Item 2. Properties
Item 2. PROPERTIES
Coal Mining Segment - Operations
NACCO-owned Resources and Reserves
1.0 INTRODUCTION
Information concerning the Company’s mining properties in this Form 10-K have been prepared in accordance with the requirements of subpart 1300 of Regulation S-K, which first became applicable to the Company for the year ended December 31, 2021. These requirements differ significantly from the previously applicable disclosure requirements of SEC Industry Guide 7. Among other differences, subpart 1300 of Regulation S-K requires the Company to disclose its mineral resources, in addition to its mineral reserves, both in the aggregate and for each of the Company’s individually material mining properties.
As used in this Report on Form 10-K, the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource,” “inferred mineral resource,” “mineral reserve,” “proven mineral reserve” and “probable mineral reserve” are defined and used in accordance with subpart 1300 of Regulation S-K. Under subpart 1300 of Regulation S-K, mineral resources may not be classified as “mineral reserves” unless the determination has been made by a qualified person that the mineral resources can be the basis of an economically viable project. Readers are specifically cautioned not to assume that any part or all of the mineral deposits (including any mineral resources) in these categories will ever be converted into mineral reserves, as defined by the SEC.
Readers are cautioned that, except for that portion of mineral resources classified as mineral reserves, mineral resources do not have demonstrated economic value. Inferred mineral resources are estimates based on limited geological evidence and sampling and have a too high of a degree of uncertainty as to their existence to apply relevant technical and economic factors likely to influence the prospects of economic extraction in a manner useful for evaluation of economic viability. Estimates of inferred mineral resources may not be converted to a mineral reserve. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. A significant amount of exploration must be completed in order to determine whether an inferred mineral resource may be upgraded to a higher category. Therefore, readers are cautioned not to assume that all or any part of an inferred mineral resource exists, that it can be the basis of an economically viable project, or that it will ever be upgraded to a higher category. Likewise, readers are cautioned not to assume that all or any part of measured or indicated mineral resources will ever be converted to mineral reserves. See "Item 1A - “Risk Factors” on page 20.
The information that follows is derived, for the most part, from, and in some instances is an extract from, the technical report summaries (“TRS’s”) prepared in compliance with the Item 601(b)(96) and subpart 1300 of Regulation S-K. Portions of the following information are based on assumptions, qualifications and procedures that are not fully described herein. Reference should be made to the full text of the TRS’s, incorporated herein by reference and made a part of this Report on Form 10-K.
TCoteau, Coyote Creek, Falkirk and MLMC, collectively referred to as “Mines subject to SEC Section 1300 reporting”, each wholly-owned subsidiaries of NACCO, operate surface coal mines under long-term contracts with power generation companies pursuant to a service-based business model. At each of these mines, the Company owns or controls the mineral resources and reserves.
The Company operates additional surface coal mines where the customer owns or controls the reserves. The Company conducts activities to extract these customer-owned reserves pursuant to long-term contracts.
Locations of the properties subject to SEC Section 1300 reporting are shown in Figure 1.1 Surface Coal Mines Operational During 2021 Subject to SEC Section 1300 reporting.
31
Table of Contents
Figure 1.1 Surface Coal Mines Operational During 2021 Subject to SEC Section 1300 Reporting
At all Mines subject to SEC Section 1300 Reporting other than MLMC, the Company is paid a management fee per ton of coal or heating unit (MMBtu) delivered. Each contract specifies the indices and mechanics by which fees change over time, generally in line with broad measures of U.S. inflation. The customers are responsible for funding all mine operating cost, including final mine reclamation, and directly or indirectly providing all of the capital required to build and operate the mine. This contract structure eliminates the Company's exposure to spot coal market price fluctuations.
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. 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.
A summary of coal production at the Mines subject to SEC Section 1300 Reporting for the past three years has been tabulated and is presented on Table 1.1 Production Summary.
Tons (in millions)
2019 2020 2021
The Coteau Properties Company 13.5 12.6 12.5
The Falkirk Mining Company 7.4 7.2 7.9
Coyote Creek Mining Company 1.7 2 2
Mississippi Lignite Mining Company 2.6 2.5 3
Totals 25.2 24.3 25.4
Table 1.1 Production Summary
32
Table of Contents
2.0 MATERIAL MINING PROPERTIES
2.1 Freedom Mine — The Coteau Properties Company
The Freedom Mine generally produces between 12.5 million and 13.5 million tons of lignite coal annually. The mine started delivering coal in 1983. All production from the mine is delivered to Dakota Coal Company, a wholly owned subsidiary of Basin Electric. Dakota Coal Company then sells the coal to the Synfuels Plant, Antelope Valley Station and Leland Olds Station, all of which are operated by affiliates of Basin Electric. 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 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. 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.
