |
| | |
Oaktown | | |
Oaktown | | |
Ace in the | |
Parameter | |
Units | | |
Fuels No. 1 | | |
Fuels No. 2 | | |
Hole | |
Sulfur | |
% | | |
| 3.5 | | |
| 3.2 | | |
| 1.1 | |
Heating Value | |
Btu/lb | | |
| 11,500 | | |
| 11,600 | | |
| 11,100 | |
SO2 | |
lbs/MMBtu | | |
| 6.0 | | |
| 5.6 | | |
| 2.0 | |
Source: Halador Energy Company 2021 10-K
The thermal coal produced by Sunrise is currently used by electricity
generators and some domestic industrial customers.
10.2.2 Primary Markets
Sales into the domestic thermal coal market is Sunrise’s primary
focus, accounting for over 97% of the company’s annual coal production tonnage over the past five years. A summary of Sunrise’s
2016 to 2020 deliveries by state is provided in Table 10.8, on the following page.
JOHN T. BOYD COMPANY
10-8
Table 10.8: Sunrise Coal Deliveries
to Utility Market by Destination State (Tons 000) | |
| |
| | |
| | |
| | |
| | |
| |
| |
2016 | | |
2017 | | |
2018 | | |
2019 | | |
2020 | |
| |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | | |
Tons | | |
No. of | |
Plant State | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | | |
(000) | | |
Plants | |
Indiana | |
| 5,266 | | |
| 8 | | |
| 4,207 | | |
| 8 | | |
| 5,206 | | |
| 9 | | |
| 5,547 | | |
| 8 | | |
| 4,184 | | |
| 6 | |
Kentucky | |
| 56 | | |
| 1 | | |
| 500 | | |
| 1 | | |
| 302 | | |
| 1 | | |
| 183 | | |
| 2 | | |
| - | | |
| - | |
Florida | |
| 1,248 | | |
| 2 | | |
| 1,848 | | |
| 4 | | |
| 1,081 | | |
| 2 | | |
| 1,158 | | |
| 1 | | |
| 891 | | |
| 2 | |
Alabama | |
| - | | |
| - | | |
| - | | |
| - | | |
| 162 | | |
| 1 | | |
| - | | |
| - | | |
| - | | |
| - | |
Tennesse | |
| - | | |
| - | | |
| - | | |
| - | | |
| 12 | | |
| 1 | | |
| 198 | | |
| 1 | | |
| 47 | | |
| 1 | |
Georgia | |
| - | | |
| - | | |
| - | | |
| - | | |
| 65 | | |
| 1 | | |
| 611 | | |
| 1 | | |
| 493 | | |
| 1 | |
N Carolina | |
| - | | |
| - | | |
| - | | |
| - | | |
| 409 | | |
| 1 | | |
| 335 | | |
| 2 | | |
| 103 | | |
| 1 | |
S Carolina | |
| - | | |
| - | | |
| - | | |
| - | | |
| 104 | | |
| 1 | | |
| 13 | | |
| 1 | | |
| - | | |
| - | |
Total | |
| 6,570 | | |
| 11 | | |
| 6,555 | | |
| 13 | | |
| 7,341 | | |
| 17 | | |
| 8,045 | | |
| 16 | | |
| 5,718 | | |
| 11 | |
| |
| |
| |
Percentage of Utility Deliveries by State | |
| |
| |
Indiana | |
| 80.2 | | |
| | | |
| 64.2 | | |
| | | |
| 70.9 | | |
| | | |
| 68.9 | | |
| | | |
| 73.2 | | |
| | |
Florida | |
| 19.0 | | |
| | | |
| 28.2 | | |
| | | |
| 14.7 | | |
| | | |
| 14.4 | | |
| | | |
| 15.6 | | |
| | |
Georgia | |
| - | | |
| | | |
| - | | |
| | | |
| 0.9 | | |
| | | |
| 7.6 | | |
| | | |
| 8.6 | | |
| | |
Kentucky | |
| 0.9 | | |
| | | |
| 7.6 | | |
| | | |
| 4.1 | | |
| | | |
| 2.3 | | |
| | | |
| - | | |
| | |
N Carolina | |
| - | | |
| | | |
| - | | |
| | | |
| 5.6 | | |
| | | |
| 4.2 | | |
| | | |
| 1.8 | | |
| | |
Others | |
| - | | |
| | | |
| - | | |
| | | |
| 3.8 | | |
| | | |
| 2.6 | | |
| | | |
| 0.8 | | |
| | |
Total | |
| 100.0 | | |
| | | |
| 100.0 | | |
| | | |
| 100.0 | | |
| | | |
| 100.0 | | |
| | | |
| 100.0 | | |
| | |
During this period, the primary markets for Sunrise have been Indiana
and Florida.
As an existing producer with a lengthy commercial history and established
customer base, it is BOYD’s opinion that market entry strategies are not required for continued sale of the Oaktown Mining Complex’s
thermal coal products.
While its impacts are expected to ease over the next three to nine
months, the magnitude of the COVID-19 pandemic is now expected to result in the largest economic contraction since World War II. At the
time of this writing, progress towards sustained economic recovery remained unclear as the rollout of vaccines begins to take hold. While
the economic downturn has been primarily concentrated in the service industries (mainly travel, hospitality, and retail), the steel-intensive
manufacturing segment has gained some momentum, with conditions improving initially in China followed by a gradual improvement in the
United States.
It is anticipated that the US Federal Reserve will continue to keep
the supply of money high, provide credit/relief packages as required, and cut interest rates in order to support the economy. Additionally,
government-sponsored infrastructure projects will be pushed forward to offset the likely continued weakness in the service sector industries.
If realized, increased economic activity will provide a needed boost to the electricity generation and electricity-generating fuels, including
thermal coal.
JOHN T. BOYD COMPANY
10-9
Following the effects of the global pandemic witnessed during 2021,
US GDP growth is expected to stage a modest recovery during 2022 and regain typical levels. On the strength of this projection (and barring
the re-implementation of sustained, stringent containment measures and/or renewed significant virus outbreaks), BOYD anticipates the demand
for thermal coal to slowly recover to pre-pandemic levels by the 2023-2024 period.
Coal use among domestic power generators has fallen out of favor in
the United States and is systematically being replaced by natural gas and renewable forms of generation. In response to this development,
domestic thermal markets are expected to weaken over the near term, in line with coal plant retirements and the associated drop in coal
demand. Sunrise is expected to align its future sales with these trends, although the regional Indiana market is expected to remain relatively
firm over the near term.
As shown in Figure 10.2, below, a significant portion of Sunrise’s
near-term coal production is “committed” (i.e., allocated) to existing supply contracts/agreements. It is reasonable to expect
Sunrise to commit future production on an ongoing basis according to its business strategies.
Figure 10.2: Future Coal Sales by Order Type
JOHN T. BOYD COMPANY
10-10
Historically, the top-five customers by sales revenue account for approximately
75% to 85% of total coal sales from the Oaktown Mining Complex annually.
Market prices for Sunrise’s thermal coal products are influenced
by many factors, and the coal market environment can be volatile. The primary factors influencing future prices include: (1) demand,
primarily at scrubbed base-load stations, (2) competition in the form of other regional coal suppliers, natural gas-fired generation,
and renewables, (3) exhaustion of competing regional mines (thereby reducing local fuel supply), (4) transportation differentials,
and (5) cost structures associated with sustained coal production levels.
Coal prices can change quickly. This has been demonstrated in the current
market environment, as the price of Illinois Basin coal has rebounded by somewhere between $10/ton and $20/ton in various marketplaces
in the span of a few months; coal prices have moved from the $30s in early 2021 to somewhere in the $40s or $50s by the end of 2021. This
is the result of increased demand coupled with declining stockpiles and a relatively constrained production response from mine operators.
The prices of competing fuel sources for power generation are meaningful,
with the price of natural gas being the most significant. Coal and natural gas are at relative parity at a natural gas price of $2.50/MMBtu,
and when natural gas prices are more than $3/MMBtu, coal becomes the fuel of choice. The relative scarcity of natural gas in the marketplace
has resulted in prices that have recently surpassed $5/MMBtu, which has further enhanced the competitiveness of coal, even at robust coal
prices. While it is reasonable that there will eventually be some pullback in this marketplace, the current market for Illinois Basin
coal is likely to remain strong for the next two years. Likewise, the lack of recent investment throughout the Illinois Basin will preclude
meaningful coal production responses across that Basin that could contribute to oversupply.
BOYD anticipates the recent uptick in coal pricing to be indicative
of the market conditions over the next four years (2022 through 2025). Thereafter, we expect a gradual return to pricing that is in the
mid-to-low $40s/ton (FOB CPP) range when expressed in constant dollars.
