Beaver Coal : 2021 Annual Report

2021 ANNUAL REPORT

WWW.BEAVERCOAL.COM

Tree House, "Cabins at Pine Haven"

TABLE OF CONTENTS

Letter to the Limited Partners	3-6
Independent Auditor's Report	7-10
Consolidated Balance Sheets - Accrual Basis	11
Consolidated Statements of Income - Accrual Basis	12
Consolidated Statements of Equity - Accrual Basis	13
Consolidated Statements of Cash Flows - Accrual Basis	14
Notes to Consolidated Financial Statements	15-20
Purchase & Sale Transfer Process	21

Coalfields Expressway from Overlook, "Burning Rock Off-Road Park"

Jeep Traveling the Tams Trail, "Burning Rock Off-Road Park"

Trail Maintenance Equipment,"Burning Rock Off-Road Park"

Beaver Coal Company Limited d/b/a Beaver Property Company, Limited

919 Conestoga Road	354 Log Cabin Road
Suite 214, Building 3	Beaver, WV 25813
Rosemont, PA 19010

June 3, 2022

Limited Partners

Beaver Coal Company, Limited d/b/a Beaver Property Company, Limited

Dear Limited Partner:

We are pleased to announce that Beaver Coal Company, Limited will henceforth be doing business as (d/b/a) Beaver Property Company, Limited ("BPC"). This new name better reflects our activities as a land company as we have never mined coal as part of company operations in our 133‐year history. Also, given the perceived environmental concerns about hydrocarbons, and in particular coal, we think it is an appropriate change to lessen any stigma which may be associated with that commodity. Our LP units and all legal contracts will continue to be executed in the name of Beaver Coal Company, Limited but we will be known to the public as Beaver Property Company, Limited. The change will be evidenced in our advertising and public relations, printed materials and signage, and the website.

The accounting information for 2020, which we reference herein, was restated in the audited financial statements for FYE 2021 due to our adoption of the accrual basis of accounting in 2021. In prior years, we had been using the Modified Cash Basis of Accounting. The accrual basis of accounting is a Generally Accepted Accounting Principle (GAAP) put forth the by the Financial Accounting Standards Board (FASB) which is the foundation for its comprehensive set of approved accounting methods and practices for business. Adopting GAAP accounting allows our shares to be listed on public markets, which should facilitate better liquidity in our partnership units.

For 2021, the overall financial performance of Beaver Coal Company, Limited (Beaver) materially strengthened, and our financial condition remains sound. Total revenue for Beaver increased 61.7% ($3,785,640) to $9,921,776 for the year due to significantly increased market pricing of our lessee's activities in coal, timber, and natural gas. Beaver derives its lease revenue from royalties on commodities extracted from our property and a substantial portion of that revenue relates to the market value of such commodities. In fact, coal production volume was down in 2021 while volumes for natural gas and timber were up but not substantially. Our net income for 2021 of $7,345,214 was 114.2% ($3,915,838) higher than 2020. The higher net income was principally due to the strong increase in revenues, particularly coal royalties tied to the higher market price for the commodity. Overall, operating costs increased during 2021 but at a far slower pace than revenues. As a result, our income per unit in 2021 was $295.25. For the year, we distributed $235.00 per unit to our limited partners, or 79.6% of net income. Due to scheduled principal payments on mortgage loans, we also retired debt, equivalent to $3.12 per unit.

During 2021, coal revenue increased 105.9% to $6,535,226 due to higher prices for metallurgical coal extracted and shipped from the active mines by our lessees. The increase in pricing was reflective of higher demand for this essential raw material in the production of steel as the global economy recovered from the sharp contraction at the earlier height of the COVID‐19 pandemic. At the same time, several factors

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worldwide dampened supply. Safety challenges and flooding affected domestic mines in China; border closures between Mongolia and China, as well as strikes in the United States, also curtailed trade in the commodity. In addition, the ongoing diplomatic tensions between China and Australia interrupted supply also contributing to higher prices.

Beaver owns deposits of the highest‐grade metallurgical coal used as coking coal in the production of steel, not the lower‐grade variety used in power plants. Metallurgical coal sells into the more resilient steel markets. We believe coking coal (for steel) will continue to have worldwide value, although specific pricing will be affected by the long‐term contracts struck by our lessees, as influenced by market pricing. Should demand remain brisk in the face of supply constraints, and if governments and banks around the world continue to limit capital available for new coal mines, including for coking coal, long term pricing for the commodity could remain high. We believe that for a number of reasons, the steel industry may pursue new "greener" technologies, such as hydrogen‐based direct reduced iron, to manage their costs and allow for increased volumes of production. We believe that such a scenario is not a near term concern for Beaver, however, as the transformation of the global steel industry away from metallurgical coal is unlikely in the short term and unknown over the longer term.

Coal royalties remain the largest segment of our business (65.9% of total revenue in 2021). We have been making headway transitioning the company to obtain a larger percentage of revenue from surface leasing activities. These activities represent more predictable income streams, which we believe will help offset the effect of market price fluctuations in commodity products: metallurgical coal, timber, and natural gas.

For the year, rentals and other income increased 3.6% to $2,685,502. This is attributable to higher occupancy and increased pricing at The Cabins at Pine Haven, increased activity and rent from Burning Rock Off Road Park, higher commercial rents from our business tenants, offset by a slight reduction in rent from residential leases. Our operating formula is to rent commercial property to businesses that will construct their own buildings, thereby simplifying our role to that of a land‐lessor. Overall, rentals and other income comprise 27.1% of total revenue in 2021.

Royalties from an inactive stone quarry has been included in "Other Income" in 2021 and in prior periods because we received only a small ($25,000) annual minimum royalty from our former tenant which chose to keep the quarry closed. We obtained a new tenant in 2019 who has succeeded in acquiring the necessary operating permits and ramping up production. As a result, in 2022 we anticipate receiving increased royalties which we will reflect in a new category of revenue, "Stone Royalties" for 2022.

Timber revenue increased 84.4% during 2021 to $590,905 due to increased volumes extracted at significantly higher prices. This growth reverses a four‐year trend of reduced timber royalties from our 2016 high of $1,178,200. Timber, like coal, is a commodity‐based revenue stream that reflects market pricing. In periods of low demand and consequent soft market pricing, we choose to limit cutting to maximize the long‐term value of our timber holdings.

During 2021, we took advantage of an opportunity to purchase 675 acres of additional timber land in Nicholas County, WV at favorable pricing. The acreage is proximate to our existing operations and the initial sustainable cut will pay back almost the entirety of the investment, and we have great proximity to local sawmills. In addition to the long‐term benefit of having increased timber assets, timber pricing can sometimes act as a counterbalance to the cyclical pricing in other of our commodity businesses. Timber represented 6.0% of total revenue in 2021.

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Natural gas revenue grew 121.8% to $110,143 in 2021, primarily due to higher pricing and production volume for this commodity due a market price recovery from the earlier COVID‐19 pandemic. The last gas well on Beaver property was drilled in 2006 and since then, 7 wells have reached their useful life and have been plugged. At the end of 2021, we had 123 producing wells, but this number is expected to diminish over time due to more wells reaching the end of their useful life, and the fact that new wells are primarily being drilled in other areas of the country appropriate for hydraulic fracturing. Countering this trend, we have entered into agreements with a methane gas elimination firm that is flaring methane from several active coal mines thereby preventing the adverse environmental consequences of venting the gas during the coal extraction process. This activity, which generates environmentally related elimination (tax) credits will provide royalties for Beaver from the sale of those credits to third parties, starting in 2022. We will account for this as Natural Gas revenue. Overall, natural gas makes up 1.1% of Beaver's total 2021 revenue.

In terms of non‐recurring items for 2021, the $120,617 gain relates to the sale of an office building in Beckley, WV.

Operating expenses increased 8.9% to $2,244,851 in 2021 primarily due to higher salary and benefit costs for our West Virginia personnel as well as higher insurance costs across all categories.

Through the first five months of 2022, coal revenue is significantly higher than last year due to firmer market prices and increased production by our lessees. We currently expect that full year coal revenues will be greater than in 2021, due to slightly increased aggregate production at continued high metallurgical coal prices. Concerning natural gas revenue, we feel our revenues will increase due to increases in market pricing of this commodity and the contribution of royalties related to methane elimination. Timber revenue should also increase due to a 2022 cutting plan which reflects more board feet to be cut than in 2021 at current prices including the new acreage in Nicholas County, WV. For the year, we expect revenue from our residential and business leases to increase due to the overall economic impact of the recovery from the COVID‐19 pandemic. We are excited about the emergence of Stone Royalties as a new revenue category for 2022 and anticipate revenue in the low six figures for this activity. We will continue to monitor operating expenses which remain low compared with other land companies. We are very focused on maintaining our overall operating margin and are driven to provide consistent limited partner distributions.

We believe in the conservative long‐term management of our commodity assets through the retention of good operators under lease to Beaver. This, combined with the prudent development of our surface property and timber holdings, will create a consistent and diversified lease income stream for the long‐ term benefit of our limited partners. Development, however, will not cause us to rapidly grow administrative expenses or to assume business risk which is best undertaken by tenants under lease.

At all times, we will maintain a conservative balance sheet with adequate reserves and liquidity, and limited use of borrowed money, so that all obligations will be met, and timely opportunities may be pursued. We remain committed to distributing a large percentage of net income to our partners, as we have in the past.

We are optimistic about the long‐term prospects for Beaver due to our capable staff and bountiful property and look forward to a sound economy and stronger results in 2022.

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