During August 2021, Bakken and Basin Electric signed a non-binding term sheet to purchase the assets of the Synfuels Plant. Bakken stated the closing date is expected to be April 1, 2023. As part of the term sheet between Basin Electric and Bakken, Basin Electric indicated that the Synfuels Plant will continue existing operations through 2025. The closing is subject to the satisfaction of specified conditions. Basin Electric is also considering other options for the Synfuels Plant if the transaction with Bakken does not close.
The Freedom Mine, operated by Coteau, is located approximately 90 miles northwest of Bismarck, North Dakota. The main entrance to the Freedom Mine is accessed by means of a paved road and is located on County Road 15. Coteau holds 380 leases granting the right to mine approximately 34,016 acres of coal interests and the right to utilize approximately 23,455 acres of surface interests. In addition, Coteau owns in fee 33,805 acres of surface interests and 4,107 acres of coal interests. Substantially all of the leases held by Coteau were acquired in the early 1970s and have been replaced with new leases or have lease terms for a period sufficient to meet Coteau’s contractual production requirements.
The reserves are located in Mercer County, North Dakota, starting approximately two miles north of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 100 miles northwest of the Freedom Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand, silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
Coteau currently has all permits in place for the Freedom Mine to operate through 2031. Permit expansions required to extend the life of the mine through 2045 will be acquired as needed. No mineral processing occurs at the Freedom Mine.
2.2 Falkirk Mine — The Falkirk Mining Company
The Falkirk Mine generally produces between 7 million and 8 million tons of lignite coal annually. The mine started delivering coal in 1978 primarily for the Coal Creek Station, an electric power generating station owned by GRE. In 2014, Falkirk began delivering coal to Spiritwood Station, another electric power generating station owned by GRE.
In May 2020, GRE announced its intent to sell or retire Coal Creek Station and modify Spiritwood Station to be fueled by natural gas. During June 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 and its affiliates. The closing of this sale is subject to the satisfaction of certain conditions and presently, the transaction is expected to close in the second quarter of 2022.
The Falkirk Mine, operated by Falkirk, is located approximately 50 miles north of Bismarck, North Dakota on a paved access road off U.S. Highway 83. Falkirk holds 335 leases granting the right to mine approximately 43,486 acres of coal interests and the right to utilize approximately 24,324 acres of surface interests. In addition, Falkirk owns in fee 40,666 acres of surface interests and 1,788 acres of coal interests. Substantially all of the leases held by Falkirk were acquired in the early 1970s with initial terms that have been further extended by the continuation of mining operations.
33
Table of Contents
The reserves are located in McLean County, North Dakota, from approximately nine miles northwest of the town of Washburn, North Dakota to four miles north of the town of Underwood, North Dakota. Structurally, the area is located on an intercratonic basin containing a thick sequence of sedimentary rocks. The economically mineable coals in the reserve occur in the Sentinel Butte Formation and the Bullion Creek Formation and are unconformably overlain by the Coleharbor Formation. The Sentinel Butte Formation conformably overlies the Bullion Creek Formation. The general stratigraphic sequence in the upland portions of the reserve area (Sentinel Butte Formation) consists of till, silty sands and clayey silts, main hagel lignite bed, silty clay, lower lignite of the hagel lignite interval and silty clays. Beneath the Tavis Creek, there is a repeating sequence of silty to sand clays with generally thin lignite beds.
There are no outstanding permits related to the life of mine ("LOM") plan awaiting regulatory approval. The Falkirk Mining Company currently has all permits in place to operate and adhere to the current mine plan. No mineral processing occurs at the Falkirk Mine.
2.3 Coyote Creek Mine - Coyote Creek Mining Company, LLC
The Coyote Creek Mine generally produces between 1.5 million and 2.0 million tons of lignite annually. The mine began delivering coal in 2016 to the Coyote Station owned by Otter Tail Power Company, Northern Municipal Power Agency, Montana-Dakota Utilities Company and Northwestern Corporation. In September 2021, Otter Tail Power Company filed its 2022 Integrated Resource Plan in Minnesota and North Dakota which included its intent to start the process of withdrawal from its 35 percent ownership interest in Coyote Station power plant with an anticipated exit from the plant by December 31, 2028.
