Q4 2022 Hallador Energy Co Earnings Call
Speaker 1: The the.
Speaker 2: Hello and welcome to the Hallardorff Fourth Courser 2022 earnings call. My name is Elliot and I'll be coordinating your call today.
Speaker 2: If you would like to register a question during the presentation you may do so by pressing star 1 on your telephone keypad.
Speaker 2: I'd now like to hand over to Becky Palumbo. The floor is yours, please go ahead.
Speaker 3: Thank you, Elliot, and thank you everybody for joining us today. Yesterday afternoon, we released our full year 2022 financial and operating results on Form 10-K , which is now posted on our website. With me today on this call is Brent Belzland, our President and CEO , and Larry Martin, our CEO Reporter.
Speaker 3: In this context, forward-looking statements often address our expected future business and financial performance, while these forward-looking statements are based on information currently available to us. If one or more of these risks or uncertainties materialize, we can make sure that we are
Speaker 3: or if our understanding assumptions prove incorrect, actual results may vary materially from those we projected or expected.
Speaker 3: For example, our estimates of mining costs, future sales, legislation, and regulations in providing these remarks, we have no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, that may be required by law.
Speaker 3: For a discussion of some of those risks and uncertainties that may affect our future results, you should review the risk factors described from time to time in the reports we file with the SEC. As a reminder, this conference call is being recorded. In addition, a live and archived webcast of the earnings call is also available on thelight
Speaker 3: 205, access code 724924. And with that, I'll turn the call over to Larry.
Speaker 4: Thanks, Becky, and good afternoon, everyone.
Speaker 4: Before I get into our review of operating results, I want to define adjusted EBITDA. We define this as operating cash flows, lest the effects of certain subsidiary and equity method investment activity plus bank interest.
Speaker 4: less effects of working capital period changes, plus cash paid on ARO reclamation, plus other amortization.
Speaker 4: So for the year ended 2022, we ended with net income of $18.1 million or $0.57 per basic share and our diluted earnings per share was $0.55.
Speaker 4: the diluted earnings per share for us is.
Speaker 4: included earnings per share for us is if
Speaker 4: the converted debt was converted to equity.
Speaker 4: Our adjusted EVA dock for the year is $56.2 million. Our bank debt decrease was $26.5 million.
Speaker 4: And our bank debt at the end of the year was $85.2 million, excluding layers of credit of $11 million. So we had $85 million of borrowed debt, $11 million of layers of credit. Our net bank debt at the end of the year was $82.2 million.
Speaker 4: And our leverage ratio, which is adjusted EBITDA, debt to adjusted EBITDA, was 2.05 times.
Speaker 4: I'm answering the call over Brent Bilsman for his review of the year and beyond.
Speaker 5: Thank you Larry.
Speaker 6: Building upon my comments.
Speaker 6: Building upon my comments from the third quarter investor call.
Speaker 6: The full year 2022 was transformational for Hallador. As the market price for coal approached all-time highs,
Speaker 6: we were able to capture significant market opportunities.
Speaker 6: to forward contracted coal sales of more than 2.2 million tons.
Speaker 6: at an average price of $125 per ton.
Speaker 6: We delivered a small percentage of these times in 2022.
Speaker 6: are contracted to deliver the majority in 2023.
Speaker 6: and will continue with longer term deliveries through 2025.
Speaker 6: to fulfill these new profitable obligations.
Speaker 6: We invested substantially in both operations and headcount growth.
Speaker 6: to quickly expand our coal production capacity.
Speaker 6: From approximately 6 million tons annually in 2021.
Speaker 6: to as much as seven and a half million tons.
Speaker 6: in 2023.
Speaker 6: We expanded coal production capacity by adding more units at our Oaktown mining complex.
Speaker 6: Opening a small surface mine pit near Freelonville, Indiana.
Speaker 6: and moving our ace in the hole production.
Speaker 6: to a small surface mine pit near Petersburg, Indiana known as Prosperity.
Speaker 6: Freelandville and Prosperity production began in Q3 of 2022.
Speaker 6: Volumes from these new pits.
Speaker 6: are expected to be higher cost.
Speaker 6: We will continue to evaluate.
Speaker 6: the productivity of these minds in connection with market conditions.
Speaker 6: to determine the appropriate operational balance.
Speaker 6: Our average coal sales price increased
Speaker 6: from $39.51 per ton in 2021.
Speaker 6: to $45.64 per ton in 2022.
Speaker 6: and will be approximately $58.70 per ton.
Speaker 6: in 2023.
Speaker 6: Various factors including inflation.
Speaker 6: operational challenge and new hire onboarding and training.
Speaker 6: operational challenge, and new hire onboarding and training impacted our cost of production and margins.
Speaker 6: However, we closed the year with fourth quarter margins of $10.41.
Speaker 6: per ton and full year margins of $8.35.
Speaker 6: per ton compared with
Speaker 6: 2021 margins of $7.35 per ton.
Speaker 6: Looking at costs, much like the rest of the world, we experience and are experiencing increasing costs to produce.
Speaker 6: Our average coal cost increased from $32.16 per ton.
Speaker 6: in 2021 to 3728.
Speaker 6: in 2022 with fourth quarter costs just above $40 per tub.
Speaker 6: As we start to realize
Speaker 6: additional efficiencies from the experience.
Speaker 6: Our added headcount continues to gain, fewer production challenges and increased production.
Speaker 6: We expect these costs to levelize out or improve.
Speaker 6: throughout 2023.
Speaker 6: Additionally, in Q4 of 2022, we completed the acquisition.
Speaker 6: of the 1 gigawatt Mira generation station. The transformational impact of acquiring Mira is not just limited.
Speaker 6: to adding new revenue generation.
Speaker 6: opportunities for our business.
Speaker 6: While we expect sales of both fast and energy to help drive growth,
Speaker 6: Miriam will add support to our coal business.
Speaker 6: by providing flexibility
Speaker 6: for up to 40% of our coal production.
Speaker 6: to capture the greatest value between the energy and coal market.
Speaker 6: Starting in 2024.
Speaker 6: We anticipate shipping up to 3 million tons of coal annually.
Speaker 6: from our minds directly to Miriam.
Speaker 6: the close proximity of the vines to the plant
Speaker 6: It's about 20 miles.
Speaker 6: enables real-time adjustments that should promote
Speaker 6: enables real-time adjustments that should promote additional efficiencies.
Speaker 6: for both business statements.
Speaker 6: Moreover, at Mira, we anticipate
Speaker 6: 3 million tons of our coal will produce approximately
Speaker 6: 6.5 million megawatt hours that we anticipate selling into the MISO.
