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FatPitch
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Active investor for the past 10 years. Professional experience in the industry in the past. Now in sales and manage my own portfolio. Looking to build up an activist investor tribe that all rallys behind similar goals and looks to invest in small and mid-cap deep value companies. You can follow... More
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  • Hallador Energy (NASDAQ:HNRG) - Forecasted Return 19.5% For Next 3 Years. 3 comments
    Apr 12, 2014 1:27 AM | about stocks: HNRG

    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

    (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 pre-sold until 2016. We see this as a benefit for 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.

    Location
    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 HNRG has over not only Illinois Basin competitors, but most US coal miners in general.

    ---
    Stock Metrics

    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 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 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.

    Superior 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
    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 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.

    Disclosure: I am long HNRG.

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Comments (3)
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  • Joshua Heller
    , contributor
    Comments (218) | Send Message
     
    should be a catalyst

     

    http://bit.ly/1kFjtmL
    12 Apr, 04:37 AM Reply Like
  • FatPitch
    , contributor
    Comments (7) | Send Message
     
    Author’s reply » Much agreed, while it is a bit of a bummer seeing the sale take place they will definitely sell it for a huge gain compared to how the assets are written on the books. My wonder is what they have planned next with the cash they will have come in.
    12 Apr, 07:46 PM Reply Like
  • Joshua Heller
    , contributor
    Comments (218) | Send Message
     
    I expect the sale to be a catalyst. If the asset is not sold for a large gain (and near or above PV10 value), I would rather HNRG keep the asset.

     

    In the most recent 10-K, management discussed that a new coal mine would cost approximately 150MM. Management also stated that they needed firm commitments for the capacity before spending would be initiated.
    27 Apr, 09:38 PM Reply Like
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