What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-05 · 373 added, 258 removed, 596 unchanged (51% of the section changed)

9 unchanged sentences

Inventories 49,716 47,551

Refundable federal income taxes 14,518 17,615

Federal income tax receivable 9,334 17,615

Prepaid insurance 7,977 2,564

37 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2021 2020 2021 2020

(In thousands, except per share data)

6 unchanged sentences

Amortization of intangible assets 911 792 1,893 1,569

Gain on sale of assets

Loss (gain) on sale of assets

68 ( 247 ) 27 ( 247 )

13,857 13,136 28,561 26,640

Operating profit 8,670 4,482 17,000 12,062

3 unchanged sentences

Closed mine obligations 364 390 747 824

(Gain) loss on equity securities ( 823 ) 1,196

Gain on equity securities ( 1,262 ) ( 1,512 ) ( 2,085 ) ( 316 )

Other, net ( 127 ) ( 181 ) ( 257 ) ( 329 )

( 766 ) ( 1,102 ) ( 1,100 ) 382

Income before income tax benefit 8,664 6,096

Income tax benefit ( 297 ) ( 70 )

Income before income tax provision (benefit) 9,436 5,584 18,100 11,680

Income tax provision (benefit) 2,931 ( 466 ) 2,634 ( 536 )

Net income $ 6,505 $ 6,050 $ 15,466 $ 12,216

8 unchanged sentences

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2021 2020 2021 2020

(In thousands)

Net income $ 6,505 $ 6,050 $ 15,466 $ 12,216

Reclassification of pension and postretirement adjustments into earnings, net of $ 43 and $ 45 tax benefit in the three months ended March 31, 2021 and March 31, 2020, respectively.

Reclassification of pension and postretirement adjustments into earnings, net of $ 42 and $ 85 tax benefit in the three and six months ended June 30, 2021, respectively, and net of $ 28 and $ 73 tax benefit in the three and six months ended June 30, 2020, respectively.

143 101 286 256

Total other comprehensive income 143 101 286 256

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UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED

SIX MONTHS ENDED

(In thousands)

Operating activities

Net cash used for operating activities $ ( 910 ) $ ( 31,122 )

Net cash provided by (used for) operating activities $ 29,318 $ ( 12,489 )

Investing activities

1 unchanged sentence

Proceeds from the sale of property, plant and equipment 59 550

Purchase of equity securities — ( 2,000 )

Other ( 21 ) ( 395 )

3 unchanged sentences

Reductions of long-term debt ( 2,881 ) ( 823 )

Net (reductions) additions to revolving credit agreements ( 2,000 ) 4,000

Net reductions to revolving credit agreements ( 11,000 ) ( 2,000 )

Cash dividends paid ( 2,786 ) ( 2,690 )

Purchase of treasury shares — ( 1,002 )

Net cash (used for) provided by financing activities ( 3,561 ) 7,298

Net cash used for financing activities ( 16,667 ) ( 213 )

Cash and cash equivalents

17 unchanged sentences

Balance, March 31, 2020 $ 5,453 $ 1,569 $ 8,318 $ 289,679 $ ( 11,182 ) $ 293,837

Stock-based compensation

10 — 624 — — 634

— — — 6,050 — 6,050

Cash dividends on Class A and Class B common stock:

$ 0.1925 per share

— — — ( 1,351 ) — ( 1,351 )

Reclassification adjustment to net income, net of tax

— — — — 101 101

Balance, June 30, 2020 $ 5,463 $ 1,569 $ 8,942 $ 294,378 $ ( 11,081 ) $ 299,271

Balance, January 1, 2021 $ 5,490 $ 1,568 $ 10,895 $ 294,270 $ ( 11,599 ) $ 300,624

7 unchanged sentences

Balance, March 31, 2021 $ 5,583 $ 1,567 $ 11,818 $ 301,857 $ ( 11,456 ) $ 309,369

Stock-based compensation

12 — 1,110 — — 1,122

— — — 6,505 — 6,505

Cash dividends on Class A and Class B common stock:

$ 0.1975 per share

— — — ( 1,412 ) — ( 1,412 )

Reclassification adjustment to net income, net of tax

— — — — 143 143

Balance, June 30, 2021 $ 5,595 $ 1,567 $ 12,928 $ 306,950 $ ( 11,313 ) $ 315,727

See notes to Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2021

JUNE 30, 2021

(In thousands, except as noted and per share amounts)

2 unchanged sentences

® (“NACCO” or the "Company").

NACCO, through a portfolio of mining and natural resources businesses, operates under three business segments:

NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources businesses.

The Company operates under three business segments:

Coal Mining, North American Mining ("NAMining") and Minerals Management.

The Coal Mining segment operates surface coal mines under long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business model.

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The Minerals Management segment acquires and promotes the development of oil, gas and coal mineral interests, generating income primarily from royalty-based lease payments from third parties.

In addition, the Company has a business providing stream and wetland mitigation solutions.

The Coal Mining segment operates surface coal mines for power generation companies and an activated carbon producer.

The NAMining segment is a trusted mining partner for producers of aggregates, lithium and other minerals.

The Minerals Management segment promotes the development of mineral interests.

In addition, Mitigation Resources of North America ® provides stream and wetland mitigation solutions.

The Company also has unallocated items not directly attributable to a reportable segment.

3 unchanged sentences

Coal Mining Segment

During the three months ended March 31, 2021, the Company's operating coal mines were:

The Coal Mining segment, operating as The North American Coal Corporation ® ("NACoal"), operates surface coal mines under long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business model.

Coal is surface-mined in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico.

Each mine is fully integrated with its customer's operations.

During the six months ended June 30, 2021, the Company's operating coal mines were:

Bisti Fuels Company, LLC (“Bisti”), The Coteau Properties Company (“Coteau”), Coyote Creek Mining Company, LLC (“Coyote Creek”), Demery Resources Company, LLC (“Demery”), The Falkirk Mining Company (“Falkirk”), Mississippi Lignite Mining Company (“MLMC”) and The Sabine Mining Company (“Sabine”).

The Company operates these mines as the North American Coal Corporation ® ("NACoal").

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company.

On March 12, 2021, the Arizona Public Service Co., an owner and operator of the Four Corners Power Plant, announced plans to begin operating the plant seasonally starting in the fall of 2023, with one of the plant’s two remaining units operating year-round and the other operating only during June through October.

Under seasonal operation of the power plant, future deliveries are expected to be in the range of 3.3 million to 3.5 million tons annually, beginning in 2024 through the end of the term of the contract mining agreement in 2031.

Bisti delivered 4.2 million and 5.0 million tons in 2020 and 2019, respectively.

Falkirk operates the Falkirk Mine in North Dakota.

Falkirk is the sole supplier of lignite coal to the Coal Creek Station power plant pursuant to a contract under which Falkirk also supplies approximately 0.3 million tons of lignite coal per year to Spiritwood Station power plant.

Coal Creek Station and Spiritwood Station are owned by Great River Energy (“GRE”).

In May 2020, GRE announced its intent to sell or retire Coal Creek Station in the second half of 2022 and modify Spiritwood Station to be fueled by natural gas.

On June 30, 2021, GRE entered into an agreement to sell Coal Creek Station and the adjacent high-voltage direct current transmission line to Bismarck, North Dakota-based Rainbow Energy Center, LLC (“Rainbow Energy”) and its affiliates.

The transaction between GRE and Rainbow Energy is subject to the satisfaction of certain conditions, including regulatory approvals associated with the sale of Coal Creek Station and the related transmission assets and the posting of a performance bond related to final mine reclamation.

If the conditions are satisfied, the transaction is expected to close before the end of 2021.

Upon completion of the sale of Coal Creek Station, the existing Coal Sales Agreement, the existing Mortgage and Security Agreement and the existing Option Agreement between GRE and Falkirk will be terminated.

Falkirk and GRE have entered into a termination and release of claims agreement.

Upon completion of the sale of Coal Creek Station, GRE will pay Falkirk $ 14.0 million in cash, as well as transfer ownership of an office building located in Bismarck, North Dakota, and convey membership units in Midwest AgEnergy to NACoal.

NACCO currently holds a $ 5.0 million investment in Midwest AgEnergy, which operates two ethanol facilities in North Dakota.

If GRE's efforts to sell the power plant are successful, a new Coal Sales Agreement (“CSA”) between Falkirk and Rainbow Energy will become effective and Falkirk will begin supplying all coal requirements of Coal Creek Station concurrent with Rainbow Energy’s acquisition of the power plant.

Falkirk will no longer make any coal deliveries to GRE’s Spiritwood Station.

Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs and directly or indirectly providing all of the capital required to operate the mine.

The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy.

The initial production period is expected to run ten

years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

If Rainbow Energy terminates the CSA and closes Coal Creek Station before 2027, Falkirk will be entitled to an additional payment from GRE under the terms of the termination and release of claims agreement.

The additional payment amount ranges from $ 8 million if the closure occurs before 2024 to $ 2 million if the closure occurs in 2026.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

After May 31, 2024, the per ton management fee increases to a higher base in line with current fee levels, and thereafter adjusts annually according to specific indices which track broad measures of U.S.

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company ("NTEC").

On June 17, 2021, the Company received notification that the contract mining agreement between Bisti and NTEC will be terminated effective September 30, 2021.

As required under the agreement, it is anticipated NTEC will pay NACCO a termination fee of approximately $ 10 million.

NTEC will assume control and responsibility for operation of the Navajo Mine upon termination of the contract mining agreement.

All liabilities, including mine reclamation, are the responsibility of NTEC.

Sabine operates the Sabine Mine in Texas.

2 unchanged sentences

SWEPCO is an American Electric Power (“AEP”) company.

During 2020, AEP announced it intends to retire the Pirkey Plant in 2023 in order to comply with the U.S.

Environmental Protection Agency’s Coal Combustion Residuals rule.

In November 2020, AEP announced it intends to retire the Pirkey Plant in 2023.

