Hallador Energy (HNRG) 10-K/A2022 FY Annual report (amended)

Exhibit 99.1

TECHNICAL REPORT SUMMARY

COAL RESOURCES AND COAL RESERVES OAKTOWN MINING COMPLEX

Indiana and Illinois

Prepared For

SUNRISE COAL, LLC

By

John T. Boyd Company

Mining and Geological Consultants

Pittsburgh, Pennsylvania, USA

Report No.  3467.002

OCTOBER 2023

John T. Boyd Company Mining and Geological Consultants

Chairman	October 27, 2023
James W. Boyd	File: 3467.002
President and CEO
John T. Boyd II
Managing Director and COO	Sunrise Coal, LLC.
Ronald L. Lewis	1183 E. Canvasback Drive
	Terre Haute, IN 47802
Vice Presidents
Robert J. Farmer	Attention:	Mr. Todd Davis
Jisheng (Jason) Han		Chief Accounting Officer
John L. Weiss
Michael F. Wick		Mr. Scott McGuire
William P. Wolf		Corporate Engineering
Managing Director - Australia	Subject:	Technical Report Summary
Jacques G. Steenekamp		Coal Resources and Coal Reserves
		Oaktown Mining Complex
Managing Director - China		Indiana and Illinois
Rongjie (Jeff) Li
	Ladies and Gentlemen:
Managing Director – South America
Carlos F. Barrera	This technical report summary provides the results of John T. Boyd Company’s (BOYD) independent technical assessment of the coal resource and coal reserve estimates reported by Sunrise Coal, LLC (Sunrise) for the Oaktown Mining Complex as of December 31, 2021.
Pittsburgh 4000 Town Center Boulevard, Suite 300 Canonsburg, PA 15317 (724) 873-4400 (724) 873-4401 Fax jtboydp@jtboyd.com	We wish to acknowledge the cooperation of Sunrise management and staff for providing the technical, financial, and legal information used in completing this project. Our findings are based on BOYD’s extensive experience in preparing coal reserve estimates used in US Securities and Exchange Commission (SEC) filings, and our knowledge of coal mining operations in the Illinois Basin (ILB) and throughout the world.
	Respectfully submitted,
Denver	JOHN T. BOYD COMPANY
(303) 293-8988
jtboydd@jtboyd.com Brisbane 61 7 3232-5000 jtboydau@jtboyd.com	By:
Beijing	John T. Boyd II
86 10 6500-5854	President and CEO
jtboydcn@jtboyd.com
Bogota
+57-3115382113
jtboydcol@jtboyd.com
www.jtboyd.com

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GLOSSARY OF ABBREVIATIONS AND DEFINITIONS

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GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued

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GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued

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GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued

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GLOSSARY OF ABBREVIATIONS AND DEFINITIONS - Continued

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1.0             EXECUTIVE SUMMARY

1.1        Introduction

Sunrise’s Oaktown Mining Complex is a mining complex that includes two active underground room-and-pillar (R&P) mines—Oaktown Fuels No. 1 Mine and Oaktown Fuels No. 2 Mine—and the Oaktown Complex Coal Preparation Plant (CPP). BOYD was retained by Sunrise to complete an independent technical assessment of coal resource and coal reserve estimates for the Oaktown Mining Complex.

BOYD’s findings as a result of the audit of Oaktown Mining Complex’s coal resource and coal reserve estimates are based on our detailed examination of the supporting geologic, technical, and economic information obtained from: (1) Sunrise files, (2) discussions with Sunrise personnel, (3) records on file with regulatory agencies, (4) public sources, and (5) nonconfidential BOYD files.

This technical report identifies and summarizes the results of our audit of the Oaktown Mining Complex coal reserves and independent assessment of the economic viability of extracts of the Oaktown Mining Complex coal reserves over the life of the mine and satisfies the requirements for Sunrise’s disclosure of coal reserves set forth in Subpart 1300 and Item 601(b)(96) of the SEC's Regulation S-K (S-K 1300). This is the first technical report summary for the Oaktown Mining Complex. BOYD is a qualified person as defined in Regulation S-K 1300.

Weights and measurements are expressed in US customary units. Unless noted, the effective date of the information, including estimates of coal reserves, is December 31, 2021.

1.2         Property Description

The Oaktown Mining Complex is an active underground coal mining and processing operation located in Knox and Sullivan counties, Indiana, and Lawrence County, Illinois. The general location of the Oaktown Mining Complex is provided in Figure 1.1, following this page. The project lies in a well-developed region with a robust infrastructure.

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Located within the ILB coal-producing region of the midwestern US, the Oaktown Mining Complex is one of the largest underground R&P coal mining complexes in North America.

The Oaktown Mining Complex mines coal exclusively from the Indiana V Seam (Illinois No. 5 Springfield Seam). Within the Oaktown Mining Complex mine plan boundaries, Sunrise currently maintains the right to mine and remove approximately 78% of the Indiana V Seam through lease agreements. Several small adverse (uncontrolled) tracts exist within the proposed life-of-mine (LOM) plan; however, Sunrise has demonstrated success in acquiring these as required during the ordinary course of business. BOYD is not aware of any encumbrances, litigation, or orders that would hinder the continued development of the property.

The Indiana V Seam has been extensively mined in the ILB region and is one of two predominant coal seams of economic interest. Sunrise has demonstrated a history of successfully mining the Indiana V Seam at the Oaktown Mining Complex, with initial mining at the complex dating to 2009.

1.3            Geology

The Oaktown Mining Complex is situated in the Carbondale Group (Formation) of the Pennsylvania System. Near-surface geology of this area primarily consists of the overlying Quarternary System. Coal seams mined in this region are generally classified as medium- to high-sulfur content and moderate ash thermal coal products.

The Indiana V Seam is the only coal seam of economic interest on the property. Structurally, the Indiana V Seam consists of a singular and relatively consistent horizon averaging between 4 ft to 8 ft thick containing little in-seam parting. The Indiana V Seam globally dips in the general westerly direction and experiences localized areas where the seam elevations vary. Pronounced gradients can occur periodically in the form of rolls in the seam. Depths for the Indiana V Seam range from approximately 300 ft to 450 ft below ground surface within the Oaktown Mining Complex area.

The Indiana V Seam coal bed is characterized as high sulfur and moderate ash coal that is used for steam purposes.

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1.4            Exploration

The Indiana V Seam has been extensively explored and mined in the region, with drilling records dating prior to the inception of the Oaktown Mining Complex. Sunrise provided data for 1,895 drill holes that have intercepted the Indiana V Seam and have been complied for defining the lateral extent, thickness, and qualities (both raw and clean) of the Indiana V Seam in the immediate Oaktown Mining Complex project area.

BOYD’s audit indicates that in general: (1) Sunrise has performed extensive drilling and sampling work on the subject property, (2) the work completed has been done by competent personnel, and (3) the amount of data available combined with wide-spread knowledge of the Indiana V Seam, is sufficient to confirm the thickness, lateral extents, and quality characteristics of the Indiana V Seam.

1.5            Coal Resources/Reserves

Sunrise’s estimated underground mineable coal reserves for the Oaktown Mining Complex total 71.4 million recoverable (clean) product tons remaining as of December 31, 2021. The coal reserves controlled by Sunrise are summarized in Table 1.1.

Table 1.1: Coal Reserves Summary

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Table 1.2, below, provides a breakdown of the coal reserves by control type and permit status.

It is BOYD’s opinion that extraction of the reported coal reserves is technically achievable and economically viable after the consideration of potentially material modifying factors. Periodic amendments to existing mining permits to add additional acreage (reserve tonnage) in order to sustain coal production is common practice. We are not aware of any issues that would impact or prevent the present “Not Permitted” reserves to be permitted as future mining needs dictate. We are also not aware of any prohibition against the proposed mining and processing activities.

There are no reportable coal resources excluding those converted to coal reserves for the Oaktown Mining Complex.

1.6            Operations

1.6.1         Mining

The Oaktown Mining Complex is comprised of the Oaktown Fuels No. 1 and Oaktown Fuels No. 2 underground mines. Each mine utilizes R&P mining (employing continuous miners [CMs]) for primary production. This mining method is highly productive and commercially demonstrated; it has been one of the primary approaches to mining the Indiana V Seam for decades. Oaktown Mining Complex has utilized this mining method since the inception of each operation. To date, Oaktown Mining Complex has produced a combined 58.3 million tons of clean coal. The complex is configured to operate up to seven CM sections, with an annual production target of approximately 8 million product tons. The Oaktown Mining Complex is generally considered an industry leader in terms of mining productivity and mining costs when compared to other R&P underground operations.