JOHN T. BOYD COMPANY
10-11
BOYD’s price forecast for the Oaktown Mining
Complex’s future coal sales is a weighted average of Sunrise’s committed sales prices and our forecasted prices for
uncommitted (or spot) sales. Our coal price forecast for the Oaktown Mining Complex is provided in Table 10.9, below.
Table 10.9: Coal Price Forecast |
|
| |
| | |
| |
Year | |
Coal Sales (000 tons) | | |
Average Sales Price* ($/ton) | |
2022 | |
| 6,824 | | |
| 42.71 | |
2023 | |
| 5,894 | | |
| 51.25 | |
2024 | |
| 4,652 | | |
| 57.09 | |
2025 | |
| 5,112 | | |
| 63.99 | |
2026 | |
| 5,444 | | |
| 50.00 | |
2027 | |
| 4,938 | | |
| 46.00 | |
2028 | |
| 5,060 | | |
| 45.00 | |
2029 | |
| 5,368 | | |
| 44.00 | |
2030 | |
| 5,867 | | |
| 43.00 | |
2031 | |
| 5,250 | | |
| 42.50 | |
2032 | |
| 4,158 | | |
| 42.50 | |
2033 | |
| 4,065 | | |
| 42.50 | |
2034 | |
| 4,595 | | |
| 42.50 | |
2035 | |
| 2,992 | | |
| 42.50 | |
2036 | |
| 1,185 | | |
| 42.50 | |
Total/Average | |
| 71,404 | | |
| 46.88 | |
| |
| | | |
| | |
* FOB Oaktown Complex CPP | | |
As shown, BOYD expects selling prices (FOB CPP) for the Oaktown Mining
Complex’s thermal coal products to range from $42.50 to $63.99 and average $46.88 per clean ton over the life of the reserves.
JOHN T. BOYD COMPANY
11-1
11.0 CAPITAL
AND OPERATING COSTS
| 11.1 | Historical Financial Performance |
Oaktown Mining Complex’s performance relative to productivity,
cost control, and production has made it one of the leading underground coal operators within the ILB region. Comprised of two state-of-the-art
underground R&P mines, the operation’s ability to consistently achieve high annual output at generally low operating costs is
attributed to its well-capitalized operations and financial controls.
Table 11.1 summarizes the past three years of financial data for the
Oaktown Mining Complex.
Table 11.1: Historical Financials |
|
| |
| | |
| | |
| |
| |
2019 | | |
2020 | | |
2021 | |
Clean Coal Production (000 tons) | |
| 6,464 | | |
| 5,243 | | |
| 5,633 | |
| |
| | | |
| | | |
| | |
Average Selling Price ($/clean ton) | |
| 39.57 | | |
| 40.66 | | |
| 39.50 | |
| |
| | | |
| | | |
| | |
Cash Operating Costs ($/clean ton): | |
| | | |
| | | |
| | |
Direct Labor | |
| 11.98 | | |
| 13.02 | | |
| 13.92 | |
Direct Operating | |
| 11.17 | | |
| 11.57 | | |
| 10.81 | |
Indirect Operating | |
| 4.58 | | |
| 4.02 | | |
| 4.13 | |
Selling and General Administrative | |
| 0.99 | | |
| 1.68 | | |
| 1.58 | |
Total - Cash Operating Costs | |
| 28.72 | | |
| 30.29 | | |
| 30.44 | |
| |
| | | |
| | | |
| | |
Capital Expenditures ($/clean ton) | |
| 4.59 | | |
| 3.91 | | |
| 4.97 | |
Over the three-year period:
| · | Oaktown Mining Complex’s average realization (i.e., coal selling price)
was range-bound between $39.50 and $40.66 per ton. |
| · | Cash cost of sales for the complex was approximately $1.72 per ton higher
in 2021 than 2019. |
| · | In response to weakening market conditions caused by the global pandemic,
Sunrise reduced production from Oaktown Mining Complex in 2020 and early 2021. The drop in overall output in 2020 and in early 2021 resulted
in an increase to the complex’s average unit cost (and declining cash margins) for those years. |
JOHN T. BOYD COMPANY
11-2
Cost performance for the individual mines is portrayed graphically
in Figure 11.1.
Figure 11.1: Historical Operating Costs by Mine
Historically, the Oaktown Fuels No. 1 and No. 2 mines have had operating
costs that compare favorably with other industry producers.
Of the two Oaktown Mining Complex underground R&P mines, Oaktown
Fuels No. 1 Mine has demonstrated the lowest operating cost during the 2019 to 2021 time period.
This is predominantly attributable to more favorable geologic conditions
experienced and increased economies of scale3.
Relative to industry peers, the Oaktown Mining Complex (including its
supporting centralized preparation facilities) is well capitalized. This reflects Sunrise’s ongoing attention to prudent capital
upgrade/replacement programs, routine investment in mine infrastructure expansions, and maintenance of production equipment. The amount
of capital spent (per individual mine or for the Oaktown Complex CPP) has varied on an annual basis as a percent of Oaktown Mining Complex’s
total expenditures, illustrating differing capital requirements and/or operational timelines for each operation. Despite the capital spending
variations, Oaktown Mining Complex’s aggregate capital expenditure level (on a dollar per clean ton basis) was relatively consistent
and generally within the range of $4.00 to $5.00 per clean ton.
3 Economies of scale are of fundamental
importance; a mine that has a productive year versus its budgeted plan can expect to have low unit costs while surpassing projected margins.
Alternatively, a R&P mine that achieves poor production levels would see a proportional reduction in revenue, but this would not
be accompanied by a corresponding reduction in total costs. Such a mine would instead see high unit costs, and most of the revenue loss
would flow through to the bottom line.
JOHN T. BOYD COMPANY
11-3
BOYD developed mine plans for the Oaktown Mining Complex based on engineered
mine layouts4 which were designed for optimum reserve recovery, using efficient mining methods and practices. Sunrise’s
historical and generally accepted industry operating performance parameters and mining rates were applied to the mine plan to develop
coal production and mining schedules. Financial budgets were then prepared (based on mine plan outputs and labor requirements), resulting
in operating cost projections (based on constant 2021 dollars). The individual mining plans recognize the impact of variations in physical
mining conditions, mechanical failures, and operational activities that can temporarily disrupt production activities. The mine plans
for Oaktown Mining Complex are reasonable and achievable, provided no major abnormalities are encountered.
Forecasting performance based on the continuation of consistent mining
conditions, excluding impacts from unforeseen events, increases the risk of underperformance versus the mine plan. BOYD’s approach
does not directly account for situations that can occur in underground coal mining, such as fire, water inundations, geological anomalies,
etc. However, risk mitigation has been reflected in the production schedules through the use of multiple CM sections operating in various
locations throughout the mine reserve. The geographical distribution of mining sections throughout the area of the mine plan mitigates
the likelihood that all CM sections will experience adverse mining conditions at a given time. Each CM section also utilizes production
contingency factors, which are incorporated into the mining forecast.
BOYD reviewed historical Sunrise mining plans (including development
strategy, production and productivity, capital expenditures, and total cash costs) and concluded: (1) the Sunrise pro-forma plans are
reasonable and achievable and align with BOYD’s independent LOM plans, (2) Sunrise’s market view that coal markets will
rebound from the COVID-19 pandemic influences experienced during 2020/21 is reasonable, and (3) Oaktown Mining Complex is well-positioned
to achieve the conceptual LOM plan as projected by BOYD provided no major abnormalities are encountered: within the coal market, or at
the mine level.
4 The mining plans for R&P operations
are relatively simple and highly flexible when compared to LW mines. The entire foundation of the mining plan is based upon locating
mains and sub-mains in areas of the deposit where coal quality and mining conditions are most suitable. Panels are then developed out
to a desired length or until adverse mining conditions (or poor coal quality) warrant the cessation of development. This results in the
opportunity to alter the mining plan so as to avoid specific areas with adverse mining conditions (such as thin coal, poor roof, etc.)
or poor coal quality (such as high sulfur, etc.).
JOHN T. BOYD COMPANY
11-4
The Sunrise forecasted financial performance aligns with what BOYD
would anticipate for an established underground R&P coal facility operating in the ILB region. BOYD developed an independent LOM projection
for operating and capital costs which aligns with general industry standards and the Sunrise forecasted figures. BOYD believes the extended
LOM projection of operating and capital costs to be accurate to within ±25% of the operating and capital costs of other similarly
capitalized mining complexes operating in the ILB region. We did not assign a contingency budget to the extended mine life projection
estimates.
| 11.2.1 | Forecasted Production |
BOYD’s LOM plans reflect a return to increased sales tonnage
from Oaktown Mining Complex as coal prices recover post-COVID-19 pandemic. BOYD’s forecast reflects a stable revenue stream, driven
by Sunrise’s view that their Indiana V Seam reserves and Oaktown Mining Complex are in a strong competitive position to take advantage
of improved coal pricing and demand as domestic and international markets recover from the COVID-19 pandemic. The Oaktown Mining Complex
forecast of saleable tons producedis summarized in Figure 11.2.
