Hallador Energy Company (HNRG) Earnings

Management highlights

### Corporate Transformation Strategy - The company is transitioning from an underground coal mining company to a multi-fuel independent power producer, with the 460 MW Turtle Creek natural gas plant as the next major step in this transformation. - Management's core market thesis holds that capacity markets have already tightened and repriced ahead of growing energy demand from new large loads (particularly data centers), and energy pricing will rise as new projects begin drawing power from the grid. The company's portfolio is structured to participate in both phases: long-dated contracts for already-repriced accredited capacity, and largely open shorter-dated energy positions to capture coming price increases. - The company has signed two landmark capacity agreements in 2026 totaling approximately $1.1 billion in contracted revenue, bringing total forward contracted sales to $2.4 billion (including intercompany sales), with capacity commitments extending through 2040. This gives Halidor one of the strongest revenue visibility profiles in the sector, with robust ongoing demand from a growing, diverse set of counterparties. ### Turtle Creek Gas Project Progress - Turbine equipment inspection and disassembly with Siemens is progressing well, with equipment confirmed to be in good condition. Shipment of the equipment remains on track for September 2026. - The project's interconnection application entered MISO's ERAS study process on June 2, 2026, with results expected in mid-August 2026. Management targets a final investment decision and interconnection agreement signing in September 2026. - Total project costs have decreased to below $800 million ($1,700 per KW), driven by firmed scope definitions and existing owned site/infrastructure, and commercial operations are targeted for the second half of 2028, an acceleration from prior timelines. Management expects to finance the project with little to no equity dilution. ### Q2 2026 Operational Performance at Merrim Plant - Q2 2026 included a planned 60-day maintenance outage of Merrim Unit 1 to complete major reliability upgrades addressing recent unplanned downtime. Unplanned downtime at Unit 2 during the quarter coincided with high market prices, requiring the company to purchase expensive power to meet delivery obligations, weighing on Q2 results. - With the outage completed and reliability upgrades installed, management expects improved plant reliability, availability, and sequentially higher generation volumes in Q3 2026. More reliable Merrim operation improves performance across the full vertically integrated platform, supporting electric sales, internal coal demand, and mine productivity. ### Financial Position - As of June 30, 2026, total liquidity is $84.2 million, consisting of $29 million in unrestricted cash and $55.2 million in available revolving credit capacity, providing sufficient flexibility for operations and planned investments.

Guidance

- Full-year 2026 capital expenditures (excluding Turtle Creek project investments) are expected to remain consistent with 2025 levels, as maintenance capital spending will moderate following the completion of the Q2 Merrim planned outage. - Management expects to execute additional forward capacity and energy sales for the Merrim plant before the end of 2026, with the goal of selling out the remaining unsold Merrim capacity on multi-year contracts this year. - Turtle Creek is expected to reach a final investment decision in September 2026, with commercial operations targeted for the second half of 2028. There is potential for further project cost reductions as scope is finalized, though management has already built in contingencies. - DOE grant-funded Merrim modernization and ELG compliance work is expected to begin in Q4 2026, continuing into 2027 and 2028.

Segment performance

1. Electric Segment: Q2 2026 electric sales were $59.5 million, down slightly from $60 million in the prior-year period. Accredited capacity revenue increased 70% year-over-year to $18.6 million. Total energy sales volume rose 17% year-over-year, while average delivered energy price declined to $41.69 per MWh from $52.66 per MWh. The segment contributed 58.6% of total consolidated operating revenue. 2. Third-Party Coal Segment: Q2 2026 third-party coal sales were $40.6 million, up from $38.1 million in the prior-year period. A 9% increase in average third-party per-ton pricing more than offset a 2% decrease in tons sold to third parties. Incremental internal coal sales of 59,000 tons were made to the Merrim plant during the quarter. The segment contributed 40.0% of total consolidated operating revenue. Consolidated total operating revenue for Q2 2026 was $101.5 million, down from $102.8 million in Q2 2025.

Risks & headwinds

- Unplanned outages at the Merrim plant that coincide with elevated market power prices create material financial impacts, as the company must purchase power at high costs to meet its delivery obligations. Poor Merrim performance also negatively impacts results across the entire vertically integrated platform. - Final interconnection system upgrade costs from MISO for Turtle Creek are not yet known, and unexpected high costs could impact project economics. - Project execution risks (including potential delays to turbine shipment, construction, or interconnection) could push back the commercial operations date for Turtle Creek, reducing the project's speed-to-market advantage.

Analyst Q&A

• Q: What factors have driven Turtle Creek's project costs lower than initial expectations, and what is the level of customer interest and off-take agreement progress for the project? /

  A: Lower costs are the result of firmed scope definitions for equipment restoration and construction, confirmation that the purchased existing turbine is in excellent condition, and the use of Halidor's already owned site, water and infrastructure at Merrim, which gives Turtle Creek a major cost and speed advantage over competing greenfield projects. Customer interest is very strong: there is a far larger pool of potential buyers for gas generation than coal, and growing data center development in the region is driving strong demand for capacity, with management confident it will add new contracts for Merrim before year-end, and expects strong off-take progress for Turtle Creek over time.

• Q: What contingencies exist for potential delays to Turtle Creek turbine shipment, and what financing structure is management leaning toward to minimize equity dilution? /

  A: Management is not concerned about shipment delays, as there is ample scheduling buffer, and turbine shipment is not the critical path for the project. Management is focused on traditional financing structures including equipment financing and project-level debt, with Turtle Creek's low capital cost, speed to market and strong market demand making it attractive to lenders. The existing contracted revenue of the Merrim coal assets further supports the company's ability to use leverage to minimize equity dilution for current shareholders.

• Q: What is the timing of the $27.2 million DOE grant-funded Merrim modernization work, and what price signals would trigger more aggressive forward energy sales? /

  A: Grant negotiation is nearly complete, with construction work expected to start in Q4 2026 and continue through 2027 and 2028. Management has already seen upward movement in energy price curves, and expects to complete some incremental energy sales this year using a layered approach (some sales this year, more in future years), with no urgency to contract given energy market liquidity. Management is prioritizing selling remaining Merrim capacity first, as capacity is a more constrained market with stronger current demand.