NACCO INDUSTRIES INC (NC) stock intrinsic value fair value estimate & owner earnings analysis

NACCO Industries earns money from three places: fee-based mining of lignite coal for power plants, contract mining (limestone, a Florida dragline project and the Thacker Pass lithium mine in Nevada), and a portfolio of oil, gas and coal royalty and mineral interests. The key fact for a reader is that most of the profit comes from mines that do not appear in NACCO's reported revenue. The Freedom Mine (Coteau), the Falkirk Mine and the Coyote Creek Mine in North Dakota are run under cost-plus agreements: the power-plant customers pay every operating, capital and reclamation cost, and NACCO collects a per-ton fee that the contracts adjust with inflation indices. These mines had $568 million of revenue and $59 million of pre-tax income in 2025, and paid NACCO $51.5 million in dividends (2024: $48.8 million). The cash flow statement shows no deduction for these earnings, so we treat that cash as part of NACCO's operating cash flow even though the mines are not consolidated. Everything NACCO consolidates is a much weaker business: the Mississippi Lignite mine and the other consolidated mines in the utility coal segment had a gross loss of $6.0 million in 2025, unallocated items (head office and new-business costs) were a $30.0 million operating loss, and capital spending has risen from $21 million in 2018 to $49 million in 2025. How we measured earning power. We started from operating cash flow, removed working-capital swings, deducted stock compensation, and deducted only the maintenance part of capital spending (growth capex is estimated from how capex has tracked revenue growth). We then added back cash interest, because the debt is valued separately. On that basis, cash earned before paying lenders was about $5.36, $4.94, $2.59, $6.16, $6.41, $0.10, $2.18 and $4.21 per share for 2018 through 2025. We anchor on the middle of those eight years, about $4.58 per share (roughly $34.6 million), because the business has been in its current form since the 2017 separation of Hamilton Beach Brands, and a median is not pulled around by the weak 2023 or the strong 2021 and 2022. The most recent year, owner earnings after interest, rose from $1.46 to $3.28 per share (before-interest cash earnings from $2.18 to $4.21, up 93%). Our first-year base assumption is flat on 2025, about $31.5 million, so it does not assume the rebound continues. We deliberately start below the anchor because the Mississippi customer's power plant (Red Hills) had an unplanned outage beginning in February 2026 that management expects to cause an operating loss at that mine in 2026, and because the Sabine mine reclamation fee stream ends September 30, 2026 (its size is not disclosed). First-half 2026 operating cash flow was $20.7 million against negative $2.8 million a year earlier, but net income was $7.9 million against $8.2 million, and the second quarter was a $1.0 million loss, so we see no reason to lift the level. How we split the cash. For the valuation we treat about $47 million of the 2025 cash as coming from the three North Dakota mines and the remaining roughly negative $15.5 million as everything else combined, netting head-office cost, the Mississippi mine, contract mining, royalties and maintenance spending. That split is our estimate: the filing gives the $51.5 million of dividends but not the tax cost of the fees or Sabine's share, so we trimmed the dividends. We spread the $47 million across the mines roughly in proportion to tons delivered (Coteau about 56%, Falkirk about 33%, Coyote Creek about 11%); fees per ton differ, so that split is approximate. Contract dates are the heart of every case. Coteau's agreement was extended in March 2025 to 2032, with a further five years to 2037 at Coteau's option. Falkirk's initial production period runs to May 1, 2032, and may be extended or terminated early. Coyote Creek's agreement runs to 2040. The Mississippi coal contract runs to April 1, 2032. Certain of these contracts can be terminated early, and the Pirkey plant's early retirement ended Sabine's coal deliveries in 2023, so early loss is a documented event for this company. Bear case: about $5.72 per share. The business is worth about $128 million ($17 per share) and NACCO owes about $85 million, leaving about $43 million. We assume three weak years at about $12 million a year, the average of the three weakest recent years (2020, 2023 and 2024), then Falkirk's agreement is terminated early around the end of 2029, no inflation growth in fees, Coteau runs to 2037 through its option, and Coyote Creek to 2040. Cash flow of about $12 million covers the roughly $7 million annual interest bill. We