Speaker 6: wholesale energy market. We expect to utilize funds from third-party sales of the annual dependency accreditation of Mira.
Speaker 6: to cover a significant portion of the analyzed fixed cost of the plant.
Speaker 6: Well, the capacity market will fluctuate over time. current capacity prices.
Speaker 6: While the capacity market will fluctuate over time, we believe that at current capacity prices, VARIN provides a low-cost option.
Speaker 6: to access the highest value market.
Speaker 6: for our coal production. The vertical integration also provides true optionality.
Speaker 6: in terms of how and when we settle our coal.
Speaker 6: and energy.
Speaker 7: In some instances...
Speaker 6: If coal prices remain high...
Speaker 6: It may make sense to divert coal away from Mira.
Speaker 6: to divert coal away from Merrim and into the open coal market.
Speaker 6: In other situations, it may make sense to increase our shipments to Maryland.
Speaker 6: and sell additional energy in the wholesale energy market.
Speaker 6: In either case, flexibility is a key benefit.
Speaker 6: that Halador did not have prior to the acquisition.
Speaker 6: We also recognize the challenges of operating the coal fired generation station.
Speaker 6: Due to the volatility of power prices, our earnings will be lumpy.
Speaker 6: But we believe on the whole that our profit potential has significantly increased.
Speaker 6: utilizing a strategy that incorporates offers into the day ahead.
Speaker 6: power market allows us to capture
Speaker 6: a significant portion of this potential.
Speaker 6: while also limiting downside risk.
Speaker 6: Additionally, for us to operate Merrim beyond 2025,
Speaker 6: There will be required investment in environmental controls.
Speaker 6: prior to the end of 2025 that could exceed $45 million.
Speaker 6: Based on the present state of the energy market,
Speaker 6: The declining capacity reserve margins of the grid
Speaker 6: and increasing frequency of grid emergency events.
Speaker 6: and increasing frequency of grid emergency events, we expect power markets to remain elevated.
Speaker 6: Over the course of 2023, we'll be transitioning into a company with much higher long-term profit potential. We'll be transitioning into a company with much higher long-term profit potential.
Speaker 6: but one which will likely experience periods of great volatility.
Speaker 6: Demand is the downside risk of these volatile periods.
Speaker 6: We continue to focus on reducing bank debt. In 2022, bank debt was reduced by $26.5 million.
Speaker 6: continue to focus on reducing bank debt. In 2022, bank debt was reduced by 26.5 million, bringing the balance at the end of 2022.
Speaker 6: fiscal 2022 to $85.2 million.
Speaker 6: As of December 31, 2022, our liquidity stood at $32.1 million.
Speaker 6: And our leverage ratio had dramatically improved.
Speaker 6: And our leverage ratio had dramatically improved to 2.05 times.
Speaker 6: Subsequent to year end, on March 13 of 2023,
Speaker 6: We executed an amendment with our credit facility, which converted $35 billion of the outstanding revolver to term debt.
Speaker 6: With final payment due in March of 2024.
Speaker 6: extended maturity of the remaining 85 million revolver capacity
Speaker 6: and extended maturity of the remaining 85 million revolver capacity to May of 2024.
Speaker 6: Looking at looking at CapEx, our 2023 capital expenditure budget.
Speaker 6: to $69 million.
Speaker 6: of which $35 million is maintenance cap x.
Speaker 6: Of the 69 million roughly half is associated with coal and the other half associated with power.
Speaker 6: Now, I'm going to flip the call back over to Larry Martin, our CFO .
Speaker 6: and ask him to walk everyone through the purchase accounting associated with the Mirabai position.
Speaker 4: Thanks, Brent. Although the only consideration Hallador paid for the power plant was roughly $15 million, which consisted of $5 million of inventory, $3 million of transaction costs, and $7 million of assumed reclamation liabilities for the ash disposal.
Speaker 4: We accounted for this as an asset acquisition as required by generally accepted accounting principles. We entered into the purchase agreement with Hoosier Energy in February of 2022 and closed the transaction on October 21st of 2022.
Speaker 4: The energy markets were volatile during this period. Thus, in the time between signing and closing the PPA,
Speaker 4: In closing, the PPA was below market and both the coal purchase contract and the coal inventory were below market.
Speaker 4: So, under generally accepted accounting principles, we accounted for this as a purchase accounting. This resulted in a $185 million liability adjustment for the PPA contract and a $34 million asset adjustment for the below market cold purchase contract and inventory.
Speaker 4: These two large adjustments, along with the $15 million consideration and some smaller gap adjustments, resulted in $188 million of consideration given under gap purchase accounting.
Speaker 4: $23 million of the $185 million PPA contract liability was recorded to revenue in 2022. Of the $160 million remaining.
Speaker 4: of the liability, 88 million is in current liabilities on our balance sheet and will be recorded to revenue in 2023. 75% of this will be by May 31st.
Speaker 4: Of the $34 million associated with the coal purchase contract, $3.6 million was included as expense in 2022.
Speaker 4: The remaining $30 million is recorded as a current asset and will be reversed to expense by May 31, 2023. So while approximately $58 million of 2023 earnings will result from this GAAP accounting treatment,
Speaker 4: Our free cash flow, EBITDA reporting, debt covenants, and taxable income will be unaffected by these non-cash adjustments.
Speaker 4: I will now turn the call back over to Brent for closing comments.
Speaker 6: Well, I'd like to open up. It ends our prepared comments.
Speaker 6: And I'd like to open up the call to any questions.
Speaker 2: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two.
Speaker 2: And when preparing to ask your question, please ensure your device is unmuted locally. Our first question today comes from Lucas Pipes from B-Riley Securities. Your line is open.
Speaker 8: Thank you very much, operator. Good afternoon, everyone.
Speaker 8: Hey, Brent. My first question is in regards to liquidity. When you think about the amount of liquidity the business needs on an ongoing basis, how would you frame that?
Speaker 8: that versus how much cash you'd like to keep on the balance sheet. Would appreciate your perspective on that. Thank you.
Speaker 6: Yes, thank you, Lucas. I think our goal is you can never have too much liquidity.
Speaker 6: Our dean plan is to
Speaker 6: try to get this company
Speaker 6: net debt free sometime around the end of...
Speaker 6: first quarter of 2024.
Speaker 6: quarter of 2024.
Speaker 6: and then have a credit facility and cash on our balance sheet that
Speaker 6: you know, hopefully is in the zip code of $100 million. So I think that's what we look to do with our company over the next 12 months, roughly from today.
Speaker 6: And I think that with contracts in hand that we have and then you know
Speaker 6: This year, the majority of our earnings are from our coal division.