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It is BOYD’s opinion that the forecasted production levels for the Oaktown Mining Complex operations are reasonable, logical, and consistent with typical R&P mining practices in the Indiana V Seam and historical practices utilized by Sunrise. The Oaktown Mining Complex LOM plans developed by BOYD show a relatively stable production output until individual production sections are retired corresponding to reserve exhaustion. In the aggregate, the Oaktown Mining Complex LOM plan projects the complex will produce approximately 131.6 million tons of run-of-mine (ROM) coal (91.6 million saleable tons after processing) during the next 17 years (through 2038).

1.6.2         Processing

The Oaktown Complex CPP serves as the coal washing facility for the Oaktown Mining Complex’s two R&P mines. The plant was commissioned in 2009 to wash coal produced by the Oaktown Fuels No. 1 Mine. The Oaktown Complex CPP has a current processing capacity of 1,600 raw tons-per-hour (TPH).

The beneficiation process utilized at the Oaktown Mining Complex has a proven performance record and has remained relatively unchanged for decades. The plant’s ability to blend raw coal production from the two underground mines into a singular plant feed allows for both more consistent plant operation and the ability to achieve differing clean coal qualities for various customer specifications.

1.6.3         Other Infrastructure

The Oaktown Mining Complex underground mines and CPP are supported by several surface infrastructure sites. Major surface infrastructure includes ancillary buildings, high-voltage power distribution stations, ROM coal conveyor belts, CPP refuse facilities, underground access and ventilation structures, and truck/rail loading systems.

Product coal from the Oaktown Mining Complex is transported to its customer base via rail, truck, or a combination of both. The Oaktown Complex CPP is served by both the CSX Railroad and Indiana Railroad (INRD) via a rail spur and rail loop that connects the complex with the mainline rail just north of Oaktown, Indiana. Additionally, the Oaktown Complex CPP can facilitate the loading of trucks for direct transport to select customers, or to Sunrise’s transload facility in Princeton, Indiana serviced by the Norfolk Southern (NS) Railroad.

The Oaktown Complex refuse facility serves as the disposal location for all waste rock (coarse coal refuse) and portions of the fine coal slurry (fine coal refuse) produced during the processing of coal. The majority of the fine coal slurry is transported overland via a network of pumps and pipelines for underground disposal within mined-out void areas of the Oaktown Fuels No. 1 and No. 2 mines.

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1.7            Financial Analysis

1.7.1         Market Analysis

The Oaktown Mining Complex’s product is thermal coal that is directed into the US coal-fired generation market. Historically, this market accounts for all of the Oaktown Mining Complex annual sales.

Coal use among domestic power generators has fallen out of favor in several of the individual states of the US and is being replaced by natural gas and renewable forms of generation. However, several states are positioned to remain largely reliant upon coal for power generation, such as Indiana. Sunrise anticipates its geographical location, reputation for sustained production, and well-capitalized infrastructure well position the complex to continue supplying coal into the Indiana market and other domestic coal markets when opportunities present.

1.7.2         Capital and Operating Costs

The ILB is widely recognized as being ideally suited for commercial scale mining through R&P mining methods. The region’s Indiana V Seam is conducive to efficient, low-cost production R&P operations. In terms of total dollars expended per year, cash operating costs for R&P mines contain a mixture of variable and fixed costs. Unit costs, therefore, will vary mostly due to changes in production and less so with regard to general inflation and major mine site changes.

During the historical review period of 2018 through 2021, total cash operating costs per saleable ton for the Oaktown Mining Complex were within the range of $27 to $31 per saleable ton. While each of the individual mines may have realized higher or lower operating costs annually, their operation in parallel aids in the complex’s ability to minimize short-term periods of individual mine coal production decreases and/or increases in operating costs.

The Oaktown Mining Complex is regarded as being well-capitalized comparatively to industry peers. Continual capital expenditures have been ongoing by Sunrise in recent years to support mine infrastructure expansions, maintenance of production equipment, refuse placement, etc. Historical annual capital expenditures were found to be within the range of $4 to $5 per saleable ton for the Oaktown Mining Complex.

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BOYD found Sunrise’s forecasted operating and capital costs to be indicative of the complex’s historical performance and in general agreement with BOYD’s independent LOM forecasts.

1.7.3         Economic Analysis

The results of our indicative economic analysis for Oaktown Mining Complex over the 15-year period (2022 to 2036) shows an after-tax net present value (NPV) of $400 million for the expected case at a 12% discount rate. The coal sales price estimated over the life of the reserves averages approximately $47 (ranging from $42.50 to $64). The cash flow estimates are positive even after performing independent sensitivity analyses of up to 10% variation in operating costs and sales prices. Based on this analysis, BOYD concludes that the stated coal reserves are economically viable under reasonable market price expectations for the coal produced from the Oaktown Mining Complex.

The NPV estimate was made for purposes of confirming the economic viability of the reported coal reserves and not for purposes of valuing Sunrise or its assets. Internal rate-of-return (IRR) and project payback were not calculated, as there was no initial investment considered in the financial model.

1.8            Regulation and Liabilities

Multiple permits are required by federal and state law for underground mining, coal preparation and related facilities, and other incidental activities. Sunrise reports that all necessary permits to support current operations are in place or pending approval. New permits or permit revisions may be necessary from time to time to facilitate future operations. Given sufficient time and planning, Sunrise should be able to secure new permits, as required, to maintain its planned operations within the context of the current regulations.

Permits generally require that Sunrise post a performance bond in an amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during mining operation is properly mitigated, and (2) assure that all regulation requirements of the permit are fully satisfied. Sunrise reports holding surety bonds to cover its current obligations relating to mining and reclamation, road repair, etc. Those obligations currently equate to $5.8 million.

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1.9            Conclusions

It is BOYD’s overall conclusion that Sunrise’s estimates of coal reserves, as reported herein: (1) were prepared in conformance with accepted industry standards and practices, and (2) are reasonably and appropriately supported by technical evaluations, which consider all relevant modifying factors. We do not believe there is other relevant data or information material to the Oaktown Mining Complex that would render this technical report summary misleading. Our conclusions represent only informed professional judgment.

Given the operating history and status of evolution, residual uncertainty for this project is considered minor under the current and foreseeable operating environment. A general assessment of risk is presented in the relevant sections of this report.

The ability of Sunrise, or any mine operator, to recover all of the reported coal reserves is dependent on numerous factors that are beyond the control of, and cannot be anticipated by, BOYD. These factors include mining and geologic conditions, the capabilities of management and employees, the securing of required approvals and permits in a timely manner, future coal prices, etc. Unforeseen changes in regulations could also impact performance. Opinions presented in this report apply to the site conditions and features as they existed at the time of BOYD’s investigations and those reasonably foreseeable.

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2.0            INTRODUCTION

2.1            Registrant and Purpose

This technical report summary was prepared for Hallador Energy (Hallador) in support of their disclosure of their subsidiary, Sunrise’s, coal resources and coal reserves for the Oaktown Mining Complex.

Hallador is a US-based energy solutions company headquartered in Terre Haute, Indiana, and is listed on the National Association of Securities Dealers Automated Quotations (NASDAQ:HNRG) stock exchange. A large portion of Hallador’s business focuses upon coal mining through their subsidiary Sunrise. Sunrise is actively engaged in the production and export of thermal coal from mines located in the ILB. The company also owns and operates the Princeton Rail Loop, which is located near Princeton, Indiana on the NS Railroad. Additional information regarding Hallador (and Sunrise) can be found on their website at www.halladorenergy.com.

2.2            Terms of Reference

Sunrise retained BOYD to complete an independent technical assessment of mineral resource and mineral reserve estimates and supporting information for the Oaktown Mining Complex. Our objective was to obtain reasonable assurance that the coal resource and coal reserve statements for Oaktown Mining Complex are free from material misstatement.

The results of our third-party study, presented in report form herein, were prepared in accordance with the disclosure requirements set forth in Subpart 1300 and Item 601(b)(96) of the SEC’s Regulation S-K. The purpose of this report is: (1) to summarize available information for the subject mining properties, (2) to provide the conclusions of our technical assessment, (3) to provide a statement of coal resources and/or coal reserves for the Oaktown Mining Complex, and (4) provide our conclusion of the economic viability of the Oaktown Mining Complex’s coal reserves. This is the first technical report summary filed by Sunrise for the Oaktown Mining Complex.

BOYD’s findings are based on our detailed examination of the supporting geologic and other scientific, technical, and economic information provided by Sunrise, as well as our assessment of the methodology and practices applied by Sunrise in formulating the estimates of coal resources and coal reserves disclosed in this report. We did not independently estimate coal resources or coal reserves from first principles.

