MAC/20: Mines and Communities

Massey's massive coal play

Published by MAC on 2008-05-05

Massey Energy set for big expansion



28th April 2008

CHARLESTON, W.Va. --Massey Energy Co. expects to open a new coal mine at a rate of one every 17 days this year as it continues an ambitious plan to increase production 25 percent by 2010, a company official said Friday.

Massey is positioning itself to take advantage of soaring demand and prices for Appalachian coal. The expansion is centered on underground coal mines, giving Massey alternatives if a court decision that would make it more difficult and time consuming to get federal permits for surface mines is upheld.

"We have all the permits," Chief Executive Don Blankenship told Wall Street analysts during a conference call Friday. "We have a line of equipment that's set up that takes us beyond these currently announced expansion plans." Labor is another matter.

Massey needs 300 to 400 additional miners and Blankenship said that will be a challenge. The market for coal miners is already tight in Appalachia and expansion plans by Massey and others are making it tighter. Massey, for instance, recently started giving miners multiyear contracts to reduce poaching by rivals. That has helped cut voluntary turnover to 14.8 percent in the first quarter from 21.4 percent last year, Blankenship said.

Massey produced 39.5 million tons of coal last year. It hopes to increase that total to 41.5 million to 43 million tons this year, 46 to 48 million tons in 2009 and 50 million tons in 2010. By the second quarter, Massey should have enough mines opened, though not necessarily at full production, to hit 46 million tons, Blankenship said.

The latest word on Massey's expansion comes a day after it reported a 28.5 percent earnings increase in the first quarter, when it opened nine mines. Massey earned $41.9 million, or 52 cents per share, on revenue of $644.6 million in the quarter, compared with $32.6 million, or 40 cents per share, on revenue of $607.3 million in first-quarter 2007.

Massey, the nation's fourth-largest coal producer by revenue, operates 19 mining complexes in West Virginia, Virginia and Kentucky. Its stock rose $3.78, or 7.4 percent, to $55.04 Friday afternoon.

Massey is benefiting from skyrocketing prices for Appalachian coal. Central Appalachian steam coal futures, for instance, recently hit $95.75 a ton -- up 127 percent from last April. Massey has gotten much more -- up to $230 a ton for metallurgical-grade coal used to make coke for steel manufacturing, Blankenship said.

Massey plans to plow a good portion of the extra revenue back into operations rather than return it to shareholders, Blankenship said.

The company expects to spend $310 million on expansion this year, in addition to $240 million for regular maintenance.

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