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Investor Brief: A Strategic Analysis of Divestiture and Shareholder Value Realization

1.0 Q3 2025 Performance Overview: Establishing the Baseline

This overview of Pardee Resources Company's third-quarter 2025 performance provides an essential financial baseline for evaluating a proposed strategic refocusing of the company's asset portfolio. Understanding the current operational landscape is crucial to appreciating the potential value that can be unlocked by concentrating on our core, high-performing divisions.

For Q3 2025, the company reported key financial metrics that reflect a significant variance from the prior year. Earnings per share were 3.77, a 50% decrease from Q3 2024, while EBITDA per share was ****6.12, a 45% decline over the same period. Total company revenues registered at $7.8 million, representing a 12% decline from the third quarter of 2024.

The primary reason for this year-over-year decline is that Q3 2024 results were inflated by non-recurring events. Specifically, the prior-year period benefited from a significant real estate transaction and a substantial legal settlement gain of $1.7 million related to the DC Solar Ponzi-like scheme, neither of which was repeated in Q3 2025. Furthermore, increased exploratory coal drilling costs incurred during the recent quarter contributed to the reduction in operating performance. This operational reality demands an exploration of a strategic alternative for enhancing shareholder value.

2.0 The Strategic Rationale: Focusing on Core Royalty-Generating Assets

Strategic portfolio optimization is a critical exercise for any company seeking to maximize long-term value. The following analysis presents a hypothetical divestiture of non-core divisions to illustrate how Pardee could unlock significant shareholder value. By concentrating capital and management attention on our foundational strengths in natural resource royalties, the company can create a more focused, predictable, and profitable enterprise.

The case for divestiture centers on the Timber & Surface, Alternative Energy, and Agriculture divisions, each of which has recently faced distinct challenges or requires capital allocation outside our core competency.

• Timber & Surface: This division experienced a 57% decrease in quarterly revenue, driven by weak residential construction markets. More alarmingly, its Net Operating Income plummeted by 75%, signaling a severe erosion of profitability. Critically, production levels in 2024 were acknowledged to be above sustainable targets, highlighting inherent volatility.
• Alternative Energy: The division’s new $15.2 million investment in commercial solar projects represents a significant capital initiative. While partially financed with non-recourse debt, it demands management focus and introduces operational complexity far outside the company’s capital-efficient royalty model.
• Agriculture: The Portuguese almond orchard suffered significant operational and financial setbacks from heavy rainfall and fungal disease, which will negatively impact results through 2026. This division’s quarterly operating loss of $180,000 stands in stark contrast to the combined $3.79 million in positive net operating income generated by our core royalty divisions in the same period.

The performance of the Metallurgical Coal and Oil & Gas divisions underscores the drag of the non-core assets and highlights the strategic imperative to refocus.

• Metallurgical Coal: The division’s ability to increase shipments by 11.5% and revenue by 12.9% in the face of declining global export projections and surplus Chinese steel is a testament to the quality and strategic importance of these assets. The addition of 12.2 million tons to our reserve base further strengthens this foundation.
• Oil & Gas: This division is positioned to capitalize on powerful market tailwinds, including a 44% year-over-year increase in Appalachian natural gas prices. Demand is being driven by structural growth in LNG exports and the electricity needs of data centers.

The strategic logic is clear: divesting challenged, capital-intensive, or operationally disparate assets allows for a singular focus on the high-margin, high-potential royalty streams from our core coal and gas holdings. This sets the stage for a compelling financial realignment.

3.0 Financial Impact Analysis of the Proposed Divestiture

This section provides a clear, quantitative analysis of the financial consequences of the proposed divestiture. We will model the proceeds from the sale of non-core assets, the subsequent impact on the company's financial statements, and the direct return of capital to our shareholders.

3.1 Divestiture Proceeds and Special Dividend Calculation

Assumptions for Analysis

• The divestiture proceeds are assumed to be equal to the book value of the associated fixed assets as of September 30, 2025.
• 90% of the total proceeds will be distributed to shareholders via a one-time special dividend.