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We used standard engineering and geoscience methods, or a combination of methods, that we considered to be appropriate and necessary to establish the conclusions set forth herein. As in all aspects of mining property evaluation, there are uncertainties inherent in the interpretation of engineering and geoscience data; therefore, our conclusions necessarily represent only informed professional judgment.

The ability of Sunrise, or any mine operator, to recover all of the estimated coal reserves presented in this report is dependent on numerous factors that are beyond the control of, and cannot be anticipated by, BOYD. These factors include mining and geologic conditions, the capabilities of management and employees, the securing of required approvals and permits in a timely manner, future coal prices, etc. Unforeseen changes in regulations could also impact performance. Opinions presented in this report apply to the site conditions and features as they existed at the time of BOYD’s investigations and those reasonably foreseeable.

This report is intended for use by Sunrise subject to the terms and conditions of its professional services agreement with BOYD. The agreement permits Sunrise to file this report as a technical report summary with the SEC pursuant to Subpart 1300 and Item 601(b)(96) of Regulation S-K. Except for the purposes legislated under US securities law, any other uses of our reliance on this report by any third party is at that party’s sole risk. The responsibility for this disclosure remains with Sunrise. The user of this document should ensure that this is the most recent disclosure of coal resources and coal reserves for the subject property as it is no longer valid if more recent estimates have been issued.

2.3            Expert Qualifications

BOYD is an independent consulting firm specializing in mining-related engineering and financial consulting services. Since 1943, BOYD has completed over 4,000 projects in the United States and more than 60 other countries. Our full-time staff comprises mining experts in: civil, environmental, geotechnical, and mining engineering; geology; mineral economics; and market analysis. Our extensive experience in coal resources/reserve estimation and our knowledge of the subject coal properties, provides BOYD an informed basis on which to opine on the reasonableness of the estimates provided by Sunrise. An overview of BOYD can be found on our website at www.jtboyd.com.

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The individuals primarily responsible for this independent technical assessment and the preparation of this report are by virtue of their education, experience, and professional association considered qualified persons as defined in Subpart 1300 of Regulation S-K.

Neither BOYD nor its staff employed in the preparation of this report have any beneficial interest in Sunrise, and are not insiders, associates, or affiliates of Sunrise. The results of our audit were not dependent upon any prior agreements concerning the conclusions to be reached, nor were there any undisclosed understandings concerning any future business dealings between Sunrise and BOYD. This report was prepared in return for fees based upon agreed commercial rates, and the payment for our services was not contingent upon our opinions regarding the project or approval of our work by Sunrise and its representatives.

2.4            Principal Sources of Information

Information used in this assignment was obtained from: (1) Sunrise files, (2) discussions with Sunrise personnel, (3) records on file with regulatory agencies, (4) public sources, and (5) nonconfidential BOYD files.

The following information was provided by Sunrise:

Information from sources external to BOYD and/or Sunrise are referenced accordingly.

The data and work papers used in the preparation of this report are on file in our offices.

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2.4.1         Site Visits

A personal inspection of the Oaktown Fuels No. 1 and No. 2 mines was made by two of BOYD’s senior mining engineers—qualified persons and co-authors of this report—on December 2, 2021. The site visit included: (1) observation of both mine’s active underground workings, belt lines, outby areas, and portal (mine access) locations; (2) a tour of the mine site’s surface infrastructure; and (3) a tour of the Oaktown Complex CPP, truck and rail loadout, and refuse disposal facility. BOYD’s representatives were accompanied by senior Sunrise management personnel who openly and cooperatively answered questions regarding, but not limited to: site geology, mining conditions and operations, equipment usage, labor relations, operating and capital costs, current coal washing operations, and coal marketing.

2.4.2         Reliance on Information Provided by the Registrant

In the preparation of this report we have relied, without independent verification, upon information furnished by Sunrise with respect to: property interests; exploration results; current and historical production from such properties; current and historical costs of operation and production; and agreements relating to current and future operations and sale of production.

BOYD exercised due care in reviewing the information provided by Sunrise within the scope of our expertise and experience (which is in technical and financial mining issues) and concluded the data are valid and appropriate considering the status of the subject properties and the purpose for which this report was prepared. BOYD is not qualified to provide findings of a legal or accounting nature. We have no reason to believe that any material facts have been withheld, or that further analysis may reveal additional material information. However, the accuracy of the results and conclusions of this report are reliant on the accuracy of the information provided by Sunrise.

While we are not responsible for any material omissions in the information provided for use in this report, we do not disclaim responsibility for the disclosure of information contained herein which is within the realm of our expertise.

2.5            Effective Date

The coal resources and coal reserves presented in this technical report summary are effective as of December 31, 2021. The report effective date is December 31, 2021.

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2.6            Units of Measure

The US customary measurement system has been used throughout this report. Tons are short tons of 2,000 pounds-mass. Unless otherwise stated, all currency is expressed in constant 2021 US Dollars ($).

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3.0            PROPERTY OVERVIEW

3.1            Description and Location

The Oaktown Mining Complex is a coal mining and processing operation located in Knox and Sullivan counties, Indiana, and Crawford and Lawrence counties, Illinois. Comprising almost 118 square miles within the ILB coal-producing region of the midwestern US, the Oaktown Mining Complex is one of the largest underground R&P coal mining complexes in North America. The Oaktown Mining Complex operations currently consist of two active underground mines—Oaktown Fuels No. 1 Mine and Oaktown Fuels No. 2 Mine—and related infrastructure.

While each of the two mines operate under a unique Mine Safety and Health Administration (MSHA) mine identification number and has a separate direct management team, the Oaktown Mining Complex is commercially operated as a single entity. All mine output is delivered by belt conveyors to a central coal processing facility, the Oaktown Complex CPP, that is rated at 1,600 raw TPH and reports to MSHA under its own identification number. The ROM coal is segregated by mine, and refined analysis and processing systems are utilized to meet customer specifications. Plant reject-material reports to the coarse and fine refuse disposal facilities or is placed into abandoned mine void areas through slurry (fine refuse) injection. Saleable output is shipped to a diverse customer base via truck or rail facilitated by the rail load-out on a dedicated rail spur serviced by CSX and INRD.

The Oaktown Mining Complex is located approximately 44 miles south of Terre Haute, Indiana near the town of Oaktown, Indiana. The city of Vincennes, Indiana lies about 14 miles to the southwest. The project area is essentially bisected by U.S. Route 41.

Geographically, the Oaktown Complex CPP is located at approximately 38°51’24.7” N latitude and 87°25’30.9” W longitude. Figures 1.1 (page 1-2) and 3.1, following this page, illustrate the location and general layout of the Oaktown Mining Complex.

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3.2           History

Vectren Fuels was the original developer of the property. Construction of the Oaktown No. 1 Mine slope, surface mine infrastructure and CPP began in 2008. Following development of the slope, commercial coal production began in 2009. Processing of the Oaktown No. 1 Mine coals was facilitated by the then 800 raw feed TPH capacity CPP. Development of Oaktown No. 2 Mine followed shortly after, with commercial coal production beginning in 2013. The commercial production status of Oaktown No. 2 Mine coincided with the expansion of the CPP’s 800 TPH capacity to its present 1,600 TPH capacity.

Sunrise’s involvement with the Oaktown Mining Complex dates to 2014 with the acquisition of Oaktown Fuels No. 1 and No. 2 mines from Vectren Fuels. Since the acquisition, Sunrise has steadily increased annual production from the Oaktown Mining Complex—now averaging between 6 to 7 million product tons annually. The mine workings have substantially grown since 2014, and both mines have installed new shafts (mine accesses) for employee ingress/egress from the active production faces. The new Oaktown No. 1 Mine portal location is approximately 4.5 miles southeast of the town of Oaktown, Indiana while the new Oaktown No. 2 Mine portal location is approximately 1.5 miles northwest of the village of Russellville, Illinois.

There are no significant Indiana V Seam mining activities known to have occurred within the Oaktown Mining Complex bounds preceding Vectren Fuel’s and Sunrise’s involvement.

3.3           Property Control

Within the Oaktown Mining Complex area and immediate vicinity, Sunrise controls approximately 75,000 acres of mineral rights. This control exists as a complex collection of leases that apply to more than 2,000 tracts. Each of which range from less than an acre to several hundred acres in size. Ownership of the surface rights and the mineral rights is often severed for the properties and the estates are often fractional, in which mineral rights are split between several owners. Sunrise and its predecessors have acquired the necessary rights to support development and operations through purchase or lease agreements with predominantly private owners or entities.