The Coyote Creek Mine is located approximately 70 miles northwest of Bismarck, North Dakota. The main entrance to the Coyote Creek Mine is accessed by means of a four-mile paved road extending west off of State Highway 49. Coyote Creek holds a sublease to 86 leases granting the right to mine approximately 8,129 acres of coal interests and the right to utilize approximately 15,168 acres of surface interests. In addition, Coyote Creek Mine owns in fee 160 acres of surface interests and has four easements to conduct coal mining operations on approximately 352 acres.
The reserves are located in Mercer County, North Dakota, starting approximately six miles southwest of Beulah, North Dakota. The center of the basin is located near the city of Williston, North Dakota, approximately 110 miles northwest of the Coyote Creek Mine. The economically mineable coal in the reserve occurs in the Sentinel Butte Formation, and is overlain by the Coleharbor Formation. The Coleharbor Formation unconformably overlies the Sentinel Butte Formation. It includes all of the unconsolidated sediments resulting from deposition during glacial and interglacial periods. Lithologic types include gravel, sand silt, clay and till. The modified glacial channels are in-filled with gravels, sands, silts and clays overlain by till. The coarser gravel and sand beds are generally limited to near the bottom of the channel fill. The general stratigraphic sequence in the upland portions of the reserve area consists of till, silty sands and clayey silts.
There are no outstanding permits related to the LOM plan awaiting regulatory approval. Coyote currently has all permits in place for the Coyote Creek Mine to operate and adhere to a mine plan projected through 2040. No mineral processing occurs at the Coyote Creek Mine.
2.4 Red Hills Mine — Mississippi Lignite Mining Company
The Red Hills Mine generally produces between 2 million and 3 million tons of lignite coal annually. The Red Hills Mine started delivering coal in 2000. All production from the mine is delivered to its customer's Red Hills Power Plant.
The Red Hills Mine, operated by MLMC, is located approximately 120 miles northeast of Jackson, Mississippi. The entrance to the mine is by means of a paved road located approximately one mile west of Highway 9. MLMC owns in fee approximately 7,343 acres of surface interest and 4,425 acres of coal interests. MLMC holds leases granting the right to mine approximately 5,794 acres of coal interests and the right to utilize approximately 5,597 acres of surface interests. MLMC holds subleases under which it has the right to mine approximately 1,593 acres of coal interest. The majority of the leases held by MLMC were originally acquired during the mid-1970s to the early 1980s with terms extending 50 years, many of which can be further extended by the continuation of mining operations.The lignite deposits of the Gulf Coast are found primarily in a narrow band of strata that outcrops/subcrops along the margin of the Mississippi Embayment. The potentially exploitable tertiary lignites in Mississippi are found in the Wilcox Group. The outcropping Wilcox is composed predominately of non-marine sediments deposited on a broad flat plain.
MLMC currently has all permits in place for the Red Hills Mine to operate and adhere to a mine plan projected through April 2032. No mineral processing occurs at the Red Hills Mine.
34
Table of Contents
3.0 MINERAL RESOURCES AND RESERVES
Mineral resources and reserves have been summarized from the TRS for each mine subject to SEC Section 1300 reporting and have been included as Table 3.1 and Table 3.2. Qualities are being reported on an as-received moisture basis except for sodium which is from the mineral analysis of ash.