Based on these assumptions, the proceeds are calculated as follows (in thousands):

From these proceeds, 23,781.6 thousand (90%) would be distributed as a special dividend to shareholders, with the remaining ****2,642.4 thousand (10%) retained by the company for strategic flexibility.

3.2 Pro-Forma Operational Profile of the Focused Company

The divestiture would create a more streamlined and profitable operational core. The table below compares the Q3 2025 results of the current company with a hypothetical, refocused entity composed solely of the Metallurgical Coal and Oil & Gas divisions.

While total revenue and Net Operating Income (NOI) would decrease in absolute terms, the quality of earnings would improve significantly. This realignment would eliminate the Agriculture division's $180,000 quarterly operating loss, a direct drain on profitability, and exit the volatile Timber & Surface division. The result is a more resilient operational profile anchored by our strongest royalty-generating assets.

3.3 Pro-Forma Impact on the Balance Sheet

The divestiture and special dividend would have a direct and significant impact on Pardee's balance sheet, strengthening its financial position.

• Fixed Assets: Total fixed assets would decrease by the book value of the divested assets, or $26,424 thousand.
• Cash & Cash Equivalents: The company's cash position would first increase by the total proceeds and then decrease by the special dividend payout. This results in a net cash increase of 2,642.4 thousand, bringing the pro-forma cash balance to approximately ****39,733.4 thousand.
• Shareholders' Equity: Equity would be reduced by the $23,781.6 thousand special dividend payment to shareholders.

This transaction creates a leaner, cash-rich balance sheet, positioning the company to fully exploit the compelling growth drivers of its core royalty assets.

4.0 Outlook for the Refocused Pardee Resources

The proposed strategic shift would create a company keenly focused on two divisions with distinct and compelling growth drivers. By dedicating all corporate resources to our core competencies in metallurgical coal and oil and gas, we can better capitalize on the positive outlook for these foundational assets.

4.1 Metallurgical Coal: A Foundation of Proven Reserves

The strategic strength of the Metallurgical Coal division is anchored in its long-term visibility and proven asset base. The recent independent confirmation of 12.2 million tons of new reserves significantly de-risks future revenue streams and underscores the enduring value of our holdings. While navigating external market challenges, such as surplus Chinese steel exports and tariff disputes, the division's operational excellence is evident in the 11.5% increase in shipments during the quarter. This demonstrates a clear ability to execute effectively within a complex global market.

4.2 Oil & Gas: Capitalizing on Domestic Energy Demand

The Oil & Gas division is supported by powerful, long-term domestic energy trends. Demand growth is being driven by two primary sources: LNG exports, which rose 21% in the first seven months of 2025, and the increasing electricity consumption by data centers. While quarterly revenue saw a modest 6.6% decrease due to a temporary production decline from specific holdings in Colorado, the underlying pricing environment remains exceptionally strong. The 44% increase in Appalachian natural gas prices highlights the robust market dynamics that the refocused company would be positioned to exploit fully.

By concentrating our efforts, we can more effectively leverage the unique strengths of these two high-potential divisions to drive sustainable growth.

5.0 Conclusion: A Path to Enhanced Shareholder Value

The divestiture outlined in this brief represents the optimal path to de-risk the company, streamline operations, and unlock trapped shareholder value. By monetizing non-core assets, Pardee would not only fund a significant special dividend but also sharpen its focus on its most profitable and promising business lines, mitigating the drag from underperforming divisions.

This realignment creates a financially formidable company. With a pro-forma cash position of approximately $39.7 million and a continued minimal debt profile, the refocused Pardee would be exceptionally well-positioned to invest in its core growth areas of Metallurgical Coal and Oil & Gas. This strategic action is a decisive step toward purifying our business model, enhancing operational efficiency, and fulfilling our primary objective: maximizing long-term shareholder returns.