JOHN T. BOYD COMPANY
11-5
Oaktown Mining Complex’s future production over the forecast
period is projected to remain within current infrastructure capacities and capabilities. This results in a less capital-intensive forward
forecast, as capital expenditures are associated with sustaining production rather than new mine development and/or production capacity
expansion.
| 11.2.2 | Projected Operating Costs |
Operating cost estimates were developed based on recent actual costs
and considering specific operational activity levels and cost drivers. The estimates consider current and expected labor headcount and
salaries, major consumables and unit prices, power costs, and equipment and maintenance costs. The total operating cost estimate includes
all site costs related to mining, processing, and general and administrative activities.
As Sunrise capitalizes on coal markets increasing demands and increases
production in 2022, operating costs for Oaktown Mining Complex are projected to be more favorable versus those witnessed during the COVID-19
pandemic. This is primarily a result of reduced direct operating costs associated with Sunrise’s current strategic plan that sees
Oaktown Mining Complex producing between 5 to 7 million product tons per annum.
BOYD’s estimate of operating costs over the life of the Oaktown
Mining Complex as presented in Table 11.2, on the following page.
JOHN T. BOYD COMPANY
11-6
TABLE 11.2
ESTIMATE OF CASH OPERATING COSTS
OAKTOWN MINING COMPLEX
Prepared For
By
John T. Boyd Company
Mining and Geological Consultants
Period
Year | |
1 2022 | | |
2 2023 | | |
3 2024 | | |
4 2025 | | |
5 2026 | | |
6 2027 | | |
7 2028 | | |
8 2029 | | |
9 2030 | | |
10 2031 | | |
11 2032 | | |
12 2033 | | |
13 2034 | | |
14 2035 | | |
15 2036 | | |
Total | |
Production
(000 tons): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
ROM Coal | |
| 9,839 | | |
| 8,351 | | |
| 6,656 | | |
| 7,271 | | |
| 7,886 | | |
| 6,976 | | |
| 7,156 | | |
| 7,637 | | |
| 8,279 | | |
| 7,376 | | |
| 5,985 | | |
| 5,820 | | |
| 6,673 | | |
| 4,322 | | |
| 1,789 | | |
| 101,816 | |
Clean Coal | |
| 6,824 | | |
| 5,894 | | |
| 4,652 | | |
| 5,112 | | |
| 5,444 | | |
| 4,938 | | |
| 5,060 | | |
| 5,368 | | |
| 5,867 | | |
| 5,250 | | |
| 4,158 | | |
| 4,065 | | |
| 4,595 | | |
| 2,992 | | |
| 1,185 | | |
| 71,404 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct
Labor ($ 000) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Labor (incl. Payroll Taxes and
Works Comp.) | |
| 56,385 | | |
| 48,910 | | |
| 38,572 | | |
| 42,185 | | |
| 45,025 | | |
| 40,757 | | |
| 41,762 | | |
| 44,295 | | |
| 48,506 | | |
| 43,301 | | |
| 34,400 | | |
| 33,683 | | |
| 37,956 | | |
| 24,915 | | |
| 10,069 | | |
| 590,721 | |
Retirement Benefits/401k | |
| 22,554 | | |
| 19,564 | | |
| 15,429 | | |
| 16,874 | | |
| 18,010 | | |
| 16,303 | | |
| 16,705 | | |
| 17,718 | | |
| 19,403 | | |
| 17,320 | | |
| 13,760 | | |
| 13,473 | | |
| 15,182 | | |
| 9,966 | | |
| 4,027 | | |
| 236,288 | |
Subtotal - Direct Labor | |
| 78,939 | | |
| 68,474 | | |
| 54,001 | | |
| 59,059 | | |
| 63,035 | | |
| 57,060 | | |
| 58,467 | | |
| 62,013 | | |
| 67,909 | | |
| 60,621 | | |
| 48,160 | | |
| 47,156 | | |
| 53,138 | | |
| 34,881 | | |
| 14,096 | | |
| 827,009 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Direct Operating ($ 000) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Supplies | |
| 32,746 | | |
| 29,021 | | |
| 23,220 | | |
| 24,405 | | |
| 26,119 | | |
| 23,488 | | |
| 24,078 | | |
| 25,556 | | |
| 28,078 | | |
| 24,603 | | |
| 20,629 | | |
| 20,313 | | |
| 22,615 | | |
| 15,874 | | |
| 7,401 | | |
| 348,146 | |
Maintenance | |
| 23,962 | | |
| 22,693 | | |
| 20,802 | | |
| 21,386 | | |
| 21,929 | | |
| 21,131 | | |
| 21,310 | | |
| 21,763 | | |
| 22,552 | | |
| 21,574 | | |
| 20,018 | | |
| 19,910 | | |
| 20,639 | | |
| 18,367 | | |
| 7,562 | | |
| 305,598 | |
Utilities | |
| 12,918 | | |
| 12,174 | | |
| 11,180 | | |
| 11,548 | | |
| 11,814 | | |
| 11,409 | | |
| 11,507 | | |
| 11,753 | | |
| 12,152 | | |
| 11,659 | | |
| 10,785 | | |
| 10,710 | | |
| 11,134 | | |
| 7,517 | | |
| 3,737 | | |
| 161,997 | |
Other Operating
Costs | |
| 3,013 | | |
| 2,617 | | |
| 2,063 | | |
| 2,253 | | |
| 2,406 | | |
| 2,177 | | |
| 2,231 | | |
| 2,366 | | |
| 2,592 | | |
| 2,313 | | |
| 1,839 | | |
| 1,801 | | |
| 2,028 | | |
| 1,334 | | |
| 542 | | |
| 31,575 | |
Subtotal
- Direct Operating | |
| 72,639 | | |
| 66,505 | | |
| 57,265 | | |
| 59,592 | | |
| 62,268 | | |
| 58,205 | | |
| 59,126 | | |
| 61,438 | | |
| 65,374 | | |
| 60,149 | | |
| 53,271 | | |
| 52,734 | | |
| 56,416 | | |
| 43,092 | | |
| 19,242 | | |
| 847,316 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Indirect
Operating* ($ 000) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Insurance, Real Estate Tax, Penalties | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 1,100 | | |
| 550 | | |
| 15,950 | |
Royalties | |
| 17,487 | | |
| 18,124 | | |
| 15,936 | | |
| 19,626 | | |
| 16,334 | | |
| 13,629 | | |
| 13,663 | | |
| 14,171 | | |
| 15,138 | | |
| 13,389 | | |
| 10,603 | | |
| 10,364 | | |
| 11,716 | | |
| 7,628 | | |
| 3,021 | | |
| 200,829 | |
Preparation, Surface, and Coal
Handling | |
| 14,151 | | |
| 12,744 | | |
| 9,972 | | |
| 10,474 | | |
| 11,383 | | |
| 10,129 | | |
| 10,371 | | |
| 10,989 | | |
| 12,231 | | |
| 10,677 | | |
| 8,732 | | |
| 8,676 | | |
| 9,506 | | |
| 6,698 | | |
| 3,156 | | |
| 149,889 | |
Reclamation/Mine Closure | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,000 | | |
| 3,000 | |
Other Costs | |
| 741 | | |
| 711 | | |
| 549 | | |
| 537 | | |
| 603 | | |
| 521 | | |
| 532 | | |
| 563 | | |
| 645 | | |
| 541 | | |
| 466 | | |
| 475 | | |
| 496 | | |
| 392 | | |
| 224 | | |
| 7,996 | |
Subtotal - Indirect Operating | |
| 33,479 | | |
| 32,679 | | |
| 27,557 | | |
| 31,737 | | |
| 29,420 | | |
| 25,379 | | |
| 25,666 | | |
| 26,823 | | |
| 29,114 | | |
| 25,707 | | |
| 20,901 | | |
| 20,615 | | |
| 22,818 | | |
| 15,818 | | |
| 9,951 | | |
| 377,664 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Selling
and General Administrative ($ 000) | |
| 9,530 | | |
| 8,455 | | |
| 6,987 | | |
| 7,510 | | |
| 7,910 | | |
| 7,306 | | |
| 7,450 | | |
| 7,811 | | |
| 8,407 | | |
| 7,671 | | |
| 6,397 | | |
| 6,292 | | |
| 6,906 | | |
| 5,471 | | |
| 2,070 | | |
| 106,173 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total Cash Operating Costs ($
000) | |
| 194,587 | | |
| 176,113 | | |
| 145,810 | | |
| 157,898 | | |
| 162,633 | | |
| 147,950 | | |
| 150,709 | | |
| 158,085 | | |
| 170,804 | | |
| 154,148 | | |
| 128,729 | | |
| 126,797 | | |
| 139,278 | | |
| 99,262 | | |
| 45,359 | | |
| 2,158,182 | |
*Indirect Operating Costs do not include
Interest Expense or DD&A
JOHN T. BOYD COMPANY
11-7
| 11.2.3 | Projected Capital Expenditures |
The Oaktown Mining Complex and related facilities are fully developed
and should not require any near-term major capital investment to maintain full commercial production. Historically, the timing and amount
of capital expenditures have been largely discretionary and within Sunrise’s control.