SUMMARY MINERAL RESOURCES AS OF DECEMBER 31, 2021 BASED ON CUT-OFF GRADES OF
Coteau - $1.70/mmBTU, Falkirk - $2.60/mmBTU, Coyote - $2.27/mmBTU, and MLMC - $30.00/ton
Measured mineral resources
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
322,310,200
6,779
37.64
7.27
0.89
5.62
The Falkirk Mining Company
78,420,784
6,534
39.83
6.65
0.57
NA
Coyote Creek Mining Company
31,202,000
6,943
36.63
7.25
0.94
7.78
Mississippi Lignite Mining Company
11,475,500
5,110
44.0
14.1
0.60
NA
Total
443,408,484
6,704
38.12
7.34
0.83
5.81
Indicated mineral resources
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
8,188,400
6,776
37.92
7.22
0.90
6.36
The Falkirk Mining Company
199,721
6,317
37.10
10.69
0.73
NA
Coyote Creek Mining Company
3,905,900
6,942
36.55
7.39
0.97
7.70
Mississippi Lignite Mining Company
16,169,100
5,270
44.3
14.3
0.7
NA
Total
28,463,121
5,940
41.35
11.29
0.79
6.80
Measured + indicated mineral resources
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
330,498,600
6,778
37.64
7.27
0.89
5.63
The Falkirk Mining Company
78,620,505
6,534
39.82
6.66
0.57
NA
Coyote Creek Mining Company
35,107,900
6,943
36.62
7.26
0.94
7.77
Mississippi Lignite Mining Company
27,644,600
5,200
44.2
14.2
0.7
NA
Total
471,871,605
6,657
38.31
7.57
0.83
5.84
Inferred mineral resources
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
15,000
6,463
37.84
9.78
1.02
1.59
The Falkirk Mining Company
0
NA
NA
NA
NA
NA
Coyote Creek Mining Company
0
NA
NA
NA
NA
NA
Mississippi Lignite Mining Company
0
NA
NA
NA
NA
NA
Total
15,000
6,463
37.84
9.78
1.02
1.59
Table 3.1 Mineral Resources Summary
35
Table of Contents
SUMMARY MINERAL RESERVES AS OF DECEMBER 31, 2021 BASED ON CUT-OFF GRADES OF
Coteau - $1.55/mmBTU, Falkirk - $2.60/mmBTU, Coyote - $2.27/mmBTU, and MLMC - $28.04/ton
Proven mineral reserves
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
253,946,500
6,779
37.70
7.19
0.89
5.12
The Falkirk Mining Company
78,420,784
6,534
39.83
6.65
0.57
NA
Coyote Creek Mining Company
31,202,000
6,943
36.63
7.25
0.94
7.78
Mississippi Lignite Mining Company
17,167,900
5,070
43.5
15.0
0.6
NA
Total
380,737,184
6,665
38.31
7.44
0.82
5.41
Probable mineral reserves
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
3,552,300
6,756
38.29
6.78
0.84
5.40
The Falkirk Mining Company
199,721
6,317
37.10
10.69
0.73
NA
Coyote Creek Mining Company
3,905,900
6,942
36.55
7.39
0.97
7.70
Mississippi Lignite Mining Company
9,447,600
5,080
43.1
15.0
0.6
NA
Total
17,105,521
5,868
40.54
11.50
0.74
6.60
Total mineral reserves
Tonnage
Grades/qualities
Lignite Coal:
Calorific Value (Btu/lb)
Moisture (%wt)
Ash (%wt)
Sulfur (%wt)
Sodium (%wt)
The Coteau Properties Company
257,498,800
6,779
37.71
7.19
0.88
5.12
The Falkirk Mining Company
78,620,505
6,534
39.82
6.66
0.57
NA
Coyote Creek Mining Company
35,107,900
6,943
36.62
7.26
0.94
7.77
Mississippi Lignite Mining Company
26,615,500
5,070
43.4
15.0
0.6
NA
Total
397,842,705
6,631
38.41
7.61
0.81
5.44
Table 3.2 Mineral Reserves Summary
Internal Control Disclosure Over Mineral Resources and Reserves
The modeling and analysis of the Company’s resources and reserves has been developed by Company mine personnel and reviewed by several levels of internal management, including the QP, and in some instances, third parties. The development of such resources and reserves estimates, including related assumptions, was a collaborative effort between the QP, Company staff and in some instances, third parties. This section summarizes the internal control considerations for the Company’s development of estimations, including assumptions, used in resource and reserve analysis and modeling.
When determining resources and reserves, as well as the differences between resources and reserves, management developed specific criteria, each of which must be met to qualify as a resource or reserve, respectively. These criteria, such as demonstration of economic viability, points of reference and grade, are specific and attainable. The QP and Company management agree on the reasonableness of the criteria for the purposes of estimating resources and reserves. Calculations using these criteria are reviewed and validated by the QP.
Estimations and assumptions were developed independently for each significant mineral location. All estimates require a combination of historical data and key assumptions and parameters. When possible, resources and data from generally accepted industry sources, such as governmental resource agencies, were used to develop these estimations.