SWEPCO expects deliveries from Sabine to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation.

Mine reclamation is the responsibility of SWEPCO.

Funding for mine reclamation is the responsibility of SWEPCO.

Coteau operates the Freedom Mine in North Dakota.

2 unchanged sentences

The Synfuels Plant is a coal gasification plant that manufactures synthetic natural gas and produces fertilizers, solvents, phenol, carbon dioxide, and other chemical products for sale.

During 2020, Basin Electric informed its employees and Coteau that it is considering changes that may result in modifications to its Synfuels Plant that could potentially reduce or eliminate coal requirements at the Synfuels Plant beginning in 2026.

In November 2020, Basin Electric informed Coteau that it is considering changes that may result in modifications to its Synfuels Plant that could potentially reduce or eliminate coal requirements at the Synfuels Plant beginning in 2026.

Basin Electric indicated that if it decides to proceed with any changes that could reduce or eliminate the use of coal, the feedstock change is not expected to occur before 2026.

As a result, coal deliveries to the Synfuels Plant are expected to continue until at least 2026.

Deliveries to Antelope Valley Station and Leland Olds Station are expected to continue through the end of the existing coal sales agreement, which can be extended through 2037 at the option of the Company.

During 2020, Great River Energy ("GRE"), Falkirk's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

Falkirk is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract, which specifies that GRE is responsible for all costs related to mine closure, including mine reclamation.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however the terms

of the existing mining contract could change.

In June 2021, Basin Electric announced it was also evaluating the Synfuels Plant for possible sale.

At all operating coal mines other than MLMC, the Company is paid a management fee per ton of coal or heating unit (MMBtu) delivered.

8 unchanged sentences

Instead, these contracts are accounted for as equity method investments.

The income before income taxes associated with these VIE's is reported as Earnings of unconsolidated operations on the Unaudited Condensed Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in Unconsolidated Subsidiaries in the Unaudited Condensed Consolidated Balance Sheets.

The income before income taxes associated with these VIEs is reported as Earnings of unconsolidated operations on the Unaudited Condensed Consolidated Statements of Operations and the Company’s investment is reported on the line Investments in unconsolidated subsidiaries in the Unaudited Condensed Consolidated Balance Sheets.

The mines that meet the definition of a VIE are referred to collectively as the “Unconsolidated Subsidiaries.” For tax purposes, the Unconsolidated Subsidiaries are included within the NACCO consolidated U.S.

6 unchanged sentences

Caddo Creek Resources Company, LLC (“Caddo Creek”) ceased all mining and delivery of lignite and commenced mine reclamation in the fourth quarter of 2020.

The financial results of Caddo Creek are consolidated within NACCO's financial statements for the three months ended March 31, 2021.

The financial results of Caddo Creek are consolidated within NACCO's financial statements for the six months ended June 30, 2021.

Prior to entering into reclamation, Caddo Creek met the definition of a VIE;

therefore, the financial results of Caddo Creek are reported as Earnings of unconsolidated operations for the three months ended March 31, 2020.

The reclamation at Caddo Creek is expected to be substantially complete in 2022.

therefore, the financial results of Caddo Creek are reported as Earnings of unconsolidated operations for the three and six months ended June 30, 2020.

The reclamation at Caddo Creek is expected to be substantially complete by June 30, 2022.

NAMining Segment

4 unchanged sentences

materials handling and processing, product sales and distribution.

NAMining operates primarily at limestone quarries in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone.

NAMining operates primarily at limestone quarries in Florida, but is focused on expanding outside of Florida, mining materials other than limestone and expanding the scope of mining operations provided to its customers.

In the second quarter of 2021, NAMining entered into a one-year mining services contract with an existing customer for a sand and gravel quarry in Indiana.

In addition, NAMining will serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

4 unchanged sentences

The Minerals Management segment derives income primarily by leasing its royalty and mineral interests to third-party exploration and production companies, and, to a lesser extent, other mining companies, granting them the rights to explore, develop, mine, produce, market and sell gas, oil, and coal in exchange for royalty payments based on the lessees' sales of those minerals.

During 2020, the Minerals Management segment acquired mineral interests in the Permian Basin in Texas and intends to make future acquisitions of mineral and royalty interests that meet the Company’s acquisition criteria as part of its growth strategy.

During 2021 and 2020, the Minerals Management segment acquired mineral interests, primarily in the Eagle Ford and Permian Basins in Texas and intends to make future acquisitions of mineral and royalty interests that meet the Company’s acquisition criteria as part of its growth strategy.

In the second quarter of 2021, the Minerals Management segment, through its Catapult Mineral Partners (“Catapult”) business, acquired a combination of mineral and overriding royalty interests in the Eagle Ford Basin, which includes approximately 14.1 thousand gross acres and 1.7 thousand net royalty acres, for $ 4.7 million.

Under the terms of the transaction, Catapult will make additional payments for each additional well developed on the acquired assets at the end of 2021 and 2022 of up to a maximum of $ 0.6 million per year, or an additional $ 1.2 million of additional payments in total.

Catapult also completed a small acquisition of royalty interests in the Delaware Basin in the second quarter of 2021 for a purchase price of $ 0.3 million.

The Company’s legacy royalty and mineral interests are located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas), Texas (Cotton Valley and Austin Chalk formation natural gas), Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal and coalbed methane and natural gas) and North Dakota (coal, oil and natural gas).

7 unchanged sentences

GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at March 31, 2021, the results of its operations, comprehensive income, cash flows and changes in equity for the three months ended March 31, 2021 and 2020 have been included.

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the financial position of the Company at June 30, 2021, the results of its operations, comprehensive income, cash flows and changes in equity for the six months ended June 30, 2021 and 2020 have been included.

These Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

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Consistent with the conclusion that the customer simultaneously receives and consumes the benefits provided, an input-based measure of progress is appropriate.

As each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee and the general and administrative fee (as applicable).

As each month of service is completed, revenue is recognized for the amount of actual costs incurred, plus the management fee or fixed fee and the general and administrative fee (as applicable).

Fluctuations in revenue from period to period result from changes in customer demand primarily due to increases and decreases in activity levels on individual contracts and variances in reimbursable costs.

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The Company believes that the pricing provisions of royalty contracts are customary in the industry.

front lease bonus payments represent the fixed portion of the transaction price and are recognized over the primary term of the contract, which is generally five years .

Up-front lease bonus payments represent the fixed portion of the transaction price and are recognized over the primary term of the contract, which is generally five years .

Significant Judgments

The Company’s contracts with its customers contain different types of variable consideration including, but not limited to, management fees that adjust based on coal volumes or MMBtu delivered or limestone tons, however, the terms of these variable payments relate specifically to the Company's efforts to satisfy one or more, but not all of, the performance obligations (or to a specific outcome from satisfying the performance obligations), in the contract.

The Company’s contracts with its customers contain different types of variable consideration including, but not limited to, management fees that adjust based on volumes or MMBtu delivered, however, the terms of these variable payments relate specifically to the Company's efforts to satisfy one or more, but not all of, the performance obligations (or to a specific outcome from satisfying the performance obligations) in the contract.

Therefore, the Company allocates each variable payment (and subsequent changes to that payment) entirely to the specific performance obligation to which it relates.

13 unchanged sentences

The Company records royalty income in the month production is delivered to the purchaser.

As a non-operator, the Company has limited visibility into the timing of when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered.

As a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product.

As a non-operator, the Company has limited visibility into when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered.

As a result, the Company is required to estimate the amount of production delivered to the purchaser of the product and the price that will be received for the sale of the product.

The expected sales volumes and prices for these properties are estimated and recorded in "Accounts receivable" in the accompanying Unaudited Condensed Consolidated Balance Sheets.

The difference between the Company’s estimates and the actual amounts received is recorded in the month that payment is received from the third-party lessee.

For the three months ended March 31, 2021 and 2020, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial.

For the three and six months ended June 30, 2021 and 2020, royalty income recognized in the reporting periods related to performance obligations satisfied in prior reporting periods was immaterial.

Disaggregation of Revenue

3 unchanged sentences

See Note 8 to the Unaudited Condensed Consolidated Financial Statements for further discussion of segment reporting.

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2021 2020 2021 2020

Timing of Revenue Recognition

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Trade accounts receivable, net Contract asset

(current) Contract asset

(long-term) Contract liability (current) Contract liability (long-term)

Balance, January 1, 2021 $ 18,894 $ 4,984 $ 941 $ 3,626

Balance, March 31, 2021 22,301 3,503 5,078 913 4,267

Balance, June 30, 2021 21,277 5,321 868 4,113

Increase (decrease) $ 2,383 $ 337 $ ( 73 ) $ 487

4 unchanged sentences

The difference between the opening and closing balance of this contract liability, which is shown above, primarily results from the difference between new lease bonus payments received and amortization of up-front lease bonus payments received in previous periods.

The amount of revenue recognized in both of the three months ended March 31, 2021 and March 30, 2020 that was included in the opening contract liability was $ 0.2 million.

The amount of revenue recognized in both of the three months ended June 30, 2021 and 2020 that was included in the opening contract liability was $ 0.3 million.

The amount of revenue recognized in both of the six months ended June 30, 2021 and 2020 that was included in the opening contract liability was $ 0.5 million.

This revenue consists of up-front lease bonus payments received under royalty contracts that are recognized over the primary term of the royalty contracts, which are generally five years .

The Company expects to recognize an additional $ 0.7 million in the remainder of 2021, $ 4.0 million in 2022, $ 0.3 million in 2023, and $ 0.1 million in 2024 related to the contract liability remaining at March 31, 2021.

The Company expects to recognize an additional $ 0.5 million in the remainder of 2021, $ 4.0 million in 2022, $ 0.3 million in 2023, and $ 0.1 million in 2024 related to the contract liability remaining at June 30, 2021.

The difference between the opening and closing balances of the Company’s accounts receivable, contract assets and contract liabilities results from the timing difference between the Company’s performance and the customer’s payment.