Speaker 6: with the power plant providing
Speaker 9: minimal.
Speaker 6: earnings.
Speaker 6: then in 2024 it looks to us that you know we'll be taking a much greater percentage of our coal to the plant.
Speaker 6: So the profitability of the plant will come into focus at that time.
Speaker 6: I think that answers, I hope that answers your question.
Speaker 8: That's very helpful.
Speaker 8: Very helpful and sorry if I didn't.
Speaker 8: You said that in 2023 there will be much of a contribution from the power plant. Did I hear that right? Or could you expand on that? Can we just go down the line.
Speaker 6: Yeah, so if you look at the majority of our business.
Speaker 6: So we have sold power.
Speaker 6: to the seller of the plant.
Speaker 6: primarily most of the output of the plant through May of
Speaker 6: primarily most of the output of the plant through May of this year.
Speaker 6: And then that PPA reduces to
Speaker 6: And then that PPA reduces to about
Speaker 9: Ostroke.
Speaker 6: 40% of the output of the plant thereafter.
Speaker 6: of the output of the plant thereafter. So we will begin to ramp up.
Speaker 6: some of our coal shipments to the plant.
Speaker 6: whole shipments to the plan.
Speaker 6: But the majority of our profitability will come from the coal division in 2023.
Speaker 6: When we get into 2024, we anticipate taking as much coal as possible, hopefully up to 3 billion tons.
Speaker 6: we anticipate taking as much coal as possible, hopefully up to three million tons. Two zero.
Speaker 6: and convert that coal into electrons. We think that.
Speaker 6: Judging by the forward power curve today,
Speaker 6: occurs today, by June power prices change.
Speaker 6: every hour of every day, but looking at the curves that we're looking at today.
Speaker 6: that looks to be the most profitable thing to do. So that's the signals that we're seeing today.
Speaker 6: And what we tried to outline is that the capacity markets
Speaker 6: today are robust and
Speaker 6: today are robust and should materially cover.
Speaker 6: you know, most if not all the fixed costs.
Speaker 6: of the plan.
Speaker 6: So we kind of view it as...
Speaker 6: So we kind of view it as we essentially have a very low cost option.
Speaker 6: with the plan.
Speaker 6: to either take our tons to the third party sales market, which is traditionally what we've done.
Speaker 6: or take those tons to mirror them and convert them into electrons.
Speaker 6: which looks to be
Speaker 6: considerably more profitable to do today. We'll see what the market brings. We saw the markets change very quickly.
Speaker 6: in 2022.
Speaker 6: which affected why we chose to, if you went back to our prior calls.
Speaker 6: why we chose to sell such a high percentage.
Speaker 6: of our coal the third parties.
Speaker 6: And part of that was because we hadn't closed on the plant yet, so there was some...
Speaker 6: We're not 100% certain we could close on the plant.
Speaker 6: challenges to that. So it was the, you know, on a risk-adjusted basis that would made the most sense.
Speaker 6: to contractually sell 2023 tons.
Speaker 6: to third parties, whereas 2024.
Speaker 6: that strategy appears today by the market signals today that it will change and will
Speaker 6: So less outside and more to ourselves.
Speaker 10: Got it.
Speaker 8: Thank you for that. What is the forward price for power for this market for 2024 today?
Speaker 6: Yeah, that's a proprietary number, so we're not disclosing that.
Speaker 6: Yeah, that's a proprietary number, so we're not disclosing that. Okay.
Speaker 6: proprietary number so we're not we're not disclosing that okay
Speaker 11: That's helpful.
Speaker 8: And just because I tried to look through the 10k and apologies if it wasn't immediately obvious to me, but the contribution
Speaker 8: of Marin to Ibatar in the fourth quarter. Was it that comment?
Speaker 4: Uh, roughly 5M dollars later. What was the exact number? It was like 5.5 million for the mayor and for the
Speaker 4: So, we had like 56.2 million adjusted EBITDA, Lucas, and about 5.5 of that was from the power plant.
Speaker 8: Got it. Okay. Super. And then is it possible – thank you very much for this. I'll do one last one and turn it over to – when I look at the – your contract book 7.5 million times for this year.
Speaker 8: and then I think 2024 through 2027 you have 7.3 million tons. Can you share how much of the 7.5 and the 7.3 respectively is earmarked for merit?
Speaker 6: Well, again, I think our goal and.
Speaker 6: is to take as much coal as possible to Marin because we think that
Speaker 6: Converting fuel into electrons is the value add, right? It should be. 9 times out of 10 are our best market.
Speaker 6: There were some unique things that happened last year that.
Speaker 6: Last year, market may have been one out of the.
Speaker 6: 1 out of the 10 for a small window of time, so we chose to take advantage of that.
Speaker 6: But I think 9 times out of 10 will try to take up to 3 million tons.
Speaker 6: But I think nine times out of ten will try to take up to three million tons of our
Speaker 6: take up to 3 million tons of our seven.
Speaker 6: million tons of production to to Merrill.
Speaker 6: And like I said, forward curves are certainly in support of that today.
Speaker 6: We have not chosen to sell a lot in the forward curve market as of this moment, about 20% of our production.
Speaker 6: And the balance we are currently in position to sell in the day ahead market.
Speaker 4: So we're still...
Speaker 4: Let me add there. So, Lucas, in your question on that table, the 7.5 and the 7.3 and beyond, there's zero Merrim sales in there. That is all third party.
Speaker 4: sales to third parties.
Speaker 12: Very helpful.
Speaker 8: Really appreciate the color. I'll jump back in queue for now. Thank you both.
Speaker 8: Really appreciate the color. I'll jump back in queue for now. Thank you both. Thank you, Lucas.
Speaker 2: Our next question comes from Kevin Tracy from Oberon Asset Management. Your line is open.
Speaker 13: Thanks for taking my questions.
Speaker 13: The first one's on the price of coal tons, I guess beyond 2023. In past 10Ks, you've disclosed...
Speaker 13: the price position for the next two years. In this latest 10K, you haven't put out the price for 2024. But there's a footnote in your 10K where you note that the performance obligation related to price.
Speaker 13: tons is 593 million. So if I do some quick math, you know, I'm coming to the 3.3 million price tons that are beyond 2023 are at an average price of roughly $46 a ton, which is obviously a pretty big step down from what you expect.
Speaker 13: this year. So I'm hoping you can comment on.
Speaker 13: So I'm hoping you could comment on that math.
Speaker 13: Is right and given natural gas prices are awfully low today. If it's fair to expect the full price you receive from 3rd parties. Next year take a step down.
Speaker 6: All right. Well, I'll try to dissect that. There were several questions in there. I think your math is generally in the right zip code.
