Massey says it can replace most output lost in W.Va. blast with higher output from other mines

Massey plans to replace lost W.Va. coal production

CHARLESTON, W.Va. — Massey Energy Co. said Friday it plans to produce more coal from other mines to help recover from the business damage caused by the deadly West Virginia mine explosion.

The Upper Big Branch mine was expected to produce 1.6 million tons of coal over the final nine months of the year. Most of it can be replaced by transferring miners from Upper Big Branch and spare equipment to other mines, Massey said in a regulatory filing.

Federal regulators took control of the mine Monday, shortly after the explosion killed 29 miners. Two others were injured and rescuers still hope to find four missing miners deep inside the sprawling underground mine. Until regulators finish the rescue and the ensuing investigation, Massey won’t be free to get the mine up and running again.

Losing the mine’s output would be expensive. Massey said it expected $91 a ton for the rest of the mine’s 2010 output, or nearly $146 million in revenue.

“Massey first’s focus and immediate focus is the task at hand and saving the miners and dealing with the families,” said Michael Dudas, a securities analyst with Jefferies & Co. “They run a business and they needed to put some parameters around what that business is going to be going forward.”

Mentioning business might seem callous, but Dudas and corporate governance experts say Massey had no choice. Public companies such as Massey are required to inform shareholders of big events that could affect their finances by filing details with the Securities and Exchange Commission.

“Unfortunately, the tragedy has economic consequences for the public company and those who invest in the particular company need to be updated,” said Charles Elson from the John L. Weinberg Center for Corporate Governance at the University of Delaware. “The point is the securities law requires you to keep your shareholders updated and as best as possible fully informed.”

Massey’s regulatory filing also indicated that the explosion isn’t expected to affect its $960 million acquisition of Cumberland Resources, which operates mines in Virginia and Kentucky.

The deal is expected to close in the second quarter and should help Massey supply enough coal to fulfill contracts that were supposed to get coal from Upper Big Branch, Dudas said.

But that won’t be easy. At least some of the mine’s production is metallurgical coal used in steel production and, while Massey has approximately 2.4 billion tons of reserves, that’s a relatively rare commodity.

“It’s probably a little more difficult to pick that up,” Dudas said. “They do have elsewhere in their system the ability to make it up.”