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As a result of the uncertainty surrounding the COVID-19 pandemic, the Company suspended repurchasing shares under the 2019 Stock Repurchase Program in March 2020.

Prior to the decision to cease share repurchases, the Company repurchased 32,286 shares of Class A Common Stock under the 2019 Stock Repurchase Program for an aggregate purchase price of $ 1.0 million during the three months ended March 31, 2020.

The timing and amount of any repurchases under the 2019 Stock Repurchase Program are determined at the discretion of the Company's management based on a number of factors, including the availability of capital, other capital allocation alternatives, market conditions for the Company's Class A Common Stock and other legal and contractual restrictions.

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Description Date (Level 1) (Level 2) (Level 3)

March 31, 2021

June 30, 2021

Equity securities $ 14,655 $ 14,655 $ — $ —

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therefore, they are classified as Level 1 within the fair value hierarchy.

The Company recognized a gain of $ 0.3 million and a loss of $ 1.2 million during the three months ended March 31, 2021 and 2020, respectively, related to the Mine Water Treatment Trust.

The Company recognized a gain of $ 0.7 million and $ 1.0 million during the three and six months ended June 30, 2021, respectively, and a gain of $ 1.1 million and a loss of $ 0.1 million in the three and six months ended June 30, 2020, respectively, related to the Mine Water Treatment Trust.

During the second quarter of 2020, the Company invested $ 2.0 million in equity securities of a public company with a diversified portfolio of royalty producing mineral interests.

1 unchanged sentence

therefore, it is classified as Level 1 within the fair value hierarchy.

The Company recognized a gain of $ 0.5 million during the three months ended March 31, 2021, related to the investment in these equity securities.

The Company recognized a gain of $ 0.6 million and $ 1.1 million during the three and six months ended June 30, 2021, respectively, and a gain of $ 0.4 million in both the three and six months ended June 30, 2020 related to the investment in these equity securities.

The gains and losses related to equity securities are reported on the line (Gain) loss on equity securities in the Other (income) expense section of the Unaudited Condensed Consolidated Statements of Operations.

There were no transfers into or out of Levels 1, 2 or 3 during the three months ended March 31, 2021 and 2020.

There were no transfers into or out of Levels 1, 2 or 3 during the six months ended June 30, 2021 and 2020.

NOTE 6— Unconsolidated Subsidiaries

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See Note 1 for a discussion of these entities.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 29.8 million and $ 29.0 million at March 31, 2021 and December 31, 2020, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 5.9 million and $ 6.5 million at March 31, 2021 and December 31, 2020, respectively.

Earnings of unconsolidated operations were $ 15.3 million and $ 16.0 million during the three months ended March 31, 2021 and 2020, respectively.

The Investment in the unconsolidated subsidiaries and related tax positions totaled $ 20.9 million and $ 29.0 million at June 30, 2021 and December 31, 2020, respectively.

The Company's maximum risk of loss relating to these entities is limited to its invested capital, which was $ 5.5 million and $ 6.5 million at June 30, 2021 and December 31, 2020, respectively.

Earnings of unconsolidated operations were $ 13.5 million and $ 28.9 million during the three and six months ended June 30, 2021, respectively, and $ 13.8 million and $ 29.8 million during the three and six months ended June 30, 2020, respectively.

NACoal is a party to certain guarantees related to Coyote Creek.

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The Company’s Chief Operating Decision Maker utilizes operating profit to evaluate segment performance and allocate resources.

The Company has items not directly attributable to a reportable segment that are not included as part of the measurement of segment operating profit, which include primarily administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources of North America (“Mitigation Resources”) and Bellaire.

Mitigation Resources generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation.

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The following tables present revenue, operating profit, depreciation expense and capital expenditures:

THREE MONTHS ENDED

THREE MONTHS ENDED SIX MONTHS ENDED

JUNE 30 JUNE 30

2021 2020 2021 2020

Coal Mining $ 23,063 $ 21,573 $ 46,802 $ 42,501

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® (“NACCO”) and its wholly owned subsidiaries (collectively, the “Company”).

NACCO, through a portfolio of mining and natural resources businesses, operates under three business segments:

NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources businesses.

The Company operates under three business segments:

Coal Mining, North American Mining ("NAMining") and Minerals Management.

The Coal Mining segment operates surface coal mines under long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business model.

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The Minerals Management segment acquires and promotes the development of oil, gas and coal mineral interests, generating income primarily from royalty-based lease payments from third parties.

In addition, the Company has a business providing stream and wetland mitigation solutions.

The Company has items not directly attributable to a reportable segment which are not included as part of the measurement of segment operating profit, which are primarily administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources of North America ® (“Mitigation Resources”) and Bellaire Corporation ("Bellaire.") Mitigation Resources generates and sells stream and wetland mitigation credits (known as mitigation banking) and provides services to those engaged in permittee-responsible stream and wetland mitigation.

Bellaire manages the Company’s long-term liabilities related to former Eastern U.S.

The Coal Mining segment operates surface coal mines for power generation companies and an activated carbon producer.

The NAMining segment is a trusted mining partner for producers of aggregates, lithium and other minerals.

The Minerals Management segment promotes the development of mineral interests.

In addition, Mitigation Resources of North America ® (“Mitigation Resources”) provides stream and wetland mitigation solutions.

The Company has items not directly attributable to a reportable segment that are not included as part of the measurement of segment operating profit, which include primarily administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resources and Bellaire Corporation ("Bellaire.") Bellaire manages the Company’s long-term liabilities related to former Eastern U.S.

underground mining activities.

2 unchanged sentences

Coal Mining Segment

The Coal Mining segment, operating as North American Coal Corporation ® ("NACoal"), operates surface coal mines under

long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business

Coal is surface-mined in North Dakota, Texas, Mississippi, Louisiana and on the Navajo Nation in New Mexico.

mine is fully integrated with its customer's operations.

During the three months ended March 31, 2021, the Company's operating coal mines were:

Each mine is fully integrated with its customer's operations.

During the six months ended June 30, 2021, the Company's operating coal mines were:

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company.

Bisti delivered 4.2 million and 5.0 million tons in 2020 and 2019, respectively.

Falkirk operates the Falkirk Mine in North Dakota.

Coal Creek Station and Spiritwood Station are owned by Great River Energy (“GRE”).

In May 2020, GRE announced its intent to sell or retire Coal Creek Station in the second half of 2022 and modify Spiritwood Station to be fueled by natural gas.

If the conditions are satisfied, the transaction is expected to close before the end of 2021.

Falkirk and GRE have entered into a termination and release of claims agreement.

Upon completion of the sale of Coal Creek Station, GRE will pay Falkirk $14.0 million in cash, as well as transfer ownership of an office building located in Bismarck, North Dakota, and convey membership units in Midwest AgEnergy to NACoal.

NACCO currently holds a $5.0 million investment in Midwest AgEnergy, which operates two ethanol facilities in North Dakota.

Falkirk will no longer make any coal deliveries to GRE’s Spiritwood Station.

Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs and directly or indirectly providing all of the capital required to operate the mine.

The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy.

The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances.

The additional payment amount ranges from $8 million if the closure occurs before 2024 to $2 million if the closure occurs in 2026.

To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024.

Bisti supplies the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company ("NTEC").

On June 17, 2021, the Company received notification that the contract mining agreement between Bisti and NTEC will be terminated effective September 30, 2021.

As required under the agreement, it is anticipated NTEC will pay NACCO a termination fee of approximately $10 million.

NTEC will assume control and responsibility for operation of the Navajo Mine upon termination of the contract mining agreement.

All liabilities, including mine reclamation, are the responsibility of NTEC.

Sabine operates the Sabine Mine in Texas.

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SWEPCO is an American Electric Power (“AEP”) company.

During 2020, AEP announced it intends to retire the Pirkey Plant in 2023 in order to comply with the U.S.

Environmental Protection Agency’s Coal Combustion Residuals rule.

In November 2020, AEP announced it intends to retire the Pirkey Plant in 2023.

SWEPCO expects deliveries from Sabine to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation.

Mine reclamation is the responsibility of SWEPCO.

Funding for mine reclamation is the responsibility of SWEPCO.

Coteau operates the Freedom Mine in North Dakota.

All coal production from the Freedom Mine is delivered to Basin Electric Power Cooperative (“Basin Electric”).

Basin Electric utilizes the coal at the Great Plains Synfuels Plant (the “Synfuels Plant”),

Antelope Valley Station and Leland Olds Station.

Basin Electric utilizes the coal at the Great Plains Synfuels Plant (the “Synfuels Plant”), Antelope Valley Station and Leland Olds Station.

The Synfuels Plant is a coal gasification plant that manufactures synthetic natural gas and produces fertilizers, solvents, phenol, carbon dioxide, and other chemical products for sale.

Basin Electric indicated that if it decides to proceed with any changes that could reduce or eliminate the use of coal, the feedstock change is not expected to occur before 2026.

As a result, coal deliveries to the Synfuels Plant are expected to continue until at least 2026.

During 2020, Great River Energy ("GRE"), Falkirk's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however the terms of the existing mining contract could change.

In June 2021, Basin Electric announced it was also evaluating the Synfuels Plant for possible sale.

Coteau, Coyote, Falkirk, MLMC and Sabine supply lignite coal for power generation.

Bisti supplies sub-bituminous coal for

power generation.

Bisti supplies sub-bituminous coal for power generation.

Demery supplies lignite coal for the production of activated carbon.

Each of these mines deliver their coal

production to adjacent or nearby power plants, synfuels plants or an activated carbon processing facility under long-term supply

Each mine is the exclusive supplier of coal to its customers' facilities.

MLMC’s coal supply contract contains a take

or pay provision;

Each of these mines deliver their coal production to adjacent or nearby power plants, synfuels plants or an activated carbon processing facility under long-term supply contracts.

MLMC’s coal supply contract contains a take or pay provision;

all other coal supply contracts are requirements contracts under which earnings can fluctuate.

certain coal supply contracts can be terminated early, which would result in a reduction to future earnings.