BOYD has not independently verified ownership of the Oaktown Mining Complex area and the underlying property agreements. Ownership data provided to BOYD, including maps and summaries of lease agreements, have been accepted as being true and accurate for the purpose of this report.

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3.3.1        Coal Ownership

Sunrise maintains the right to mine and remove approximately 77% of the Indiana V Seam within the Oaktown Mining Complex area, with the balance (approximately 18,400 acres) currently reported as adverse.

Sunrise currently controls approximately 78% of the coal within projected mine plan boundaries through lease agreements. Reportedly, lease terms generally extend until all the coal is removed from the subject tract. Where applicable, royalty rates are typically based upon a percentage of the gross sales price of the coal. No material amounts of mineral within the Oaktown Mining Complex mine plan boundaries is owned in fee.

Adverse (uncontrolled) tracts within the project limits are common; however, it is generally reasonable to assume that such tracts can be acquired or leased in the ordinary course of business as has been demonstrated historically by Sunrise. It is BOYD’s opinion that adverse coal control does not pose a material risk to the estimate of coal reserves reported herein.

3.3.2        Surface Ownership

As part of the Oaktown Mining Complex, Sunrise controls surface rights through fee simple ownership for over 1,700 permitted acres. Upon those acres resides the surface facilities for mine accesses, processing, storing, shipping, and refuse disposal facilities (i.e., refuse impoundment site and fine refuse injection sites).

Sunrise reports it controls adequate surface rights to sustain current mining operations in the near term. Additional surface property will likely be required during the life of the mine for the placement of additional infrastructure. It is generally reasonable to assume the required property can be acquired or leased in the ordinary course of business; as such, we do not believe there is any undue risk associated with surface ownership to the estimated reserves reported herein.

3.4            Adjacent Properties

As illustrated in Figures 1.1 and 3.1, there are no other operating mines or mines/properties controlled by Sunrise adjacent to the Oaktown Mining Complex. As shown, some existence of Indiana V Seam mining has taken place near the Oaktown Mining Complex to the northeast. Sunrise’s mine plans include sufficient barrier zones to mitigate any risk associated with prior mining activities of the adjacent properties.

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3.5            Regulation and Liabilities

Mining and related activities on the Oaktown Mining Complex properties is regulated by both federal and state laws. The relevant federal laws include:

In Indiana and Illinois, responsibility for enforcing these acts, with the aid of numerous state laws and legislative rules, lies with Illinois’s Environmental Protection Agency (IL-EPA) and Indiana’s Department of Natural Resources (IN-DNR).

As mandated by these laws and regulations, numerous permits are required for underground mining, coal preparation and related facilities, and other incidental activities. Sunrise reports that necessary permits are in place or applied for to support current operations. New permits or permit revisions may be necessary from time to time to facilitate future operations. Given sufficient time and planning, Sunrise should be able to secure new permits, as required, to maintain its planned operations within the context of the current regulations.

Permits generally require that the permittee post a performance bond in an amount established by the regulator program to: (1) provide assurance that any disturbance or liability created during mining operation is properly mitigated, and (2) assure that all regulations requirements of the permit are fully satisfied. Sunrise reports holding surety bonds to cover its current obligations relating to mining and reclamation, road repair, etc. Those obligations currently equate $5.8 million.

Regular inspection of the mines and related facilities are conducted by MSHA for health and safety compliance. On finding any violation of a health or safety standard, an inspector will issue a citation that specifies the standard violated and evaluates the gravity of the violation by several factors, including likelihood of injury. Any infraction that is reasonably likely to result in a serious injury or illness or is caused by the operator's unwarrantable failure to comply with regulatory requirements will carry additional fines and could result in temporary closure. Typically, the civil penalties for regular assessments are not considered material.

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BOYD is not aware of any prohibition of mining and processing activities for the Oaktown Mining Complex. However, the reported coal reserves may be materially impacted by: Sunrise’s failure to comply with permit conditions and rules; delays in obtaining required government or other regulatory approvals or permits; Sunrise’s inability to obtain such required approvals or permits; or changes in governmental regulations.

3.6            Accessibility, Local Resources, and Infrastructure

The Oaktown Mining Complex lies within a rural but well-developed region of southwestern Indiana and southeastern Illinois, with an extensive history related not only to coal mining, processing, and transportation, but also many other industries and services. A reported 1.4 million people live within 75 miles of the Oaktown Mining Complex, according to the U.S. Census of 2020.

General access to the Oaktown Mining Complex is via a well-developed network of primary and secondary roads serviced by state and local governments. These roads offer direct access to the mine and processing facilities and are generally open year-round.

Coal produced at the Oaktown Mining Complex is transported primarily by rail, truck, or a combination of both. A rail load-out facility and dedicated rail spur loop facilitate transportation of the coal on the INRD and CSX railroads. Additionally, Oaktown Mining Complex can facilitate the loading of trucks for direct transport to select customers, or to Sunrise’s transload facility in Princeton, Indiana serviced by the NS Railroad.

Several regional airports are located near the Oaktown Mining Complex and the Indianapolis International Airport is located approximately 100 miles northeast of the complex.

Sources of electrical power, water, supplies, and materials are readily available. Electrical power is provided to the mines and facilities by regional utility companies. Water is supplied by public water services, surface impoundments, or water wells.

3.7            Physiography

The Oaktown Mining Complex lies within the Southern Hills and Lowland areas of the Southwest Indiana region. This region is characterized by relatively flat topography possessing gentle gradients associated with drainages. Surface elevations within the Oaktown Mining Complex area range from approximately 410 ft to 590 ft above mean sea-level. The region possesses a network of overlying tributaries and waterways flowing to the Wabash River; all of which overlay the complex area.

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Land cover within the area consists predominantly of mixed crop/pastureland and forest dotted with medium- to low-density (rural) residential areas.

3.8            Climate

Climate in and around the Oaktown Mining Complex is typical of southwestern Indiana, with four distinct seasons: cold winters; hot and humid summers; and mild falls and springs. The average daily high temperatures are above freezing 12 months of the year while the low temperatures drop below freezing 3 months of the year. Table 3.1 provides monthly average climate data collected from 2020 through 2021 in Vincennes, Indiana.

Table 3.1: Monthly Average Climate Data, Vincennes, Indiana 

Source: US Climate Normals.

The area experiences on average 46 in. of rain and 9 in. of snowfall per year. Adverse weather conditions seldom limit the Oaktown Mining Complex coal mining, processing, and loading operations; however, extreme weather conditions may temporarily impact operations.

JOHN T. BOYD COMPANY

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4.0       GEOLOGY

4.1            Regional Geology

The Oaktown Mining Complex is located within the eastern portion of the ILB region, a sedimentary basin which coal-bearing areas cover approximately 50,000 square miles across the majority of Illinois, southwestern Indiana and portions of western Kentucky. The coal bearing members of the ILB consist of Pennsylvanian rocks, formed approximately 290 – 330 million years ago. The Indiana VI (Herrin) and Indiana V (Springfield) seams are accredited with the vast majority of the economically mineable coals within the ILB.

The ILB has informally been subdivided into eight mining regions—Northern Illinois, Western Illinois, West-central Illinois, East-central Illinois, Southwestern Illinois, Southeastern Illinois, Southwestern Indiana, and Western Kentucky. The majority of current coal mining from the ILB occurs within the West-central Illinois, Southeastern Illinois, Southwestern Illinois, Southwestern Indiana, and Western Kentucky regions. The Oaktown Mining Complex is located within the Southwestern Indiana region of the ILB.

There are three predominant structural features within the ILB which include the DuQuoin monocline, La Salle anticlinal belt, and the Cottage Grove-Rough Creek fault system. The features surround the Fairfield Basin area which contain the deepest extents of the ILB. The DuQuoin monocline on the west, the La Salle anticlinal belt on the north, and the Cottage Grove-Rough Creek fault system on the south, all flank the Fairfield Basin. In general, the Illinois and Indiana portions of the ILB dip gently towards the interior, Fairfield Basin. The Southwestern Indiana mining region, in which the Oaktown Mining Complex is located, experiences localized rolling of the coal seams but predominately dips in a westerly direction.

The Carbondale Formation is the primary coal-bearing formation containing the majority of the ILB economically mineable bituminous coals. The Indiana VI (Herrin) and Indiana V (Springfield) seams that are heavily exploited within the ILB, are typically between 2 ft and 6 ft in thickness. Coal in the region is classified as high-volatile bituminous with rank increasing to the south. Sulfur content is generally related to the overlying strata of the coals within the ILB. Generally, coals possess sulfur contents ranging from 3% to 5% and heating values above 11,000 Btu/lb.