Speaker 6: But what's a caveat to that is that.
Speaker 6: With the dilemma we have.
Speaker 6: is if we take, you know, here 40% of our coal production
Speaker 6: to the mirror generator.
Speaker 6: and we convert that into electrons.
Speaker 6: and we price that at the day ahead curve.
Speaker 6: price that at the day ahead curve, the pricing today looks.
Speaker 9: Very robust, right?
Speaker 6: And we may do that, but we have not done that yet. So on one hand we say, well, we've got a home for it. But we haven't pulled the trigger on that sale. There's some reasons for that, right? There's.
Speaker 6: If you make a forward sale on power, you're obligated to perform. There can be significant.
Speaker 6: You know, if you make a forward sale on power, you're obligated to perform. And there can be significant penalties for not performing.
Speaker 6: And one of the things that we're seeing in the, so we're trying to look at that and make sure that we
Speaker 6: do that in an appropriate way that we are maximizing the profitability of the plant without taking too much downside risk and what I mean by that is
Speaker 6: do that in an appropriate way that we are maximizing the profitability of the plant without taking too much downside risk. And what I mean by that is, so if you looked at
Speaker 6: In February of 2021 in Texas when they had the five day outage with Storm Uri, you saw several power producers who had sold say $50 per megawatt power.
Speaker 6: We're hit by that storm and couldn't produce and we're forced to cover at $9,000 a megawatt hour in the Texas market and we're bankrupted pretty quickly.
Speaker 6: Now, we're in the MISO market, Texas is in ERCOT.
Speaker 6: The max limit is, legal limit is $3,500 a megawatt hour, which means...
Speaker 6: you know, if you were caught in that event, you would go bankrupt slower.
Speaker 6: So we're working on ways that we can lock in the profit potential for some of the plant.
Speaker 6: while at the same point in time limiting our downside risk in the event
Speaker 6: limiting our downside risk in the event that the plant can't.
Speaker 6: or wouldn't perform at that precise moment. And what we're seeing is if you look at, you know, one of the trends that's going on in the industry is...
Speaker 6: wouldn't perform at that precise moment. And what we're seeing is if you look at you know one of the trends that's going on in the industry is generation that has an on switch.
Speaker 6: and I would argue on-site fuel, coal, nuclear.
Speaker 6: is being prematurely replaced.
Speaker 6: with generation that either doesn't have an on switch, wind and solar,
Speaker 6: with generation that either doesn't have an on switch, wind and solar, or doesn't have on-site fuel, natural gas.
Speaker 6: Those are basically the three options.
Speaker 6: that the market is replacing generation with.
Speaker 6: What we're finding is if you go back in MISO to prior to 2016 they had zero max-gen events. They had all this excess capacity.
Speaker 6: generators they could turn to when demand got
Speaker 9: Hi.
Speaker 6: Well now we're seeing those reserve margins, or another way of saying that is excess generation capacity is gone.
Speaker 6: which is why the capacity payments of the plant now
Speaker 6: which is why the capacity payments of the plant now are high enough.
Speaker 6: to cover a significant portion of the fixed cost of the plan and
Speaker 6: Back to 16, we saw zero max-gen events in the last 12 months. We've seen 11.
Speaker 6: And these are events where power prices are hitting just astronomical numbers, right?
Speaker 6: There's a balance as everyone tries to figure out.
Speaker 6: or the balance as everyone tries to figure out this.
Speaker 6: trend in the grid where is
Speaker 6: you know, it's these
Speaker 6: These super high price events are happening with greater frequency.
Speaker 6: So are you better to lock in margins ahead at say $50?
Speaker 6: per megawatt hour or 40-some dollars per megawatt hour.
Speaker 6: Or are you better to have your generator less sold?
Speaker 6: Or are you better to have your generator less sold and...
Speaker 6: ramped up and ready to go during these MaxGen events where we're seeing power prices
Speaker 6: in the hundreds of dollars or sometimes even thousands per megawatt hour.
Speaker 6: So that's what we're trying to balance. And that's why we say, gosh, man, if we are less sold on the power side, we're going to die.
Speaker 6: We think our earnings could be really wealthy.
Speaker 6: Right? Under... Yeah. So that's...
Speaker 6: That's what we're trying to balance. So I hope that answers your question.
Speaker 13: And on the capacity auction side of things, do you still expect to be able to fully participate in the auction that's coming up shortly, right, for I think the 12 months that start June 1st? So the auction
Speaker 6: Well, first of all, it's not confuse capacity with energy, right?
Speaker 6: So if a utility out there wants to buy a gigawatt of power from the grid...
Speaker 6: So if a utility out there wants to buy a gigawatt of power from the grid at any given time, you can buy a gigawatt of power at any given hour.
Speaker 6: the year. They have to supply MISO either in-house or purchasing from a third party like us.
Speaker 6: gigawatt of rated capacity and this year MISO went to a seasonal construct so our plants
Speaker 6: accredited capacity has various accreditations for winter, spring, summer, fall.
Speaker 6: and we sell.
Speaker 6: We sell a significant portion of that to third parties.
Speaker 6: And then, you know, what isn't sold.
Speaker 6: Typically, we'll go to the MISO auction, which is March 28th.
Speaker 6: And the results of that will be announced a week or so thereafter.
Speaker 6: And the results of that will be announced a week or so thereafter. You know, whatever you did in the third party, somebody will.
Speaker 6: essentially by small amounts there, right? But capacity has been, is the thing that is
Speaker 6: Because the accreditation has been reduced on a lot of the renewables, right? They haven't
Speaker 6: performed well in these particularly winter events.
Speaker 6: And well, wind hasn't performed well in the summer and solar hasn't performed that well in the year.
Speaker 6: in the summer. And now we're seeing where
Speaker 6: Gas is not performing well in extreme cold events.
Speaker 6: I mean to quote Claire Moeller of MISO, the President and Chief Operating Officer of MISO.
Speaker 6: His comment is, you know, in regards to the last two winter events.
Speaker 6: His comment is, you know, in regards to the last two winter events, extreme events, gas is now 0 for 2.
Speaker 6: Right? And so we've seen TJM come out.
Speaker 6: their market monitors say, hey we don't think we are recommending that gas plants that don't have now two transmission lines.
Speaker 6: should not be, unless they have two transmission lines, it shouldn't be accredited in any capacity. So that could be.
Speaker 6: That could substantially change how tight the capacity markets are, which improves those prices.
Speaker 6: We're using that to cover our fixed costs now on the energy side. Oh, that's not
Speaker 6: For my knowledge, it's not typically sold in the MISO auction. The MISO auction is a capacity auction. The energy side...
