Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to several market risks in the Company's normal business activities. Market risk is the potential loss that may result from market changes associated with the Company's power generation and mining activities, or with existing or forecasted financial or commodity transactions. The types of market risks that Hallador is exposed to are commodity price risk, interest rate risk, inflation risk, and counterparty credit risk.

Commodity Price Risk

Commodity price risks result from exposures to changes in spot prices, forward prices, volatilities, and correlations between various commodities, such as natural gas, electricity, coal, oil, and emissions credits. We manage the commodity price risk of the Company's generation and mining operations by entering into various instruments to manage the variability in future cash flows from forecasted sales and purchases of power and fuel. These instruments include prepaid forward contracts, PPAs, and other bilateral agreements. Hallador uses these agreements to manage and fix the prices of certain purchases and sales to alleviate market risk and improve visibility into future results. See the "Forward Sales Position" table within the "Results of Operations" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations".

We are exposed to market price fluctuations for emission credits related to our investments in Sunrise Energy and Oaktown Gas, which had an aggregate value of $2.6 million at December 31, 2025. For additional information regarding our investments in Sunrise Energy and Oaktown Gas, see "Item 8. Financial Statements - Note 14. - Equity Method Investments" to our Consolidated Financial Statements.

Interest Rate Risk

We are exposed to changes in interest rates primarily as a result of our borrowing activities, which include instruments with variable rates. Our primary exposure to variable rates is through our SOFR-indexed credit facilities.

In general, we monitor the interest rate market and determine whether to enter into instruments to protect against increases in the interest rates on our variable-rate debt. From time to time, we may use interest rate swaps, interest rate cap, floor or collar agreements that lock in a maximum interest rate if variable rates rise, but also may allow our company to benefit, to a limited extent in the case of collars, from declines in market rates. We use judgment to determine the appropriate composition of interest rate derivative instruments, taking into account the relative costs and benefits in light of current and expected future market conditions, liquidity issues and other factors. As of December 31, 2025 and 2024, we did not hold any interest rate derivative instruments.

Weighted Average Variable Interest Rate. At December 31, 2025 and 2024, the outstanding principal amount of our variable-rate indebtedness aggregated $30.0 million and $44.0 million, respectively, and the weighted average interest rate (including margin) on such variable-rate indebtedness was approximately 8.17% and 9.48%, respectively, excluding the effects of interest rate derivative contracts, deferred financing costs, original issue premiums or discounts and commitment fees, all of which affect our overall cost of borrowing. Assuming no change in the amount outstanding at December 31, 2025, and without giving effect to any interest rate derivative contracts, deferred financing costs, original issue premiums or discounts and commitment fees, a hypothetical 50 basis point (0.50%) increase (decrease) in our weighted average variable interest rate would increase (decrease) our annual consolidated interest expense and cash outflows by $0.2 million.

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Inflation Risk

We are subject to inflationary pressures with respect to labor, procurement of electrical and mining equipment, and other costs. While we attempt to increase our revenue to offset increases in costs, there is no assurance that we will be able to do so. Therefore, costs could rise faster than associated revenue, thereby resulting in a negative impact on our operating results, cash flows and liquidity. The economic environment in which we operate is a function of government, economic,

fiscal and monetary policies and various other factors beyond our control that could lead to inflation. We are unable to predict the extent that price levels might be impacted in future periods in the markets in which we operate.

Counterparty Credit Risk

We are exposed to the risk that the counterparties to our undrawn debt facilities and cash investments will default on their obligations to us. We manage these credit risks through the evaluation and monitoring of the creditworthiness of, and concentration of risk with, the respective counterparties. In this regard, credit risk associated with our undrawn debt facilities is spread across multiple counterparties, however notwithstanding, the default of certain counterparties could have a significant impact on our consolidated statements of operations. Most of our cash currently is invested in either (i) money market funds, including funds that invest in high-quality short-term instruments that preserve principal and offer daily liquidity, or (ii) overnight deposits with banks that transfer balances nightly into repurchase agreements collateralized by high-quality securities, including US government instruments. To date, neither the access to nor the value of our cash and cash equivalent balances have been adversely impacted by liquidity problems of financial institutions.

We invest our cash with financial institutions that meet high credit quality standards. We are exposed to the credit risk of these financial institutions and to interest rate risk in relation to the interest earning potential of our cash and cash equivalent balances. In order to mitigate these risks, we actively manage the deposits of our cash balances in light of our and our subsidiaries' forecasted liquidity requirements.

At December 31, 2025 and 2024, our exposure to counterparty credit risk included (i) cash and cash equivalents and restricted cash of $15.4 million and $12.2 million, respectively, and (ii) aggregate availability of undrawn debt facilities of $28.8 million and $30.6 million, respectively.

While we currently have no specific concerns about the creditworthiness of any counterparty for which we have material credit risk exposures, we cannot rule out the possibility that one or more of our counterparties could fail or otherwise be unable to meet its obligations to us. Any such instance could have an adverse effect on our cash flows, results of operations, financial condition and/or liquidity.

Although we actively monitor the creditworthiness of our key vendors, the financial failure of a key vendor could disrupt our operations and have an adverse impact on our revenue and cash flows.

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