Oaktown Mining Complex is expected to maintain a consistent level of
capital expenditures over the LOM period, with spending focused on mine infrastructure expansion, maintenance of production equipment
(new equipment purchases and/or rebuilds), and refuse placement (injection) expansions. BOYD projected sustaining capital expenditures
using nominal unit cost rates which includes maintenance of production equipment as well as other items for the operation. These unit
cost rates are based on our experience with other ILB underground R&P operations. From 2022 to 2032, annual capital expenses will
be focused on maintenance of production and are expected to average $4.00 per ton of clean coal. Over the final four years of the Complex’s
operation, capital expenditures are projected to decline as production decreases. BOYD’s estimates of capital expenditure requirements
over the life of the Oaktown Mining Complex are presented in Table 11.3, on the following page.
JOHN T. BOYD COMPANY
11-8
TABLE 11.3
ESTIMATE OF CAPITAL EXPENDITURES
OAKTOWN MINING COMPLEX
Prepared For
By
John T. Boyd Company
Mining and Geological Consultants
Period
Year | |
1 2022 | | |
2 2023 | | |
3 2024 | | |
4 2025 | | |
5 2026 | | |
6 2027 | | |
7 2028 | | |
8 2029 | | |
9 2030 | | |
10 2031 | | |
11 2032 | | |
12 2033 | | |
13 2034 | | |
14 2035 | | |
15 2036 | | |
Total | |
Production (000 tons): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
ROM Coal | |
| 9,839 | | |
| 8,351 | | |
| 6,656 | | |
| 7,271 | | |
| 7,686 | | |
| 6,976 | | |
| 7,156 | | |
| 7,637 | | |
| 8,279 | | |
| 7,376 | | |
| 5,985 | | |
| 5,820 | | |
| 6,673 | | |
| 4,322 | | |
| 1,789 | | |
| 101,816 | |
Clean Coal | |
| 6,824 | | |
| 5,894 | | |
| 4,652 | | |
| 5,112 | | |
| 5,444 | | |
| 4,938 | | |
| 5,060 | | |
| 5,368 | | |
| 5,867 | | |
| 5,250 | | |
| 4,158 | | |
| 4,065 | | |
| 4,595 | | |
| 2,992 | | |
| 1,185 | | |
| 71,404 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Capital Expenditures ($ 000): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Expansion | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Sustaining/Maintenance | |
| 27,296 | | |
| 23,576 | | |
| 18,608 | | |
| 20,448 | | |
| 21,776 | | |
| 19,752 | | |
| 20,240 | | |
| 21,472 | | |
| 23,468 | | |
| 21,000 | | |
| 16,632 | | |
| 14,228 | | |
| 13,785 | | |
| 7,480 | | |
| 2,370 | | |
| 272,131 | |
Total | |
| 27,296 | | |
| 23,576 | | |
| 18,608 | | |
| 20,448 | | |
| 21,776 | | |
| 19,752 | | |
| 20,240 | | |
| 21,472 | | |
| 23,468 | | |
| 21,000 | | |
| 16,632 | | |
| 14,228 | | |
| 13,785 | | |
| 7,480 | | |
| 2,370 | | |
| 272,131 | |
JOHN T. BOYD COMPANY
11-9
Total capital expenditure for Oaktown Mining Complex appears to be
logical and consistent with Sunrise’s typical level of capitalization and maintaining of state-of-the-art R&P underground mines
and associated processing facilities and are reasonably aligned with extended LOM plans.
JOHN T. BOYD COMPANY
12-1
12.0 ECONOMIC
ANALYSIS
The economic analysis presented in this chapter was prepared by BOYD
for the purpose of confirming the commercial viability of the Oaktown Mining Complex’s reported coal reserves and not for the purpose
of valuing the Oaktown Mining Complex, or its assets. The economic analysis contains forward-looking information related to the projected
operating and financial performance of the Oaktown Mining Complex. This projection involves inherent known and unknown risks and uncertainties,
some of which may be outside of Sunrise’s control. Sunrise, as with all mining companies, actively evaluates, changes, and modifies
business and operating plans in response to various factors that may affect operational and/or financial results. Actual results, production
levels, operating expenses, sales realizations, and all other modifying factors could vary significantly from the assumptions and estimates
provided in this analysis. Risk is subjective, as such, BOYD recommends that each reader should evaluate the project based on their own
investment criteria.
The financial model used for the purposes of the economic analysis
forecasts future free cash flow from coal production and sales over the life cycle of the Oaktown Mining Complex using the annual forecasts
of production, sales revenues, and operating and capital costs discussed earlier in this report. A DCF analysis, in which future free
cash flows are discounted to present value, is used to derive an NPV for the coal reserves. The use of DCF-NPV analysis is a standard
method within the mining industry to assess the economic value of a project after allowing for the cost of capital invested.
The financial evaluation of the Oaktown Mining Complex has been undertaken
on a simplified after-tax basis and does not reflect Sunrise’s corporate tax structure. NPV is calculated using an after-tax discount
rate of 12% (NPV12). Cash flows were assumed to occur in the middle of each year and are discounted to January 1, 2022. Cost
estimates and other inputs to the cash flow model for the project have been prepared using constant 2021 money terms, i.e., without provision
for inflation. The internal rate of return and project payback were not calculated, as there was no initial investment (sunk costs) considered
in the financial model provided herein.
A suite of sensitivities was calculated to evaluate the effect of the
main drivers of economic performance (including variations in sales prices, operating costs, and capital costs).
JOHN T. BOYD COMPANY
12-2
It is BOYD’s opinion that the financial model provides a reasonable
and accurate reflection of the Oaktown Mining Complex’s expected economic performance based on the assumptions and information available
at the time of our review.
| 12.2 | Assumptions and Limitations |
Cash flow projections for the Oaktown Mining Complex have been generated
from the annual forecasts of production, sales prices, and operating and capital costs discussed earlier in this report. A summary of
the key assumptions and limitations is provided below:
| · | Production
quantities are based on BOYD’s independently developed LOM plans for the Oaktown Mining Complex. Please refer to Chapters 7 and
8 for further information. |
| · | Forecasted
revenues are based on BOYD’s FOB sales price forecast for washed thermal coal from the Oaktown Mining Complex’s CPP (i.e.,
FOB CPP). Additional transportation and delivery costs are assumed to be incurred by the customer or added as a pass-through to the FOB
CPP price. Market specifications and forecasted sales prices for the Oaktown Mining Complex’s washed thermal coal are provided
in Chapter 10. |
| · | Capital
and operating costs are discussed in Chapter 11. Capital expenditures and unit operating costs are expected to remain relatively constant
over the life of the operation. |
| · | No
allowance for changes in or the recapture of working capital has been made in the financial analysis as the Oaktown Mining Complex has
been in operation for many years. Exclusion of working capital from the financial analysis does not have a material impact on the NPV
calculation. |
| · | Depreciation
and amortization expenses for existing assets are derived from Sunrise’s depreciation schedules. Sustaining capital is depreciated
over 8 years on a straight-line basis. |
| · | A combined
federal and state corporate tax rate of 25% has been applied on all taxable income. All other taxes and fees are included in the estimates
of operating costs. |
| · | Asset
recovery/salvage values were not included in the financial analysis. |
| · | Post-mining
reclamation costs are included as a lump sum operating cost in the final year of the financial analysis. |
It is BOYD’s opinion that the production and financial projections
provided herein are reasonable and are accurate to within ±25%.
JOHN T. BOYD COMPANY
12-3
| 12.3 | Financial Model Results |
Estimated LOM pre-tax and after-tax cash flows for coal production
from the Oaktown Mining Complex are presented in Table 12.1, on the following page.