JOHN T. BOYD COMPANY

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4.2            Local Stratigraphy

Pennsylvanian sedimentary strata comprise the uppermost stratigraphic units of bedrock in and around the Oaktown Mining Complex. These units primarily include bedrock of, in descending stratigraphic order, the McLeansboro, Carbondale and Racoon Creek Group.

The strata of the Pennsylvanian system are predominantly clastic and contain subordinate amounts of coal and limestone. The Indiana V (Springfield) coal seam resides within the Carbondale Group, specifically the Petersburg formation. The stratigraphic relationship between these groups is presented in Figure 4.1 as follows.

4.2.1        McLeansboro Group

The McLeansboro Group ranges in thickness of approximately 150 to 750 ft; beginning with the Mattoon Formation. The uppermost Mattoon Formation is predominately formed of sandstone and/or conglomerate type rocks. The remaining Bond, Patoka, and Shelburn formations, in descending stratigraphic order, are characterized by sequences of shale, mudstone, and siltstone with interspersed limestones. The predominant limestones of presence are the Livingston, Carthage, Vigo and West Franklin. There are no bituminous coal beds present possessing economic value.

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4.2.2        Carbondale Group

The Carbondale Group extends from the Indiana VII (Danville) coal seam to the base of the Indiana III (Seelyville) coal seam. The unit is divided into the Dugger, Petersburg, and Linton formations. The Carbondale Group is a sedimentary sequence of non-marine rocks (sandstone, siltstone, mudstone, shale, limestone, and coal) ranging in thickness from approximately 300 ft to 450 ft. Regionally, the Carbondale Group contains several commercial coal beds, including the Indiana VII (Danville), Indiana VI (Herrin), Indiana V (Springfield) and others; however, within the vicinity of the Oaktown Mining Complex, only the Indiana V Seam is of economic interest. The Indiana V coal seam possesses moderate continuity (instances of sandstone paleochannel erosion) and ideal mining thickness (4 ft to 8 ft).

4.2.3        Raccoon Creek Group

The Raccoon Group includes all strata below the base of the Indiana III (Seelyville) coal bed. It is made up of Staunton, Brazil, and Mansfield formations. The Raccoon Group reaches a maximum thickness of about 1,000 ft in southwestern Indiana. Strata of the group are very similar to those of the overlying Carbondale Group, except that the Raccoon Creek Group contains coal beds of little or no commercial value.

4.3           Coal Seam Geology

The Indiana V Seam is the only coal seam of economic interest within the Oaktown Mining Complex. The Indiana V Seam is fairly uniform in depositional nature (typically 4 ft to 8 ft thickness) and continuity throughout much of the project’s surrounding area.

4.3.1        Lithology

The Indiana V Seam coal bed is relatively consistent containing a singular interval of coal within minimal in-seam partings. Mining methods employed at the Oaktown Mining Complex generally extract the entirety of the coal seam with minimal out-of-seam (OSD) dilution.

The coal thickness across the Oaktown Mining Complex area is generally between the 4.0 ft to 8.0 ft range, averaging 4.8 ft over the extents of mine plan areas. Isolated pockets of both thinner and thicker coal do exist, and extreme but generally isolated occurrences may range from less than a foot to above 12 ft thick. Figure 4.2, following this page, provides a map of the Indiana V Seam thickness. The locations of thinner coal occurrences are generally well-defined by the extensive exploration performed in and around the study area, and mine plans have been developed to avoid these low coal occurrences.

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The immediate roof overlying the Indiana V Seam coal bed generally consists of interbedded shales and sandy shales. Occasional instances of sandstone roof can occur within the project area, where paleochannel sandstone fill has scoured and replaced part or all the normal roof strata. The most prominent existence of paleochannel sandstone fill resides within the sandstone channel that divides the Oaktown Fuels No. 1 and No. 2 mines mineable reserves. Other, less prominent, localized paleochannelization eroding of the typical roof strata and possibly portions of the Indiana V Seam are likely to be found within the Oaktown Mining Complex mineable reserves. Areas of the deposit with sandstone channels in close proximity to the Indiana V Seam commonly exhibit discontinuities and rolls in the coal bed. Poor roof conditions are also common along margins of the channels, where the roof type transitions between the sandstone roof and normal shale roof. Sunrise has implemented various programs to identify and mitigate, where possible, problems associated with poor roof conditions.

The immediate floor beneath the Indiana V Seam coal bed consists of an interval of underclay. The underclay provides a generally competent floor, however poor floor conditions can develop when the underclay is exposed to water.

4.3.2        Structure

The Indiana V Seam coal bed is located at depths ranging from approximately 150 ft to over 600 ft below ground surface, averaging 350 ft within the Oaktown Mining Complex area. Seam structure shows a general seam dip of less than 2 degrees in a westerly direction. There are not any major structural faulting or tectonic features known to occur in the deposit. Small-displacement faults and compaction-related faults may be present, but are not expected to materially affect mine plans.

The structural setting for the deposit is generally considered to be simple in terms of geological complexity. Some areas exhibit evidence of localized channelization; as such, isolated areas of the deposit may be considered moderate in geological complexity. Having been widely studied and extensively mined, the Indiana V Seam is well-known and widely-accepted to be a uniform deposit.

4.3.3        Coal Quality

Overall, the Indiana V Seam coal bed is a high-sulfur moderate ash coal that is used for steam purposes.

JOHN T. BOYD COMPANY

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5.0       EXPLORATION DATA

5.1            Background

The Indiana V Seam has been the subject of extensive exploration drilling and sampling by Sunrise and other parties, over a timespan of decades. Records from exploration drilling comprise the primary data used in the evaluation of coal resources on the property. A database compiling the results of 1,895 drill holes—covering Oaktown Mining Complex and surrounding area Indiana V Seam—along with electronic copies of original drilling and sampling logs for a representative sample (approximately 42%), was provided for our review.

Additionally, discussions were held between BOYD and Sunrise concerning their standard exploration and sampling methodologies. Topics covered standard procedures ranging from site safety and mapping, to how to select proper drilling equipment, recording accurate and detailed geological logs, performing coal sampling, supervising geophysical logging, and plugging drill holes once work was complete. Sunrise’s provided explanation of exploration standards highlight their focus on obtaining the highest accuracy of data possible from the various exploration campaigns they completed.

Due to archival storage of some physical records of drill holes and detailed information on the drilling and sampling methodologies utilized, some documents were not provided for our review. While this limits the ability to provide a completely transparent and detailed overview of the work completed in developing the Oaktown Mining Complex, Sunrise has also demonstrated that they have been very thorough in exploring and sampling and the complex has been able to consistently and economically mine coal from this deposit for more than a decade.

5.2           Procedures

5.2.1        Drilling

Drill holes on the subject property were completed using various drilling procedures based on specific goals and data needs at various stages of planning and developing the Oaktown Mining Complex. Some drill holes were rotary drilled for purposes of completing geophysical logging, while others were completed using continuous core drilling methods to provide more detailed geologic records and sampling opportunities.

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Sunrise technical staff were able to summarize the standard types of equipment and procedures they generally utilized in exploration work completed on the property. This information, combined with information BOYD was able to gather from our review of drilling records are as follows:

Due to the large extent of historic exploration work, any recent drilling is generally for infilling areas with lower geologic assurance or for establishing confidence of sandstone channel locations. In such instances, nearby drill hole records are referenced prior to commencing any new drill holes, to show the anticipated depth to the coal horizons.

Geophysical logs obtained from newly drilled holes are correlated by Sunrise geologists by aligning known “marker beds”, and then checking coal seam depths, elevations, and thicknesses to ensure seam continuity. These data are formatted and then imported into Sunrise’s geologic modeling programs.

BOYD’s review of the methodologies and procedures indicate the data obtained and utilized by Sunrise for the Oaktown Mining Complex project area were carefully and professionally collected, prepared, and documented, conforming with general industry standards, and are appropriate for use of evaluating and estimating coal resources and reserves.

5.2.2        Coal Quality Sampling

The Oaktown Mining Complex coal quality testing was performed on a large number of coal samples obtained from the Indiana V Seam, in and around the project area. The relatively dense core drilling coverage, combined with channel samples being taken regularly from underground development areas, provides a thorough understanding of the clean coal product that could be produced from the Oaktown Mining Complex.

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All coal intercepts of Oaktown Mining Complex exploration were geologically logged, photographed, and sampled in the field by competent geologists. Sampling methodologies consist of first pushing the cored intervals of coal out of the core barrel, directly into a clean single-row wooden core box. Prior to removing coal core from the drilling barrel, the core box is lined with durable plastic sheeting, which helps retain moisture content and minimize coal core oxidation. Once the coal core is fully extruded from the core barrel, it is then inspected, photographed, and logged by the on-site geologist, and cardboard inserts are installed in the wooden core box to maintain coal core integrity.