carry the debt at about $85 million because the revolver has to fund the dividend and the 2026 outage during the weak years. The revolver matures in September 2028 and carries covenants on debt to EBITDA (2.75 to 1.00) and interest coverage (at least 4.00 to 1.00); NACCO was in compliance at the end of 2025, but a weak stretch like this one could put pressure on them, and we did not add any extra cost for refinancing. Base case: about $20.57 per share. The business is worth about $230 million ($30.5 per share) and NACCO owes about $75 million, leaving about $155 million. Cash starts at about $31.5 million, fees grow 2% a year from year three on the contracts' inflation indices, Falkirk ends in 2032 without extension, everything outside the three mines stays a net drag of about $15.5 million a year until 2037, and Coteau runs to 2037 through its option. Nothing is credited after Coteau's 2037 end except Coyote Creek's fees to 2040, because we cannot name and evidence what replaces the coal fees afterwards. The royalty interests and equipment may keep some value beyond that, but we have no basis to size it. Bull case: about $29.59 per share. The business is worth about $298 million ($39.5 per share) and NACCO owes about $75 million, leaving about $223 million. The difference from the base case is that Falkirk's agreement is extended to 2037, the same way Coteau's was extended in 2025, and fees grow 2.5% a year. What was left out. We did not credit the Thacker Pass production fee (production is only targeted for late 2027, and the fee amount is not disclosed), the new Florida dragline contract and Arizona quarry, the mitigation business, the solar and power projects, the Eiger Resources investment or mineral acquisitions, and we did not deduct the up-to-$89 million of 2026 capital spending that management says it will make only if projects meet its criteria. If those projects earn good returns that is upside; if they do not, the borrowing used to fund them is a cost the cases do not carry. Intangible amortization is only about $0.75 million a year and does not matter here. We also removed working capital as a cash timing item; the cash flow statement shows $27.3 million (2024) and $11.4 million (2025) of inventory absorbing cash, a new $34.8 million non-current mining-supplies inventory appears on the 2025 balance sheet, and management describes 2025 inventory as relatively consistent. We could not fully reconcile those, and if part of that inventory is a permanent cost of operating, true earning power is lower than we show. Debt. At the end of 2025 NACCO had $100.9 million of borrowings, including $75.0 million on its secured revolving credit facility (floating rate, 7.21% weighted average in 2025) and $49.7 million of cash. By June 30, 2026 the revolver was $95.0 million and cash $45.5 million; we did not retrieve the mid-2026 balance of the other borrowings (about $26 million at the end of 2025, repaid in small instalments), so we use net debt of roughly $75 million. We made no adjustment for the revolver's floating rate; over its remaining life to September 2028 the extra cost is small. NACCO has guaranteed certain Coyote Creek lender obligations; management considers a payment remote and we have not charged for it. How we arrived at the margin-of-safety price of $10. We are fairly sure of the fee stream, because it comes from signed contracts and was confirmed by the dividends actually received, but much less sure of the remainder: two of the last three years show cash earnings well below the anchor, the Mississippi mine had a gross loss in 2025, and 2026 spending plans are expected to use borrowing. The worst plausible outcome is the early loss of Falkirk or another plant retiring, with the revolver coming due in 2028 while earnings are depressed; the structure should survive that because the debt is modest against the fee stream, but shareholders would be left with little over the next few years. If we are wrong about the two things most likely to move value, how long Falkirk's agreement lasts and whether the non-mine businesses stay as costly as in 2025, the shares are worth anywhere from about $5.7 to about $29.6. The price assumes a holding period through 2032, the date by which most of the contracts we can see are decided; for reference, NACCO paid about $7.3 million of dividends in 2025, roughly $1 per share. On the base case alone, a price of about $11.50 implies roughly 20% a year; because the range of outcomes is wide and the bear case implies a loss even from there, the margin-of-safety price is $10, from which the base case implies roughly 26% a year. Our earlier estimate was made on a different basis and its figures are not comparable with these.