How Massey Energy Can Fix Its Problems and Return to Profit Without Selling Itself
Massey Energy's board has finally woken up and decided the company -- which owns the Upper Big Branch coal mine where 29 people died in April -- may be in a bit of trouble. It's taken an expected third-quarter profit loss, continued safety violations and a war with federal mining regulators for the board to start weighing a number of strategic actions including a possible sale. If only the board would look at the solution right under its nose.
Call it what you want -- cleaning house or an upper management liposuction -- the board needs to retool, axe, fire, terminate the leaders that took Massey down this financially treacherous path. That may mean ridding itself of Don Blankenship, its fearless and petulant CEO. And it may mean restructuring the board too.
Massey's metallurgical assets are attractive to both steelmakers and other mining companies, although many U.S.-based ones are expanding overseas. If the investigation into the Upper Big Branch accident wraps up and the board can settle any fines and other outstanding liability, a sale to a U.S.-based or foreign company is certainly possible. A sale to private equity is less likely because the company holds a fair amount of debt compounded by its own aggressive acquisition strategy.
But how about honing in the areas of the company that despite their loyalty are creating much of the problems? In this case, it would mean axing Blankenship. And it's not just because of the Upper Big Branch mining disaster, although being the leader of a company involved in the worst mining accident in 40 years is reason enough.
Blankenship's all-out war against the federal Mining Safety and Health Administration since the UBB mining accident has crippled a company loaded with valuable metallurgical coal assets. Repeated safety violations at Massey mines -- one serious enough to have caused an explosion -- and Blankenship's frequent and public criticism of MSHA has the federal agency tightening the screws on the company.
Blankenship likes to throw the "there are violations at every coal mine in America" as an explanation. But the evidence shows Massey's problems far exceed other coal mining companies. For instance, safety officials warned lawmakers back in February that 48 coal and metal mines, which went unnamed at the time, would be subject to a "pattern of violation" standard and could risk closure and heavy fines. But, a loophole that puts the violations in purgatory if the company appeals, tied regulators hands. Six of those mines are owned by Massey.
The one glimmer of hope here is the company's recent decision to idle 92 of its underground coal producing sections for one day this month to undergo safety training. It's a good start. But for Massey to move forward it needs a new direction and new leader.
Photo from Flickr user cogdogblog, CC 2.0
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