HALLADOR ENERGY CO 10-Q

hnrg20210930_10q.htm     Table of Contents UNITED STATES   SECURITIES AND EXCHANGE COMMISSION   Washington, D.C. 20549      FORM  10-Q   ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934       For the quarterly period ended  September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    Commission file number: 001-34743   “COAL KEEPS YOUR LIGHTS ON” “COAL KEEPS YOUR LIGHTS ON” HALLADOR ENERGY COMPANY ( www.halladorenergy.com )        Colorado (State of incorporation)   84-1014610 (IRS Employer Identification No.)       1183 East Canvasback Drive , Terre Haute , Indiana (Address of principal executive offices)   47802 (Zip Code)    Registrant’s telephone number, including area code: 812 . 299.2800    Securities registered pursuant to Section 12(b) of the Act:   Title of each class   Trading Symbol   Name of each exchange on which registered Common Shares, $.01 par value   HNRG   Nasdaq    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 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  ☑ No  ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations 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  ☑ No  ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐   Accelerated filer ☐ Non-accelerated filer  ☑   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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☑   As of November 8, 2021, we had 30,612,572 shares of common stock outstanding. 1 Table of Contents     TABLE OF CONTENTS           PART I - FINANCIAL INFORMATION       ITEM 1. FINANCIAL STATEMENTS (Unaudited) 3     Condensed Consolidated Balance Sheets 3     Condensed Consolidated Statements of Operations 4     Condensed Consolidated Statements of Cash Flows 5     Condensed Consolidated Statements of Stockholders’ Equity 6     Notes to Condensed Consolidated Financial Statements 7     Report of Independent Registered Public Accounting Firm 15     ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16     ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22     ITEM 4. CONTROLS AND PROCEDURES 22     PART II - OTHER INFORMATION 22     ITEM 4. MINE SAFETY DISCLOSURES 22     ITEM 6. EXHIBITS 23     SIGNATURES 25        2 Table of Contents        PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS    Hallador Energy Company  Condensed Consolidated Balance Sheets  (in thousands, except per share data)  (unaudited)         September 30,     December 31,       2021     2020   ASSETS                 Current assets:                 Cash and cash equivalents   $ 4,546     $ 8,041   Restricted cash     3,249       4,030   Accounts receivable     16,455       14,414   Inventory     11,322       24,663   Parts and supplies     9,821       8,903   Prepaid expenses     3,687       3,282   Total current assets     49,080       63,333   Property, plant and equipment, at cost:                 Land and mineral rights     115,859       115,853   Buildings and equipment     361,570       352,115   Mine development     105,855       93,635   Total property, plant and equipment, at cost     583,284       561,603   Less - accumulated depreciation, depletion and amortization     ( 281,041 )     ( 252,245 ) Total property, plant and equipment, net     302,243       309,358   Investment in Sunrise Energy     3,334       3,181   Other assets     8,428       8,258   Total Assets   $ 363,085     $ 384,130   LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS, AND STOCKHOLDERS' EQUITY                 Current liabilities:                 Current portion of bank debt, net   $ 26,773     $ 34,311   Current portion of PPP note     —       5,490   Accounts payable and accrued liabilities     39,253       31,409   Total current liabilities     66,026       71,210   Long-term liabilities:                 Bank debt, net     83,523       97,307   PPP note     —       4,510   Deferred income taxes     133       2,824   Asset retirement obligations     17,212       16,177   Other     2,109       2,842   Total long-term liabilities     102,977       123,660   Total liabilities     169,003       194,870   Redeemable noncontrolling interests     4,000       4,000   Stockholders' equity:                 Preferred stock, $ .10 par value, 10,000 shares authorized; none issued and outstanding     —       —   Common stock, $ .01 par value, 100,000 shares authorized; 30,613 and 30,610 issued and outstanding, respectively     306       306   Additional paid-in capital     104,231       103,399   Retained earnings     85,545       81,555   Total stockholders’ equity     190,082       185,260   Total liabilities, redeemable noncontrolling interests, and stockholders’ equity   $ 363,085     $ 384,130        See accompanying notes. 3 Table of Contents   Hallador Energy Company   Condensed Consolidated Statements of Operations (in thousands, except per share data)  (unaudited)         Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020   SALES AND OPERATING REVENUES:                                 Coal sales   $ 79,036     $ 64,754     $ 179,515     $ 177,159   Other revenues     786       493       2,640       1,421   Total revenue     79,822       65,247       182,155       178,580   EXPENSES:                                 Operating expenses     67,792       46,570       144,257       131,204   Depreciation, depletion and amortization     9,842       9,315       29,864       30,159   Asset impairment     —       1,799       —       1,799   Asset retirement obligations accretion     380       348       1,116       1,024   Exploration costs     96       174       313       635   General and administrative     3,067       3,131       9,271       8,787   Total operating expenses     81,177       61,337       184,821       173,608                                     INCOME (LOSS) FROM OPERATIONS     ( 1,355 )     3,910       ( 2,666 )     4,972                                     Interest expense (1)     ( 2,108 )     ( 2,329 )     ( 6,188 )     ( 10,877 ) Gain on extinguishment of debt     10,000       —       10,000       —   Equity method investment income (loss)     90       ( 119 )     153       1,167   INCOME (LOSS) BEFORE INCOME TAXES     6,627       1,462       1,299       ( 4,738 )                                   INCOME TAX BENEFIT:                                 Current     —       ( 74 )     —       ( 598 ) Deferred     ( 1,359 )     ( 387 )     ( 2,691 )     ( 2,657 ) Total income tax benefit     ( 1,359 )     ( 461 )     ( 2,691 )     ( 3,255 )                                   NET INCOME (LOSS)   $ 7,986     $ 1,923     $ 3,990     $ ( 1,483 )                                   NET INCOME (LOSS) PER SHARE:                                 Basic and diluted   $ 0.26     $ 0.06     $ 0.13     $ ( 0.05 )                                   WEIGHTED AVERAGE SHARES OUTSTANDING                                 Basic and diluted     30,613       30,465       30,612       30,436                                                                       (1) Interest Expense:                                 Bank interest     2,167       2,714       6,610       8,210   Non-cash interest:                                 Change in interest rate swap valuation     ( 716 )     ( 995 )     ( 2,330 )     981   Amortization of debt issuance costs     657       610       1,908       1,686   Total non-cash interest     ( 59 )     ( 385 )     ( 422 )     2,667   Total interest   $ 2,108     $ 2,329     $ 6,188     $ 10,877       See accompanying notes. 