Geological modeling and mine planning efforts serve as a base assumption for resource estimates at each significant coal mining operation. These outputs have been prepared by both Company personnel and third parties, and the methodology is
36
Table of Contents
compared to industry best practices. Mine planning decisions are determined and agreed upon by Company management. Management adjusts forward-looking models by reference to historic mining results, including by reviewing actual versus predicted levels of production from the mineral deposit, and if necessary, re-evaluating mining methodologies if production outcomes were not realized as predicted. Ongoing mining of the mineral deposit, coupled with product quality validation pursuant to industry best practices and customer expectations, provides further empirical evidence as to the homogeneity, continuity and characteristics of the mineral resource. Ongoing quality validation of production also provides a means to monitor for any potential changes in quality. Also, ongoing monitoring of ground conditions within the mine, surveying for evidence of subsidence and other visible signs of deterioration that may signal the need to re-evaluate rock mechanics and structure of the mine ultimately inform extraction ratios and mine design, which underpin mineral reserve estimates.
Management also assesses risks inherent in mineral resource and reserve estimates, such as the accuracy of geophysical data that is used to support mine planning, identify hazards and inform operations of the presence of mineable deposits. Also, management is aware of risks associated with potential gaps in assessing the completeness of mineral extraction licenses, entitlements or rights, or changes in laws or regulations that could directly impact the ability to assess mineral resources and reserves or impact production levels. Risks inherent in overestimated reserves can impact financial performance when revealed, such as changes in amortizations that are based on life of mine estimates.
Customer-owned Resources and Reserves
South Hallsville No. 1 Mine — The Sabine Mining Company
The South Hallsville No. 1 Mine generally produces between 1.5 million and 2.0 million tons of lignite annually. The mine began delivering coal in 1985. All production from the mine is delivered to Southwestern Electric Power Company's ("SWEPCO") Henry W. Pirkey Plant (the "Pirkey Plant"). SWEPCO is an American Electric Power (“AEP”) company. The mine's reserves and resources are owned and controlled by AEP. The Company conducts activities to extract these customer-owned and controlled reserves.
During 2020, AEP announced its intent 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. Funding for mine reclamation is the responsibility of SWEPCO.
The South Hallsville No. 1 Mine, operated by Sabine, is located approximately 150 miles east of Dallas, Texas on FM 968. The entrance to the mine is by means of a paved road. Sabine has no title, claim, lease or option to acquire any of the reserves at the South Hallsville No. 1 Mine. Southwestern Electric Power Company controls all of the reserves within the South Hallsville No. 1 Mine.
Five Forks Mine — Demery Resources Company, LLC
The Five Forks Mine generally produces between 0.1 million and 0.3 million tons of lignite annually. The mine began delivering coal in 2012 and is located approximately three miles north of Creston, Louisiana on State Highway 153. The mine's reserves and resources are owned and controlled by the customer. The Company conducts activities to extract these customer-owned and controlled reserves.
Access to the Five Forks Mine is by means of a paved road. Demery has no title, claim, lease or option to acquire any of the reserves at the Five Forks Mine. Demery's customer, Five Forks Mining, LLC, controls all of the reserves within the Five Forks Mine.
Facilities and Equipment
The facilities and equipment for each of the coal mines are maintained to allow for safe and efficient operation. The equipment is well maintained, in good physical condition and is either updated or replaced periodically with newer models or upgrades available to keep up with modern technology. As equipment wears out, the mines evaluate what replacement option will be the most cost-efficient, including the evaluation of both new and used equipment, and proceed with that replacement.
37
Table of Contents
The mining method and total cost of the property, plant and equipment, net of applicable accumulated amortization, depreciation and impairment as of December 31, 2021 is set forth in the chart below:
Location Mining Method Total Historical Cost of Mine
Property, Plant and Equipment
(excluding Coal Land, Real Estate
and Construction in Progress), Net of
Applicable Accumulated
Amortization, Depreciation and Impairment
( in millions)
Unconsolidated Mining Operations
Freedom Mine — The Coteau Properties Company Dragline operation with 3 draglines $ 96.2
Falkirk Mine — The Falkirk Mining Company Dragline operation with 4 draglines $ 93.8
South Hallsville No. 1 Mine — The Sabine Mining Company Dragline operation with 4 draglines $ 59.3
Five Forks Mine — Demery Resources Company, LLC Truck-shovel operation (a)
$ —
Coyote Creek Mine — Coyote Creek Mining Company, LLC Dragline operation with 1 dragline $ 131.7
Consolidated Mining Operations
Red Hills Mine — Mississippi Lignite Mining Company Dragline operation with 1 dragline $ 67.9
Other N/A $ 1.2
(a) Predominantly all of Demery's machinery and equipment is owned by its customer.