JOHN T. BOYD COMPANY
12-4
TABLE 12.1
DISCOUNTED CASH FLOW - NET PRESENT VALUE ANALYSIS
OAKTOWN MINING COMPLEX
Prepared For
By
John T. Boyd Company
Mining and Geological Consultants
Period
Year | |
1 2022 | | |
2 2023 | | |
3 2024 | | |
4 2025 | | |
5 2026 | | |
6 2027 | | |
7 2028 | | |
8 2029 | | |
9 2030 | | |
10 2031 | | |
11 2032 | | |
12 2033 | | |
13 2034 | | |
14 2035 | | |
15 2036 | | |
Total/
Average | |
Production
(000 tons): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
ROM
Coal | |
| 9,839 | | |
| 8,351 | | |
| 6,656 | | |
| 7,271 | | |
| 7,686 | | |
| 6,976 | | |
| 7,156 | | |
| 7,637 | | |
| 8,279 | | |
| 7,376 | | |
| 5,985 | | |
| 5,820 | | |
| 6,673 | | |
| 4,322 | | |
| 1,789 | | |
| 101,816 | |
Clean Coal | |
| 6,824 | | |
| 5,894 | | |
| 4,652 | | |
| 5,112 | | |
| 5,444 | | |
| 4,838 | | |
| 5,060 | | |
| 5,368 | | |
| 5,867 | | |
| 5,250 | | |
| 4,158 | | |
| 4,065 | | |
| 4,595 | | |
| 2,992 | | |
| 1,185 | | |
| 71,404 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Revenues: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Coal Sales
(000 tons) | |
| 6,824 | | |
| 5,894 | | |
| 4,652 | | |
| 5,112 | | |
| 5,444 | | |
| 4,938 | | |
| 5,060 | | |
| 5,368 | | |
| 5,867 | | |
| 5,250 | | |
| 4,158 | | |
| 4,065 | | |
| 4,595 | | |
| 2,992 | | |
| 1,185 | | |
| 71,404 | |
Average
Sales Price ($/ton FOB CPP) | |
| 42.71 | | |
| 51.25 | | |
| 57.09 | | |
| 63.99 | | |
| 50.00 | | |
| 46.00 | | |
| 45.00 | | |
| 44.00 | | |
| 43.00 | | |
| 42.50 | | |
| 42.50 | | |
| 42.50 | | |
| 42.50 | | |
| 42.50 | | |
| 42.50 | | |
| 46.88 | |
Total Revenues
($ 000) | |
| 291,453 | | |
| 302,068 | | |
| 265,583 | | |
| 327,117 | | |
| 272,200 | | |
| 227,148 | | |
| 227,700 | | |
| 236,192 | | |
| 252,281 | | |
| 223,125 | | |
| 176,715 | | |
| 172,763 | | |
| 195,288 | | |
| 127,160 | | |
| 50,363 | | |
| 3,347,156 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Cash Operating Costs ($ 000) | |
| 194,587 | | |
| 176,113 | | |
| 145,810 | | |
| 157,898 | | |
| 162,633 | | |
| 147,950 | | |
| 150,709 | | |
| 158,085 | | |
| 170,804 | | |
| 154,148 | | |
| 128,729 | | |
| 126,797 | | |
| 139,278 | | |
| 99,262 | | |
| 45,359 | | |
| 2,158,162 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Gross Pre-Tax Cash Flow ($ 000) | |
| 96,866 | | |
| 125,955 | | |
| 119,773 | | |
| 169,219 | | |
| 109,567 | | |
| 79,198 | | |
| 76,991 | | |
| 78,107 | | |
| 81,477 | | |
| 68,977 | | |
| 47,986 | | |
| 45,966 | | |
| 56,010 | | |
| 27,898 | | |
| 5,004 | | |
| 1,188,994 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Depreciation & Amortization
($ 000) | |
| 17,278 | | |
| 16,661 | | |
| 16,525 | | |
| 17,536 | | |
| 19,836 | | |
| 21,905 | | |
| 23,774 | | |
| 24,872 | | |
| 22,983 | | |
| 21,720 | | |
| 20,996 | | |
| 20,434 | | |
| 19,449 | | |
| 18,087 | | |
| 16,179 | | |
| 298,235 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Operating Income ($ 000) | |
| 79,588 | | |
| 109,294 | | |
| 103,248 | | |
| 151,683 | | |
| 89,731 | | |
| 57,293 | | |
| 53,217 | | |
| 53,235 | | |
| 58,494 | | |
| 47,257 | | |
| 26,990 | | |
| 25,532 | | |
| 36,561 | | |
| 9,811 | | |
| (11,175 | ) | |
| 890,759 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Income Taxes ($ 000) | |
| 19,897 | | |
| 27,324 | | |
| 25,812 | | |
| 37,921 | | |
| 22,433 | | |
| 14,323 | | |
| 13,304 | | |
| 13,309 | | |
| 14,624 | | |
| 11,814 | | |
| 6,748 | | |
| 6,383 | | |
| 9,140 | | |
| 2,453 | | |
| - | | |
| 225,485 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Income ($ 000) | |
| 59,691 | | |
| 81,970 | | |
| 77,436 | | |
| 113,762 | | |
| 67,298 | | |
| 42,970 | | |
| 39,913 | | |
| 39,926 | | |
| 43,870 | | |
| 35,443 | | |
| 20,242 | | |
| 19,149 | | |
| 27,421 | | |
| 7,358 | | |
| (11,175 | ) | |
| 665,274 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Capital Expenditures ($ 000) | |
| 27,296 | | |
| 23,576 | | |
| 18,608 | | |
| 20,448 | | |
| 21,776 | | |
| 19,752 | | |
| 20,240 | | |
| 21,472 | | |
| 23,468 | | |
| 21,000 | | |
| 16,632 | | |
| 14,228 | | |
| 13,785 | | |
| 7,480 | | |
| 2,370 | | |
| 272,131 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net Pre-Tax Cash Flow ($ 000) | |
| 69,570 | | |
| 102,379 | | |
| 101,165 | | |
| 148,771 | | |
| 87,791 | | |
| 59,446 | | |
| 56,751 | | |
| 56,635 | | |
| 58,009 | | |
| 47,977 | | |
| 31,354 | | |
| 31,739 | | |
| 42,225 | | |
| 20,418 | | |
| 2,634 | | |
| 916,864 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net After-Tax
Cash Flow ($ 000) | |
| 49,673 | | |
| 75,055 | | |
| 75,353 | | |
| 110,850 | | |
| 65,358 | | |
| 45,123 | | |
| 43,447 | | |
| 43,326 | | |
| 43,385 | | |
| 36,163 | | |
| 24,606 | | |
| 25,356 | | |
| 33,085 | | |
| 17,965 | | |
| 2,634 | | |
| 691,379 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
DCF -
NPV Analysis ($ 000): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Discounted
Net Pre-Tax Cash Flow at 12% | |
| 65,737 | | |
| 86,374 | | |
| 76,205 | | |
| 100,059 | | |
| 52,719 | | |
| 31,873 | | |
| 27,168 | | |
| 24,207 | | |
| 22,138 | | |
| 16,348 | | |
| 9,539 | | |
| 8,621 | | |
| 10,241 | | |
| 4,422 | | |
| 509 | | |
| 536,162 | |
Discounted
Net After-Tax Cash Flow at 12% | |
| 46,937 | | |
| 63,322 | | |
| 56,762 | | |
| 74,554 | | |
| 39,248 | | |
| 24,194 | | |
| 20,799 | | |
| 18,519 | | |
| 16,557 | | |
| 12,322 | | |
| 7,486 | | |
| 6,888 | | |
| 8,024 | | |
| 3,890 | | |
| 509 | | |
| 400,011 | |
JOHN T. BOYD COMPANY
12-5
Table 12.2, below, provides a summary of the estimated remaining life
of mine financial results for the Oaktown Mining Complex.