4 Table of Contents Hallador Energy Company   Condensed Consolidated Statements of Cash Flows  (in thousands)   (unaudited)     Nine Months Ended September 30,     2021   2020   OPERATING ACTIVITIES:             Net income (loss) $ 3,990   $ ( 1,483 ) Deferred income taxes   ( 2,691 )   ( 2,657 ) Equity income – Sunrise Energy   ( 153 )   ( 1,167 ) Cash distribution - Sunrise Energy   —     1,125   Depreciation, depletion, and amortization   29,864     30,159   Asset impairment   —     1,799   Gain on extinguishment of debt   ( 10,000 )   —   Loss on sale of assets   —     38   Unrealized gain on marketable securities   —     ( 14 ) Change in fair value of interest rate swaps   ( 2,330 )   981   Change in fair value of fuel hedge   ( 379 )   775   Amortization of debt issuance costs   1,908     1,686   Asset retirement obligations accretion   1,116     1,024   Stock-based compensation   834     927   Change in current assets and liabilities:             Accounts receivable   ( 2,041 )   9,742   Inventory   13,341     ( 9,247 ) Parts and supplies   ( 918 )   2,603   Prepaid income taxes   —     1,562   Prepaid expenses   ( 4,631 )   1,744   Accounts payable and accrued liabilities   8,960     ( 5,488 ) Other   161     —   Cash provided by operating activities   37,031     34,109   INVESTING ACTIVITIES:             Investment in Sunrise Energy   —     ( 113 ) Capital expenditures   ( 18,075 )   ( 13,991 ) Proceeds from sale of equipment   —     56   Proceeds from sale of marketable securities   —     2,310   Proceeds from maturities of certificates of deposit   —     245   Cash used in investing activities   ( 18,075 )   ( 11,493 ) FINANCING ACTIVITIES:             Payments on bank debt   ( 37,062 )   ( 40,475 ) Borrowings of bank debt   14,250     7,250   Proceeds from PPP loan   —     10,000   Debt issuance costs   ( 418 )   ( 1,903 ) Taxes paid on vesting of RSUs   ( 2 )   ( 18 ) Dividends paid   —     ( 1,236 ) Cash used in financing activities   ( 23,232 )   ( 26,382 ) Decrease in cash, cash equivalents, and restricted cash   ( 4,276 )   ( 3,766 ) Cash, cash equivalents, and restricted cash, beginning of period   12,071     13,311   Cash, cash equivalents, and restricted cash, end of period $ 7,795   $ 9,545   CASH, CASH EQUIVALENTS, AND RESTRICTED CASH CONSIST OF THE FOLLOWING:             Cash and cash equivalents $ 4,546   $ 5,302   Restricted cash   3,249     4,243     $ 7,795   $ 9,545                 SUPPLEMENTAL CASH FLOW INFORMATION:             Cash paid for interest $ 6,728   $ 8,246   SUPPLEMENTAL NON-CASH FLOW INFORMATION:             Change in capital expenditures included in accounts payable and prepaid expense $ 5,782   $ 968   See accompanying notes. 5 Table of Contents     Hallador Energy Company   Condensed Consolidated Statements of Stockholders’ Equity (in thousands)   (unaudited)                       Additional             Total       Common Stock Issued     Paid-in     Retained     Stockholders'       Shares     Amount     Capital     Earnings     Equity   Balance, June 30, 2021     30,613     $ 306     $ 103,964     $ 77,559     $ 181,829   Stock-based compensation     —       —       267       —       267   Net income     —       —       —       7,986       7,986   Balance, September 30, 2021     30,613     $ 306     $ 104,231     $ 85,545     $ 190,082       Balance, December 31, 2020     30,610     $ 306     $ 103,399     $ 81,555     $ 185,260   Stock-based compensation     —       —       834       —       834   Stock issued on vesting of RSUs     4       —       —       —       —   Taxes paid on vesting of RSUs     ( 1 )     —       ( 2 )     —       ( 2 ) Net income     —       —       —       3,990       3,990   Balance, September 30, 2021     30,613     $ 306     $ 104,231     $ 85,545     $ 190,082                          Additional             Total       Common Stock Issued     Paid-in     Retained     Stockholders'       Shares     Amount     Capital     Earnings     Equity   Balance, June 30, 2020     30,465     $ 305     $ 102,833     $ 84,369     $ 187,507   Stock-based compensation     —       —       291       —       291   Stock issued on vesting of RSUs     2       —       —       —       —   Taxes paid on vesting of RSUs     ( 1 )     —       ( 1 )     —       ( 1 ) Net income     —       —       —       1,923       1,923   Balance, September 30, 2020     30,466     $ 305     $ 103,123     $ 86,292     $ 189,720       Balance, December 31, 2019     30,420     $ 304     $ 102,215     $ 89,011     $ 191,530   Stock-based compensation     —       —       927       —       927   Stock issued on vesting of RSUs     72       1       ( 1 )     —       —   Taxes paid on vesting of RSUs     ( 26 )     —       ( 18 )     —       ( 18 ) Dividends     —       —       —       ( 1,236 )     ( 1,236 ) Net loss     —       —       —       ( 1,483 )     ( 1,483 ) Balance, September 30, 2020     30,466     $ 305     $ 103,123     $ 86,292     $ 189,720     See accompanying notes.  6 Table of Contents     Hallador Energy Company Notes to Condensed Consolidated Financial Statements (unaudited)       ( 1 ) GENERAL BUSINESS   The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the Securities and Exchange Commission's ( the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted.   The results of operations and cash flows for the three and nine months ended September 30, 2021 , are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2021 .  To maintain consistency and comparability, certain 2020 amounts have been reclassified to conform to the 2021 presentation, with no impact to cash provided by operating activities or net income (loss).   Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our  2020  Annual Report on Form  10 -K . This quarterly report should be read in conjunction with such Annual Report on Form 10 -K.   The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly-owned subsidiaries Sunrise Coal, LLC (Sunrise) and Hourglass Sands, LLC (Hourglass), and Sunrise’s wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Sunrise is engaged in the production of steam coal from mines located in western Indiana.   We announced in June 2021 an agreement to join with Hoosier Energy Rural Electric Cooperative, Inc. to begin developing renewable power in 2023.   Subsequent Events   We have evaluated all subsequent events through the date the financial statements were issued.  There are no material recognized or non-recognizable subsequent events.     ( 2 ) LONG-LIVED ASSET IMPAIRMENTS   Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable.  For the three and nine -month periods ended September 30, 2021 , there were no impairment charges recorded for long-lived assets.   Hourglass Sands   We recorded an impairment of $ 2.9 million as of December 31, 2019, due to softness in the pricing of the frac sand market.  The impairment included inventory, land, mine development, buildings and equipment and was determined using a market approach.  The remaining fair market value of inventory, equipment, and buildings at Hourglass Sands was $ 1.9 million as of December 31, 2019.  Due to the continued regression of the frac sand market, in August 2020 we ceased operations of the plant and recorded an impairment of $ 1.8 million for the quarter ended September 30, 2020, which included the remaining inventory and buildings and which was determined using a market approach.     ( 3 ) INVENTORY   Inventory is valued at lower of average cost or net realizable value (NRV).  As of September 30, 2021 , and December 31, 2020 , coal inventory includes NRV adjustments of $ 2.7 million and $ 1.6  million, respectively, a majority of which resulted from utilizing low sulfur coal from our Ace in the Hole mine which was necessary to blend with Oaktown coal to ship to and create additional opportunities in the southeast market.   7 Table of Contents     ( 4 ) OTHER LONG-TERM ASSETS (in thousands)       September 30,     December 31,       2021     2020   Advanced coal royalties   $ 6,705     $ 6,449   Other     1,723       1,809   Total other assets   $ 8,428     $ 8,258       ( 5 ) BANK DEBT   Bank debt is comprised of term debt ($ 40.4  million as of September 30, 2021 ) and a $ 120  million revolver ($ 74.5  million borrowed as of September 30, 2021 ).  The term debt amortization concludes with the final payment in March 2023.   The revolver matures in September 2023.   Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets.   Liquidity   As of September 30, 2021 , we had additional borrowing capacity of $ 37.1  million and total liquidity of $ 41.7  million.  Our additional borrowing capacity is net of $ 5.7 million in outstanding letters of credit as of September 30, 2021 , that were required to maintain surety bonds.  Liquidity consists of our additional borrowing capacity and cash and cash equivalents.   Fees   Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $ 7.9  million as of our amendment in April 2020.  Additional fees of $ 0.4 million were incurred in May 2021 for a technical amendment related to our entry into the renewable power market.  These costs were deferred and are being amortized over the term of the loan. Unamortized costs as of September 30, 2021 , and December 31, 2020 , were $ 4.6  million and $ 6.1  million, respectively.   Bank debt, less debt issuance costs, is presented below (in thousands):       September 30,     December 31,       2021     2020   Current bank debt   $ 29,400     $ 36,750   Less unamortized debt issuance cost     ( 2,627 )     ( 2,439 ) Net current portion   $ 26,773     $ 34,311                     Long-term bank debt   $ 85,525     $ 100,988   Less unamortized debt issuance cost     ( 2,002 )     ( 3,681 ) Net long-term portion   $ 83,523     $ 97,307                     Total bank debt   $ 114,925     $ 137,738   Less total unamortized debt issuance cost     ( 4,629 )     ( 6,120 ) Net bank debt   $ 110,296     $ 131,618     Covenants   The credit facility includes a Maximum Leverage Ratio (consolidated funded debt/trailing twelve  months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve  months, not to exceed the amounts below:   Fiscal Periods Ending   Ratio   September 30, 2021 and December 31, 2021   3.00 to 1.00   March 31, 2022 and each fiscal quarter thereafter   2.50 to 1.00     8 Table of Contents   As of September 30, 2021 , our Leverage Ratio of 2.29  was in compliance with the requirements of the credit agreement.   The credit facility also requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA / annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve  months of 1.05 to 1.00 through December 31, 2021, at which time it increases to 1.25 to 1.00 through the maturity of the credit facility.   As of September 30, 2021 , our Debt Service Coverage Ratio of 1.15  was in compliance with the requirements of the credit agreement.   Interest Rate   The interest rate on the facility ranges from LIBOR plus 2.75 % to LIBOR plus 4.00 %, depending on our Leverage Ratio, with a LIBOR floor of 0.50 %.  We entered into swap agreements to fix the LIBOR component of the interest rate at 2.92 % on the entire amount of the declining term loan balance and on $ 52.7  million of the revolver. At September 30, 2021 , we are paying LIBOR at the swap rate of 2.92 % plus 4.0 % for a total interest rate of 6.92 % on the hedged amount ($ 93.1  million) and 4.0 % on the remainder ($ 21.8  million).   Paycheck Protection Program   As previously reported in the Current Report on Form 8 -K filed with the Securities and Exchange Commission on April 16, 2020, we entered into a Paycheck Protection Program Promissory Note and Agreement on April 15, 2020, evidencing an unsecured $ 10 million loan (the “PPP Loan”) under the Paycheck Protection Program (or “PPP”) made through First Financial Bank, N.A., (the "Lender"). The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”).   Under the terms of the CARES Act, PPP loan recipients can apply for forgiveness. The SBA can grant forgiveness of all or a portion of loans made under the PPP if the recipients use the PPP loan proceeds for eligible purposes, including payroll costs, mortgage interest, rent or utility costs, and meet other requirements regarding, among other things, the maintenance of employment and compensation levels. The Company used the PPP Loan proceeds for qualifying expenses and applied for the forgiveness of the PPP Loan in accordance with the terms of the CARES Act.   On July 23, 2021, we received a notification from the Lender that the SBA approved our PPP Loan forgiveness application for the entire PPP Loan balance of $ 10 million, together with interest accrued thereon. The Lender notified us that the forgiveness payment was received on July 26, 2021.  The forgiveness of the PPP Loan is being recognized during the Company’s third  fiscal quarter ending September 30, 2021.   The SBA retains the right to review the Company's loan file for a period subsequent to the date the loan is forgiven, with the potential for the SBA to pursue legal remedies at its discretion.   At December 31, 2020, the PPP loan totaling $ 10 million is presented as current and long-term liabilities on the condensed consolidated balance sheets based upon the schedule of repayments and excluding any possible forgiveness of the loan.       ( 6 ) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (in thousands)       September 30,     December 31,       2021     2020   Accounts payable   $ 20,890     $ 14,785   Accrued property taxes     2,939       2,566   Accrued payroll     3,918       1,621   Workers' compensation reserve     3,137       2,988   Group health insurance     1,800       1,800   Fair value of interest rate swaps     1,563       2,793   Other     5,006       4,856   Total accounts payable and accrued liabilities   $ 39,253     $ 31,409      9 Table of Contents     ( 7 ) REVENUE   Revenue from Contracts with Customers   We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and collectability of consideration is probable. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer.  We utilize the normal purchase normal sales exception for all long-term sales contracts.   Our revenue is derived from sales to customers of coal produced at our facilities. Our customers typically purchase coal directly from our mine sites or our Princeton Loop, where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a pre-determined escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer.   Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content, and can result in either increases or decreases in the value of the coal shipped.   Disaggregation of Revenue   Revenue is disaggregated by primary geographic markets, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. 67 % and 72 % of our coal revenue for the three and nine months ended September 30, 2021 , respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, and North Carolina.  75 % of our coal revenue for the three and nine months ended September 30, 2020 , respectively, was sold to customers in the State of Indiana with the remainder sold to customers in Florida, Georgia, North Carolina, and Tennessee.   Performance Obligations   A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased for quality adjustments.   We recognize revenue at a point in time, as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal.   We have remaining performance obligations relating to fixed-priced contracts of approximately $ 573  million, which represent the average fixed prices on our committed contracts as of September 30, 2021 . We expect to recognize approximately 57 % of this revenue in 2021 and  2022, with the remainder recognized thereafter.    We have remaining performance obligations relating to contracts with price re-openers of approximately $ 122  million, which represents our estimate of the expected re-opener price on committed contracts as of September 30, 2021 . We expect to recognize all of this revenue between 2025  and 2027.     10 Table of Contents   The tons used to determine the remaining performance obligations 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.   Contract Balances   Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our condensed consolidated balance sheets. We do not currently have any contracts in place where we would transfer coal in advance of knowing the final price of the coal sold, and thus do not have any contract assets recorded. Contract liabilities arise when consideration is received in advance of performance. This deferred revenue is included in accounts payable and accrued liabilities in our condensed consolidated balance sheets when consideration is received, and revenue is not recognized until the performance obligation is satisfied. We are rarely paid in advance of performance and do not  currently have any deferred revenue recorded in our condensed consolidated balance sheets.   ( 8 ) INCOME TAXES   For the nine  months ended September 30, 2021, and 2020, with the exception of removing the forgiveness of the PPP note as a discrete item,  the Company recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. The effective tax rate for the three and nine months ended September 30, 2021 , and 2020 was ~ 31% and ~ 69% , respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.   ( 9 ) STOCK COMPENSATION PLANS   Non-vested grants at December 31, 2020     324,250   Vested – average weighted share price on vesting date was $ 1.63     ( 3,500 ) Forfeited     ( 12,500 ) Non-vested grants at September 30, 2021     308,250     For the three and nine months ended September 30, 2021 , our stock compensation was $ 0.3 million and $ 0.8  million, respectively.  For the three and nine months ended September 30, 2021 , our stock compensation was $ 0.3 million and $ 0.9  million, respectively.      Non-vested RSU grants will vest as follows:   Vesting Year   RSUs Vesting   2021     298,250   2022     —   2023     10,000         308,250   11 Table of Contents   The outstanding RSUs have a value of $ 0.9  million based on the September 30, 2021 , closing stock price of $ 2.96 .   At September 30, 2021 , we had 1,448,416  RSUs available for future issuance.     ( 10 ) LEASES   We have operating leases for office space and processing facilities (expired in 2020 ) with remaining lease terms ranging from approximately two  years to approximately three  years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using our secured incremental borrowing rate at the lease commencement date. We currently do not have any finance leases outstanding.   Information related to leases was as follows (in thousands):       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020   Operating lease information:                                 Operating cash outflows from operating leases   $ 51     $ 50     $ 148     $ 184   Weighted average remaining lease term in years     2.45       3.43       2.45       3.43   Weighted average discount rate     6.0 %     6.0 %     6.0 %     6.0 %   Future minimum lease payments under non-cancellable leases as of September 30, 2021 , were as follows:   Year   Amount       (In thousands)   2021   $ 51   2022     207   2023     174   2024     59   Total minimum lease payments   $ 491   Less imputed interest     ( 20 )           Total operating lease liability   $ 471             As reflected on balance sheet:         Other long-term liabilities   $ 471     At September 30, 2021 , and December 31, 2020 , we had approximately $ 471,000  and $ 602,000 , respectively, of right-of-use operating lease assets recorded within “buildings and equipment” on the condensed consolidated balance sheets.     ( 11 ) SELF-INSURANCE   We self-insure our underground mining equipment. Such equipment is allocated among seven mining units dispersed over ten miles. The historical cost of such equipment was approximately $ 278  million and $ 269  million as of September 30, 2021 , and December 31, 2020 , respectively.   Restricted cash of $ 3.2  million and $ 4.0  million as of September 30, 2021 , and December 31, 2020 , respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments.     12 Table of Contents     ( 12 ) NET INCOME (LOSS) PER SHARE   We compute net income (loss) per share using the two -class method, which is an allocation formula that determines net income (loss) per share for common stock and participating securities, which for us are our outstanding RSUs.   