Hallador Energy, Inc. (HNRG) Valuation Attempt

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A Reader Writes:
John, Here’s my quick and dirty for Hallador:
Currently not screaming cheap.
Hallador has traded to .6 book before. Current 1.2x. Highest is 4.4 or 30.36 ($4.14-$30 2015 TBV)
ev/ebitda 3mth op. inc + depr = 22341000/.25 to annualize = 6.9

industry multiple (still using the same from CLD) is 8.91

for approx 58.65 – 61.8  TBV is 6.8. Current price is 8.42.

It is making money (not a pure coal company; has oil/gas assets). From VL, it has cash flow after capex, 10% cap of 6.5 for no growth value.
It’s not a bad coal company after buying sunrise coal. The negative thing is its coal is high sulphur whereas CLD has all <1% SO2 coal (some <.5%). China recently announced a ban on high sulphur content coal. Existing shipments from Australia and South Africa in China cannot be used.
It does not break down its international shipments, but gauging CLD exports, its not much. around 4.7mt total shipments.
The thing I need to look into is how the coal companies booked their profits. Using newcastle 2014 price? Currently it is 59.6.
Hallador has good average per ton cost.
2 main areas of coal in the US. East and West.
East is higher while West is lower (CLD is lower because of transportation cost). Hallador has a 11.9 margin per ton with avg cost/ton at 31.43 and price/ton 43.3 as its mine are in the Eastern zone.
As a comparison, ANR’s 2014 Eastern cost/ton is 61.66. And Western 11.5. CLD still lowest but they have only mines in the West.
There was a report earlier in the week about POSCO in talks with Peabody about asset sales or product sales. They may be talking to others. One of the miners in Mongolia announced sales contract to Seoul today. Mongolia coal has a low sulphur too; however, after the Oyu Tolgoi deal recently, top 20 stocks there had a momentum run, and are not cheap. Another market I will look at is Indonesia. The government there has announced plans to remove mining export ban that they blamed on excessive nationalism. Indonesian coal has poor BTU but low sulphur. Also, these things will take a long time to sort out. Maybe next year. Just some things to keep an eye on. There is a special situation SGX catalist stock I’m waiting to see. It has become the parent company of a mongolian miner (2.6x book so not cheap anymore after the run up) and intend to hold other Mongolian coal assets. Will write when I know more.
Looking forward to seeing your write up.
Thank you,
HAVE A GREAT WEEKEND

3 responses to “Hallador Energy, Inc. (HNRG) Valuation Attempt

  1. Great work! Thanks!

    According to the morningstart analysis – Observer (your link)

    they say: natural gas prices are likely to normalize between $5 and $6 per Mcf after 2015-2016

    this automatically makes valuation of Hallador correct and makes it good buy according to me…
    The other thing we have to focus is uranium!

  2. According to data and to http://www.postcarbon.org/wp-content/uploads/2015/04/Marcellus-Production-Figure13.jpg

    the most valuable gas field Marcellus is either peaking or is close to peak in 2016-2018 and from there on it will lower production…

    How is that valuable to us? to coal?

  3. The Morningstar report is from two years ago, so predicting isn’t easy. Hallador’s thesis is fairly simple.
    The company can significantly grow production in a coal market that is growing (for reasons of regulation and type of coal) with high-quality, low cost (more than 75% of the market) assets. IF natural gas prices go below $2.50, then Hallador suffers IN THE SHORT-TERM, but then competitors are killed off so pricing will be strong probably three years from now.
    But an investor must be patient.

    I see some errors in my valuation calculations. I will replace/update the report soon.

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