Speaker 6: you can either sell, first of all every electron has to be sold to MISO and every electron in that region has to be purchased from MISO.
Speaker 6: But you can have Essentially a side letter agreement or contract or PPA with like we do with the seller of the plant.
Speaker 6: Where we say, look, you're going to buy your electrons from ISO. We're going to sell our electrons to my. So, but we're going to true up with each other.
Speaker 13: because back in October , the PPA was underwater. Today with natural gas prices much lower, I imagine the PPA is much closer to market prices. So am I right in thinking that? And could you share maybe what the price?
Speaker 13: Well, what is the price in the PPA for Hoosier and is that price fixed?
Speaker 13: Well, what is the price in the PPA for Hoosier and is that price fixed through 2025?
Speaker 6: Yeah, we're not disclosing that price. And we have, you know, confidentiality in those agreements where we cannot at this time. You know, maybe once we have more of those, we may choose to aggregate that.
Speaker 6: but at this time it would be too obvious. So you're absolutely right, right? So you set a price, you know, quite frankly the price was set prior to even signing, right? I mean that contract was negotiated for quite some time. It was announced right around Valentine's Day. We closed.
Speaker 6: obvious. So you're absolutely right right so you you you set a price you know quite frankly the price was set prior to even signing right I mean that that contract was negotiated for quite some time it was announced right around Valentine's Day we closed October 22nd so
Speaker 6: In the meantime, we had an invasion of Ukraine, which kind of triggered, you know, somebody said did it trigger the energy crisis? I would say it revealed the energy crisis. We think the energy crisis has been building for quite some time. We don't think that has changed.
Speaker 6: The only thing that really happened is when you saw the invasion of Ukraine, you saw governments come out and purchase every BTU they could get their hands on.
Speaker 6: And so, particularly in Europe , right, and you've seen other countries now say, well, I think it was Malaysia that...
Speaker 6: No, I'm saying that wrong. Pakistan. They had relied heavily on natural gas plants that import LNG.
Speaker 6: Europe bid up the LNG, they couldn't afford the LNG, so now you see Pakistan building 10 gigawatts gold-fired power plants because they say look we're not
Speaker 6: We're not going to allow ourselves to get single fuel concentrated again and put ourselves in that position.
Speaker 6: I would say Europe very much still has an energy crisis going on. They got bailed out because they bought very aggressively heading into winter.
Speaker 6: which created a summer shortage here last summer.
Speaker 6: And then Europe had weather patterns that were 30 degrees above normal.
Speaker 6: Europe had weather patterns that were 30 degrees above normal this winter.
Speaker 6: And so here they overbought and then demand didn't show up. That's put it out of cooling effect short term.
Speaker 6: and then demand didn't show up and that's put it out of cooling effect short term on
Speaker 6: energy prices, and power prices.
Speaker 6: But long term, they still are sanctioning the
Speaker 6: largest gas exporter in the world, the second largest oil exporter in the world and the third largest coal exporter in the world in Russia.
Speaker 6: And I think that we're seeing that, We had a stat last night saying that.
Speaker 6: You know, the budget of Russia has been hit by about 50% now with all these sanctions on its energy markets. Well, that means that...
Speaker 6: the economics to produce the BTU in Russia has declined significantly and I think you'll see production come off there probably permanently.
Speaker 6: to produce a BTU in Russia has declined significantly and I think you'll see production come off there probably permanently as
Speaker 6: U.S. energy companies and Western energy companies leave that country, that's got to be replaced. Those markets will turn back to the U.S. I think there's a temporary downturn here in those markets. To be fair on the coal markets, people ask, you know, what's the price of coal?
Speaker 6: There's no transactions really happening right now in the coal market. That's one of the advantages of us having the power plant is the electricity market is a very liquid market.
Speaker 6: It trades every day in big volumes. So it definitely, we've improved the liquidity of the revenue stream of our company.
Speaker 6: by having the Merum asset. So we will continue to evaluate what is the best way to price.
Speaker 6: asset. So we will continue to evaluate what is the best way to price electrons
Speaker 6: in a risk weighted fashion so that we don't put our shareholders at risk. And one of the ways we play defense on that is you're going to see our balance sheet very much de-lever over the next 12 months.
Speaker 6: We already went from the end of the third quarter to like 3.5 something to
Speaker 6: 2.05 at the end of Q4.
Speaker 6: 0.05 at the end of Q4. At the end of Q1
Speaker 6: we drop off our Q1 2022 quarter and replace, which was lousy.
Speaker 6: off our Q1 2022 quarter and replaced, which was lousy. And we replaced that.
Speaker 6: with our first quarter of 2023, we expect that.
Speaker 6: to further significantly deleverage our balance sheet and as we continue to pay down.
Speaker 6: significantly deleverage our balance sheet and as we continue to pay down to pay down debt.
Speaker 13: That's one of the ways to play defense is to have very little debt on our balance sheet and that's the position that we're trying to get ourselves in. Okay, the last question. Can you give us a sense of what the capacity factor of Mirum was in the fourth quarter during the period in which you owned the plant and what you expect?
Speaker 6: there going forward. Thanks. So we had some scheduled outage in the fourth quarter, so I don't know that that would be a very leading statistic. And this year, you know again, what month are we talking about? Right now both units are running at min load.
Speaker 6: forward. Thanks. So we had some scheduled outage in the fourth quarter, so I don't know that that would be a very leading statistic. And this year, you know, again, what month are we talking about? Right now both units are running well.
Speaker 6: So we're operating. What will happen later this year remains to be seen. It really kind of comes down to how much heat will we see in July and August . If we had this plant last year in July and August , it would have been incredibly profitable.
Speaker 6: So we'll see what the market brings.
Speaker 6: So we'll see what the market brings. If we're taking- Okay, thank you very much. It worked. Yeah, thank you.
Speaker 2: Our next question comes from John Moore, a private investor. Your line is open.
Speaker 13: Great. Thank you so much. And this is a remarkable acquisition that you made here of this Merrim power plant. And I guess my question is are you – there are a number of power plants in Indiana that are going to be shut down. Are you considering – So that question I had in my bio was is how do you tell a trusted fungist tu spurious
Speaker 13: acquisitions of more power plants?
Speaker 6: Yeah, I think we would always take, we would always consider additional power plants.
Speaker 6: So we'll just have to evaluate each one of those opportunities.
Speaker 6: they come. That being said, I think there's a significant portion of the US coal fleet that will retire over the next decade and so we think that there will be...
Speaker 6: That being said, I think there's a significant portion of the US coal fleet that will retire over the next decade. And so we think that there will be.