Table 12.2: Financial Results |
|
| |
| |
Financial Metric | |
Remaining Life of Mine Total | |
Expected Remaining Life (years) | |
15 | |
| |
| | |
Production (000 tons): | |
| | |
ROM Coal | |
| 101,816 | |
Clean Coal | |
| 71,404 | |
| |
| | |
Total Revenues ($ millions) | |
| 3,347.2 | |
Average Sales Price ($/clean ton) | |
| 46.88 | |
| |
| | |
Total Cash Operating Costs ($ millions) | |
| 2,158.2 | |
Average Cash Operating Costs ($/clean ton) | |
| 30.22 | |
| |
| | |
Capital Expenditures ($ millions) | |
| 272.1 | |
Average Capital Expenditure ($/clean ton) | |
| 3.81 | |
| |
| | |
Cash Flows ($ millions): | |
| | |
Total Pre-Tax Cash Flow | |
| 916.9 | |
Discounted Pre-Tax Cash Flow at 12% | |
| 536.2 | |
| |
| | |
Total After-Tax Cash Flow | |
| 691.4 | |
Discounted After-Tax Cash Flow at 12% | |
| 400.0 | |
DCF-NPV on a pre-tax and after-tax basis, using discount rates of 10%,
12% (the base case), 15%, and 18% were calculated utilizing the projected cash flows. Table 12.3 summarizes the results of the pre-tax
and after-tax DCF-NPV analyses:
Table 12.3: DCF-NPV Results | |
| |
| |
NPV ($ millions) | |
| |
10% | | |
12% | | |
15% | | |
18% | |
Pre-Tax | |
| 578.4 | | |
| 536.2 | | |
| 482.3 | | |
| 437.6 | |
| |
| | | |
| | | |
| | | |
| | |
After-Tax | |
| 432.2 | | |
| 400.0 | | |
| 359.2 | | |
| 325.3 | |
As shown, the pre-tax DCF-NPV ranges from approximately $437.6 million
to $578.4 million. The after-tax DCF-NPV ranges from approximately $325.3 million to $432.2 million.
The economic analysis confirms that the Oaktown Mining Complex generates
positive pre- and after-tax financial results and a real NPV12 of $400 million. As such, it is BOYD’s opinion that the
coal reserves of the Oaktown Mining Complex have demonstrated economic viability.
JOHN T. BOYD COMPANY
12-6
Table 12.4, below, shows the sensitivity of the project after-tax for
a cash flow discounted at 12% (NPV12) to a variation over a range of 20% above and below the base case in: (1) average
selling prices and (2) operating costs.
Table 12.4: After-Tax NPV12 Sensitivity Analysis ($ millions) |
|
| |
| |
| |
| |
| |
Sales Price | |
| |
| |
-20% | | |
-10% | | |
-5% | | |
0% | | |
5% | | |
10% | | |
20% | |
| |
-20% | |
| 310.6 | | |
| 439.6 | | |
| 504.1 | | |
| 568.5 | | |
| 633.0 | | |
| 697.4 | | |
| 826.1 | |
| |
-10% | |
| 227.7 | | |
| 356.1 | | |
| 420.2 | | |
| 484.3 | | |
| 548.4 | | |
| 612.5 | | |
| 740.5 | |
| |
-5% | |
| 186.1 | | |
| 314.4 | | |
| 378.3 | | |
| 442.1 | | |
| 506.0 | | |
| 569.9 | | |
| 697.6 | |
Operating Costs | |
0% | |
| 143.6 | | |
| 272.6 | | |
| 336.4 | | |
| 400.0 | | |
| 463.7 | | |
| 527.4 | | |
| 654.7 | |
| |
5% | |
| 100.5 | | |
| 230.6 | | |
| 294.4 | | |
| 357.9 | | |
| 421.4 | | |
| 484.8 | | |
| 611.8 | |
| |
10% | |
| 55.2 | | |
| 188.2 | | |
| 252.2 | | |
| 315.7 | | |
| 379.0 | | |
| 442.3 | | |
| 568.8 | |
| |
20% | |
| (42.1 | ) | |
| 101.4 | | |
| 166.7 | | |
| 230.9 | | |
| 294.2 | | |
| 357.2 | | |
| 482.9 | |
As expected, the project is most sensitive to changes in product pricing
and operating costs. The project is less sensitive to changes in capital costs. There are only very minor impacts to the NPV12
when varying the capital costs from 80% to 120% of the base case.
This analysis demonstrates the project value to be relatively robust,
with positive NPVs reported across the range of values assessed. Additionally, BOYD recognizes that Sunrise is likely to modify operation
plans and/or production levels to minimize the impact (or conversely, maximize the opportunity) of short-term coal price fluctuations.
BOYD opines that such minor adjustments are likely to be immaterial to the economic viability of the Oaktown Mining Complex’s coal
reserves.
JOHN T. BOYD COMPANY
13-1
13.0 PERMITTING
AND COMPLIANCE
| 13.1 | Permitting Requirements and Status |
Mining and related activities on the Oaktown Mining Complex properties
is regulated by both federal and state laws. The relevant federal laws include:
| · | Clean Air Act of 1970/1977. |
| · | Clean Air Act Amendments of 1990. |
| · | Clean Water Act of 1977. |
| · | Surface Mining Control and Reclamation Act of 1977 (SMCRA). |
| · | Resource Conservation and Recovery Act of 1976. |
In Indiana and Illinois, responsibility for enforcing these acts primarily
lies with the IL-EPA and IN-DNR and their various subdivisions.
Numerous permits are required by federal and state law for underground
mining, coal preparation and related facilities, and other incidental activities. BOYD reviewed the permits for the Oaktown Mining Complex
that are necessary for continued operations. Such required permits appear to be valid and in good standing. The approved permits and certifications
are adequate for the continued operation of the facility. A listing of the current permits for the Oaktown Mining Complex is provided
in Table 13.1, on the following page.
Permits generally require that the permittee post a performance
bond in an amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during
mining operation is properly mitigated, and (2) assure that all regulations requirements of the permit are fully satisfied. Sunrise
reports holding surety bonds to cover its current obligations relating to mining and reclamation, road repair, etc. Those
obligations currently equate $5.8 million.
JOHN T. BOYD COMPANY
13-2
Table 13.1: Summary of Current Permits |
|
| |
| |
| |
Expiration |
Permit / Registration / Authorization | |
Permit / ID No. | |
Agency* | |
Date |
MSHA ID | |
| |
| |
|
Oaktown Fuels Mine No. 1 | |
1202394 | |
MSHA | |
None |
Oaktown Fuels Mine No. 2 | |
1202418 | |
MSHA | |
None |
Oaktown Fuels Preparation Plant | |
1202462 | |
MSHA | |
None |
| |
| |
| |
|
Mine Operating (SMCRA) | |
U-031 | |
IN-DNR | |
12/12/2027 |
| |
452 | |
IL-DNR | |
3/16/2028 |
| |
| |
| |
|
Minor Source Operating Permit (MSOP) | |
M-083-42294-00051 | |
IDEM | |
3/10/2030 |
| |
| |
| |
|
National Pollutant Discharge Elimination System
(NPDES) | |
| |
| |
|
Individual Permit | |
IN0064629 | |
IDEM | |
8/31/2028 |
Coal Mine General Permit | |
ING040222 | |
IDEM | |
10/31/2023 |
Individual Permit | |
IL0080226 | |
IL-EPA | |
1/31/2026 |
| |
| |
| |
|
Wetlands Dredge and Fill | |
LRL-2008-623-RJB | |
USACOE | |
12/31/2029 |
Mining Under Navigable Waterway | |
LRL-2018-786-SEW | |
USACOE | |
12/31/2033 |
Section 401 Water Quality Certification | |
2008-569-42-JWR-A | |
IDEM | |
|
| |
| |
| |
|
Underground Mine Backfill / Coal Slurry Injection | |
IN-083-5X13-0001 to IN-083-5X13-0010 | |
USEPA | |
|
* Regulatory Agencies
MSHA: Mine Safety and Health
Administration
IN-DNR Indiana Department of Natural Resources
IL-DNR Illinois Department of Natural Resources
IDEM: Indiana Department of Environmental Management
USACOE United States Army Corps of Engineers
USEPA: United States Environmental Protection Agency
New permits and/or permit revisions/amendments may be necessary from
time to time to facilitate future operations. Given sufficient time and planning, Sunrise should be able to secure new permits, as required,
to maintain its planned operations within the context of the current regulations. Continuously increasing efforts are required to obtain
permits for R&P mining and related activities in Indiana and Illinois. The primary contributing factors are the effects on protected
surface areas and the ability to permit refuse sites.
JOHN T. BOYD COMPANY
13-3
| 13.2 | Environmental Studies |
It is BOYD’s understanding that no standalone environmental studies
have been conducted for the Oaktown Mining Complex. As part of the state and federal permitting process, various environmental assessments
have been conducted and reviewed by the relevant local, state, and federal agencies. As the necessary permits for mining and processing
operations have been issued, it is BOYD’s understanding that all environmental assessments have been accepted by the relevant regulatory
bodies and no material issues were found.
| 13.3 | Waste Disposal and
Water Management |
The coarse refuse generated from the coal preparation process is used
in the construction of the existing permitted, on-site slurry impoundment. The fine refuse generated from the coal preparation process
is disposed of by pumping it into the slurry impoundment or by injecting it into former underground mining areas. Waste disposal facilities
are in place for current mining operations, with plans to expand the disposal facilities to meet life of reserve storage requirements.