NAMining Segment - Operations
NAMining provides contract mining services for independently owned mines and quarries, primarily operating and maintaining draglines at limestone quarries and utilizing other mining equipment at sand and gravel quarries. During 2021, NAMining operated 32 draglines and other equipment at 25 quarries. Of the 32 draglines, 9 are owned by the Company and 23 are owned by customers. At December 31, 2021, NAMining had $35.5 million in property, plant and equipment, net of applicable accumulated amortization, depreciation and impairment.
38
Table of Contents
The mining process at the limestone mines involves excavating limestone from a water-filled quarry utilizing draglines. The excavated limestone is transported and processed by the customer. The following mines were operational during 2021:
Location Name Aggregate Location State Customer Year NACCO Started Operations
White Rock — North Limestone Miami FL WRQ 1995
Krome Limestone Miami FL Cemex 2003
Alico Limestone Ft. Myers FL Cemex 2004
FEC Limestone Miami FL Cemex 2005
SCL Limestone Miami FL Cemex 2006
Card Sound Limestone Florida City FL Cemex 2009
Central State Aggregates Limestone Zephyrhills FL McDonald Group 2016
Mid Coast Aggregates Limestone Sumter County FL McDonald Group 2016
West Florida Aggregates Limestone Hernando County FL McDonald Group 2016
St. Catherine Limestone Sumter County FL Cemex 2016
Center Hill Limestone Sumter County FL Cemex 2016
Inglis Limestone Crystal River FL Cemex 2016
Titan Corkscrew Limestone Ft. Myers FL Titan America 2017
Palm Beach Aggregates Limestone Loxahatchee FL Palm Beach Aggregates 2017
Perry Limestone Lamont FL Martin Marietta 2018
SDI Aggregates Limestone Florida City FL Blue Water Industries 2018
Queensfield Sand and gravel King William County VA King William Sand and Gravel Company, Inc. 2018
County Line (a)
Limestone Pasco County FL K&M Pasco 130 Holdings, LLC 2019
Newberry Limestone Alachua County FL Argos USA, LLC 2019
Titan Pennsuco Limestone Miami FL Titan America 2020
Seven Diamonds Limestone Pasco County FL Seven Diamonds, LLC 2021
Johnson County Sand and gravel Johnson County IN Martin Marietta 2021
Little River Sand and gravel Ashdown AR Lehigh Hanson 2021
Rosser Sand and gravel Ennis TX Lehigh Hanson 2021
Brooksville Cement Plant Limestone Brooksville FL Cemex 2021
(a) The County Line contract was terminated during the third quarter of 2021. NAMining mined 0.1 million and 0.2 million tons of limestone at this location during the 2021 and 2020 periods, respectively.
NAMining's customers control all of the limestone and sand reserves within their respective mines. NAMining has no title, claim, lease or option to acquire any of the reserves at any of the mines where it provides services.
Access to the White Rock mine is by means of a paved road from 122nd Avenue.
Access to the Krome mine is by means of a paved road from Krome Avenue.
Access to the Alico mine is by means of a paved road from Alico Road.
Access to the FEC mine is by means of a paved road from NW 118th Avenue.
Access to the SCL mine is by means of a paved road from NW 137th Avenue.
Access to the Card Sound mine is by means of a paved road from SW 408th Street.
Access to the Central State Aggregates mine is by means of a paved road from Yonkers Boulevard.
Access to the Mid Coast Aggregates mine is by means of a paved road from State Road 50.
Access to the West Florida Aggregates mine is by means of a paved road from Cortez Boulevard.
Access to the St. Catherine mine is by means of a paved road from County Road 673.
Access to the Center Hill mine is by means of a paved road from West Kings Highway.
39
Table of Contents
Access to the Inglis mine is by means of a paved road from Highway 19 South.
Access to the Titan Corkscrew mine is by means of a paved road from Corkscrew Road.
Access to the Palm Beach Aggregates mine is by means of a paved road from State Road 80.
Access to the Perry mine is by means of paved road from Nutall Rise Road.
Access to the SDI Aggregates mine is by means of paved road from SW 167 th AVE.
Access to the Queensfield Mine is by means of paved road from Dabney's Mill Road (SR 604).
Access to the County Line mine is by means of paved road from 18744 County Line Road.
Access to the Newberry mine is by means of paved road from NW County Road 235 (CR 235).
Access to the Titan Pennsuco mine is by means of a paved road from NW 121 st Way.
Access to the Seven Diamonds mine is by means of a paved road from US-41 S/Broad St.
Access to the Johnson County mine is by means of a paved road from Old State 37/N Waverly Park Road.
Access to the Little River mine is by means of an unpaved road from Little River 60.