In addition, certain coal supply contracts can be terminated early, which would result in a reduction to future earnings.

At all operating coal mines other than MLMC, the Company is paid a management fee per ton of coal or heating unit (MMBtu) delivered.

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Instead, these contracts are accounted for as equity method investments.

therefore, the income tax expense line on the Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

therefore, the income tax expense line on the

Unaudited Condensed Consolidated Statements of Operations includes income taxes related to these entities.

See Note 6 for further information on the Unconsolidated Subsidiaries.

The MLMC contract is the only operating coal contract in which the Company is responsible for all operating costs, capital

requirements and final mine reclamation;

The MLMC contract is the only operating coal contract in which the Company is responsible for all operating costs, capital requirements and final mine reclamation;

therefore, MLMC is consolidated within NACCO’s financial statements.

coal to its customer at a contractually agreed-upon price which adjusts monthly, primarily based on changes in the level of

established indices which reflect general U.S.

MLMC sells coal to its customer at a contractually agreed-upon price which adjusts monthly, primarily based on changes in the level of established indices which reflect general U.S.

inflation rates.

Profitability at MLMC is affected by customer demand for coal

and changes in the indices that determine sales price and actual costs incurred.

As diesel fuel is heavily weighted among the

indices used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.

Profitability at MLMC is affected by customer demand for coal and changes in the indices that determine sales price and actual costs incurred.

As diesel fuel is heavily weighted among the indices used to determine the coal sales price, the persistence of low diesel fuel prices can negatively affect earnings at MLMC.

MLMC delivers coal to the Red Hills Power Plant in Ackerman, Mississippi.

The Red Hills Power Plant supplies electricity to

the Tennessee Valley Authority ("TVA") under a long-term Power Purchase Agreement.

MLMC’s contract with its

customer runs through 2032.

The Red Hills Power Plant supplies electricity to the Tennessee Valley Authority ("TVA") under a long-term Power Purchase Agreement.

MLMC’s contract with its customer runs through 2032.

TVA’s power portfolio includes coal, nuclear, hydroelectric, natural gas and renewables.

decision of which power plants to dispatch is determined by TVA.

The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial Natural Resources ("Centennial") are owned or controlled

by the Company.

The decision of which power plants to dispatch is determined by TVA.

The coal reserves at Coteau, Falkirk, Coyote, MLMC and Centennial Natural Resources ("Centennial") are owned or controlled by the Company.

The coal reserves at all other mines are owned or controlled by the respective mine’s customer.

The Company performs contemporaneous reclamation activities at each mine in the normal course of operations.

the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities.

Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation

To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those

services in addition to receiving reimbursement from customers for costs incurred.

Under all of the Unconsolidated Subsidiaries’ contracts, the customer has the obligation to fund final mine reclamation activities.

Under certain contracts, the Unconsolidated Subsidiary holds the mine permit and is therefore responsible for final mine reclamation activities.

To the extent the Unconsolidated Subsidiary performs such final reclamation, it is compensated for providing those services in addition to receiving reimbursement from customers for costs incurred.

Caddo Creek Resources Company, LLC (“Caddo Creek”) ceased all mining and delivery of lignite and commenced mine reclamation during 2020.

The reclamation at Caddo Creek is expected to be substantially complete in 2022.

The reclamation at Caddo Creek is expected to be substantially complete by June 30, 2022.

The terms of the contract to perform mine reclamation contain a fixed-price component and therefore, Caddo Creek no longer meets the VIE criteria.

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NAMining Segment

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other

The segment is a primary platform for the Company’s growth and diversification of mining activities outside of the

coal industry.

NAMining provides contract mining services for independently owned mines and quarries, creating value for its

customers by performing the mining aspects of its customers’ operations.

This allows customers to focus on their areas of

The NAMining segment provides value-added contract mining and other services for producers of aggregates, lithium and other minerals.

The segment is a primary platform for the Company’s growth and diversification of mining activities outside of the coal industry.

NAMining provides contract mining services for independently owned mines and quarries, creating value for its customers by performing the mining aspects of its customers’ operations.

This allows customers to focus on their areas of expertise:

materials handling and processing, product sales and distribution.

NAMining operates primarily at limestone quarries

in Florida, but is focused on expanding outside of Florida and into mining materials other than limestone.

NAMining will serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

In the second quarter of 2021, NAMining entered into a one-year mining services contract with an existing customer for a sand and gravel quarry in Indiana.

In addition, NAMining will serve as exclusive contract miner for the Thacker Pass lithium project in northern Nevada.

NAMining utilizes both fixed price and management fee contract structures.

Certain of the entities within the NAMining

segment are VIEs and are accounted for under the equity method as Unconsolidated Subsidiaries.

Certain of the entities within the NAMining segment are VIEs and are accounted for under the equity method as Unconsolidated Subsidiaries.

See Note 6 for further discussion.

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The acquisition criteria includes building a blended portfolio of mineral and royalty interests (i) with new wells anticipated to come online within one to two years of investment, (ii) in areas with forecasted future development within five years after acquisition, or (iii) with existing producing wells further along the decline curve that will generate stable cash flow.

In addition, acquisitions should extend the geographic footprint to diversify across multiple basins with a preliminary focus on the more oil-rich Permian and Williston basins and a secondary focus on other diversifying basins to increase regional exposure.

While the current focus is on the acquisition of mineral and royalty interests, the Company would also consider investments in overriding royalty interests, non-participating royalty interests or non-operated working interests under certain circumstances.

The current acquisition strategy does not contemplate any near-term working interest investments in which the Company would act as the operator.

Under the terms of the transaction, Catapult will make additional payments for each additional well developed on the acquired assets at the end of 2021 and 2022 of up to a maximum of $0.6 million per year, or an additional $1.2 million of additional payments in total.

Catapult also completed a small acquisition of royalty interests in the Delaware Basin in the second quarter of 2021 for a purchase price of $0.3 million.

The Company’s legacy royalty and mineral interests are located in Ohio (Utica and Marcellus shale natural gas), Louisiana (Haynesville shale and Cotton Valley formation natural gas), Texas (Cotton Valley and Austin Chalk formation natural gas), Mississippi (coal), Pennsylvania (coal, coalbed methane and Marcellus shale natural gas), Alabama (coal, coalbed methane and natural gas) and North Dakota (coal, oil and natural gas).

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CONSOLIDATED FINANCIAL SUMMARY

The results of operations for NACCO were as follows for the three months ended March 31:

The results of operations for NACCO were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Coal Mining $ 23,063 $ 21,573 $ 46,802 $ 42,501

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Closed mine obligations 364 390 747 824

(Gain) loss on equity securities (823) 1,196

Gain on equity securities (1,262) (1,512) (2,085) (316)

Other, net (127) (181) (257) (329)

Other (income) expense, net (766) (1,102) (1,100) 382

Income before income tax benefit 8,664 6,096

Income tax benefit (297) (70)

Income before income tax provision (benefit) 9,436 5,584 18,100 11,680

Income tax provision (benefit) 2,931 (466) 2,634 (536)

Net income $ 6,505 $ 6,050 $ 15,466 $ 12,216

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The components of the change in revenues and operating profit are discussed below in "Segment Results."

First Quarter of 2021 Compared with First Quarter of 2020

Second Quarter of 2021 Compared with Second Quarter of 2020, and First Six Months of 2021 Compared with First Six Months of 2020

Other (income) expense, net

Interest income decreased by $0.3 million in the first three months of 2021 compared with the 2020 period primarily due to lower interest rates and a lower average invested cash balance.

(Gain) loss on equity securities represents changes in the market price of invested assets reported at fair value.

The change resulted from an increase in the market value of equity securities in the first three months of 2021 compared with a decrease in the first three months of 2020.

Interest income decreased by $0.3 million in the first six months of 2021 compared with the respective 2020 period primarily due to lower interest rates and a lower average invested cash balance.

Gain on equity securities represents changes in the market price of invested assets reported at fair value.

The change in the second quarter of 2021 and the first six months of 2021 compared with the respective 2020 periods was due to fluctuations in the market prices of the underlying assets.

See Note 5 to the Unaudited Condensed Consolidated Financial Statements for further discussion of equity securities.

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Consequently, based upon the mix and timing of actual earnings compared to projections of earnings between entities that benefit from percentage depletion and those that do not, the effective tax rate may vary quarterly.

Changes in the estimated annual effective tax rate result in a cumulative adjustment.

The increase in the estimated annual effective income tax rate for the quarter ended June 30, 2021 compared to the quarter ended March 31, 2021 reflects the impact of higher pre-tax income, including the anticipated settlement under the termination and release of claims agreement with GRE and the termination fee associated with the Bisti contract termination.

The estimated annual effective income tax rate differs from the U.S.

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The quarterly income tax provision is generally comprised of tax expense on income or a benefit on a loss at the most recent estimated annual effective income tax rate, adjusted for the effect of discrete items.

The enactment of tax reform legislation could adversely impact the Company’s financial position and results of operations.

Legislation or other changes in U.S.

tax law could increase the Company’s tax liability and adversely affect its after-tax profitability.

The Biden administration has proposed to increase the U.S.

corporate income tax rate to 28% from 21% and eliminate certain U.S.

federal income tax benefits currently available to coal mining and oil and gas exploration and development companies.

Such proposed changes could have a significant impact on the Company’s effective income tax rate, cash tax expenses and deferred taxes in future periods.

LIQUIDITY AND CAPITAL RESOURCES OF NACCO

The following tables detail NACCO's changes in cash flow for the three months ended March 31:

The following tables detail NACCO's changes in cash flow for the six months ended June 30:

2021 2020 Change

Operating activities:

Net cash used for operating activities $ (910) $ (31,122) $ 30,212

Net cash provided by (used for) operating activities $ 29,318 $ (12,489) $ 41,807

Investing activities:

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Cash flow before financing activities $ 13,229 $ (27,133) $ 40,362

The $30.2 million change in net cash used for operating activities was primarily due to a net favorable change in working capital, including:

• Decreased payments made under deferred compensation and long-term incentive compensation plans in the first quarter of 2021 compared with the first quarter of 2020, and

• A reduction in refundable federal income taxes in the first quarter of 2021 compared with an increase in the first quarter of 2020.