Speaker 13: more opportunities to look at similar transactions to the Merrim transaction, but you know, I can't tell you when and I can't tell you where. We'll just have to evaluate those when they come. Great, and then the last question is the I see that the power purchase agreement expires in 2025.
Speaker 13: And, you know, I had understood that it was sort of going to, you know, May of 23 was going to be an important drop down in the percentage of the power that you agreed to sell to Hoosier. I thought I had read a disclosure here that you had agreed to sell 70% of the capacity in 2020 up to 2025. And I misread.
Speaker 6: 23 through December of 25.
Speaker 6: through December of 25.
Speaker 6: We chose not to sell any power beyond there because we have to comply with the LGs if we want to run the plant. Which is the environmental piece of it. So that
Speaker 6: chose not to sell any power beyond there because we have to comply with the LG's if we want to run the plant which is the environmental piece of it so that
Speaker 6: up to 45 million of environmental expense. We will have to invest that money if we want to run the plant.
Speaker 6: the 45 million of environmental expense. We will have to invest that money if we want to run the planet beyond.
Speaker 6: 2025 now, if we make that. Decision to do so, then we feel that the plan is. In environmental compliance with all. Environmental rules that are that exist today. What does it mean? The rules won't change, but. We feel the plant will be in good shape from that standpoint and that investment would come over.
Speaker 6: A handful of years, so.
Speaker 13: That's one of the things that we disclosed. And then I read in the breakout of your electric operations in 2022 that you sold $66 million worth of – you had $66 million of the revenue and you recorded $31 million worth of income, but I assume that was – You remember? Okay?
Speaker 13: between that and the $5.5 million that you disclosed was just an accounting difference in the contracts. So, thank you very much.
Speaker 4: That was the result of the GAAP accounting treatments we had to do on the liabilities and assets that I explained in my...
Speaker 4: the purchase accounting for the power plant. The $5.5 billion was EBITDA, and those adjustments were not included in EBITDA. Great. Thank you. That's my final question.
Speaker 13: Our next question comes from Mike Ryback from Butler Hall. Your line is open. Hey, guys. Thanks for taking my question, and congrats on doing well in a fairytale backdrop.
Speaker 12: Thank you.
Speaker 13: So I guess my question, I just wanted to dig in a little more on the power plan. So you guys did 5 million of EBITDA in the quarter. What was the free cash flow associated with that? And then I guess taking it a step further, if that's sort of a good run rate for 23, so take five multiplied by four, that's 20 million. I mean if you're doing looks like 35 million of CapEx,
Speaker 13: It looks like it's going to be free cash flow negative to the tune of 15 to 20 million and 23.
Speaker 6: So I don't think that it's fair to look at a partial quarter, right? We did not own the plant for a full quarter.
Speaker 6: He had scheduled outages in that quarter, so it didn't generate the entire quarter.
Speaker 6: We're telling you that we've got significant, you know, 100% of the plant sold at an agreed upon price.
Speaker 6: through May of 2023. And then we materially open up which which means
Speaker 6: the plant's performance will be based upon
Speaker 6: what is what is the price of power when we get to those months. We do have, we are spending
Speaker 6: heavily on the planet.
Speaker 6: for both maintenance capex and realize the seller.
Speaker 6: Had announced in January of 2020 that they were going to close the plan.
Speaker 6: And so, you know, there's some catch up maintenance that has to be done with that plan. I think on a going forward basis, once our maintenance is caught up.
Speaker 6: And so there's some catch up maintenance that has to be done with that plan. I think on a going forward basis, once our maintenance is caught up, we anticipate the maintenance camp X being.
Speaker 6: somewhere in the 18 million dollar a year range.
Speaker 6: million dollar a year range.
Speaker 6: And there will be money spent this year to comply with the ELG environmental regulation.
Speaker 6: to extend the life of that plant, we have to begin building some of those structures.
Speaker 6: in 2023, 2024 so that they're in place by the end of 2025.
Speaker 6: in 2023 2024 so that they're in place by the end of 2025. All right.
Speaker 6: You know we kind of view it as yeah, we're spending Are we spending more that will the cap will the plant be cash flow negative this year? It's to be determined because that will be determined by What is the power price on the unsold portion of the plant so I don't think looking at fourth quarter EVA down
Speaker 6: that indicative of future EBITDA of the plant?
Speaker 13: Okay, that's helpful. So if we think about sort of I guess normalized, I mean I think you talked about 24 being a contribution year. You know I don't have the future curve in front of me, but you know as it stands today, and obviously it's subject to change, could go up, could go down. But as it stands today, if you think about
Speaker 13: the future curve in 2024 when factoring in more of a normalized capex environment, right? The 18 million you decided, you know, how do we think about sort of that normalized retashelf generation of the plan today, of the plans of 2024 based on the forward curve today.
Speaker 6: Yeah, so I don't have a number. I don't have a guidance number for you because we haven't quite put the bed.
Speaker 6: what our sales position would be. I think that the fact that we have committed to investment ELGs.
Speaker 6: sales position would be. I think that the fact that we have committed to investing in ALG which is a
Speaker 6: up to a 45 million dollar commitment. To me that is a way of saying that we're signaling to y'all that, look what are our options? Our options are don't make that investment, close the plan at the end of 2025.
Speaker 6: and sell coal on the open market. And what we're saying is, where we see power prices at today, where we see power prices going.
Speaker 6: of coal on the open market. And what we're saying is where we see power prices at today, where we see power prices going is,
Speaker 6: it fully supports the investment, right? It's a cash flow positive investment, or we wouldn't make that decision. And the thing that's tricky is, it's really easy to look at the math and say, well gosh, if gas is this price, and a gas plant can produce an electron at this price, then that's where the power market should be. Well the problem is,
Speaker 6: it fully supports the investment, right? It's a cash flow positive investment, or we wouldn't make that decision. And the thing that's tricky is, it's really easy to look at the math and say, well gosh, you know, if gas is this price, and a gas plant can produce an electron at this price, then that's where the power market should be. And what the problem is, is these extreme events.
Speaker 6: No one wants to be caught short in the extreme event. So we're saying
Speaker 6: To us, that's putting an elevated price on the power market because it's just so punitive.
Speaker 6: to be caught in these extreme pricing events which are happening with more frequency.
Speaker 6: in these extreme pricing events which are happening with more frequency just looking at the past data.
Speaker 6: And when you look at, you know, the United States is looking to retire half of its coal fleet.
Speaker 6: you know the United States is looking to retire half of its coal fleet in the neck
Speaker 6: within the next 10 years, we think that's a lot of generators that have on-site fuel that are suddenly not going to be there. And that is going to change the fundamental fabric.