Access to the Rosser mine is by means of a paved road from TX-34 S.
Access to Brooksville Cement plant is by means of a paved road from Cement Plant Road.
Minerals Management - Operations
As an owner of royalty and mineral interests, the Company’s access to information concerning activity and operations of its royalty and mineral interests is limited. The Company does not have information that would be available to a company with oil and natural gas operations because detailed information is not generally available to owners of royalty and mineral interests. Consequently, the exact number of wells producing from or drilling on the Company’s mineral interests at a given point in time is not determinable. The following table sets forth the Company’s estimate of the number of gross and net productive wells as of December 31, 2021:
Gross Net
Oil 467 0.9
Natural Gas 398 11.4
Total 865 12.3
Gross wells are the total wells in which an interest is owned.
Net wells are calculated based on the Company's net royalty interest, factoring in both ownership percentage of gross wells and royalty rate.
The majority of the Company’s producing mineral and royalty interest acreage now, or in the future, can be pooled with third-party acreage to form pooled units. Pooling proportionately reduces the Company’s royalty interest in wells drilled in a pooled unit, and it proportionately increases the number of wells in which the Company has such reduced royalty interest.
40
Table of Contents
The following table includes the Company's estimate of acreage for oil and gas mineral interests, NPRIs, and ORRIs as of December 31, 2021:
Gross Acres
Net Royalty Acres
Appalachia
34,661 36,199
East Texas/Haynesville
6,477 7,455
Permian
63,998 1,243
Eagle Ford
15,510 1,712
Other
7,139 13,327
Total
127,785 59,936
The Company may own more than one type of interest in the same tract of land, but the overlap is not significant. Net Royalty Acres are calculated based on the Company’s ownership and royalty rate, normalized to a standard 1/8 th royalty lease, and assumes a 1/4 th royalty rate for unleased acres.
The following table includes the Company's estimate of developed and undeveloped acreage based on the gross acres in a basin or region and includes mineral interests, NPRIs, and ORRIs as of December 31, 2021:
Developed Acreage Undeveloped Acreage Gross Acreage
Appalachia 28,011 6,650 34,661
East Texas/Haynesville 5,253 1,224 6,477
Permian 62,496 1,503 63,998
Eagle Ford 15,510 0 15,510
Other 1,021 6,118 7,139
Total 112,291 15,495 127,785
Undeveloped acres are either unleased and open or are leased acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil or natural gas, regardless of whether such acreage contains proved reserves.
Production and Price History
The following table sets forth the estimated oil and natural gas production data related to the Company’s mineral and royalty interests as well as certain price and cost information for the years ended December 31:
2021 (4)
2020
Production data:
Oil (bbl) (1)
32,627 2,239
NGL (bbl) (1)
63,559 68,599
Residue gas (Mcf) (2)
6,225,422 7,981,545
Total BOE (3)
1,133,756 1,401,095
Average realized prices:
Oil (bbl) (1)
$ 66.87 $ 36.27
NGL (bbl) (1)
$ 29.33 $ 14.56
Residue gas (Mcf) (2)
$ 3.36 $ 1.87
Average unit cost
BOE (3)
$ 4.99 $ 6.01
(1) Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume.
41
Table of Contents
(2) Mcf. One thousand cubic feet of natural gas at the contractual pressure and temperature bases.
(3) BOE. Barrel of Oil Equivalent, a conversion factor of 6 MCF of gas was used for 1 equivalent bbl of oil.
(4) As an owner of mineral and royalty interests, the Company’s access to information concerning activity and operations of its royalty and mineral interests is limited. As a result, the Company estimated the last two months of 2021 production and pricing data using projections based on decline rates of wells and prior expense information.
Evaluation and Review of Reserves
The reserves estimates as of December 31, 2021 were prepared by Haas Petroleum Engineering Services, Inc. ("Haas Engineering"). Haas Engineering has provided reservoir engineering services, consulting and ongoing support for major and independent petroleum companies, public utilities, financial institutions, investors, and government agencies since 1980. Haas Engineering does not own an interest in NACCO or any of the Company's properties, nor is it employed on a contingent basis. A copy of Haas Engineering's estimated proved reserve report as of December 31, 2021 is incorporated by reference herein to Exhibit 99.1 to this Form 10-K.
