Good day, and welcome to Hallador Energy First Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please also note, today’s event is being recorded. At this time, I would like to turn the conference call over to Becky Palumbo, Director of Investor Relations. Please go ahead.

Thank you, Jamie, and good afternoon everyone. Thanks for joining us today to discuss our first quarter 2016 earnings. With me on the call today are Brent Bilsland, our CEO and President; and Larry Martin, our CFO. Following these remarks today, we’ll open the call for a Q&A. This conference call is being webcast live on our website and a replay will be available for your convenience followed by a transcript later this week. If you have a question after the call, please reach out to me afterwards. Our remarks will include forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially. For example, our estimates of mining costs, future coal sales, and regulations relating to the Clean Air Act, and other environmental initiatives. We do not undertake to update our forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by law. And with that, I will turn it over to Larry.

Good afternoon everyone. I am going to review our quarterly operating results. For the quarter, we had net income of $6.2 million or $0.21 a share. Our free cash flow, which we define our free cash flow as pre-tax income, plus DD&A, plus stock compensation, less capital expenditures. Free cash flow was $11.6 million or $0.40 a share. Our adjusted EBITDA, which is EBITDA plus related stock compensation was $23.5 million or $0.80 a share. Our debt increased by $6.6 million or $0.22 a share and this was related to $15 million borrowing for our -- the Freelandville assets that Brent will explain later and then $8.4 million debt payment. We paid dividends of $1.2 million or $0.04 a share in the quarter. At the end of the quarter, we had bank debt of $256 million. Our net debt after cash was $242 million. Our debt target for the end of the year is $230 million to $235 million that we think will be at the end of 2016. And our debt to adjusted EBITDA at the end of the quarter, the trailing 12 months was 2.89. I want to turn the call over now to Brent to talk about our comments and insight going forward.

Hello, everybody, and thank you for joining this call. A big news for the quarter was on March 22, we completed the purchase of reserves and coal sales agreement from Triad Mining for $18 million. These reserves totaled $14.2 million of fee and lease coal and will be mined from our underground mine at the Oaktown 1 portal. This purchase also allows Sunrise to access another 1.6 million tons of our reserves that we already control, but previously inaccessible. So net effect, Oaktown 1 reserve will increase by 15.8 million post the transaction. The purchase of coal sales agreements totaled 1.4 million and will be delivered during the calendar year of 2017. This bring our coal sales position to 4.6 million tons for 2017. For full year 2016, we are forecasting sales of 6 million tons to 6.5 million tons. We shipped 1.6 million tons in the first quarter, so therefore we currently have another 4.4 million tons in our contract for the balance of 2016. In some cases, our customers have the ability to increase contract tenants and are required to purchase their additional needs from our company. In addition to our contract position, we continue to see RFPs from a few customers. So we think there is a good chance we may sell some coal remaining this year. We expect our average price for the balance of 2016 to be in the $43 a ton range. Production cost, Oaktown’s cash cost for the first quarter was $27.87. For the remainder of 2016, we continue to forecast our cost at Oaktown to be in the $28 to $30 per ton range. Going forward, we expect our SG&A to be $12 million annually and cost associated with Prosperity and Carlisle to be in the $9 million annually. On the debt…

[Operator Instructions] Our first question today comes from Mark Levin from BB&T. Please go ahead with your question.

Hi Brent, quick question on the customer inventory levels, your key customer inventory levels, any approximation as to where they are now, how far above normal they might be?

Well, I think the majority of coal customers have high inventory levels. That being said, we did make an additional sale in the quarter, so we have specific customers out there that are buying, everybody is in a different position. Also as part of the transaction, we have modified agreements to help customers with their inventory levels in better position. So it's really hard to say I would say in general, inventory levels are high but people are working on pushing coal out to next year and beyond and trying to get themselves in a more comfortable spot.

Brent, when you kind of look at your key customers, what natural gas price do you need where you feel like demand is really going to start to pick up, is it a $3 number, is it a $2.50 number, unless the transportation component is important, and every coal producer has a different number but are you closer to $2.50 or more at $3 or $3 and above in your estimation?

I think at $3 Indiana coal is in pretty good shape, not killing it but in decent shape, I think at $2.50 gas starts to steal market share. So, in terms of what the transportation rate is, it’s a big part of it.

And if you had to think about like again congratulations on the Triad deal but when you think about like shipments next year, I know you're not in a position to give guidance but just assuming the world is in a little bit better place, where can that let's just call it 6.3 million ton midpoint, what could that look like in the outer years in '17 and '18, and let's say gas is $3, I mean what's the reasonable number to think about?

