Massey Energy's Russian Roulette Reaction to the Upper Big Branch Mine Tragedy

Last Updated Apr 22, 2010 5:48 PM EDT

Massey Energy (MEE) is in an particularly odd bind at the moment. And its solution is a short-term reaction that could end up hurting them more in the end.

Asia needs steel. Massey just happens to produce metallurgical coal, which is used to make steel. Seems like a nice symbiotic relationship, doesn't it? And it was. Demand for steel had rebounded so nicely since the recession that met coal prices pushed up as a result. Massey responded and nearly doubled production per miner rates, started to develop new met coal mines and acquired Cumberland Resources, as demand for met coal rose.

And then the Upper Big Branch mine exploded and killed 29 people. Massey has been accused of putting profits and productivity ahead of miner safety -- a claim that has gained ground as folks discovered the Upper Big Branch and some of its other mines had a litany of safety violations, citations and fines.

So, what to do in the face of an investigation, greater scrutiny of your safety standards and up to an estimated $212 million second-quarter charge -- more than twice its 2009 earnings -- as a result of the explosion? Push production at your other mines even more, of course. Massey plans to increase production at all other met coal mines by instituting six-day work weeks and open three new underground mining sections. The efforts will begin immediately, Massey execs confirmed during an investor conference call Thursday.

Yes, Massey needs to make money and it wants to reassure investors. It is a business, after all. And the investigation has just begun, so no one knows for sure if the push for greater productivity caused shortcuts in safety. But at the same time, Massey's safety record is less than stellar.

The Upper Big Branch's rate of serious violations that required evacuations and immediate repairs was 19 times the national rate, according to the federal Mine Safety and Health Administration. Last weekend MSHA singled out 57 problem coal mines for a national inspection blitz. Nine of those were Massey mines, the most of any operator on the list.

When your safety is in question, pushing the production envelope even harder is not the best of routes to take. Especially, since the met coal market is expected to remain tight for some time. Massey's CEO Don Blankenship said in an investor conference call Thursday he expects "met coal to be extremely strong for the next three to five years."

Massey is taking a couple of positive long-term approaches to its business. While the investigation is underway, some Massey execs will focus on bringing the recently-acquired Cumberland Resources company on line. Cumberland holds some 416 million tons of coal in reserves -- half of which can be used as met coal. And the company plans to open a European sales office to help expand its global reach in the future.

Photo of coal stacks from Flickr user Sierra Club, CC 2.0