Please refer to Section 9.2 for a detailed description of these facilities.
The underground mines are below drainage with shaft/slope access. Such
mines are designed and permitted to avoid water break out and acid mine discharge. The potential for discharge of acid mine drainage at
underground mines is limited to minor run off from disposal and other surface sites.
Water control structures are in place and function as required by regulatory
agencies. All runoff from the slurry impoundment(s) is managed by sediment control structures including diversions, sumps, and sediment
basins. Prior to discharge from the permitted areas, water must meet compliance standards as defined in the NPDES permits. Water samples
at discharge locations are collected in accordance with the approved permit and analyzed by an independent laboratory.
Based on our review of information provided by Sunrise and other public
information sources, it is BOYD’s opinion that Sunrise has a generally typical coal industry record of compliance with applicable
mining, water quality, and environmental regulations. BOYD is not aware of any regulatory violation or compliance issue that would materially
impact the coal reserve estimate.
JOHN T. BOYD COMPANY
13-4
| 13.5 | Plans, Negotiations,
or Agreements |
New permits and certain permit amendments/revisions require public
notification. The public is made aware of pending permits by advertisement in local newspapers. Additionally, a copy of the application
is retained at the local county’s public library for review. A comment period follows the last advertisement date to allow the public
to submit comments to the regulatory authority.
BOYD is not aware of any community or stakeholder concerns, impacts,
negotiations, or agreements that would materially impact the coal reserve estimate.
A detailed plan for reclamation activities upon completion of mining
required at the Oaktown Mining Complex has been prepared. Given the application of underground mining methods at the operation, the disturbed
acreage on the surface is relatively limited. The primary reclamation liabilities are associated with the refuse disposal sites.
Mine site reclamation costs are funded from Sunrise’s Asset Retirement
Obligations (ARO) account. Funding of the ARO account is included in the Oaktown Mining Complex’s operating costs discussed in Chapter
11 and included in the economic analysis presented in Chapter 12. ARO costs estimates are reviewed annually and currently estimated at
approximately $5.8 million for the Oaktown Mining Complex. In BOYD’s opinion, the estimated reclamation liability is adequate to
estimate mine closure and reclamation costs at the property.
| 13.7 | Local Procurement and Hiring |
BOYD is not aware of any commitments for local procurement or hiring.
However, Sunrise reports making efforts to source supplies and materials from regional vendors. The workforce is likewise located in the
regional area.
JOHN T. BOYD COMPANY
14-1
14.0 INTERPRETATION
AND CONCLUSIONS
BOYD’s independent technical assessment conducted in accordance
with S-K 1300 concludes:
| · | Sufficient data have been obtained through various exploration
and sampling programs and mining operations to support the geological interpretations of seam structure, thickness, and quality for the
portions of the Indiana V Seam situated within the bounds of the Oaktown Mining Complex area. The data are of sufficient quantity and
reliability to reasonably support the coal resource and coal reserve estimates in this technical report summary. |
| · | Estimates of coal reserves reported herein are reasonably and
appropriately supported by technical studies, which consider mining plans, revenue, and operating and capital cost estimates. |
| · | The 71.4 million tons of underground coal reserves identified
on the property are economically mineable under reasonable expectations of market prices for thermal coal products, estimated operation
costs, and capital expenditures. |
| · | There is no other relevant data or information material to the
Oaktown Mining Complex that is necessary to make this technical report summary not misleading. |
| 14.2 | Significant Risks and Uncertainties |
As a mining operation with a lengthy operating history, the purpose
of Sunrise’s periodic mine planning exercises is to collect and analyze sufficient data to reduce or eliminate risk in the technical
components of the project and to refine economic projections based on current data. There is a high degree of certainty for this project
under the current and foreseeable operating environment. A general assessment of risk is presented in the relevant sections of this report.
JOHN T. BOYD COMPANY
Exhibit 99.2
|
| John
T. Boyd Company
Mining and Geological Consultants | |
Chairman
James
W. Boyd
President
and CEO
John
T. Boyd II
Managing
Director and COO
Ronald
L. Lewis
Vice
Presidents
Robert
J. Farmer
John
L. Weiss
Michael
F. Wick
William
P. Wolf
Managing
Director - Australia
Jacques
G. Steenekamp
Managing
Director - China
Jisheng (Jason) Han
Managing
Director- South America
Carlos
F. Barrera
Managing
Director - Metals
Gregory
B. Sparks
Pittsburgh
4000
Town Center Boulevard, Suite 300
Canonsburg, PA 15317
(724) 873-4400
(724) 873-4401 Fax
jtboydp @jtboyd.com
Denver
(303)
293-8988
jtboydd@jtboyd.com
Brisbane
61
7 3232-5000
jtboydau@jtboyd.com
Beijing
86 10 6500-5854
jtboydcn@jtboyd.com
Bogota
+57-3115382113
jtboydcol@jtboyd.com
www.jtboyd.com |
February 10, 2023
File:
3467.006
Sunrise Coal, LLC.
1183 E. Canvasback Drive
Terre Haute, IN
47802
Attention:
Mr. Todd Davis
Chief Accounting Officer
Mr. Scott
McGuire
Corporate Engineering
Subject: Estimation
of Sunrise Coal, LLC
2022 Year-End Reserves
Oaktown Mining Complex
Indiana and Illinois
Ladies and Gentleman:
This letter
provides John T. Boyd Company's
(BOYD) update of estimated coal reserves remaining as of December 31, 2022, at the Oaktown Mining Complex.
BOYD is familiar with the Sunrise Coal, LLC (Sunrise) reserve holdings, having completed a Technical
Report Summary (TRS) for the property, as of December 31,
2021. The reader is referred
to the March 2022 TRS (BOYD Report No. 3467.002)
for definitions and general resource and reserve procedures used by BOYD, as well as additional information
pertaining to the subject property.
Sunrise believes, and BOYD concurs,
that there are no material adjustments to the coal resources and reserve of the Oaktown Mining Complex
necessitating the filing of an amended or revised TRS.
This resource/reserve
summary update was prepared for Sunrise in support of their disclosure of coal resources and
reserves for the Oaktown Mining Complex in accordance with |
Messrs. Davis
and McGuire
Sunrise Coal, LLC
| | February 10,
2023
Page 2
|
Subpart 1300 of the SEC's Regulation
S-K (S-K 1300) and is intended to satisfy the requirements of §229.1304(e), Individual
Property Disclosure:
Compare the property's
mineral resources and mineral
reserves as of the end of the last fiscal year with the
mineral resources and mineral reserves as of the end of the preceding
fiscal year and explain any material change between the two.
Unless
otherwise stated, coal resource and coal reserve estimates disclosed herein are completed in accordance with the standards and definitions
provided by S-K 1300. It should be noted that BOYD considers the terms "mineral" and
"coal" to be generally interchangeable
within the relevant sections
of S-K 1300.
Reserve Opinion
It is
our professional opinion that as of December 31, 2022, Sunrise
controlled 66.4 million tons of Proven and Probable Reserves at the Oaktown Mining Complex, located in
Knox and Sullivan counties, Indiana, and
Crawford and Lawrence counties, Illinois.
Year-Over-Year
(YOY) Changes to Estimated Resources and Reserves Summarized in the table below, the estimated total reportable coal reserves for
the Oaktown Mining Complex as of December 31, 2021, were 71.4 million tons (per the TRS).