Upon completing detailed recording (geologic logging and photographing) of the coal interval, coal cores are split into the desired intervals to be analyzed and bagged. An order sheet is placed inside the sample bag, which specifies drill hole information, split information, and testing to be completed on the bagged sample. Sample bags are then zip tied closed, labeled, and then double bagged to eliminate incidental core loss due to potential damage during transportation to the testing lab.

Sunrise maintains all control of coal core samples, up to the point that samples are handed over to the lab performing testing. Once logging and sampling is complete, the sampled coal core intervals are transported to the selected lab that will perform the required analyses. Typically, washability analysis is performed on the majority of drillhole samples with select drillholes being expanded to include full proximate or other analyses (i.e., ultimate, ash content, etc.). The lab manager signs off on the return analysis sheet, indicating that testing results are accurate and that the sample provided was sufficient for testing purposes.

Past programs utilized various accredited coal testing laboratories, again depending on what testing needed to be completed on the coal core at a given time. All analytical work was conducted to International Organization of Standardization (ISO) or American Society for Testing and Materials (ASTM) standards, and various available laboratory sample sheets were provided for review with drilling log data.

Available testing sheets were reviewed by BOYD during our drill hole data audit, and our review of the discussed field and sampling procedures noted above indicated that the general description and sampling work were conducted to appropriate standards. Based on the stated standards and laboratory used, BOYD considers the sample preparation and analytical procedures were adequate for the coal quality results for inclusion in geological modelling and coal resource estimation.

JOHN T. BOYD COMPANY

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5.2.3        Coal Washability Testing

Coal washability tests (proximate analysis) were conducted at various specific gravities, generally ranging from 1.45 specific gravity float (SGF) through 1.55 SGF. Estimated coal reserves for the Oaktown Mining Complex are currently reported using 1.55 SGF testing results over the entire Oaktown Mining Complex project area. Proximate analysis test results were completed on 723 drill core samples, which were used in estimating quantity and quality of the remaining Oaktown Mining Complex coal reserves.

Although it was noted that Sunrise generally does not perform any randomized sample verification in order to conduct quality control testing of individual coal analyses, Sunrise will typically perform channel sampling and quality analyses throughout mine workings. The channel sample data are then utilized to update quality models.

5.2.4        Other Exploration Methods

There is no known ore reported via other methods of exploration (such as airborne or ground geophysical surveys) completed for the project area.

5.3           Results

A total of 1,922 drill holes and in-mine samples are in and around the Oaktown Mining Complex area. The distribution of these drill holes is shown on Figure 5.1. Lithologic and coal quality data from these holes only were used for geologic modeling and coal resource assessment for the property.

General descriptive statistics for the Indiana V Seam thickness are provided in Table 5.1 below.

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JOHN T. BOYD COMPANY

As shown, the thickness of the seam can range from less than a foot to over 12 ft across the Oaktown Mining Complex area. Average thickness of the Indiana V Seam for the project area is approximately 5.2 ft for the Oaktown Fuels No. 1 Mine area and 4.8 ft for the Oaktown Fuels No. 2 Mine area.

The results of the coal quality analyses from 723 samples are summarized in Table 5.2.

Note: Raw and Clean coal qualities are provided on a dry basis. 

Raw and clean (washed) coal quality data demonstrate the consistency of the Indiana V Seam as a high-sulfur, moderate ash coal.

5.4          Data Verification

For purposes of this report, BOYD did not verify historic drill hole data by conducting independent drilling in areas already explored. It is customary in preparing coal resource and reserve estimates to accept basic drilling and coal quality data as provided by the client subject to the reported results being judged representative and reasonable.

JOHN T. BOYD COMPANY

BOYD’s efforts to judge the appropriateness and reasonability of the source exploration data included reviewing a representative sample of drilling logs and coal quality test results for holes located in unmined portions of the Oaktown Mining Complex area. These records were compared with their corresponding database records for transcription errors, noting the vast majority of the information being consistent. Lithologic and coal quality data points were compared via visual and statistical inspection with geologic mapping.

BOYD’s review indicates that in general, Sunrise has performed extensive drilling and sampling work on the subject property, the work completed has been done so by competent personnel, and the amount of data available combined with wide-spread knowledge of the Indiana V Seam, is sufficient to confirm seam uniformity and continuity throughout the Oaktown Mining Complex deposit.

JOHN T. BOYD COMPANY

6.0       COAL RESOURCES AND RESERVES

6.1          Applicable Standards and Definitions

Unless noted, coal resource and coal reserve estimates disclosed herein are done so in accordance with the standards and definitions provided by S-K 1300. It should be noted that BOYD considers the terms “mineral” and “coal” to be generally interchangeable within the relevant sections of S-K 1300.

Estimates of coal resources and reserves are always subject to a degree of uncertainty. The level of confidence that can be applied to a particular estimate is a function of, among other things: the amount, quality, and completeness of exploration data; the geological complexity of the deposit; and economic, legal, social, and environmental factors associated with mining the resource/reserve. By assignment, BOYD used the definitions provided in S-K 1300 to describe the varying degree of certainty associated with the estimates reported herein.

The definition of mineral (coal) resource provided by S-K 1300 is:

Mineral resource is a concentration or occurrence of material of economic interest in or on the Earth's crust in such form, grade or quality, and quantity that there are reasonable prospects for economic extraction. A mineral resource is a reasonable estimate of mineralization, taking into account relevant factors such as cut-off grade, likely mining dimensions, location or continuity, that, with the assumed and justifiable technical and economic conditions, is likely to, in whole or in part, become economically extractable. It is not merely an inventory of all mineralization drilled or sampled.

Estimates of coal resources are subdivided to reflect different levels of geological confidence into measured (highest geologic assurance), indicated, and inferred (lowest geologic assurance). See Glossary of Abbreviations and Definitions.

The definition of mineral (coal) reserve provided by S-K 1300 is:

Mineral reserve is an estimate of tonnage and grade or quality of indicated and measured mineral resources that, in the opinion of the qualified person, can be the basis of an economically viable project. More specifically, it is the economically mineable part of a measured or indicated mineral resource, which includes diluting materials and allowances for losses that may occur when the material is mined or extracted.

JOHN T. BOYD COMPANY

Estimates of coal reserves are subdivided to reflect geologic confidence, and potential uncertainties in the modifying factors, into proven (highest assurance) and probable. See Glossary of Abbreviations and Definitions.

Figure 6.1 shows the relationship between coal resources and coal reserves.

In this report, the term “coal reserves” represents the tonnage and coal quality of product coal that will be available for sale after beneficiation of the ROM coal.

6.2          Coal Resources

6.2.1       Methodology

Based on provided information, Sunrise’s coal resources (and coal reserves) estimation and modeling techniques consists of:

JOHN T. BOYD COMPANY

6.2.2       Criteria

Development of the coal resource estimate for the Oaktown Mining Complex assumes mining using standard underground R&P methods and equipment, which have been utilized successfully at the Oaktown Mining Complex for over a decade.

Within the area of study, the Indiana V Seam exhibits consistent and well-characterized clean (i.e., washed) coal qualities which are within existing marketable limits for ILB coal products. BOYD did not discover any areas within the property where clean coal quality was deficient relative to Sunrise’s historical coal sales and current sales contract specifications for high-sulfur thermal coal. As such, no reductions have been made to the coal resources due to coal quality.

A minimum mineable seam thickness of 4 ft was used to limit the coal resources of the Indiana V Seam. This cut-off is a function of the employed mining techniques and equipment. Mining heights less than 4 ft result in operational difficulties and increase OSD, thereby reducing productivity and increasing costs.

There were not any other cut-offs applied.

6.2.3       Classification

Geologic assuredness is established by the availability of both structural (thickness and elevation) and quality information for the Indiana V Seam. Classification is generally based on the concentration or spacing of exploration data, which can be used to demonstrate the geologic continuity of the deposit. Table 6.1 provides the general criteria employed in the classification of the coal resources.

JOHN T. BOYD COMPANY

Extrapolation or projection of resources in any category beyond any data point does not exceed half the point spacing distance.

BOYD reviewed the classification criteria employed by Sunrise with regards to data density, data quality, geological continuity and/or complexity, and estimation quality. The Indiana V Seam is well-known and of low complexity. We believe these criteria appropriately reflect the interpreted geology and the estimation constraints of the deposit. Coal resources in the Oaktown Mining Complex area are well-defined throughout nearly all areas of the mine plan. Observed drill hole spacing averages approximately 1,995 ft and generally ranges between 444 ft and 8,000 ft.