These favorable changes were partially offset by an increase in prepaid insurance during the first quarter of 2021 compared with the first quarter of 2020 due to increased insurance premiums.

The change in net cash used for investing activities was primarily attributable to a decrease in expenditures for property, plant and equipment at the NAMining segment.

The $41.8 million change in net cash provided by (used for) operating activities was primarily due to a net favorable change in working capital, including:

• Decreased payments made under deferred compensation and long-term incentive compensation plans in the first six months of 2021 compared with the first six months of 2020, and

• A reduction in refundable federal income taxes in the first six months of 2021 compared with an increase in the first six months of 2020.

The change in net cash used for investing activities was primarily attributable to an increase in the acquisition of mineral interests within the Minerals Management segment.

2021 2020 Change

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Purchase of treasury shares — (1,002) 1,002

Net cash (used for) provided by financing activities $ (3,561) $ 7,298 $ (10,859)

The change in net cash (used for) provided by financing activities was primarily due to repayments during the first three months of 2021 compared with borrowings during the first three months of 2020.

Net cash used for financing activities $ (16,667) $ (213) $ (16,454)

The change in net cash used for financing activities was primarily due to repayments during the first six months of 2021 compared with borrowings during the first six months of 2020.

Financing Activities

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NACoal has an unsecured revolving line of credit of up to $150.0 million (the “NACoal Facility”) that expires in August 2022.

Borrowings outstanding under the NACoal Facility were $28 million at March 31, 2021.

At March 31, 2021, the excess availability under the NACoal Facility was $119.0 million, which reflects a reduction for outstanding letters of credit of $3.0 million.

Borrowings outstanding under the NACoal Facility were $19.0 million at June 30, 2021.

At June 30, 2021, the excess availability under the NACoal Facility was $109.9 million, which reflects a reduction for outstanding letters of credit of $21.1 million.

The NACoal Facility has performance-based pricing, which sets interest rates based upon NACoal achieving various levels of debt to EBITDA ratios, as defined in the NACoal Facility.

Borrowings bear interest at a floating rate plus a margin based on the level of debt to EBITDA ratio achieved.

The applicable margins, effective March 31, 2021, for base rate and LIBOR loans were 1.00% and 2.00%, respectively.

The applicable margins, effective June 30, 2021, for base rate and LIBOR loans were 1.00% and 2.00%, respectively.

The NACoal Facility has a commitment fee which is based upon achieving various levels of debt to EBITDA ratios.

The commitment fee was 0.35% on the unused commitment at March 31, 2021.

The weighted average interest rate applicable to the NACoal Facility at March 31, 2021 was 1.87% including the floating rate margin.

The commitment fee was 0.35% on the unused commitment at June 30, 2021.

The weighted average interest rate applicable to the NACoal Facility at June 30, 2021 was 2.10% including the floating rate margin.

The NACoal Facility contains restrictive covenants, which require, among other things, NACoal to maintain a maximum debt to EBITDA ratio of 3.00 to 1.00 and an interest coverage ratio of not less than 4.00 to 1.00.

The NACoal Facility provides the ability to make loans, dividends and advances to NACCO, with some restrictions based on maintaining a maximum debt to EBITDA ratio of 2.00 to 1.00, or if greater than 2.00 to 1.00, a Fixed Charge Coverage Ratio of 1.10 to 1.00, in conjunction with maintaining unused availability thresholds of borrowing capacity, as defined in the NACoal Facility, of $15.0 million.

At March 31, 2021, NACoal was in compliance with all financial covenants in the NACoal Facility.

The Company uses surety bonds to guarantee performance of its mine reclamation obligations.

The Company will begin posting collateral of up to $28 million before the end of 2021 or replace a portion of the surety bonds with other instruments of financial assurance acceptable under reclamation regulations.

The Company may post cash collateral, letters of credit or a combination of cash and letters of credit.

The Company is also considering self-bonding where available.

If the Company posts cash collateral, it could increase the amounts of borrowings under the NACoal Facility.

The use of letters of credit would also reduce the amount available under the NACoal Facility.

At June 30, 2021, NACoal was in compliance with all financial covenants in the NACoal Facility.

The Company uses surety bonds to guarantee performance of its consolidated mine reclamation obligations.

During the six months ended June 30, 2021, the Company replaced $8.0 million of outstanding surety bonds with letters of credit.

In addition, during the six months ended June 30, 2021, the Company provided a $10.0 million letter of credit to its surety company to collateralize a portion of its remaining surety bonds.

The Company expects to provide another $10.0 million letter of credit to its surety company before the end of 2021.

The use of letters of credit reduces the amount available under the NACoal Facility.

Expenditures for property, plant and equipment and mineral interests

Expenditures for property, plant and equipment and mineral interests were $4.9 million during the first three months of 2021.

Expenditures for property, plant and equipment and mineral interests were $16.1 million during the first six months of 2021.

Planned expenditures for the remainder of 2021 are expected to be approximately $45 million, primarily consisting of $21 million in the Coal Mining segment, $19 million in the NAMining segment and $5 million in the Minerals Management segment.

In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at

MLMC as it develops a new mine area.

In the NAMining segment, expected capital expenditures in 2021 are primarily for the

acquisition, relocation and refurbishment of draglines.

In the Coal Mining segment, elevated levels of expected capital expenditures through 2021 are primarily related to spending at MLMC as it develops a new mine area.

In the NAMining segment, expected capital expenditures in 2021 are primarily for the acquisition, relocation and refurbishment of draglines and the acquisition of other mining equipment to support the expansion of contract mining services beyond NAMining's historical dragline-oriented model.

In the Minerals Management segment, expected expenditures in 2021 are primarily for the acquisition of mineral and royalty interests.

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Debt to total capitalization 9% 13% (4)%

The increase in other net tangible assets was primarily due to an increase in prepaid insurance from higher insurance premiums at March 31, 2021 compared with December 31, 2020.

The increase in other net tangible assets was primarily due to an increase in prepaid insurance from higher insurance premiums and a decrease in payroll obligations, partially offset by a decrease in refundable incomes taxes at June 30, 2021 compared with December 31, 2020.

Contractual Obligations, Contingent Liabilities and Commitments

Since December 31, 2020, there have been no significant changes in the total amount of NACCO's contractual obligations, contingent liabilities or commercial commitments, or the timing of cash flows in accordance with those obligations as reported on page 46 in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of certain guarantees related to Coyote Creek.

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FINANCIAL REVIEW

Tons of coal delivered by the Coal Mining segment were as follows for the three months ended March 31:

Tons of coal delivered by the Coal Mining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Unconsolidated operations 6,076 5,947 13,663 13,628

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Total tons delivered 6,851 6,762 15,273 15,210

The results of operations for the Coal Mining segment were as follows for the three months ended March 31:

The results of operations for the Coal Mining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Revenues $ 23,063 $ 21,573 $ 46,802 $ 42,501

Cost of sales 19,652 19,861 41,254 41,135

Gross profit (loss) 2,137 (346)

Gross profit 3,411 1,712 5,548 1,366

Earnings of unconsolidated operations (a)

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Amortization of intangible assets 911 792 1,893 1,569

Gain on sale of assets (39) —

Loss on sale of assets 72 — 33 —

Operating profit $ 8,542 $ 7,498 $ 17,226 $ 14,683

(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Revenues increased 13.4% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to reclamation revenue from Caddo Creek and an increase in tons delivered at MLMC.

Second Quarter of 2021 Compared with Second Quarter of 2020

Revenues increased 6.9% in the second quarter of 2021 compared with the second quarter of 2020 primarily due to the recognition of reclamation revenue from Caddo Creek.

During the fourth quarter of 2020, Caddo Creek entered into a contract with a subsidiary of Advanced Emissions Solutions to perform mine reclamation.

As a result of these changes, Caddo Creek financial results are consolidated within the Coal Mining segment.

The following table identifies the components of change in operating profit for the first quarter of 2021 compared with the first quarter of 2020:

The following table identifies the components of change in operating profit for the second quarter of 2021 compared with the second quarter of 2020:

Operating Profit

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Gross profit 1,699

Net gain on sale of assets 39

Earnings of unconsolidated operations (408)

Amortization of intangibles (119)

Loss on sale of assets (72)

Selling, general and administrative expenses (56)

Operating profit increased $1.5 million in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in gross profit, partially offset by a decrease in earnings of unconsolidated operations.

The improvement in gross profit was mainly due to an increase in customer demand, which contributed to a reduction in the cost per ton and an overall increase in the profit per ton delivered at MLMC.

In addition, a reduction in costs at Centennial Natural Resources contributed to the improvement in gross profit.

The decrease in earnings of unconsolidated operations was primarily due to the termination of the Camino Real Fuels, LLC, contract mining agreement effective July 1, 2020 and the expected reduction in fees earned at the Liberty Mine as the scope of final reclamation activities continues to decline.

Unfavorable selling, general and administrative expenses were primarily due to an increase in insurance expense partially offset by a decrease in employee-related expenses.

Operating profit increased $1.0 million in the second quarter of 2021 compared with the second quarter of 2020 primarily due to an increase in gross profit, partially offset by a decrease in earnings of unconsolidated operations.

The improvement in gross profit was mainly due to a reduction in costs for outside services at Centennial Natural Resources and income associated with mine reclamation at Caddo Creek.

The decrease in earnings of unconsolidated operations was primarily due to the expected reduction in fees earned at the Liberty Mine as the scope of final reclamation activities declined, the termination of the Camino Real Fuels, LLC contract mining agreement effective July 1, 2020 and the cessation of coal deliveries at Caddo Creek.