The properties evaluated are located in Alabama, Louisiana, Ohio, Pennsylvania, and Texas and represent all of the Company’s oil and gas reserves. A reserves audit is not the same as a financial audit. Reserve engineering is a subjective process of estimating volumes of economically recoverable oil and natural gas that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. In addition, the results of drilling, testing, and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of oil and natural gas that are ultimately recovered. Estimates of economically recoverable oil and natural gas and of future net revenues are based on several variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices, and future production rates and costs.
The reserves estimates have been prepared using standard engineering practices generally accepted by the petroleum industry. Decline curve analysis was used to estimate the remaining reserves of pressure depletion reservoirs with enough historical production data to establish decline trends. Reservoirs under non-pressure depletion drive mechanisms and non-producing reserves were estimated by volumetric analysis, research of analogous reservoirs, or a combination of both. Reserves have been estimated using deterministic and probabilistic methods. The appropriate methodology was used, as deemed necessary, to estimate reserves in conformance with SEC regulations. The maximum remaining reserves life assigned to wells included in this report is 50 years.
Total net proved reserves are defined as those natural gas and hydrocarbon liquid reserves to the Company's interests after deducting all royalties, overriding royalties, and reversionary interests owned by outside parties that become effective upon payout of specified monetary balances. All reserves estimates have been prepared using standard engineering practices generally accepted by the petroleum industry and conform to guidelines developed and adopted by the SEC.
Technologies Used in Reserve Estimation
The SEC’s reserves rules allow the use of techniques that have been proved effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. The term “reasonable certainty” implies a high degree of confidence that the quantities of oil, natural gas and/or NGLs actually recovered will equal or exceed the estimate. To achieve reasonable certainty, the Company employed technologies that have been demonstrated to yield results with consistency and repeatability. The technologies and economic data used in the estimation of the Company’s proved reserves include, but are not limited to, well logs, geologic maps, seismic data, well test data, production data, historical price and cost information and property ownership interests. The accuracy of the estimates of the Company’s reserves is a function of:
• the quality and quantity of available data and the engineering and geological interpretation of that data;
• estimates regarding the amount and timing of future operating costs, development costs and workovers, all of which may vary considerably from actual results;
• future prices of oil, natural gas and NGLs, which may vary considerably from those estimated; and
• the judgment of the persons preparing the estimates.
42
Table of Contents
The following table presents the Company's estimated net proved oil and natural gas reserves as of December 31, 2021 based on the reserve report prepared by Haas Engineering, the Company’s independent petroleum engineering firm. All of the Company’s reserves are located in the United States.
Net reserves as of December 31, 2021
Oil (bbl) (1)
NGL (bbl) (1)
Residue gas (Mcf) (2)
Proved developed 167,430 282,230 16,617,360
Proved undeveloped 220 90 1,210
Total 167,650 282,320 16,618,570
(1) Bbl. One stock tank barrel, or 42 U.S. gallons liquid volume.
(2) Mcf. One thousand cubic feet of natural gas at the contractual pressure and temperature bases.
As an owner of mineral and royalty interests and not working interests, the Company is not required to make capital expenditures and did not make capital expenditures to convert proved undeveloped reserves from undeveloped to developed.
Internal Control Disclosure
The Company's internal staff works closely with Haas Engineering to ensure the integrity, accuracy and timeliness of the data used to calculate proved reserves relating to NACCO's assets. Internal technical team members met with independent reserve engineers periodically during the period covered by the reserves report to discuss the assumptions and methods used in the proved reserve estimation process.
The preparation of the Company's proved reserve estimates are completed in accordance with internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following:
• Review and verification of historical production data, which data is based on actual production as reported by third-party producers who lease the Company’s royalty and mineral interests;
• Preparation of reserve estimates by Haas Engineering under the direct supervision of internal staff;
• Review by the President of Catapult Mineral Partners of all of the Company's reported proved reserves at the close of each quarter, including the review of all significant reserve changes;
• Verification of property ownership by the Company's land department; and
• No employee’s compensation is tied to the amount of reserves booked.
The Minerals Management Segment’s Business Operations Manager is the technical person primarily responsible for overseeing the preparation of the internal reserve estimates and for coordinating with Haas Engineering in the preparation of the third-party reserve report. The Business Operations Manager has over 10 years of industry experience with positions of increasing responsibility and reports directly to the President of 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.
Headquarter locations
NACCO leases office space in Mayfield Heights, Ohio, a suburb of Cleveland, Ohio, which serves as its corporate headquarters.
Coal Mining and Minerals Management lease corporate headquarters office space in Plano, Texas.
NAMining leases office and warehouse space in Medley, Florida.