BOYD is of the opinion that there is a high degree of certainty (assurance) associated with each of the resource classifications.

6.2.4       Coal Resource Estimate

There are no reportable coal resources excluding those converted to coal reserves for the Oaktown Mining Complex. Quantities of coal controlled by Sunrise within the defined boundaries of the Oaktown Mining Complex which are not reported as coal reserves, are not considered to have potential economic viability; as such, they are not reportable as coal resources.

6.3          Coal Reserves

6.3.1       Methodology

Estimates of coal reserves are derived contemporaneously with estimates of coal resources for the LOM plans through the application of appropriate modifying factors. Economic viability of the coal reserves is subsequently confirmed via a LOM financial forecast.

JOHN T. BOYD COMPANY

The coal reserve estimates have been prepared using generally accepted industry methodology to provide reasonable assurance that the coal reserves are economic and recoverable at the time of evaluation.

6.3.2       Parameters and Assumptions

The following parameters and assumptions were relied upon to determine the coal reserves:

Mining recovery, which is dependent on numerous factors associated with R&P mining, historically ranges between 40 and 50% (averaging 44.4%) for the Indiana V Seam. Within the Oaktown Mining Complex’s LOM plan areas, the estimated average mining recovery is 46.1% for the Oaktown Fuels No. 1 Mine and 41.6% for the Oaktown Fuels No. 2 Mine. Theses recoveries are considered reasonable.

Clean coal estimates are based on coal washability data. These estimates have been conservatively adjusted downward to reflect practical yields achieved by the preparation plant. Salient coal preparation factors used to estimate the coal reserves include:

Figure 6.2 depicts the estimated product yield for the Indiana V Seam across the Oaktown Mining Complex deposit.

The Indiana V Seam across the Oaktown Mining Complex property exhibits clean coal quality which is consistent with Sunrise’s historical production and current sales contract specifications. Furthermore, the projected coal quality over the life of the coal reserves is consistent with coals produced by other ILB operators (please refer to Chapter 10 for further information). As such, BOYD does foresee any quality deviations that would adversely affect the marketability future coal production from the Oaktown Mining Complex.

JOHN T. BOYD COMPANY

The economic viability of the stated coal reserves is demonstrated by the production and financial projections presented in Chapters 10 through 12 of this report. The forecasted sales prices (FOB CPP) used in the estimation of coal reserves for the Oaktown Mining Complex vary by year, ranging from $42.50 to $63.99 and averaging $46.88 per clean ton (refer to Section 10.2.5 for further details).

6.3.3       Classification

Proven and probable coal reserves are derived from measured and indicated coal resources, respectively, in accordance with S-K 1300. BOYD is satisfied that the stated coal reserve classification reflects the outcome of technical and economic studies. Figure 6.3 illustrates the reserve classification of the Indiana V Seam within the Oaktown Mining Complex.

6.3.4       Coal Reserve Estimate

Sunrise’s estimated underground mineable coal reserves for the Oaktown Mining Complex total 71.4 million recoverable (clean) product tons remaining as of December 31, 2021. The coal reserves reported in Table 6.2 are based on the approved LOM plan which, in BOYD’s opinion, is technically achievable and economically viable after the consideration of all material modifying factors.

JOHN T. BOYD COMPANY

JOHN T. BOYD COMPANY

JOHN T. BOYD COMPANY

TABLE 6.2 

ESTIMATED COAL RESERVES BY MINE
AS OF 31 DECEMBER 2021
OAKTOWN MINING COMPLEX
Indiana and Illinois

Prepared For

                          SUNRISE COAL. LLC                          
By

John T. Boyd Company

Mining and Geological Consultants
              October 2023             

JOHN T. BOYD COMPANY

Coal reserves for the Oaktown Mining Complex are summarized by mine in Table 6.3.

The reported coal reserves include only coal that is controlled by the company under lease agreement as of December 31, 2021. It should be noted that the Oaktown Mining Complex’s permitted underground mining area includes approximately 20.2 million product tons which are currently uncontrolled (i.e., owned by other parties). Sunrise anticipates gaining control of the mineral rights to this uncontrolled coal in due time and adjusting its mine plans accordingly. BOYD is not aware of any encumbrances, litigation, or orders that would hinder the continued development of the property.

At the time of reporting, 66.1 million product tons, or over 92% of the reported reserves, are permitted for mining by appropriate federal and state regulatory authorities. The remaining 5.3 million product tons are not permitted. It is typical for mining permits to be periodically amended as mining progresses to add acreage (tonnage) in order to sustain coal production. It is reasonable to expect that all necessary permits to recover the coal will be successfully obtained in advance of mining.

The coal reserves of the Oaktown Mining Complex are well-explored and defined. It is our conclusion that over 96% of the stated reserves can be classified in the proven reliability category (the highest level of assurance) with the remainder classified as probable. Given the uniformity of the Indiana V Seam in and around the Oaktown Mining Complex, it is reasonable to assume that further exploration and testing will confirm the occurrence of coal reserves, resulting in an increase in the percentage of coal reported in the proven category.

JOHN T. BOYD COMPANY

Table 6.4 below summarizes the washed coal quality for each mine of the Oaktown Mining Complex. The reported coal reserves generally consist of high-sulfur moderate ash coal that may be used for steam purposes.

Figures 6.4 and 6.5, respectively, illustrate the product ash and product sulfur content over the Oaktown Mining Complex area. As shown, there are slight increases in both ash and sulfur content from southeast to northwest across the property.

The Oaktown Mining Complex is an established underground coal mining and processing complex with a consistent operating history. BOYD has assessed that sufficient studies have been undertaken to enable the coal resources to be converted to coal reserves based on current operating methods and practices. Changes in the factors and assumptions employed in these studies may materially affect the coal reserve estimate.

The extent to which the coal reserves may be affected by any known geological, operational, environmental, permitting, legal, title, variation, socio-economic, marketing, political, or other relevant issues has been reviewed as warranted. It is BOYD’s opinion that Sunrise has appropriately mitigated, or has the operational acumen to mitigate, the risks associated with these factors. BOYD is not aware of any additional risks that could materially affect the development of the reserves.

Based on our audit review, we have a high degree of confidence that the estimates shown in this report accurately represent the available coal reserves controlled by Sunrise, as of December 31, 2021.

6.3.5       Validation

BOYD independently estimated coal reserves for the Oaktown Mining Complex mine plan from geologic data and models provided by Sunrise. Based on our review of Sunrise’s well-documented geologic modeling and estimation techniques and the results of our data validation efforts (described earlier), we are of the opinion that Sunrises’ modeling procedures are reasonable and appropriate. We consider the LOM plan and economic forecast sufficiently detailed to support the estimate of coal reserves reported herein. Furthermore, it is BOYD’s opinion that there is a high degree of assurance associated with the stated coal reserves due to the current amount of exploration and sampling, mine planning, and economic analyses that have been completed on the Indiana V Seam within the Oaktown Mining Complex area.

JOHN T. BOYD COMPANY

JOHN T. BOYD COMPANY

JOHN T. BOYD COMPANY

6.3.6       Reconciliation with Previous Estimates

Figure 6.6 illustrates the comparison of Sunrise’s coal reserve estimates as of December 31, 2021, with the historical estimate¹ of December 31, 2020:

The net decrease in reserves reflects: (1) revisions to mine plans and/or associated modifying factors as determined by Sunrise management or BOYD, (2) depletion through ordinary mining operations and inventory sales, and (3) exclusion of a small block of coal for which BOYD opines there does not exist reasonable prospects for economic extraction.

¹ Note: BOYD has not done sufficient work to classify historical estimates as current coal resources or coal reserves and the issuer is not treating the historical estimate as current coal resources or coal reserves.

JOHN T. BOYD COMPANY

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7.0       MINING OPERATIONS

7.1       Mining Method Description

Coal is produced by the Oaktown Fuels No. 1 and No. 2 underground mines using the R&P mining method. R&P mining is a partial extraction technique that recovers a portion of a coal seam. An illustration of a typical R&P mining operation is provided in Figure 7.1

R&P mining utilizes the systematic development of interconnected underground entries or openings with rectangular roadways that are driven in the coal seam and are typically supported by roof bolts installed in the immediate roof. The parallel mine entries are connected by crosscuts which result in a series of mine openings separated by solid coal pillars that support the main roof. R&P mining systems, which generally utilize CMs, can be used for coal production (like the underground mines of the Oaktown Mining Complex) or as a development technique to support longwall (LW) production. This flexible mining system is widely used across the US coal industry, at large and small mines with varying seam thicknesses and mining conditions.