I would say in general, we think that you know the slide show tonight, we’re going to talk about at here, at our meeting, but I think in general 2015 was the perfect storm, I mean we’ve got the dollar appreciated 20% to most currencies that hurt exports, you have record gas production. And then this year we had the warmest winter on record in 130 years of record keeping. So gas has no place to go, so it has to price down to a point to where it can displace coal and we sell gas, prices get down in the $1.60 range. And if you think about that even at $1.60 is the low point this year, $1.64 whatever it was. I mean coal is still going to maintain about a 30% market share. We think that and we don’t think there is any gas producers anywhere in the country that make money below $2.50. I think that the majority of producers and again this is in our slide presentation that will be on our website, but we think that even the lowest cost producers need to have $2.75 or more to have any return on capital long term. So certainly there is gas companies that have lower finding cost, but they're in areas where there is not enough pipeline supply to get the gas out. So all of this is really a long way of saying that we have BTUs through various events and it’s going to take lot of ‘16 tons are going to get pushed to ’17. We think coal burn will be higher in '17, but basically it's going to be a year of utilities working through stockpiles. How quickly that will happen will depend on what was the weather this summer and what's the weather this coming winter going to look like which will determine the speed at which inventory levels get back in balance. We kind of think late '17. We could see some aggressive buying, time will tell. We think '18 looks pretty good. So I think again that's a long way to saying that ’17 is probably the harder year and ’18 looks more favorable.

Interesting. And last question from me, market prices today, are they sort of low-30s, mid-30s, and upper-30s when you think about where you can contract?

Mark, you ask this question every call and I don’t think I will ever answer this.

I don’t think I have – I think this is the first time I have asked this, but it might have been someone else. No? All right, guys. I appreciate it.

I think it’s tattooed on your right arm or something.

Yeah, it might.

We don’t give guidance, Mark.

I got it. I completely understand. Then that allows me to sneak in one more question to Larry. Interest expense obviously for the quarter looks different than when it did in previous quarters. Should we just assume that this is the new - quarterly interest expense now is sort of the way to think about it going forward?

Yes. [indiscernible] of course it's going to go down a little bit every quarter but yes.

Perfect. Thanks, guys. Appreciate it.

Thank you, Mark.

[Operator Instructions] Our next question comes from Lucas Pipes from FBR. Please go ahead with your question.

Hey, good afternoon everybody.

Hey, Lucas.

I think it’s typically my favorite question to ask on the pricing side, but I am glad Mark gave it a shot. So I will ask about contract. Say that again.

I apologize to Mark for falsely accusing him.

So on the contract side if I look at 2017, you have roughly 2 million tons or so between the minimum and the maximum and I would say that's a pretty wide range and course kind of it implies that where stockpiles are to really be comfortable you probably would have to increase that minimum sold number. Could you maybe put some numbers around it? What number would you be comfortable with exiting the year and then also in light of your covenants, what do you think – I know there is the minimum amount of coal you need to sell in order to be in compliance throughout ‘7?

Well, I think, first of all, your question, I think that if you look at our contracts where we are going to end up more towards the minimum side, just because we – I think the majority of customers are long coal. And as to the other part of the question, we would like, if you look at this year, we’re at, what is it, roughly, 6.1 million in sales right now. I think, we had a decent quarter. So we would -- if we could get to that range in ‘17, I think we would be fairly happy. We always hope to do better, but it’s certainly a goal of ours and quite frankly, we think it’s one that’s very achievable.

Got it. So can you help us a little bit how to think about that minimum sold figure, is it -- what would take you to the minimum versus what allows you to maybe add on some additional tons to maybe get to that 6.1 million figure that I think you mentioned.

Well, I think that under existing contracts, we’re going to be closer to the minimum and I think we’re going to have to add new sales to get to a 6 million ton pace.

Got it. Okay. I’m not going to ask about the pricing, for the new, but maybe to switch to the cost side, you’ve done a good job at Oaktown, just kind of what -- could you maybe give us a little bit of an update on whether you see additional cost cutting opportunities and if so, where and then I think there was also still an idle mine expense running through the first quarter, where do you expect that to go kind of over the course of ’16 and then maybe also longer term assuming the status quo holds?

So, Oaktown cash cost for the quarter was $27.87, which was below our range for what we predicted in our 10-K. We ran at 1.6 million ton pace for the quarter. I take it back, we sold at 1.6 million ton pace we produced at 1.5 million ton pace. We’ve got 4.4 million to ship for the balance of the year. I mean, we continue to forecast our cost to be $28.30. If we run a little faster, it’s going to be closer to 28. If we run a little slower, it’s going to be closer to 30.

Got it.

As far as costs with Prosperity and Carlisle, that is something that we’re working on. I do think that there is a chance of seeing cost reduction there later this year.

So we should just stay tuned to any sense in terms of where it can go, what we should be modeling in?

Right now, we’re estimating 9 million annually for those two, Lucas.

Okay. And then I assume the same for ‘17 at the status quo or should we take that a notch down?

I don’t think we’re ready to give guidance out there yet. I think we’ll just stick with -- again, I think we’re working on some things to -- we think we got a shot to reduce that cost, we’re really not ready to say any more than that at this time.

That’s fair enough. I appreciate all the color. I hope you have a great time tonight. And I wish I could be there, but I’m there in spirit. Good luck for this year as well.

All right. Thank you, Lucas.

[Operator Instructions] And ladies and gentlemen, at this time, I’m showing no additional question. I’d like to turn the conference call back over to management for any closing remarks.

Well, I thank everyone for taking the time and listening to our call. I would encourage you all to go to the Hallador website and take a look at our slide presentation. It talks a lot about the state of the industry, a little less about Sunrise and more about the state of the industry and what our viewpoints are there and I think that’s it. So thank you very much for taking the time to listen to us today.

Thank you.

Ladies and gentlemen, that does conclude today’s conference call. We do thank you for attending. You may now disconnect your telephone lines.