What Mining Disaster? Massey CEO Blames Regulation for Low Profits
Massey Energy CEO Don Blankenship struck a somber tone at an industry conference Wednesday as he described the coal miner's plight with "reg-cession," a supposedly debilitating disease of excessive federal regulation that drives down profits. It's so bad, the once taboo topic of selling the company is being considered by Massey's board.
What could possibly have led to this horrible ailment? Oh, right -- the company's Upper Big Branch explosion last April, which became the worst mining accident in 40 years when 29 people were killed in the blast.
I fear we're not in a recession as we normally think about it, which is a downward economic cycle, but rather we're being greatly impacted by excessive regulations (that we just talked about) and it perhaps won't correct itself, by itself, without some sort of rollback of regulation, Blankenship said at the Dahlman Rose & Co. Global Metals, Mining & Materials Conference, which also was available via webcast.Regulatory scrutiny has ramped up significantly for Massey (MEE) in the wake of the Upper Big Branch mine explosion. Massey has seen its share price fall some 15 percent since the fatal explosion. The company reported a net loss this past quarter, largely due to reduced productivity from harsher regulation. The fatal explosion -- and the revelation that some mines were using a loophole to skirt the regulatory system -- led to greater oversight throughout the entire U.S. industry.
Stop me when this gets surprising.
Massey's "reg-cession" may even be what's driving all of the acquisition talk. Massey is stacked with valuable assets and few months ago speculation of a takeover wouldn't have meant much. Blankenship, who enjoys unabashed support from the rest of the Massey board, has always opposed a sale of the company.
On Wednesday, Blankenship finally acknowledged that the board was considering any takeover bids. That could mean that the interest surrounding Massey is too significant to ignore. Or it could mean Blankenship and the board don't see an end to the ongoing regulatory battle with the federal Mining Safety and Health Administration.
The benchmark price for metallurgical coal, which is used to make steel, have risen 62 percent to $209 a metric ton for the contract ending Dec. 31, from last year, according to Bloomberg data. Massey should be raking it in. Instead, the company reported in October a net loss of $96.5 million in the first nine months of the year compared to an income of $80.1 million during the same period in 2009. In the past several years, the company has seen MSHA fines rise from about $1million a year to $14 million a year, Blankenship said during the conference.
Blankenship -- and any possible Massey Energy suitor -- sees opportunity as worldwide demand for met and thermal coals rises driven by China and India as well as South Korea and even Egypt. The future coal demand projections are driving M&A activity. For example, U.S.-based coal miner Walter Energy is bidding $3.3 billion in cash and shares for rival Western Coal of Canada. If it's accepted it would push the value of coal mining industry deal this week to more than $15 billion, the FT reported.
That doesn't necessarily mean Massey will be bought out. Blankenship even offered up the possibility of joint ventures driven by fear among emerging countries like India to secure met coal reserves.
Photo from Flcikr user Sierra Club, CC 2.0
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