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A typical R&P production section will include one or two CM units, one to three roof bolting machines, and between two and three coal haulage machines (most commonly either ram cars [RC] or shuttle cars [SC]) per CM. The main piece of equipment is the CM, which is a heavy, steel framed machine (often over 40 tons) mounted on cat tracks, that operates on AC power. Key components of a CM include:

Although there have been ongoing advances in CM equipment technology, the basic R&P mining process has been utilized for decades and has remained largely unchanged over that time. The CM is used to extract the coal seam by mining a rectangular opening or “cut”. The cut typically ranges from 18 ft to 20 ft in width and extends the height² of the coal seam plus some increment of extraneous non-coal roof and floor material extracted during the mining process (known as OSD). The depth that the CM cuts into the coal seam (i.e., the cut length) is dependent upon mining conditions, regulations, operating practices, etc. but is generally in the range of 15 ft to 40 ft. Shorter cuts are taken in areas where there are difficult roof conditions.

A critical element of R&P mining is the interaction between the CM, the roof-bolting machine and supporting haulage units. Known as “place-changing”, the following steps will typically occur during mining cycle:

² In instances where a CM is operating in thick seam conditions (i.e., the coal thickness is greater than 8 ft), the height of the cut may be less than the full thickness of the seam.

JOHN T. BOYD COMPANY

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Place-change mining is an efficient form of R&P mining, although the process will routinely incur delays during a production shift (perhaps 5 to 20 minutes per occurrence, depending upon site-specific considerations). Where roof conditions permit (and approval is granted by regulatory agencies), mine operators will employ "deep cut" mining plans to reduce the impact of place-changing delays. Longer cuts (usually 30 ft to 40 ft in length) enable the CM to spend a greater portion of available shift time in cutting and loading activities.

Place-changing CM equipment has steadily evolved over the years via technological breakthroughs to become sophisticated, productive, and durable. Today’s state-of-the-art CM units are equipped with efficient motors, computer diagnostics, solid-state electronics, advanced remote-control systems, and scrubbing mechanisms (which preserve underground air quality by capturing a significant percentage of respirable dust that is generated by the breaking/grinding of coal and rock during the mining process). Ever-improving technological gains have resulted in dramatic improvements in productivity, machine availability, employee safety, and unit operating costs over the past four decades.

An R&P mine may operate a single production section, or multiple sections (like the mines of the Oaktown Mining Complex). This is dependent upon the size of the reserve, supporting infrastructure, capitalization, markets, etc. A variation of the traditional R&P place-changing method is the “super-section”. Under this system, the CM production section is equipped with two CM machines, two sets of haulage vehicles, and multiple roof bolters. Under this variation, each “super-section” essentially operates two production units per belt dumping point enhancing the productive output of the mine section. This variation of traditional R&P mining is employed at both Oaktown Fuels No. 1 and No. 2 mines.

R&P extraction may be performed as either “first mining” or “secondary extraction”. First or “advance-only” mining is where a system of entries or openings are driven/advanced and the remaining coal pillars are left intact. Under this system, after a section has reached its intended advance distance, the section equipment is recovered and relocated to a new area, leaving the developed pillars untouched (i.e., no secondary mining of the pillars occurs). Reasons for employing this type of R&P mining may include equipment specifications, geological conditions, subsidence restrictions, operator preferences, etc.

JOHN T. BOYD COMPANY

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Secondary extraction or “retreat mining” is the process whereby, after the mine workings have reached the end of the advance stage of mining, the direction of mining is reversed (i.e., the mine operator retreats towards the mouth of the production section, employing a prescribed series of cuts to sequentially recover coal from the pillars). Retreat mining systems can be complex and may include partial or full pillar extraction (which allows the roof to systematically collapse and subsequently results in subsidence of the overlying surface).

Reserve recovery (extraction ratio) varies at R&P mines. Generally, 40% to 50% extraction of the in-place coal is typical, with extraction ratios ranging from 30% to 70%. Retreat mining may or may not offer higher extraction ratios than advance only mining; actual recoveries are dependent upon pillar dimensions and a variety of operational considerations.

The Oaktown Fuels No. 1 Mine typically operates as a three to four super-section operation, and Oaktown Fuels No. 2 Mine typically operates as a two to three super-section operation. Currently, the mines are performing first mining only; Sunrise has no projections for retreat mining in production panels within its LOM plan and has not historically utilized “retreat mining” at the Oaktown Mining Complex.

R&P mining has been one of the predominant approaches to mining the Indiana V Seam (within which Oaktown Mining Complex operates) for decades. Mining in the Oaktown Fuels No. 1 Mine, which first began production in 2009 and is the oldest of the Oaktown Mining Complex’s two operations, is largely identical to the practices used at the Oaktown Fuels No. 2 Mine. In terms of mining methodology, the application of R&P mining techniques at the Oaktown Fuels No. 1 and No. 2 mines is viewed as a prudent operating decision based on: (1) the extent of the complex’s overall coal reserve base, (2) Sunrise’s targeted annual production levels, (3) the mines’ historic and expected mining conditions and seam orientation, and (4) the successful application of R&P technology at nearby historical and active mining operations. The use of R&P mining at the Oaktown Mining Complex is further justified based on Sunrise’s experience operating R&P mines and their reputation for having refined the technical, operational, and financial elements of this mining technique for site specific conditions over the years.

JOHN T. BOYD COMPANY

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7.2        Mine Equipment and Staffing

7.2.1     Mine Equipment

The equipment utilized at the two Oaktown Mining Complex underground R&P mines is nearly identical to one another. This allows for synergies between the operations, including the sharing of equipment and critical spare parts. Additionally, mining equipment utilized by Oaktown Mining Complex is not unique to the ILB region (i.e., Oaktown Mining Complex’s mining equipment is similar to the equipment commonly used by competitor underground mines in the region).

Table 7.1 presents Oaktown Mining Complex’s projected number of CM super-sections for 2022 through 2036 according to BOYD’s conceptual LOM:

A listing of equipment typically employed by the two mines’ CM super-sections is shown in Table 7.2, below.

Based on BOYD’s review of the Oaktown Mining Complex’s equipment and asset listings, the operations’ current complement of equipment is sufficient to meet the production levels projected for each of the operations over their conceptual LOM plans. Additionally, capital projections prepared by Sunrise have accounted for future equipment related expenditures to maintain production at forecasted levels. In BOYD’s opinion, all mining equipment utilized on the Oaktown Mining Complex’s CM super-sections is suitable for the mining conditions anticipated, as well as for the future proposed rates of production.

JOHN T. BOYD COMPANY

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7.2.2        Staffing

Oaktown Mining Complex’s underground mines and coal preparation facility are staffed by a workforce primarily from the surrounding southwestern Indiana and southeastern Illinois areas. The workforce, which is comprised of both hourly and salary employees, has no labor affiliation (i.e., the Oaktown Mining Complex is union-free). Table 7.3 provides recent historical employment for each operational site:

Source: MSHA Form 7000-2

Future employment levels are expected to resemble historical levels. Given Sunrise’s ability to hire and retain employees, staffing is not expected to hinder the Oaktown Mining Complex operations’ ability to achieve forecasted production levels.

JOHN T. BOYD COMPANY

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7.3       Mine Production

7.3.1       Historical Mine Production

Historical mine production data for the two Oaktown Mining Complex underground R&P mines, based on publicly available information reported by MSHA, are detailed in Table 7.4, below.

Notes:

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As a complex, Oaktown Mining Complex has produced a combined 58.3 million tons of clean coal during 2009 to 2021. Through the same period, the complex has recorded an average productivity level of 4.3 tons per employee-hour (TPEH). Figure 7.2 shows historic mining productivity for Oaktown Mining Complex and each mine individually since their start.

Figure 7.2: Historic Mining Productivity Levels

7.3.2       Forecasted Production

BOYD developed LOM plans for each of the Oaktown Mining Complex underground mines based on generally accepted engineering practices, and in alignment with historical and industry norms. It is BOYD’s opinion that the forecasted production levels for the Oaktown Mining Complex operations are reasonable, logical, and consistent with typical CM mining practices within the ILB and historical practices utilized by the Oaktown Mining Complex.

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The Oaktown Mining Complex LOM plans, as shown in Table 7.5, following this page, portray a consistent production output during 2022 through 2031 and then a decline in production as the number of CM units are reduced gradually as the mining reserves are depleted. In the aggregate, the Oaktown Mining Complex LOM plan projects the complex will produce approximately 101.8 million tons of ROM and approximately 71.4 million tons of clean coal over its operational horizon.