The following table (in thousands, except per share amounts) sets forth the computation of net income (loss) per share:       Three Months Ended September 30,     Nine Months Ended September 30,       2021     2020     2021     2020   Numerator:                                 Net income (loss)   $ 7,986     $ 1,923     $ 3,990     $ ( 1,483 ) Less loss (income) allocated to RSUs     ( 80 )     ( 28 )     ( 40 )     23   Net income (loss) allocated to common shareholders   $ 7,906     $ 1,895     $ 3,950     $ ( 1,460 )     ( 13 ) FAIR VALUE MEASUREMENTS   We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:   Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We have no Level 1 instruments.   Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments.   Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). Our Level 3 instruments are comprised of fuel hedges and interest rate swaps, and impairment measurements.  The fair values of our hedges and swaps were estimated using discounted cash flow calculations based upon forward fuel prices and interest-rate yield curves.  The notional values of our two interest rate swaps were $ 52.7  million and $ 40.4  million as of September 30, 2021 , both with maturities of May 2022.  Fuel hedges include 0.2  million gallons of diesel fuel that are subject to pricing fluctuations with a minimum of $1.79/gallon and a maximum of $2.00/gallon through December 2021.   Although we utilize third -party broker quotes to assess the reasonableness of our prices and valuation, we do not have sufficient corroborating market evidence to support classifying these assets and liabilities as Level 2.   The Company also recorded impairments during Q3 2020 which incorporate Level 3 non-recurring fair value measures as further discussed in Note 2.   The following table summarizes our financial assets and liabilities measured on a recurring basis at fair value at September 30, 2021 , and December 31, 2020 , by the respective level of the fair value hierarchy (in thousands):     Level 1     Level 2     Level 3     Total   December 31, 2020                                 Liabilities:                                 Fuel hedge   $ —     $ —     $ 297     $ 297   Interest rate swaps     —       —       3,893       3,893       $ —     $ —     $ 4,190     $ 4,190                                     September 30, 2021                                 Assets:                                 Fuel hedge   $ —     $ —     $ 82     $ 82                                     Liabilities:                                 Interest rate swaps   $ —     $ —     $ 1,563     $ 1,563      13 Table of Contents   The table below highlights the change in fair value of the fuel hedges and interest rate swaps which are based on a discounted future cash flow model (in thousands):   Ending balance, December 31, 2020   $ ( 4,190 ) Change in estimated fair value     2,709   Ending balance, September 30, 2021*   $ ( 1,481 ) *Recorded in accounts payable and accrued liabilities in the Condensed Consolidated Balance Sheets.     ( 14 ) EQUITY METHOD INVESTMENTS   We own a 50 % interest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy also plans to develop and explore for oil, gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our condensed consolidated balance sheets as of September 30, 2021 , and December 31, 2020 , was $ 3.3  million and $ 3.2  million, respectively.     ( 15 ) HOURGLASS SANDS   In  February  2018,  we invested $ 4 million in Hourglass Sands, LLC (Hourglass), a frac sand mining company in the State of Colorado. We own 100 % of the Class A units and are consolidating the activity of Hourglass in these statements. Class A units are entitled to 100 % of profit until our capital investment and interest is returned, then 90 % of profits are allocated to us with remainder to Class B units. We do  not  own any Class B units.   In  February  2018,  a Yorktown company associated with  one  of our directors also invested $ 4 million in Hourglass in return for a royalty interest in Hourglass. This investment, coupled with our $ 4 million investment, brings the initial capitalization of Hourglass to $ 8 million. We report the royalty interest as a redeemable noncontrolling interest in the consolidated balance sheets. A representative of the Yorktown company holds a seat on the board of managers, and, with a change of control, the Yorktown company  may  be entitled to receive a portion of the net proceeds realized, as prescribed in the Hourglass operating agreement.   In  December 2019,  we recorded an impairment to Hourglass Sands of $ 2.9 million.  In  August 2020,  we ceased operation of the plant and recorded an additional impairment of $ 1.8 million. See Note   2  to these consolidated financial statements for further discussion.        14 Table of Contents     REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM     To the Stockholders and the Board of Directors of Hallador Energy Company   Results of Review of Interim Financial Statements   We have reviewed the condensed consolidated balance sheet of Hallador Energy Company (the "Company") as of September 30, 2021, the related condensed consolidated statements of operations, cash flows, and stockholders’ equity for the three and nine-month periods ended September 30, 2021 and 2020, and the related notes (collectively referred to as the "interim financial statements"). Based on our reviews, we are not aware of any material modifications that should be made to the interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.   We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the consolidated balance sheet of the Company and subsidiaries as of December 31, 2020, and the related consolidated statements of operations, cash flows, and stockholders’ equity for the year then ended (not presented herein); and in our report dated March 8, 2021, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2020, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.   Basis for Review Results   These interim financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.   We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.   /s/ Plante & Moran, PLLC   Denver, Colorado   November 8, 2021   15 Table of Contents   ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   THE FOLLOWING DISCUSSION UPDATES THE MD&A SECTION OF OUR 2020 ANNUAL REPORT ON FORM 10-K AND SHOULD BE READ IN CONJUNCTION THEREWITH.   Our condensed consolidated financial statements should also 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.   COVID-19   In the first quarter of 2020, COVID-19 emerged as a global pandemic.  The State of Indiana, where our operations are located, issued a shelter in place order from March 24, 2020, to May 4, 2020. The State deemed our operations necessary and essential, and we were allowed to operate as a supplier to critical power infrastructure. We continue to monitor the ongoing pandemic and note that if conditions deteriorate in the future, it could result in further negative impact on our results of operations, financial position, and liquidity.   We have instituted many policies and procedures, in alignment with CDC guidelines along with state and local mandates, to protect our employees during the COVID-19 outbreak. We plan to keep these policies and procedures in place, in accordance with CDC, state, and local guidelines, and continually evaluate further enhancements for as long as necessary. We recognize that the COVID-19 outbreak and responses thereto will also impact both our customers and suppliers. As world economies have emerged from both the global pandemic and the power outages in Texas last winter, supplies have become more challenging to secure.  At times we have paid premiums for supplies to ensure no interruptions to our production.   As vaccines for COVID-19 continue to become readily available, we intend to continue encouraging our workforce to get vaccinated, and we are hopeful that the case rate of our employees will continue to decline, and economic activity in general will continue to accelerate.  We continue to offer cash incentives to employees who show proof of vaccination.   OVERVIEW   Below are highlights for the third quarter and first nine months of 2021:     I.   Q3 2021 Net Income of $8.0 million, Adjusted EBITDA (a non-GAAP financial measure) of $20.5 million     a.   Sales:  During Q3 2021, we shipped 2.04 million tons (8.2 million tons annualized versus 5.2 million annualized for the first half of 2021).  Due to contract mix, our average sales price was the lowest of the year at $38.71.     i.   As shipments dramatically increased, coal inventory decreased ~$21.0 million during the quarter.     a.   Coal inventory decreased by 602,000 tons.     b.   We expect coal inventory to decrease by an additional ~300,000 tons during Q4.     ii.   Looking forward to Q4, we expect to ship 1.6 million tons (6.4 million tons annualized) at  $41.40/ton (~$2.70 per ton higher average price than Q3).     a.   Looking at full-year 2021, we expect to ship 6.2 million tons, drawdown 600,000 tons of inventory and produce 5.7 million tons.  We are in the process of ramping up production as quickly as we can hire and train a workforce with a goal of reaching ~7 million tons of production in 2022.     b.   We are highly confident we can sell these additional tons as coal demand is very high.  We own the equipment we need to produce ~7 million tons, our main focus and limiting factor is hiring and training a workforce capable of meeting our ~7 million tons sales goal in 2022.  We added 96 employees in October and have a goal of adding another 114 employees in the next few months.  Between Q2 2021 and Q1 2022, we expect to increase our workforce by one-third.  These new employees will require training and will take some time before they become fully productive.   16       iii.   We expect our average sales price for 2022 to be higher than 2021.     b.   Production:  Q3 2021 production costs were $33.15 per ton, which represents a $2.95 per ton increase over Q2 2021 and $3.85 per ton increase over Q3 2020.  Reasons for the increase are as follows:     i.   The operating face at Oaktown 2 is now 10.5 miles away from the portal, requiring long underground travel times for our workforce.  We are finalizing construction of an employee and supply hoist expected to be operational in mid-November which will reduce labor expense.     ii.   We have also experienced supply chain disruption from our vendors causing us to pay premium prices for some of our inputs.  We expect these premiums to remain in 2021 and dissipate throughout 2022.     iii.   Ace in the Hole mine is reaching the end of its reserve life and will mine out in November 2021.  Ace is responsible for $0.50 of our elevated cost structure in Q3.  We expect to open a new pit for Ace in the Hole in 2022.     iv.   We expect our production costs to stay elevated in Q4 and return to normal sometime in 2022 as our hoist becomes operational, supply disruptions dissipate, and Ace in the Hole transitions from an old reserve to a new reserve.     c.   Cash Flow & Debt:  During Q3, we generated $24.1 million in operating cash flow and paid down our bank debt by $15.2 million.  We expect our operating cash flow to continue to be strong in the last three months of the year as higher shipping volumes will continue to reduce our inventory levels.     i.   As of September 30, 2021, our bank debt was $114.9 million, bringing our liquidity to $41.7 million resulting in a leverage ratio of 2.29X, well within our covenant of 3.00X.     ii.   Included in the Q3 net income and adjusted EBITDA is the forgiveness of the entire $10 million of our PPP note that was approved by the SBA in July 2021.     Reconciliation of GAAP “net income (loss)” to non-GAAP “adjusted EBITDA” (in thousands), the most comparable GAAP financial measure.       Three Months Ended     Nine Months Ended       September 30,     September 30,       2021     2020     2021     2020   Net income (loss)   $ 7,986     $ 1,923     $ 3,990     $ (1,483 ) Income tax expense (benefit)     (1,359 )     (461 )     (2,691 )     (3,255 ) Loss from Hourglass Sands     5       64       109       205   Loss (income) from equity method investments     (90 )     119       (153 )     (1,167 ) Depreciation, depletion and amortization     9,842       9,313       29,864       30,151   Asset impairment     —       1,799       —       1,799   Asset retirement obligations accretion     380       348       1,116       1,024   Loss on disposal of assets     —       38       —       38   Gain on marketable securities     —       —       —       (14 ) Interest expense     2,108       2,329       6,188       10,877   Other amortization     1,378       1,452       4,357       4,274   Change in fair value of fuel hedges     (1 )     (138 )     (380 )     775   Stock-based compensation     267       291       834       927   Adjusted EBITDA   $ 20,516     $ 17,077     $ 43,234     $ 44,151     17 Table of Contents   Management believes that the presentation of such additional financial measures provides useful information to investors regarding our performance and results of operations because these measures when used in conjunction with related GAAP financial measures, (i) provide additional information about our core operating performance and ability to generate and distribute cash flow, (ii) provide investors with the financial and analytical framework upon which management bases financial, operation, compensation, and planning decisions, and (iii) present measurements that investors, rating agencies, and debt holders have indicated are useful in assessing our results.     II.    Solid Sales Position Through 2023        Contracted     Estimated       tons     price   Year   (millions)*     per ton   2021 (Q4)     1.6       41.40   2022     6.8       39.50   2023     3.8       41.30         12.2           ___________ * Shipments are subject to adjustment within certain coal contracts due to the exercise of customer options to either take additional or fewer tons if such options exist in the customer contract. **As previously stated, we expect our forward sales volumes and prices to increase soon.     III.   Signs of Improvement for the Coal Market     a.    Gas prices have dramatically increased.     i.   Nymex gas prices (a competitor to coal) averaged $1.99 in 2020, the lowest average in over two decades.     1.   As of April 27, 2021, the 12-month Nymex gas prices averaged $3.01.     2.   As of August 2, 2021, the 12-month Nymex gas strip had further improved to $3.70.     3.   As of November 1, 2021, the 12-month Nymex gas strip further improved to $4.30.     b.   Coal export prices have increased rapidly.     i.   As of April 27, 2021, API 4 (Asia) for Q3 2021 was ~$86/tonne for 2021.     1.   By August 2, 2021, balance of the year shipments improved to ~$130/tonne.     2.   As of October 29, 2021, API 4 (Asia) was priced at $102/tonne for calendar year 2022.     ii.   As of April 27, 2021, API 2 (Europe) for Q3 2021 was ~$74/tonne for 2021.     1.   By August 2, 2021, balance of the year shipments improved to ~$130/tonne.     2.   As of October 29, 2021, API2 (Europe) was priced at $102/tonne for calendar year 2022.     c.   Utility coal inventories for our customers and all U.S. utilities are well below target levels and will take significant time to rebuild.   18 Table of Contents     IV.   Entry into Renewable Generation      a.   On June 1, 2021, we announced we will join with Hoosier Energy Rural Electric Cooperative, Inc. to develop up to 1000 megawatts (MW) of renewable power.  The new generation will be located near the Merom Coal Generation Station in Sullivan, IN which Hoosier Energy expects to retire in May 2023.  The plan calls for Hallador to develop approximately 200MW of energy from solar and battery storage through power purchase agreements with Hoosier Energy in 2025.  Hallador will seek other customers to develop the remaining generation capacity at the Merom interconnection site.    We are excited by the opportunities this platform provides to aid our customers as they transition to renewable power and for Hallador to make investments in the renewable space for decades to come. In the short run, there will be little financial activity from this platform until the Merom Coal Generation Station retires which is not expected until 2023.   LONG-LIVED ASSET IMPAIRMENT REVIEW   See  Note  2 to our condensed consolidated financial statements.   LIQUIDITY AND CAPITAL RESOURCES     I.   Cash Provided by Operations     a.   As set forth in our condensed consolidated statements of cash flows, cash provided by operations was $37.0 million and $34.1 million for the nine months ended September 30, 2021 and 2020, respectively.     i.   Operating margins from coal decreased during the first nine months of 2021 by $10.8 million when compared to the first nine months of 2020.     1.   Our operating margins were $7.70 per ton in the first nine months of 2021 compared to $10.65 in the first nine months of 2020 as a result of lower contracted sales prices and increasing operating costs.     2.   Demand has increased and we are now ahead of the 2020 pace and expect to finish 2021 with 6.2 million tons sold with a slightly higher price on the remaining tons due to new contracts recently signed.     ii.   The combination of the changes in working capital items, specifically the reduction in inventory, offset by lower margins were the major contributing factors to our increase in cash flow from operations compared to 2020.     b.   Our projected capex budget for the remainder of 2021 is $5 million, of which approximately $2.5 million is for maintenance capex.     c.   Cash provided by operations for the remainder of the year is expected to fund our maintenance capital expenditures and debt service.     d.   As we continue to monitor the effects of COVID-19, we continue to proactively manage costs and capital expenditures to ensure adequate liquidity until there is more of a sense of economic certainty in the markets in which we operate.     II.   Material Off-Balance Sheet Arrangements     a.   Other than our surety bonds for reclamation, we have no material off-balance sheet arrangements. In the event we are not able to perform reclamation, which is presented as asset retirement obligations (ARO) in our accompanying condensed consolidated balance sheets, we have surety bonds totaling $25 million to pay for ARO.   19 Table of Contents   CAPITAL EXPENDITURES (capex)   For the first nine months of 2021, capex was $18.1 million allocated as follows (in millions):   Oaktown – maintenance capex   $ 5.7   Oaktown – investment     12.3   Other     0.1   Capex per the Condensed Consolidated Statements of Cash Flows   $ 18.1       Quarterly coal sales and cost data (in thousands, except per ton and percentage data) are provided below. Per ton calculations below are based on tons sold.   All Mines   4th 2020     1st 2021     2nd 2021     3rd 2021     T4Qs   Tons produced     1,233       1,592       1,292       1,440       5,557   Tons sold     1,613       1,174       1,403       2,042       6,232   Coal sales   $ 64,925     $ 45,879     $ 54,600     $ 79,036     $ 244,440   Average price/ton   $ 40.25     $ 39.08     $ 38.92     $ 38.71     $ 39.22   Wash plant recovery in %     68 %     74 %     69 %     73 %         Operating costs   $ 54,640     $ 33,907     $ 42,364     $ 67,694     $ 198,605   Average cost/ton   $ 33.87     $ 28.88     $ 30.20     $ 33.15     $ 31.87   Margin   $ 10,285     $ 11,972     $ 12,236     $ 11,342     $ 45,835   Margin/ton   $ 6.38     $ 10.20     $ 8.72     $ 5.55     $ 7.35   Capex   $ 6,661     $ 5,720     $ 5,117     $ 7,238     $ 24,736   Maintenance capex   $ 2,342     $ 2,343     $ 1,049     $ 2,324     $ 8,058   Maintenance capex/ton   $ 1.45     $ 2.00     $ 0.75     $ 1.14     $ 1.29     All Mines   4th 2019     1st 2020     2nd 2020     3rd 2020     T4Qs   Tons produced     2,122       1,701       1,468       1,234       6,525   Tons sold     2,015       1,526       1,244       1,585       6,370   Coal sales   $ 78,205     $ 61,932     $ 50,473     $ 64,754     $ 255,364   Average price/ton   $ 38.81     $ 40.58     $ 40.57     $ 40.85     $ 40.09   Wash plant recovery in %     74 %     74 %     76 %     71 %         Operating costs   $ 60,082     $ 48,334     $ 36,001     $ 46,444     $ 190,861   Average cost/ton   $ 29.82     $ 31.67     $ 28.94     $ 29.30     $ 29.96   Margin   $ 18,123     $ 13,598     $ 14,472     $ 18,310     $ 64,503   Margin/ton   $ 8.99     $ 8.91     $ 11.63     $ 11.55     $ 10.13   Capex   $ 8,264     $ 5,999     $ 4,006     $ 3,995     $ 22,264   Maintenance capex   $ 4,115     $ 3,470     $ 2,578     $ 1,365     $ 11,528   Maintenance capex/ton   $ 2.04     $ 2.27     $ 2.07     $ 0.86     $ 1.81     2021 vs. 2020 (first nine months)   For the first nine months of 2021, we sold 4,619,000 tons at an average price of $38.86 per ton. For the first nine months of 2020, we sold 4,355,000 tons at an average price of $40.68 per ton. The decrease in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts.  We began 2021 with lower tons contracted than we had going into 2020.  We have experienced increased demand recently with higher asking prices.  With our strong hedged position, we are taking what we can in the short-term, but looking to longer-term deals to shore up our future positions.   Operating costs for all coal mines averaged $31.17 per ton and $30.03 per ton for nine months ended September 30, 2021 and 2020, respectively. Oaktown costs over that same period were $29.17 and $28.59, respectively.  Our operating costs for the first nine months have exceeded our prior guidance of $29-$30 per ton as explained in the overview. We expect operating costs associated with the idled Prosperity mine to be $0.3 million for the remainder of 2021. Prosperity operating costs were $0.8 million during the nine months ended September 30, 2021.         20 Table of Contents   General and administrative expenses increased $0.5 million during the first nine months of 2021 when compared to 2020.  The increase is primarily the result of additional legal fees incurred in connection with various development projects we are exploring.  We expect G&A for the remainder of 2021 to be ~$3.2 million.   Interest expense decreased approximately $4.7 million in the first nine months of 2021 when compared to 2020. The change in estimated fair value of our interest rate swap agreement resulted in a reduction in non-cash expense of $3.3 million in 2021 when compared to 2020. The remaining decrease of $1.4 million is a result of our declining bank debt balance.   Our Sunrise Coal employees and contractors totaled 727 at September 30, 2021, compared to 658 at September 30, 2020.   2021 v. 2020 (third quarter)   For the third quarter 2021, we sold 2,042,000 tons at an average price of $38.71 per ton.  For the third quarter 2020, we sold 1,585,000 tons at an average price of $40.85 per ton.  The decrease in average price per ton was expected and is the result of our changing contract mix caused by the expiration of contracts and acquisition of new contracts.   Operating costs for all coal mines averaged $33.15 per ton in 2021 and $29.30 per ton in 2020. Oaktown costs over that same period were $31.21 and $28.65, respectively. Our operating costs for the quarter are higher than our prior guidance of $29-$30 per ton as explained in the overview.   Interest expense decreased approximately $0.2 million in the third quarter of 2021 when compared to 2020 due primarily to our declining bank debt balance.   EARNINGS (LOSS) PER SHARE       4th 2020     1st 2021     2nd 2021     3rd 2021   Basic and diluted   $ (0.15 )   $ (0.03 )   $ (0.10 )   $ 0.26         4th 2019     1st 2020     2nd 2020     3rd 2020   Basic and diluted   $ (1.95 )   $ (0.12 )   $ 0.01     $ 0.06      INCOME TAXES   Our effective tax rate (ETR) is estimated at ~31% and ~69% for the nine months ended September 30, 2021, and 2020, respectively.  For the nine months ended September 30, 2021 and 2020, with the exception of removing the forgiveness of the PPP note as a discrete item,  the Company recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items and statutory rates in states in which we operate. Our ETR differs from the statutory rate due primarily to statutory depletion in excess of tax basis, which is a permanent difference. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes.   GOVERNMENT IMPOSITION REIMBURSEMENTS   Some of our legacy coal contracts allow us to pass on to our customers certain costs incurred resulting from changes in costs to comply with mandates issued by Mine Safety and Health Administration (MSHA) or other government agencies. After applying the provisions of ASU 2014-09, as of September 30, 2021, we do not consider unreimbursed costs from our customers related to these compliance matters to be material and have constrained such amounts and will recognize them when they can be estimated with reasonable certainty.   RESTRICTED STOCK GRANTS   See “Item 1. Financial Statements -  Note 9. Stock Compensation Plans ” for a discussion of RSUs.   21 Table of Contents   CRITICAL ACCOUNTING ESTIMATES   We believe that the estimates of our coal reserves, our interest rate swaps, our deferred tax accounts, our valuation of inventory, and the estimates used in our impairment analysis are our critical accounting estimates.   The reserve estimates are used in the DD&A calculation and our internal cash flow projections. If these estimates turn out to be materially under or over-stated, our DD&A expense and impairment test may be affected.   The fair value of our interest rate swaps is determined using a discounted future cash flow model based on the key assumption of anticipated future interest rates and related credit adjustment considerations.   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.   Inventory is valued at lower of average cost or net realizable value (NRV).  Anticipated utilization of low sulfur, higher-cost coal from our Ace in the Hole mine has the potential to create NRV adjustments as our estimated need changes.   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   No material changes from the disclosure in our 2020 Annual Report on Form 10-K.   ITEM 4. CONTROLS AND PROCEDURES   DISCLOSURE CONTROLS   We maintain a system of disclosure controls and procedures that are designed for the purpose of ensuring that information required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our CEO, CFO, and CAO as appropriate to allow timely decisions regarding required disclosure.   As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO, CFO, and CAO of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our CEO, CFO, and CAO concluded that our disclosure controls and procedures are effective.   There have been no changes to our internal control over financial reporting during the quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.   PART II - OTHER INFORMATION   ITEM 4. MINE SAFETY DISCLOSURES   See Exhibit 95 to this Form 10-Q for a listing of our mine safety violations.   22 Table of Contents     ITEM 6.    EXHIBITS   15.1 * * Accountants' Acknowledgement – Plante & Moran, PLLC 31.1 *   SOX 302 Certification - Chairman, President and Chief Executive Officer 31.2 *   SOX 302 Certification - Chief Financial Officer 31.3 *   SOX 302 Certification - Chief Accounting Officer 32*   SOX 906 Certification  95.1*   Mine Safety Disclosures 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 with the Inline XBRL document) *Filed Herewith       23 Table of Contents   SIGNATURES   Pursuant to the requirements 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 8, 2021   /S/ LAWRENCE D. MARTIN     Lawrence D. Martin, CFO                   Date: November 8, 2021   /S/ R. TODD DAVIS     R. Todd Davis, CAO        25