These decreases were partially offset by an increase in customer demand at Falkirk and Sabine.

Higher insurance expense was offset by a decrease in other selling, general and administrative expenses including employee-related costs resulting from lower headcount, primarily due to the 2020 voluntary separation program.

A portion of the increase in insurance expense is passed through to the Unconsolidated Subsidiaries and included in Earnings of Unconsolidated Operations.

First Six Months of 2021 Compared with First Six Months of 2020

Revenues increased 10.1% in the first six months of 2021 compared with the first six months of 2020 primarily due to the recognition of reclamation revenue from Caddo Creek.

The following table identifies the components of change in operating profit for the first six months of 2021 compared with the first six months of 2020:

Operating Profit

2020 $ 14,683

Increase (decrease) from:

Gross profit 4,182

Earnings of unconsolidated operations (1,031)

Amortization of intangibles (324)

Selling, general and administrative expenses (251)

Loss on sale of assets (33)

2021 $ 17,226

Operating profit increased $2.5 million in the first six months of 2021 compared with the first six months of 2020 primarily due to an increase in gross profit, partially offset by a decrease in earnings of unconsolidated operations.

The improvement in gross

profit was mainly due to a reduction in the cost per ton and an overall increase in the profit per ton delivered at MLMC.

In addition, a reduction in costs for outside services at Centennial Natural Resources and income associated with mine reclamation at Caddo Creek also contributed to the improvement in gross profit.

These decreases were partially offset by an increase in customer demand at Falkirk and Sabine.

The increase in selling, general and administrative expenses was primarily due to higher insurance expense partially offset by a decrease in employee-related costs resulting from lower headcount, primarily due to the 2020 voluntary separation program.

A portion of the increase in insurance expense is passed through to the Unconsolidated Subsidiaries and included in Earnings of Unconsolidated Operations.

NORTH AMERICAN MINING ("NAMining") SEGMENT

FINANCIAL REVIEW

Tons of limestone delivered by the NAMining segment were as follows for the three months ended March 31:

Tons delivered by the NAMining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Unconsolidated operations 2,675 2,227 4,867 4,482

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Total tons delivered 13,511 10,834 26,109 23,368

The results of operations for the NAMining segment were as follows for the three months ended March 31:

The results of operations for the NAMining segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Revenues $ 17,486 $ 12,048 $ 33,628 $ 23,672

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Earnings of unconsolidated operations (a)

1,150 978 2,088 1,954

Selling, general and administrative expenses 1,651 1,321 3,138 2,609

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(a) See Note 6 to the Unaudited Condensed Consolidated Financial Statements for a discussion of the Company's unconsolidated subsidiaries, including summarized financial information.

Revenues increased 38.9% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in reimbursable costs partially offset by changes in the mix of customer deliveries.

Reimbursable costs have an offsetting amount in cost of sales and have no impact on operating profit.

The following table identifies the components of change in operating profit for the first quarter of 2021 compared with the first quarter of 2020:

Revenues increased 45.1% and 42.1% in the second quarter and first six months of 2021 compared with the respective 2020 periods primarily due to an increase in reimbursable costs, which have an offsetting amount in cost of sales and have no impact on operating profit, and a substantial increase in tons delivered.

During the first quarter of 2021, NAMining entered into a 15-year mining services contract with a new customer at a limestone quarry in Central Florida.

NAMining is operating a smaller dragline at this quarry while it relocates and commissions a larger dragline that will increase production capacity.

Deliveries are expected to be approximately 1.5 million tons annually once mining commences with the larger dragline, which is anticipated to occur in 2023.

NAMining also amended a contract during the first quarter of 2021 with an existing customer to operate an additional dragline at an existing limestone quarry in Florida.

The relocation of these draglines is the main driver of the increase in reimbursable costs.

The following table identifies the components of change in operating profit for the second quarter of 2021 compared with the second quarter of 2020:

Operating Profit

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Gross profit 640

Selling, general and administrative expenses (199)

Earnings of unconsolidated operations 172

Selling, general and administrative expenses (330)

Net gain on sale of assets (243)

Operating profit decreased $0.6 million in the first quarter of 2021 compared with the first quarter of 2020 primarily due to a decrease in gross profit for work related to the Thacker Pass lithium project and an increase in selling, general and administrative expenses mainly attributable to higher employee-related costs.

Operating profit increased $0.2 million in the second quarter of 2021 compared with the second quarter of 2020 primarily due to an increase in gross profit, partially offset by an increase in selling, general and administrative expenses.

The improvement in gross profit was mainly due to favorable changes in the mix of customer requirements.

The increase in selling, general and administrative expenses was primarily attributable to higher employee-related costs, including medical costs, and an increase in business development expenses.

The following table identifies the components of change in operating profit for the first six months of 2021 compared with the first six months of 2020:

Operating Profit

Increase (decrease) from:

Selling, general and administrative expenses (529)

Net gain on sale of assets (241)

Gross profit 274

Earnings of unconsolidated operations 134

Operating profit decreased $0.4 million in the first six months of 2021 compared with the first six months of 2020 primarily due to an increase in selling, general and administrative expenses, mainly attributable to higher employee-related costs and an increase in business development expenses, partially offset by an improvement in gross profit.

The increase in gross profit was primarily due to favorable changes in the mix of customer requirements, partially offset by a decrease in work related to the Thacker Pass lithium project.

MINERALS MANAGEMENT SEGMENT

FINANCIAL REVIEW

The results of operations for the Minerals Management segment were as follows for the three months ended March 31:

The results of operations for the Minerals Management segment were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Revenues $ 5,608 $ 1,987 $ 11,108 $ 7,228

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Operating profit $ 4,173 $ 510 $ 8,408 $ 4,777

Revenues increased 4.9% in the first quarter of 2021 compared with the first quarter of 2020 primarily due to an increase in royalty income generated from the Permian Basin mineral interests acquired in the fourth quarter of 2020.

This increase was partially offset by an expected reduction in royalty income generated from Ohio mineral interests due to declines in production volumes from existing wells and lower natural gas prices.

Operating profit was comparable as the increase in revenue was offset by an increase in selling, general and administrative expenses due to higher employee-related expenses.

Revenues and operating profit increased significantly in the three and six months ended June 30, 2021 compared with the respective 2020 periods.

The first half of 2021 included an increase in royalty income generated by gas production from the Ohio minerals interests, as well as oil production from the Permian Basin and Eagle Ford Shale mineral interests acquired in the fourth quarter of 2020 and early in the second quarter of 2021, respectively.

Favorable changes in natural gas and oil prices also contributed to the improvement in revenues and operating profit.

The decrease in selling, general and administrative expenses is primarily due to a $0.5 million charge in the second quarter of 2020 to write-off certain leasehold interests.

UNALLOCATED ITEMS AND ELIMINATIONS

FINANCIAL REVIEW

Unallocated Items and Eliminations were as follows for the three months ended March 31:

Unallocated Items and Eliminations were as follows for the three and six months ended June 30:

THREE MONTHS SIX MONTHS

2021 2020 2021 2020

Operating loss $ (4,828) $ (4,070) $ (9,547) (8,673)

The operating loss was comparable between periods.

The operating loss increased in the three and six months ended June 30, 2021 primarily due to business development initiatives and higher employee-related costs.

NACCO Industries, Inc.

Coal Mining Outlook - 2021

In 2021, the Company expects coal deliveries to be comparable to 2020 based on current expectations of customer requirements.

Operating profit in 2021 is expected to decrease compared with 2020, excluding prior year charges of $4.6 million related to an asset impairment, an inventory write-down and a voluntary separation program.

The decrease in operating profit is primarily attributable to substantially lower full-year earnings expected at MLMC and reduced earnings at the unconsolidated Coal Mining operations.

MLMC earnings are expected to be lower as a result of an anticipated decrease in the profit per ton of coal delivered in 2021 compared with 2020, due in part to an increase in depreciation expense associated with development of a new mine area.

A decrease in employee-related costs resulting from lower headcount, primarily due to the 2020 voluntary separation program, is expected to be partially offset by higher insurance expense.

Segment EBITDA, excluding the $1.1 million asset impairment charge recognized in 2020, is expected to increase moderately over the prior year as the increase in depreciation expense will be partially offset by the other items contributing to the reduction in operating profit.

Changes in customer power plant dispatch, including changes related to natural gas price fluctuations and the continued increase in renewable generation, particularly wind, could reduce customer demand below anticipated levels, which could further unfavorably affect the Company’s 2021 outlook.

During 2020, GRE, Falkirk Mine's customer and the Company's second largest customer, announced its intent to retire the Coal Creek Station power plant in the second half of 2022.

The closure is not expected to affect 2021 results.

Falkirk Mine is the sole supplier of lignite coal to Coal Creek Station pursuant to a long-term contract, which specifies that GRE is responsible for all costs related to mine closure, including mine reclamation.

GRE has announced that it is in exclusive negotiations with a third party to sell Coal Creek Station.

If GRE's efforts to sell the power plant are successful, the Company expects to continue to operate the Falkirk Mine, however, the terms of the existing mining contract could change.

The owner of the power plant served by the Company's Sabine Mine in Texas intends to retire the power plant in 2023.

Deliveries from Sabine to the power plant are expected to continue until the first quarter of 2023 at which time the mine expects to begin final reclamation.

Mine reclamation is the responsibility of the customer.

Premature closure of power plants served by the Company's mines would have a material adverse effect on the future Earnings of unconsolidated operations of the Coal Mining segment and on the long-term earnings and cash flows of NACCO.

Capital expenditures are expected to be approximately $27 million in 2021.

In the second half and for the full year of 2021, the Company expects coal deliveries to decrease moderately from the respective prior year periods based on current expectations of customer requirements.

Despite the anticipated decrease in tons delivered, the Company expects operating profit for the Coal Mining segment to increase significantly in both the second half and for the full year of 2021 due to the anticipated cash receipt of approximately $24 million related to the termination of the Falkirk and Bisti customer contracts previously discussed.