Speaker 6: the power market because the new generation has different attributes but the one that's missing from everything is being built is on-site fuel storage.
Speaker 6: of the power market because the new generation has different attributes. But the one that's missing from everything that's being built is on-site fuel storage. You can't turn on the renewables.
Speaker 6: And gas doesn't store fuel on site. And the performance that we've seen of all of those assets in these storm events is not good. So we think that makes the value of our asset go up with each additional retirement that we see because...
Speaker 6: the market will over time, we believe, continue to pay us an equal amount or higher amounts for the attributes that we see today.
Speaker 6: I get that it's a little frustrating that we're not saying, all right, we're going to make X amount of money per quarter for the next 10 years at this number. Because we just haven't locked that in, so we're not willing to make that statement. What we're saying is we think the potential is dramatically higher for our company. It's not even a industries, we're ? lone estate markets on demand. And so we haven't backed that that yet or where, those are all tools.
Speaker 6: But because we're going to sell more in the spot market, earnings are going to be much lumpier, right? Because we're seeing dramatic price differences for a megawatt hour in the month and a shoulder season month.
Speaker 6: versus the summer or winter month. Now this winter was mild, but we're seeing the power curves hold up better than we thought.
Speaker 6: because I think the market is so afraid to be got short because of what.
Speaker 6: we've seen in Winter Storm Elliot and Winter Storm Yuri where pricing pegged legal limits.
Speaker 6: real-time market in MISO on December 23rd.
Speaker 6: hit $3,500 a megawatt hour in all eight zones, right? So when you take a power plant such as ours that
Speaker 6: $3,500 a megawatt hour in all eight zones, right? So when you take a power plant such as ours that realistically puts out
Speaker 6: 960 megawatt hours or megawatts per hour, you can start to see the revenue potential.
Speaker 6: of such a plant. So that's what we're comfortable saying today. You know, I hope as we continue to develop our strategy and additional forward sales positions, we'll say more about that and can give better guidance. But today, we're not in a position to give forward guidance on the profitability of the plant only to say that.
Speaker 13: So that's a very healthy margin for you guys and you're probably incentivized to not sell into the plant. What is that sort of price of indifference, right? Like is it $50, $45, you might see actually more of your volumes go into the plant rather than the wholesale market. I don't know, maybe you can give a range, but you'll have to just understand kind of that point of indifference.
Speaker 6: Well, it changes. You know, the forward power curves will tell you, hey, look, we see people out here willing to contract.
Speaker 6: for a megawatt hour in July .
Speaker 6: that might be a very different price than what they would do in April . Right? And so when you say, well, what price are you indifferent? That is a calculation between what are we seeing in the power markets.
Speaker 6: what are we seeing in the coal market? So for example, we had announced in February of 2022 that we would acquire the Merum generator and we felt we had a very high probability of closing on that transaction even though it was subject to various government approvals, right?
Speaker 6: are we seeing in the coal market? So for example, we had announced in February that of 2022 that we would acquire the Merom generator and we felt we had a very high probability of closing on that traction transaction even though it was subject to various government approvals, right? FERC being the slowest.
Speaker 6: or longest lead time of those approvals. So during that period of time, we saw the co-markets, we saw multiple customers, and we saw multiple customers.
Speaker 6: lead time of those approvals. So during that period of time we saw the co-markets, we saw multiple customers willing to pay
Speaker 6: you know, an average price of $125, that was an average price, there were different prices in that range, or 2.2 million tons primarily in the 2023 year. So we felt that
Speaker 6: that pricing on that day was very close to or exceeded the value that we thought we could forward contract for on the power side. So we chose to sell
Speaker 6: a lot of tons to third parties and reduce the amount of tons that we plan to take to the Mirren Power Plant in 2023. There's no set number, right? It was just, look at both markets in that snapshot of time.
Speaker 6: in which one has the highest risk adjusted return. And on that particular day, it was the coal market. I expect the coal market to win that analysis one out of 10 times, maybe.
Speaker 6: Could be more like one out of 50 times. I don't know. Going forward, we really think that again, the majority of the time it's going to be the power plant wins that argument because there's a value add.
Speaker 6: I would argue that it was a panic pricing, but yet panic pricing in the energy markets is created by disruption.
Speaker 6: I would argue that it was a panic pricing. But yet, panic pricing in the energy markets was created by disruption, right?
Speaker 6: So we still have this ongoing issue with.
Speaker 6: the Russian invasion of Ukraine, could that be further escalated?
Speaker 6: Russian planes have a collision with US drones here earlier this week. That could escalate things. What would that do to energy markets? We're seeing...
Speaker 6: Russian planes have a collision with US drones here earlier this week. That could escalate things. What would that do to energy markets? We're seeing saber rattling to some degree.
Speaker 6: between the United States and China. I personally, as a US citizen, hope that cools down, but those are the type things that can be very disruptive to energy markets and lead to that, what I would call panic pricing.
Speaker 6: that may lead to our coal market succeeding the value of our power energy markets. I don't think that will happen the majority of the time.
Speaker 6: but we just saw it happen so we'll see what happens going forward that being said we're just seeing more and more events that lead to extreme pricing. We again thank the Ukraine.
Speaker 6: The energy crisis that went on in Zurich last summer.
Speaker 6: you know, the Ukraine invasion revealed that. It was there all along. We saw.
Speaker 6: Ukraine invasion revealed that. It was there all along. We saw, you know,
Speaker 6: demand increasing for BTUs and supply not increasing. Look at the, it's kind of telling if you look at the Illinois Basin response to this extreme pricing right? We really haven't seen a huge production response.
Speaker 6: by the industry, right? I mean, I think production came up 10% as an industry.
Speaker 6: to prices quadrupling? So we think that that, you know, because that response isn't there like it's been in the past.
Speaker 6: you know, we think we could see more times of a significant increased pricing power. The other thing that's going to happen is today...
Speaker 6: we could see more times of a significant increased pricing power. The other thing that's going to happen is today you have a fairly balanced...
Speaker 6: you know, a significant amount of coal generation and a significant amount of gas generation. And so as gas prices get high,
Speaker 6: coal will start to dispatch in front of gas in the dispatch curve. If gas prices get low coal gas will dispatch in front of coal. If you have less gas coal generators over time when gas prices get high you're not going to see
Speaker 6: switching to coal generation because there is no coal generation, right? So to me, this price cap that we have on gas is somewhat being removed by the premature retirement of these coal fired generators.
Speaker 6: The markets are changing because we have this rapid transition going on. And then the other thing that's happened is because power prices have gotten so uncertain and so expensive in Europe , I think we're seeing a significant increase in the number
Speaker 6: Markets are changing because we have this rapid transition going on. And then the other thing that's happened is because power prices have gotten so uncertain and so expensive in Europe , I think we're seeing a significant transfer of real worldification as the Canopyž have got nowhere. The last 1 1 3 6 costs something Jackson
Speaker 6: The industrial European industrial base is looking for a home and by and large it's coming a significant portion of that is coming to the United States and Mexico which puts further demand along with electric cars and that sort of thing for more power generation.
Speaker 6: It's got to be, you know, powered and fueled by something. So all that's a long way away. Thank you so much. The trend is moving our way.
Speaker 2: Thank you for your question. Our next question comes from Kevin Pounds from Castleberry. Your line is open.
Speaker 8: Yes, you're entering a new business. You retain the staff from the power plant or hired additional people to help you run it efficiently. And the second question would be you're implying that you're going to be facing less competition from other plants as other ones close. But –
Speaker 6: Are you going to have competition on pricing or are you you know you reference this uh this organization uh MISO I guess that uh that they make a deal with a group of utilities is that correct? So MISO is the Midwest Independent
Speaker 6: system operator. Yeah, and that's the reason it's 15 states and one Canadian province. Our power generator is in the zone 6.
Speaker 6: Yeah, and that's the reason it's 15 states and one Canadian province. Our power generator is in the zone 6 of MISO.
Speaker 6: located in Indiana. I'm sorry, I answered the last part of your question. What was the first part of your question? The first part is, you know, you made a significant investment. Have you attained the staff that was working for that plant and are you hiring additional people to help you optimize its production and its costs and so forth?
Speaker 6: Yes, so we retained all the people at the power plant. We did not acquire probably about 12 people at the seller's corporate office. And only now is the best announcement to be made. So we commercialize the building, which is also the launch office of the company.
Speaker 6: We retained the same Same firm that runs the day ahead power desk that Hoosier had.
Speaker 6: And then we hired Cam as an independent contractor
Speaker 6: Technically, they employ the employees at the plant.
Speaker 6: help oversee running that plant.
Speaker 6: The plant manager of Merrim is still there. He's done a great job and the staff of Merrim is doing a terrific job. We just wanted to make sure that we had...
Speaker 6: You know, they're experts that run over 30 gigawatts of generation in the United States. They're there to offer their expertise and insight and experience.
Speaker 6: All that has really gone very well.
Speaker 6: And we're pleased with the performance of both the retained people and camps. Great. And on the coal side, other smaller coal operators have had significant problems with transportation. You're looking to increase production. You feel good about how you're working with the railroads, et cetera?
Speaker 6: Yes, I think there was a shortage of transportation in 2022. I think that is being alleviated here in 20.
Speaker 6: So less concerned about transportation today as we were.
Speaker 7: 6-9 months ago.
Speaker 9: six, nine months ago. Great, thank you.
Speaker 2: Thank you. We have a follow-up question from Lucas Pipes at B Riley Securities. Your line is open. Yeah, thank you operator. This is actually Nick asking the follow-up here. I believe a question was asked earlier related to the price Hoosier is paying through 2025.
Speaker 2: I'm just seeing in the 10K here, so I want to clarify that I'm reading that Howard Oher shall sell and Hoosier shall buy at least 70 percent of the delivered quantities through 2025 at a price which is $34 per megawatt. Am I confusing this with something else or is this the contract price? Thank you, Franny. Any color? Can you disable that on the next. You need touke strong.
Speaker 4: So, when you're reading the 70%, when Brent says that we've sold 20% to Hoosier from 23 beyond, so we have to deliver 70% of that 20% to stay in contract....
Speaker 4: So that's our minimum. So it's available. So we've sold 20% of the power, it's available, but the minimum we have to do per year, I believe, is 70% of that 20%, if that makes sense. That's clear, Larry.
Speaker 2: Thank you for clarifying that. I appreciate that. And then I just wanted to ask one more, just kind of on cost expectations for 2023, I believe in your prepared remarks, you said that you do expect costs to come down. Would you be able to put some numbers around that, how – and maybe the cadence of costs throughout the year? Yeah, I think we've seen our productivity numbers for Q1 improve.
Speaker 6: commodity input price.
Speaker 6: back off.
Speaker 6: throughout the year, right, as our vendors' hedges roll off and those prices eventually flow through, or discounted prices eventually flow through to us.
Speaker 6: Throughout the year right as our vendors hedges roll off And those prices eventually flow through or discounted prices eventually flow through to us so
Speaker 6: That's why we feel comfortable that we believe our cost of production will be improved going into 2023, or at least levelized. Last year was kind of a crazy time.
Speaker 6: where we saw dramatic price increases. First of all, it was twofold. One, you had commodity input prices, and second of all, everyone in the industry was trying to ramp up.
Speaker 6: to take advantage of the increased prices, right? The high margin business. And so it got very difficult.
Speaker 6: take advantage of the increased prices, right, the high margin business. And so it got very difficult to get supplies.
Speaker 6: You know things like roof bolts that you run out of roof bolts or you run out of glue for the roof bolts and production stops period right and it just seemed like there was a run on a different item every week.
Speaker 6: that has calmed down, right? So the industry is taking its foot off the gas a little bit as coal inventories have increased.
Speaker 6: which is just taking the pressure off all the supply lines. So we're seeing pressure come off the supply lines, so I don't think our vendors will be able to demand the pricing they were able to demand last year. Plus, their costs will reduce.
Speaker 6: which is just taking the pressure off all the supply lines. So we're seeing pressure come off the supply lines, so I don't think our vendors will be able to demand the pricing they were able to demand last year. Plus, their costs will reduce, which eventually flows through to us.
Speaker 6: as their commodity hedges get repriced at lower prices. So that's why we think.
Speaker 13: From a cost perspective, we think things are trending in a better direction. Got it. Well, that's good to hear, Brent. Appreciate all the color and continue best of luck. Thank you, Nick.
Speaker 6: I won't throw too much at Lucas for having you ask the last question of the call on St. Patrick's Day while tournament basketball is ongoing.
Speaker 6: I hope you're allowed to have a green beer later today. This concludes our Q&A. I'll hand back to Brent Billfond, CEO , for any closing remarks.
Speaker 6: I want to thank everybody for their continued interest in Halador and I hope it came across today that we were very excited.
Speaker 6: about the position of the company today and where it is heading. And I thank you all for your time, particularly.
Speaker 6: when there are other things competing for everyone's attention, such as basketball today. So thank you and look forward to talking to you all next quarter.
Speaker 9: Ladies and gentlemen, today's call is now concluded. We'd like to thank you for your participation. You may now disconnect your lines.