Massey Energy Likely Will Continue Facing Higher Costs-Executives
May 03 2011 - 11:40AM
Dow Jones News
Massey Energy Co. (MEE) executives expect costs to remain
higher, continuing a trend that pushed the miner to a first-quarter
loss even as higher prices, production and shipments led to
stronger-than-forecast revenue.
During the first quarter, the company took $12.4 million in
charges related to a 2010 explosion at its Upper Big Branch mine in
Montcoal, W.Va., that killed 29 workers. At the same time, average
cash costs per ton jumped 19% to $66.04 from $55.38 a year ago
because of lower than planned production, increased costs for
mining supplies and labor.
"The labor market for skilled underground miners remains tight,"
Chief Operating Officer Christopher Adkins said in a conference
call discussing the company's first quarter results. Massey has
raised pay to keep key employees, he said.
Executives expect costs will continue to rise, and they revised
the company's 2011 estimates for cash costs per ton to $64-$67 from
$59-$62.
The higher costs led to Massey's first quarter loss of $7.7
million, or 7 cents a share, compared with a year-ago profit of
$33.6 million, or 39 cents a share. Revenue climbed 38%, to $949.8
million.
Analysts surveyed by Thomson Reuters expected a profit of 58
cents on revenue of $907 million.
Shares were recently down 4.4% at $64.56.
Higher prices helped goose revenue as demand for steelmaking
coal remains sky high amid emerging market consumption outpacing
constrained supply.
Massey's first quarter metallurgical coal prices jumped 53% and
exports were up 10%, although total shipments declined about 4%
because of lost production from the Upper Big Branch mine.
"Export shipments are particularly strong," Massey Chief
Executive Baxter F. Phillips Jr. said on the conference call.
Prices for coal burned by power plants rose 12% while shipments
of utility coal jumped 37%.
Management revised upward 2011 estimates of average price per
ton to $83-$86 from $81-$86. Executives expect to ship 41
million-44 million tons, down from previous guidance of 43
million-47 million tons.
During the first quarter, average produced coal revenue per ton
was an all-time high $80.96, a 20% increase, while produced tons
sold jumped 21% to 10.3 million.
The first quarter's results will likely be one of the last
issued by Massey as an independent company, which reached a $7.1
billion cash-and-stock deal in January to be acquired by Alpha
Natural Resources Inc. (ANR). The company--which operates mines in
West Virginia, Virginia and Kentucky--has been hurt by reduced
production and increased costs because of tougher mine-safety
standards.
Massey's longtime chairman and chief executive, Don Blankenship,
retired at the end of last year, paving the way for Massey to agree
to sell itself to Alpha Natural.
Massey and Alpha Natural intend to hold their respective
stockholder meetings to seek approval of the merger on June 1,
Massey said Monday. If approved, the companies expect to close the
merger promptly after the meetings.
-By Matt Whittaker, Dow Jones Newswires; 212-416-2139;
matt.whittaker@dowjones.com
--John Kell contributed to this article.
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