Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to various uncertainties and changes in circumstances. Important factors that could cause actual results to differ materially from those described in these forward-looking statements are set forth below under the heading "Forward-Looking Statements." Management's Discussion and Analysis of Financial Condition and Results of Operations include
NACCO Industries, Inc.® ("NACCO") and its wholly owned subsidiaries (collectively, the "Company"). NACCO brings natural resources to life by delivering aggregates, minerals, reliable fuels and environmental solutions through its robust portfolio of NACCO Natural Resources businesses. The Company operates under three business segments: Coal Mining, North American Mining ("NAMining") and Minerals Management. The Coal Mining segment operates surface coal mines for power generation companies and an activated carbon producer. The NAMining segment is a trusted mining partner for producers of aggregates, lithium and other minerals. The Minerals Management segment promotes the development of mineral interests. In addition, Mitigation Resources of North America® ("Mitigation Resources") provides stream and wetland mitigation solutions. The Company has items not directly attributable to a reportable segment that are not included as part of the measurement of segment operating profit, which include primarily administrative costs related to public company reporting requirements at the parent company and the financial results of Mitigation Resourcesand Bellaire Corporation("Bellaire"). Bellaire manages the Company's long-term liabilities related to former Eastern U.S.underground mining activities.
All financial statement line items below operating profit (other income,
including interest expense and interest income, the provision for income taxes
and net income) are presented and discussed within this Form 10-Q on a
The Company’s operating segments are further described below:
Coal Mining Segment The Coal Mining segment, operating as The North American Coal Corporation® ("NACoal"), operates surface coal mines under long-term contracts with power generation companies and an activated carbon producer pursuant to a service-based business model. Coal is surface mined in
North Dakota, Texas, Mississippi, Louisianaand through September 30, 2021, on the Navajo Nationin New Mexico. Each mine is fully integrated with its customer's operations. During the nine months ended September 30, 2021, the Company's operating coal mines were: Bisti Fuels Company, LLC("Bisti"), The Coteau Properties Company("Coteau"), Coyote Creek Mining Company, LLC("Coyote Creek"), Demery Resources Company, LLC("Demery"), The Falkirk Mining Company("Falkirk"), Mississippi Lignite Mining Company("MLMC") and The Sabine Mining Company("Sabine"). Falkirk operates the Falkirk Minein North Dakota. Falkirk is the sole supplier of lignite coal to the Coal Creek Stationpower plant pursuant to a contract under which Falkirk also supplies approximately 0.3 million tons of lignite coal per year to Spiritwood Stationpower plant. Coal Creek Stationand Spiritwood Stationare owned by Great River Energy("GRE"). In May 2020, GRE announced its intent to sell or retire Coal Creek Stationand modify Spiritwood Stationto be fueled by natural gas. On June 30, 2021, GRE entered into an agreement to sell Coal Creek Stationand the adjacent high-voltage direct current transmission line to Bismarck, North Dakota-based Rainbow Energy Center, LLC("Rainbow Energy") and its affiliates. The closing of this sale is subject to the satisfaction of certain conditions and presently, the transaction is expected to close by the end of the first quarter of 2022. The timing could be accelerated, and the transaction could close before the end of 2021 if conditions are satisfied earlier than anticipated. Upon completion of the sale of Coal Creek Station, the existing Coal Sales Agreement, the existing Mortgage and Security Agreement and the existing Option Agreement between GRE and Falkirk will be terminated. Falkirk and GRE have entered into a termination and release of claims agreement. Upon completion of the sale of Coal Creek Station, GRE will pay Falkirk $14.0 millionin cash, as well as transfer ownership of an office building located in Bismarck, North Dakota, and convey membership units in Midwest AgEnergy to NACoal. NACCO currently holds a $5.0 millioninvestment in Midwest AgEnergy, which operates two ethanol facilities in North Dakota. 16
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If GRE's efforts to sell the power plant are successful, a new Coal Sales Agreement ("CSA") between Falkirk and Rainbow Energy will become effective and Falkirk will supply all coal requirements of
Coal Creek Stationconcurrent with Rainbow Energy's acquisition of the power plant. Falkirk will no longer make any coal deliveries to GRE's Spiritwood Station. Falkirk will be paid a management fee and Rainbow Energy will be responsible for funding all mine operating costs and directly or indirectly providing all of the capital required to operate the mine. The CSA specifies that Falkirk will perform final mine reclamation, which will be funded in its entirety by Rainbow Energy. The initial production period is expected to run ten years from the effective date of the CSA, but the CSA may be extended or terminated early under certain circumstances. If Rainbow Energy terminates the CSA and closes Coal Creek Stationbefore 2027, Falkirk will be entitled to an additional payment from GRE under the terms of the termination and release of claims agreement. The additional payment amount ranges from $8 millionif the closure occurs before 2024 to $2 millionif the closure occurs in 2026. To support the transfer to new ownership, Falkirk has agreed to a reduction in the current per ton management fee from the effective date of the new CSA through May 31, 2024. After May 31, 2024, the per ton management fee increases to a higher base in line with current fee levels, and thereafter adjusts annually according to an index which tracks broad measures of U.S.inflation. Bisti supplied the Four Corners Power Plant through its contract mining agreement with the Navajo Transitional Energy Company("NTEC"). This contract mining agreement was terminated effective September 30, 2021. As required under the agreement, NTEC paid the Company a termination fee of $10.3 million. As of October 1, 2021, NTEC assumed control and responsibility for operation and all reclamation of the Navajo Mine. Sabine operates the Sabine Minein Texas. All production from Sabine is delivered to Southwestern Electric Power Company's("SWEPCO") Henry W. Pirkey Plant(the "Pirkey Plant"). SWEPCO is an American Electric Power ("AEP") company. In November 2020, AEP announced its intent to retire the Pirkey Plant in 2023. SWEPCO expects deliveries from Sabine to continue until the first quarter of 2023 at which time Sabine expects to begin final reclamation. Funding for mine reclamation is the responsibility of SWEPCO. Coteau operates the Freedom Minein North Dakota. All coal production from the Freedom Mineis delivered to Basin Electric Power Cooperative(" Basin Electric"). Basin Electricutilizes the coal at the Great Plains Synfuels Plant (the "Synfuels Plant"), Antelope Valley Stationand Leland Olds Station. The Synfuels Plant is a coal gasification plant, owned by Dakota Gasification Company(" Dakota Gas'), a subsidiary of Basin Electric, that manufactures synthetic natural gas and produces fertilizers, solvents, phenol,...