Massey predicts big second-quarter loss related to deadly blast

By Tim Huber, AP
Wednesday, April 21, 2010

Massey predicts big loss related to deadly blast

CHARLESTON, W.Va. — Troubled coal producer Massey Energy Co. expects to lose up to $150 million in the second quarter due to the explosion that killed 29 men at its Upper Big Branch mine in West Virginia.

Massey predicted the loss Wednesday as it released lower first-quarter earnings.

Massey, based in Richmond, Va., earned $33.6 million, or 39 cents per share, in the period. The company earned $43.4 million, or 51 cents per share, in first-quarter 2009.

Coal revenue fell to $571.8 million, from $681 million a year earlier.

Analysts surveyed by Thomson Reuters expected Massey to earn 28 cents per share in the period.

Massey said the second-quarter loss from the April 5 mine explosion should range between $80 million and $150 million, including benefits to employees and damage to the mine. The mine’s equipment, mineral rights and other assets that may have been damaged are worth another $62 million, Massey said.

Upper Big Branch was expected to produce 1.6 million tons of higher-priced metallurgical coal in the final three quarters of 2010. Massey plans to replace all but 300,000 tons of that total by adding shifts at other metallurgical coal mines and opening three new met coal sections. Metallurgical or “met” coal is used to make steel.

“We believe the first quarter’s metallurgical coal volume is approximately in line with our capabilities in the second half of 2010,” CEO Don Blankenship said.

Metallurgical shipments totaled 2.4 million tons in the first quarter, a 33 percent increase from 2009.

The Upper Big Branch blast was the nation’s worst coal mining disaster in 40 years and is prompting growing pressure on Massey to change Blankenship’s role.

A group of state investment funds that hold Massey stock is among them. They’ve asked that Blankenship be removed as chairman, though he would remain as chief executive. Blankenship gave up the title of president in 2008.

“We believe the recent tragedy at Massey’s Upper Big Branch mine reflects a serious failure of risk oversight by a Board of Directors with a poor history of corporate governance,” according to the letter sent last week to the company.

“We are concerned that Mr. Blankenship’s service as both Chairman and CEO has severely compromised the board’s ability to objectively oversee management, including the adoption of proper compensation procedures.”

The letter was signed by retirement fund officials from seven states that hold nearly 1.6 million shares worth $73 million.

North Carolina State Treasurer Janet Cowell said in a statement issued Wednesday that the board needs to act quickly.

“The company’s weak governance does not warrant the CEO’s lavish compensation,” she said. “Additionally, his dual role as CEO and Chair compromises the board’s ability to oversee management and mitigate risk.”

Massey already is facing a shareholder lawsuit stemming from the explosion, as well as wrongful death litigation and mounting scrutiny from regulators.

The federal Mine Safety and Health Administration said Wednesday that eight of 57 troubled mines inspected during a weekend blitz are Massey operations. Upper Big Branch also made the list but was not inspected. It’s currently under MSHA control until the agency’s investigation is finished.

Also Wednesday, Massey said in a regulatory filing that it had registered $278 million worth of stock as part of its acquisition of Cumberland Resources. Massey completed the deal for $640 million in cash and more than 6.5 million shares of stock on Monday.

Massey shares fell 89 cents to $42.90 in after-hours trading following the release of the earnings report.

AP Energy Writer Mark Williams in Columbus, Ohio contributed to this report.

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