Oaktown
Mining Complex - Summary of Coal Reserves as of December 31, 2021 | |
| |
| |
| | |
| |
| |
| |
| | | |
| Average
Product Quality (As Received
Basis)
| |
| |
| |
| | | |
| % | | |
| | | |
| Heating | |
Mine | |
Classification | |
| Product
Tons (millions) | | |
| Total
Moisture | | |
| Sulfur | | |
| Ash | | |
| SO2
(lbs/MMBtu) | | |
| Value
(Btu/lb) | |
Oaktown No. 1 | |
Proven | |
| 40.1 | | |
| 13.0 | | |
| 3.5 | | |
| 7.4 | | |
| 6.0 | | |
| 11,519 | |
| |
Probable | |
| 0.4 | | |
| 13.0 | | |
| 3.6 | | |
| 7.4 | | |
| 6.2 | | |
| 11,525 | |
| |
Total | |
| 40.5 | | |
| 13.0 | | |
| 3.5 | | |
| 7.4 | | |
| 6.0 | | |
| 11,519 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Oaktown No. 2 | |
Proven | |
| 29.7 | | |
| 13.0 | | |
| 3.3 | | |
| 7.9 | | |
| 5.7 | | |
| 11,540 | |
| |
Probable | |
| 1.1 | | |
| 13.0 | | |
| 3.2 | | |
| 8.0 | | |
| 5.6 | | |
| 11,520 | |
| |
Total | |
| 30.9 | | |
| 13.0 | | |
| 3.3 | | |
| 7.9 | | |
| 5.6 | | |
| 11,540 | |
| |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total - All Mines | |
Proven | |
| 69.8 | | |
| 13.0 | | |
| 3.4 | | |
| 7.6 | | |
| 5.9 | | |
| 11,528 | |
| |
Probable | |
| 1.6 | | |
| 13.0 | | |
| 3.3 | | |
| 7.8 | | |
| 5.8 | | |
| 11,522 | |
| |
Total | |
| 71.4 | | |
| 13.0 | | |
| 3.4 | | |
| 7.6 | | |
| 5.9 | | |
| 11,528 | |
JOHN T. BOYD COMPANY
Messrs. Davis
and McGuire
Sunrise Coal, LLC
| | February 10,
2023
Page 3
|
The estimated total reportable
coal reserves for the Oaktown Mining Complex as of December 31, 2022,
were 66.4 million tons, as summarized in the table below.
Oaktown
Mining Complex - Summary of Coal Reserves as of December 31, 2022 | |
| |
| |
| | |
| |
| |
| |
| | | |
| Average
Product Quality (As Received
Basis)
| |
| |
| |
| | | |
| % | | |
| | | |
| Heating | |
Mine | |
Classification | |
| Product
Tons (millions) | | |
| Total
Moisture | | |
| Sulfur | | |
| Ash | | |
| SO2
(lbs/MMBtu) | | |
| Value
(Btu/lb) | |
Oaktown No. 1 | |
Proven | |
| 36.2 | | |
| 13.0 | | |
| 3.5 | | |
| 7.4 | | |
| 6.1 | | |
| 11,522 | |
| |
Probable | |
| 0.5 | | |
| 13.0 | | |
| 3.4 | | |
| 7.5 | | |
| 5.9 | | |
| 11,521 | |
| |
Total | |
| 36.7 | | |
| 13.0 | | |
| 3.5 | | |
| 7.4 | | |
| 6.1 | | |
| 11,522 | |
Oaktown No. 2 | |
Proven | |
| 28.5 | | |
| 13.0 | | |
| 3.3 | | |
| 7.9 | | |
| 5.7 | | |
| 11,535 | |
| |
Probable | |
| 1.1 | | |
| 13.0 | | |
| 3.2 | | |
| 8.0 | | |
| 5.6 | | |
| 11,520 | |
| |
Total | |
| 29.7 | | |
| 13.0 | | |
| 3.3 | | |
| 7.9 | | |
| 5.7 | | |
| 11,534 | |
Total - All Mines | |
Proven | |
| 64.7 | | |
| 13.0 | | |
| 3.4 | | |
| 7.6 | | |
| 5.9 | | |
| 11,528 | |
| |
Probable | |
| 1.7 | | |
| 13.0 | | |
| 3.3 | | |
| 7.8 | | |
| 5.7 | | |
| 11,520 | |
| |
Total | |
| 66.4 | | |
| 13.0 | | |
| 3.4 | | |
| 7.6 | | |
| 5.9 | | |
| 11,527 | |
As shown, coal reserves of
the Oaktown Mining Complex decreased by approximately 5 million product tons, or 7%, in 2022.
As summarized in the table below, the YOY change is the
result of: (1) ordinary
mining production (depletion), and (2) mining lease acquisitions.
Oaktown Mining Complex - Year-Over-Year Changes in Coal Reserves |
|
|
| |
| Proven
| | |
| Probable | | |
| Total | |
Oaktown No. 1 | |
| | | |
| | | |
| | |
Lease Acquisitions | |
| - | | |
| 0.1 | | |
| 0.1 | |
Mining Production | |
| (3.9 | ) | |
| - | | |
| (3.9 | ) |
Subtotal | |
| (3.9 | ) | |
| 0.1 | | |
| (3.8 | ) |
Oaktown No. 2 | |
| | | |
| | | |
| | |
Lease Acquisitions | |
| 1.3 | | |
| - | | |
| 1.3 | |
Mining Production | |
| (2.5 | ) | |
| - | | |
| (2.5 | ) |
Subtotal | |
| (1.2 | ) | |
| - | | |
| (1.2 | ) |
Total - All Mines | |
| | | |
| | | |
| | |
Lease Acquisitions | |
| 1.3 | | |
| 0.1 | | |
| 1.4 | |
Mining Production | |
| (6.4 | ) | |
| - | | |
| (6.4 | ) |
Grand Total | |
| (5.1 | ) | |
| 0.1 | | |
| (5.0 | ) |
There are no reportable coal
resources excluding those converted to coal reserves for the Oaktown
Mining Complex, as of December 31, 2022.
JOHN T. BOYD COMPANY
Messrs. Davis
and McGuire
Sunrise Coal, LLC
| | February 10,
2023
Page 4
|
Report Qualifying Statements
Based on the work efforts conducted
during our mineral resource/mineral reserve update, it is BOYD's
opinion that the above reserve statement provides an estimate of the available controlled coal reserves that can reasonably be expected
to be technically, legally, and economically extractable at the
time of determination. The
statements are therefore considered suitable and appropriate for public reporting.
Our update was performed to
obtain reasonable assurance regarding Sunrise's latest reserve statements. We
have relied on information provided by Sunrise regarding the property, as well as the 2022 TRS for the Oaktown Mining Complex.
BOYD notes that nothing has come to our attention while preparing this resource/reserve estimate letter
that would indicate the information provided to us is false or misleading, or that any material information has been withheld.
Our methodology and practices applied in formulating this estimate are consistent with generally accepted
mining geology and engineering practices. We believe our audit
provides a reasonable basis for our opinion.
The individuals primarily responsible
for this resource/reserve update letter are by virtue of their education, experience, and
professional association considered Qualified Persons as defined in Subpart 1300 of Regulation S-K.
Estimates of any mineral resources
and reserves are always subject to a degree of uncertainty. The
level of confidence that can be applied to a particular estimate is a function of, among
other things: the amount, quality,
and completeness of exploration data; the
geological complexity of the deposit; and economic, legal, social,
and environmental factors associated with mining the resource/reserve. By
assignment, BOYD used the definitions provided in S-K 1300 to
describe the degree of uncertainty associated with the estimates reported herein.
Respectfully submitted,
JOHN T. BOYD COMPANY | | |
| | |
By: |
/s/ John T. Boyd II | | |
John T. Boyd II | | |
President and CEO | | |
JOHN T. BOYD COMPANY
v3.23.3
Cover - USD ($)
|
12 Months Ended |
|
|
Dec. 31, 2022 |
Mar. 16, 2023 |
Jun. 30, 2022 |
Cover [Abstract] |
|
|
|
Document Type |
10-K/A
|
|
|
Amendment Flag |
false
|
|
|
Document Annual Report |
true
|
|
|
Document Transition Report |
false
|
|
|
Document Period End Date |
Dec. 31, 2022
|
|
|
Document Fiscal Period Focus |
FY
|
|
|
Document Fiscal Year Focus |
2022
|
|
|
Current Fiscal Year End Date |
--12-31
|
|
|
Entity File Number |
001-3473
|
|
|
Entity Registrant Name |
HALLADOR ENERGY COMPANY
|
|
|
Entity Central Index Key |
0000788965
|
|
|
Entity Tax Identification Number |
84-1014610
|
|
|
Entity Incorporation, State or Country Code |
CO
|
|
|
Entity Address, Address Line One |
1183 East
Canvasback Drive
|
|
|
Entity Address, City or Town |
Terre Haute
|
|
|
Entity Address, State or Province |
IN
|
|
|
Entity Address, Postal Zip Code |
47802
|
|
|
City Area Code |
812
|
|
|
Local Phone Number |
299.2800
|
|
|
Title of 12(b) Security |
Common Stock, $0.01 par value per share
|
|
|
Trading Symbol |
HNRG
|
|
|
Security Exchange Name |
NASDAQ
|
|
|
Entity Well-known Seasoned Issuer |
No
|
|
|
Entity Voluntary Filers |
No
|
|
|
Entity Current Reporting Status |
Yes
|
|
|
Entity Interactive Data Current |
Yes
|
|
|
Entity Filer Category |
Accelerated Filer
|
|
|
Entity Small Business |
true
|
|
|
Entity Emerging Growth Company |
false
|
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