NASDAQ:HNRG – Hallador Energy Company – Security Analysis

“A 2014 Alpha Sector”

Hallador Energy Info-Graphic

Click Image to Open the Infographic!

American Energy! and Hallador Energy Company – NASDAQ:HNRG – will be a foremost contender. Here are the 5 major reasons why HNRG is a superior energy company compared to its competitors:

  1. Strong U.S. demand for Illinois Basin coal – and Hallador’s ability to mine it & sell it cheapest.
  2. Non-union labor force; advanced safety – health – & mine maintenance systems.
  3. A positive track record and experienced management team that includes 3 prolific venture capitalists
  4. Strategic placement of coal mine system on major railway systems.
  5. Trading at a minor discount + major earnings growth for the next two years.

Hallador Energy Company has ownership in three energy enterprises:

100% ownership of Sunrise Coal

50% ownership of Sunrise Energy

45% ownership of Savoy Energy

Hallador Energy Ownership Structure

(12/2013) Yearly mining figures: 3.5 million tons of coal and 327,000 barrels of oil. We also want to note that all coal production has been presold until 2016. We see this as a benefit for NASDAQ:HNRG. In mid-2014 the new Bulldog mine will be approved for production. Yearly it will yield 3 million tons of coal – nearly doubling the coal output of HNRG. In mid/late 2015 the Russellville mine will be approved and begin mining operations; which again will increase production another 3 million tons/year.

Mining Locations

Hallador Energy Coal Mine Locations

HNRG corporate offices are located in: Denver, Colorado – all mining operations are located near the Indiana and Illinois southern border. Hallador’s 380 non-union coal mining employees coupled with the connectivity of mining operations and coal exporting near major railway infrastructure are two major competitive advantages NASDAQ:HNRG has over not only Illinois Basin competitors, but most US coal miners in general.

HNRG in 75 words

Report Card

Hallador Energy Report Card

Stock Metrics

Hallador Energy Banner

In the Chart Above… We are looking at price and volume metrics. Our proprietary system indicates strong pricing support at the current trading level. We also want to note that as the dividend schedule repeats and liquidity increases NASDAQ:HRNG will continue to elevate itself as an “invest-able” company in the public’s opinion. Increasing Institutional Ownership by sale of insider holdings is currently how this is taking place. While most would consider this strategy “au contraire” in our opinion, it is brilliant. 2 year best case scenario: right off the bat one more occurrence of “insider to institution” sale takes place. Then the Bulldog mine becomes operational – end of 2014 we see the early beginnings of HNRG scaling in earnings. Through 2014 management continues its steady quarterly dividend and public opinion starts setting in that HNRG is worthy of being considered “light conversation” on Wall Street. 2015 comes upon NASDAQ:HNRG and the financials start reflecting unexpected earnings gains due to the strategic planning and operational efficiency that management has set in place. Hallador continuing to make strides coupled with the energy industry turning full circle and becoming a sector of interest again for the public markets will continue to promote the demand for HNRG stock.

Dividend Surprise!

Hallador Energy Dividend Surprise Menu

Safety Standards

Hallador Energy Safety Standards

Hallador Energy prides itself on its safety standards & extensive maintenance schedules. Here is why it is a positive investment signal:

  1. Long term focus and commitment to high quality standards.
  2. Managements safety concern is a sign of low risk tolerance.
  3. Safe Mines produce more due to less – non operational days.

In fact Hallador is so committed to safety in 2007 it shut down one of its new (at the time) mines – Howesville.

Superior Operating Margins

Hallador Energy Operating Margins

The industrial commodities markets are usually dominated by the low cost leader. Hallador happens to have the lowest cost coal and highest operation margins of any Illinois Basin coal producer. Most important as scale is reached with the Bulldog and Russellville mines opening, operating margins will likely improve.

Compelling Valuation

Hallador Energy Compelling Valuation

Our Discounted Future Cash Flow valuation model indicates a current opportunity to purchase Hallador Energy Shares at 86 cents on the dollar. We forecast intrinsic value to grow at around 17% per year – couple this with the discounted price and you get a forecasted real return of 19.76% per year. Fat Pitch Investments stands by its 3 to 5 year investment horizon and considers its current holding of HNRG to be a first position that will increase with successful completion of projects and milestones.

Break

Disclosures

Seal of Approval

SM Call Signs

References_Logo

Important NASDAQ:HNRG Resource Pages:

Yahoo Finance | Google Finance | Morningstar

HNRG Investor Relations

SEC Filings

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST

Copyright © 2013 Fat Pitch Investments. All Rights reserved. This material is for your information only and is not a solicitation, or an offer, to buy or sell securities mentioned in articles past, present or future. Fat Pitch Investments is a firm involved with equity research and valuations. The information contained herein has been obtained from sources that we believe are reliable but in no way is guaranteed by us. Furthermore, this report contains forward looking statements and projections that are based on certain assumptions and expectations that are generated by our proprietary research process. Accordingly, actual results may differ considerably from those reflected in this report due to such factors as those which are listed in the Company’s SEC filings. Any non-factual information in the report is our opinion and is subject to change without notice.

- NASDAQ:HNRG – NASDAQ:HNRG – NASDAQ:HNRG – NASDAQ:HNRG – NASDAQ:HNRG – NASDAQ:HNRG – 

3 Responses

  1. Benjamin says:

    Interesting Company! I came across your site via your Craigslist Post. I do like the notion that they have sold all of their coal until2016. Question, So you are looking for a doubling in earnings when the neww mine becomes operational? Seems like a long time before this happens, what else is going on in the nearterm? I’m not big on investments longer than a couple months. Keep posting in this one page format, its pretty cool and the visuals are much nicer than any other reports I look at.

    • Fat Pitch says:

      Ben,
      Thanks for checking us out via the craigslist post. I appreciate the kind words with the new style of presenting our stock analysis and company research. As you can tell I am a big fan of one-pagers and info-graphics! To answer your question about Hallador’s upcoming coal mine. Please keep in mind that earnings will not automatically double when the mine becomes operational. It will probably take up to 9 months post opening to reach operational efficiency. To sweeten the deal we believe that earnings will most likely rise by 110% maybe even up to 125% (Just a bit more than double!). This is due to scaling in operations.

    • Fat Pitch says:

      Ben,
      I also wanted to add that in the coming months we are going to see a very interesting sale of the “Savoy Energy” Investment that Hallador made. Should be spun-off at a profit when comparing how the asset is valued on their financial statements.

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