In addition, the fourth quarter of 2020 included charges totaling $4.6 million that are not expected to reoccur.

Excluding the impact of these items, operating profit in the second half and for the full year of 2021 is expected to decrease from the respective prior year periods.

The decrease is primarily attributable to substantially lower earnings expected at MLMC and reduced earnings at the unconsolidated Coal Mining operations.

MLMC earnings are expected to decrease in the second half of 2021 from the comparable 2020 period and the first six months of 2021.

This expected decrease is due to an anticipated decline in the profit per ton of coal delivered, due in part to an increase in depreciation expense from higher capital expenditures in years subsequent to 2019.

As a result of the anticipated decrease in profit per ton, the 2021 full year results are expected to be lower than the 2020 full year.

The anticipated reduction in earnings at the unconsolidated Coal Mining operations is expected to be mainly driven by a reduction in fees earned at the Liberty Mine, as the scope of final mine reclamation declines compared with 2020, reduced earnings at Bisti as a result of the contract termination effective September 30, 2021, and lower earnings at Falkirk, partially offset by improved earnings at Coteau.

Excluding the $24 million termination-related payments expected in the second half of 2021 and the $1.1 million asset impairment charge recognized in 2020, Segment adjusted EBITDA for the second half of 2021 is expected to decrease from the second half of 2020 as a result of the reduction in operating profit.

Segment adjusted EBITDA for the full year is expected to be comparable to 2020 as the reduction in operating profit will be offset by an increase in depreciation expense.

Capital expenditures are expected to be approximately $21 million in the second half of 2021 and approximately $26 million for the full year.

The elevated levels of capital expenditures in the Coal Mining segment expected through 2021 relate to the development of a new mine area at MLMC.

The increase in capital expenditures associated with mine development will result in higher depreciation expense in future periods that will unfavorably affect future operating profit.

Capital expenditures for MLMC are expected to return to lower pre-2019 levels beginning in 2022 through the end of the current contract term in 2032.

Capital expenditures for MLMC are expected to return to lower pre-2019 levels in 2022.

Premature closure or reduction in utilization of power plants served by the Company's mines would have a material adverse effect on the future Earnings of unconsolidated operations of the Coal Mining segment and on the long-term earnings and cash flows of NACCO.

The owner of the power plant served by the Company's Sabine Mine in Texas intends to retire the power plant in 2023.

Deliveries from Sabine to the power plant are expected to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation.

Funding for mine reclamation is the responsibility of the customer.

Coteau operates the Freedom Mine in North Dakota.

All coal production from the Freedom Mine is delivered to Basin Electric Power Cooperative.

Basin Electric utilizes the coal at the Great Plains Synfuels Plant, Antelope Valley Station and Leland Olds Station.

The Synfuels Plant is a coal gasification plant that manufactures synthetic natural gas and produces fertilizers, solvents,

phenol, carbon dioxide, and other chemical products for sale.

In June 2021, Basin Electric announced it was evaluating the Synfuels Plant for possible sale.

NAMining Outlook

NAMining expects an increase in tons delivered, operating profit and Segment EBITDA for the 2021 full year over 2020 as a result of increased production under existing contracts and contributions from new mining contracts.

The increase in operating profit is expected to be partially offset by an increase in operating expenses primarily due to higher employee-related costs.

NAMining expects tons delivered, operating profit and Segment adjusted EBITDA to increase in the second half of 2021 over the second half of 2020.

Tons delivered and operating profit are expected to be higher primarily as a result of increased production under existing contracts and contributions from new mining contracts, partially offset by an increase in operating expenses mainly due to higher employee-related costs, including medical costs, and anticipated higher business development expenses.

Full-year 2021 operating profit is expected to decrease moderately compared with 2020 because of the lower first-quarter 2021 results.

Segment adjusted EBITDA for the full year is expected to increase compared with 2020 as the moderate reduction in operating profit will be more than offset by an increase in depreciation expense.

During the first quarter of 2021, NAMining entered into a 15-year mining services contract with a new customer at a limestone quarry in Central Florida.

NAMining will operate a smaller dragline at this quarry over the next two years while it relocates and commissions a larger dragline that will increase production capacity.

NAMining is operating a smaller dragline at this quarry for the next two years while it relocates and commissions a larger dragline that will increase production capacity.

Deliveries are expected to be approximately 1.5 million tons annually once mining commences with the larger dragline, which is anticipated to occur in 2023.

NAMining also amended a contract with an existing customer to operate an additional dragline at an existing limestone quarry in Florida.

Finally, early in the second quarter of 2021, NAMining entered into a one-year mining services contract with an existing customer for a sand and gravel quarry in Indiana.

NAMining also amended a contract with a current customer to operate an additional dragline at an existing limestone quarry in Florida.

Early in the second quarter of 2021, NAMining entered into a one-year mining services contract with an existing customer for a sand and gravel quarry in Indiana.

This customer, which is among the largest aggregates producers in the United States, is hopeful that this new quarry will operate for multiple years providing aggregates for a multi-year transportation infrastructure project near Indianapolis.

Deliveries are expected to be between 0.6 million to 1.0 million tons.

NAMining anticipates that these new or

revised contracts will be accretive to earnings in 2021.

Deliveries are expected to be between 0.6 million to 1.0 million tons during the term of the agreement.

NAMining anticipates that these new or revised contracts will be accretive to earnings in the second half of 2021.

NAMining has a substantial pipeline of potential new projects and is pursuing a number of growth initiatives that if successful would be accretive to future earnings.

Capital expenditures are expected to be approximately $10 million for the 2021 full year primarily for the acquisition, relocation and refurbishment of draglines.

In late July 2021, NAMining signed two contracts with a new customer to perform all mining operations at two sand and gravel quarries located in Texas and Arkansas.

The initial term of each contract is two years, and one of the contracts automatically extends an additional two years provided NAMining is not in default under that contract.

This customer is a leading supplier of construction materials in North America.

These contracts are expected to be accretive to future earnings, but due to the timing of contract execution are not included in the Company’s discussion of outlook for the 2021 second half or full year.

NAMining originally forecasted capital expenditures of $10 million for 2021.

NAMining now expects full-year capital expenditures to be $25 million, with approximately $19 million expended in the second half of 2021.

In addition to capital expenditures for the acquisition, relocation and refurbishment of draglines, forecasted capital expenditures now include the acquisition of other mining equipment to support the expansion of contract-mining services beyond NAMining's historical dragline-oriented model.

In 2019, NAMining's subsidiary, Sawtooth Mining, LLC, entered into a mining agreement to serve as the exclusive contract miner for the Thacker Pass lithium project in northern Nevada, owned by Lithium Nevada Corp., a subsidiary of Lithium Americas Corp.

In January 2021, Thacker Pass received a Record of Decision from the U.S.

Bureau of Land Management for the Thacker Pass Project following the completion of the National Environmental Policy Act Process.

This decision represents an important milestone in the development and the permitting of the Thacker Pass Project.

All major permits are expected to be received by the end of 2021.

All major permits for the Thacker Pass Project are expected to be received by the end of 2021.

Minerals Management Outlook

The Minerals Management segment derives income from royalty-based leases under which lessees make payments to the Company based on their sale of natural gas, oil, natural gas liquids and coal, extracted primarily by third parties.

Minerals Management is targeting investments in mineral and royalty interests totaling approximately $10 million in 2021.

These investments are expected to be accretive to earnings, but each investment's contribution to earnings is dependent on the details of each investment, including the size and type of interests acquired and the stage and timing of mineral development.

As part of this strategy, early in the second quarter of 2021, Minerals Management completed a small acquisition in the Delaware Basin for a purchase price of $0.3 million and a larger acquisition in the Eagle Ford Basin.

The Eagle Ford Basin acquisition includes approximately 14.1 thousand gross acres and 1.7 thousand net royalty acres for a preliminary purchase price of $4.7 million.

Excluding the impact of the $7.3 million impairment charge in 2020 related to legacy assets and any income related to asset acquisitions made after March 31, 2021, operating profit and Segment EBITDA in the Minerals Management segment is expected to decrease moderately in 2021 from 2020.

An anticipated reduction in royalty income from existing Ohio mineral and royalty assets is expected to be partially offset by royalty income generated from the Permian Basin mineral interests acquired in the fourth quarter of 2020.

Income from existing Ohio assets is expected to decline as a result of anticipated lower natural gas prices, fewer expected new wells in Ohio, lower commodity prices and the natural production decline that occurs early in the life of a well.

Another sustained decline in natural gas prices could unfavorably affect the Company’s outlook.

The acquired Permian Basin interests included producing wells that are generating royalty revenues, and are already contributing to 2021 earnings, as well as royalty and mineral interests that have not yet been developed.

In 2020, Minerals Management took impairment charges totaling $7.3 million, $0.6 million and $6.7 million in the second and fourth quarters, respectively, related to coal-related legacy assets.

Excluding these charges, operating profit and Segment adjusted EBITDA in the Minerals Management segment is expected to decrease significantly in the second half of 2021 from the second half of 2020 primarily due to the natural production decline curve of certain newer wells in Ohio.

Royalty income generated from the Permian Basin mineral interests acquired in the fourth quarter of 2020 and the Eagle Ford Shale in May 2021, in addition to favorable changes in oil and gas market pricing, are expected to partly offset the reduced earnings in the second half of the year, and contribute to the expected increase in full-year 2021 operating profit and Segment adjusted EBITDA over 2020.

Minerals Management began 2021 with a plan to make investments in mineral and royalty interests totaling approximately $10.5 million.

As part of this strategy, Minerals Management completed acquisitions totaling $5.0 million for interests in the Eagle Ford Shale early in the second quarter of 2021.

Minerals Management is targeting to acquire additional similar investments of approximately $5.0 million in the second half of 2021.

These investments, in addition to the Permian Basin

interests acquired late in 2020, are expected to continue to be accretive, but each investment's contribution to earnings is dependent on the details of each investment, including the size and type of interests acquired and the stage and timing of mineral development.

These acquired interests align with the Company’s strategy of selectively acquiring mineral and royalty interests with a balance of near-term, cash-flow yields and long-term growth potential, in oil-rich basins offering diversification from the Company’s legacy mineral interests.

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Management continues to view the long-term business outlook positively.

The outlook for growth in the NAMining and Minerals Management segments and in the Company's Mitigation Resources ® business is strong.

The long-term outlook for growth in the NAMining and Minerals Management segments and in the Company's Mitigation Resources of North America ® business is strong.

Each of these businesses continues to expand its pipeline of potential new projects with opportunities for growth and diversification.

In the first four months of 2021, NAMining executed three new agreements and Minerals Management completed two acquisitions, demonstrating success in executing on their growth strategies.

Excluding the prior year charges of $12.1 million related to asset impairments, an inventory write-down and the voluntary separation program, as well as the favorable impact of additional business development activities, the Company expects substantially lower net income as a result of lower operating profit, an anticipated increase in interest expense and a reduction in interest income.

Consolidated EBITDA in 2021 is expected to increase moderately over 2020, adjusted for prior year asset impairment charges.

The Company expects a tax benefit rate between 3% and 5% in 2021.

The Company expects to recognize a tax benefit rather than tax expense due to the mix of earnings and the benefit from percentage depletion at certain of the Company's mining operations.

In light of ongoing regulatory, economic and public opinion challenges facing the coal-fired power generation industry, in late 2020, the Company offered a voluntary separation program for certain corporate headquarters employees.

Estimated net benefits from this voluntary separation program are expected to be between $1.5 and $2.5 million annually beginning in 2021.

Cash flow before financing activities in 2020 included a significant use of cash related to changes in working capital, capital expenditures and the acquisition of mineral royalty interests.

The Company anticipates positive cash flow before financing activities in 2021 but at a level below the level of cash generated in 2019.

In the first half of 2021, NAMining executed three new agreements and Minerals Management completed two acquisitions, demonstrating success in executing on their growth strategies.

The Company expects net income for the 2021 full year to be significantly higher than 2020, with an anticipated effective income tax rate between 13% and 15%, both resulting from the expected termination and release settlements associated with Falkirk and Bisti and the absence of the prior-year charges totaling $12.1 million.

Excluding these items, the Company expects significantly lower net income in 2021 as a result of substantially lower operating profit primarily due to significantly lower earnings in the Coal Mining segment and higher unallocated employee-related and business development costs.

Consolidated Adjusted EBITDA in 2021 is expected to increase moderately over 2020, excluding the termination and release payments and prior-year impairment charges.

As a result of the termination and release payments, the Company expects positive cash flow before financing activities in 2021 as compared to a significant use of cash in 2020, but at a level below the amount of cash generated in 2019.

Consolidated capital expenditures are expected to be approximately $61 million in 2021.

The extent to which COVID-19 impacts the Company going forward will depend on numerous factors, including but not limited to the duration of the ongoing pandemic, the severity of any COVID-19 variants, the effectiveness of actions taken to contain and treat COVID-19 and its variants, the nature of, and the public's adherence to, public health guidelines, the pace of vaccinations and subsequent achievement of herd immunity, as well as the severity of pandemic-related supply chain and cost inflation challenges and the pace and the extent of economic recovery.

While the Company's existing mining operations to date have not been materially affected by the pandemic, future developments, which are highly uncertain and unpredictable, could significantly and rapidly cause a deterioration in the Company’s results, supply chain channels and customer demand.

The extent to which COVID-19 impacts the Company going forward will depend on numerous factors, including but not limited to the duration of the ongoing pandemic, the severity of the COVID-19 variants, the effectiveness of actions taken to contain and treat COVID-19 and its variants, the nature of, and the public's adherence to, public health guidelines, the pace and acceptance of vaccinations and subsequent achievement of herd immunity, as well as the severity of pandemic-related supply chain and cost inflation challenges and the pace and the extent of economic recovery.

While the Company's existing operations to date have not been materially affected by the pandemic, future developments, which are highly uncertain and unpredictable, could significantly and rapidly cause a deterioration in the Company’s results, supply chain channels and customer demand.

Growth and Diversification

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NAMining is pursuing growth and diversification by expanding the scope of its business development activities to include potential customers who require a broad range of minerals and materials and by leveraging the Company’s core mining skills to expand the range of contract mining services it provides.

NAMining advanced this effort in early 2021, when it entered into a contract to mine sand and gravel in Indiana, expanding the traditional scope of its core limestone mining business in Florida.

In addition, NAMining is pursuing opportunities to provide comprehensive mining services to operate entire mines when appropriate, as is the case at the new lithium project in Nevada.

NAMining advanced these efforts in early 2021, when it entered into a contract to mine sand and gravel in Indiana, and in mid-2021, when it signed contracts with a leading supplier of construction materials in North America to perform all mining operations at two sand and gravel quarries located in Texas and Arkansas.

The new contracts include responsibility for all mining activities, including pre-strip, blasting, excavation and load and haul operations.

These new contracts expand the range of contract mining services beyond the traditional scope of NAMining's core limestone mining business and expand its geography beyond Florida.

In addition, NAMining continues to pursue additional opportunities to provide comprehensive mining services to operate entire mines, as it expects to do at the new lithium project in Nevada.

The goal is to build NAMining into a leading provider of contract mining services for customers who produce a wide variety of minerals and materials.

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This business model can deliver higher average operating margins over the life of a reserve than traditional oil and gas companies that bear the cost of exploration, production and/or development.

Catapult Mineral Partners, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas mineral and royalty interests, has developed a strong network to source and secure new acquisitions, and has a sizeable pipeline of potential acquisitions under review.

Catapult Mineral Partners, the Company’s business unit focused on managing and expanding the Company’s portfolio of oil and gas

mineral and royalty interests, has developed a strong network to source and secure new acquisitions, and has a pipeline of potential acquisitions under review.

The goal is to construct a diversified portfolio of high-quality oil, gas, mineral and royalty interests in the United States that deliver near-term cash flow yields and long-term projected growth.

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The Company continues to look for opportunities to expand its coal mining business where it can apply its management fee business model to assume operation of existing surface coal mining operations in the United States.

However, opportunities are

very limited in the current environment.

Low natural gas prices and growth in renewable energy sources, such as wind and solar, are likely to continue to unfavorably affect the amount of electricity dispatched from coal-fired power plants.

However, opportunities are very limited in the current environment.

Fluctuating natural gas prices and growth in renewable energy sources, such as wind and solar, are likely to continue to unfavorably affect the amount of electricity dispatched from coal-fired power plants.

In addition, the political and regulatory environment is not receptive to development of new coal-fired power generation projects which would create opportunities to build and operate new coal mines.

The Company is committed to maintaining a conservative capital structure while it grows and diversifies, while avoiding unnecessary risk.

The Company is committed to maintaining a conservative capital structure as it continues to grow and diversify, while avoiding unnecessary risk.

Strategic diversification will allow for increased free cash flow that can be re-invested to strengthen and expand the businesses.

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Among the factors that could cause plans, actions and results to differ materially from current expectations are, without limitation:

(1) changes to or termination of a long-term mining contract, or a customer default under a contract, (2) a significant reduction in purchases by the Company's customers, including changes in coal consumption patterns of U.S.

(1) changes to or termination of customer or other third-party contracts, or a customer or other third party default under a contract, (2) a significant reduction in purchases by the Company's customers, including changes in coal consumption patterns of U.S.

electric power generators, or changes in the power industry that would affect demand for the Company's coal and other mineral reserves, (3) the ability of the Company to access credit in the current economic environment, or obtain financing at reasonable rates, or at all, and to maintain surety bonds for mine reclamation as a result of current market sentiment for fossil fuels, (4) failure to obtain adequate insurance coverages at reasonable rates, (5) the impact of the COVID-19 pandemic, (6) changes in tax laws or regulatory requirements, including the elimination of, or reduction in, the percentage depletion tax deduction, changes in mining or power plant emission regulations and health, safety or environmental legislation, (7) changes in costs related to geological and geotechnical conditions, repairs and maintenance, new equipment and replacement parts, fuel or other similar items, (8) regulatory actions, changes in mining permit requirements or delays in obtaining mining permits that could affect deliveries to customers, (9) weather conditions, extended power plant outages, liquidity events or other events that would change the level of customers' coal or aggregates requirements, (10) weather or equipment problems that could affect deliveries to customers, (11) failure or delays by the Company's lessees in achieving expected production of natural gas and other hydrocarbons;

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federal and state legislative and regulatory initiatives relating to hydraulic fracturing;

and the ability of lessees to obtain capital or financing needed for well development operations and leasing and development of oil and gas reserves on federal lands, (12) changes in the costs to reclaim mining areas, (13) costs to pursue and develop new mining and value-added service opportunities, (14) delays or reductions in coal or aggregates deliveries, (15) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, (16) the ability to successfully evaluate investments and achieve intended financial results in new business and growth initiatives, (17) the effects of receiving low sustainability scores which could result in the exclusion of the Company's securities from consideration by certain investment funds, and (18) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment.

and the ability of lessees to obtain capital or financing needed for well-development operations and leasing and development of oil and gas reserves on federal lands, (12) changes in the costs to reclaim mining areas, (13) costs to pursue and develop new mining and value-added service opportunities, (14) delays or reductions in coal or aggregates deliveries, (15) changes in the prices of hydrocarbons, particularly diesel fuel, natural gas and oil, (16) the ability to successfully evaluate

investments and achieve intended financial results in new business and growth initiatives, (17) the effects of investors’ and other stakeholders’ increasing attention to environmental, social and governance (“ESG”) matters, and (18) disruptions from natural or human causes, including severe weather, accidents, fires, earthquakes and terrorist acts, any of which could result in suspension of operations or harm to people or the environment.

Quantitative and Qualitative Disclosures About Market Risk

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements