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All eyes on Massey Energy

Al Harris April 8, 2010 6

It has not been a good week for Richmond-based Massey Energy, a company that mines coal in Virginia and West Virginia and ships coal on trains through Richmond. The company has local legal representation (BizSense is still working that angle), and Massey sells coal to Dominion Virginia Power for producing electricity, although the mine where an explosion this week killed 25 miners and left four missing produced a different kind of coal used in plants to smelt metals.

The explosion  at the Upper Big Branch mine in West Virginia has thrust the company into the national spotlight, and the attention is drawing plenty of scrutiny to the company’s history of safety violations, political maneuvering and dismal environmental record.

BizSense is chasing several local leads, but Massey has not returned calls. The chief executive does not live or work regularly in Richmond. So we’ve put together a basic outline of the story and provided links to some of the best reporting from around the Web.

The company’s website touts the Massey’s safety record:

In 2009, Massey recorded an all-time best NFDL incident rate (a measure of lost-time accidents) of 1.67.  This is an improvement over last year’s rate of 1.93, our previous best result.  By comparison, the bituminous coal mining industry average NFDL rate was 2.95 in 2008.  2009 marked the 6th consecutive year and the 17th year out of the past 20 years in which Massey’s safety performance was stronger than the industry average.

NFDL stands for non-fatal days lost.

Chief executive Don Blankenship has been on the defensive in interviews as well.

From NBC 12:

Prior to this week’s explosion, 3 people had died at the Upper Big Branch Mine since 1998. Last year, Massey was fined more than $382,000 for violations at that mine.

“You get four or five violations because you have a larger area to be inspected and a lot more people involved. That doesn’t mean the mine is unsafe because every violation actually means an improvement in the safety in a sense that you make that correction,” said Massey Energy Company CEO Don Blankenship.

Blankenship says the upper branch mine is not one of Massey’s safest, but he says company-wide, Massey’s safety performance has been better than the industry average for six straight years.

“I can assure you for the 20 some years I’ve been in charge of Massey. It’s been my foremost objective to make the mines safe. And sometimes it seems humanly impossible,” said Blankenship.

This week, Blankenship faced ABC’s Diane Sawyer, who asked him whether the incident could have been prevented. Blankenship responded:

“Not that we know of, cause we don’t even yet know what happened. … Once we know what happened, we’ll know whether it was preventable.”

Here’s what Blankenship had to say to West Virginia MetroNews:

I mean violations are unfortunately a normal part of the mining process. You have inspections every day and it’s hard to differentiate sometimes between head count or number counts of violations and the seriousness or type of it.

[Upper Big Branch] was a mine that had violations. I think the fact that MSHA and the state and our firebosses and the best engineers you can find were all in and order this mine and all belive it was safe … speaks for itself.

Any suspicion that the mine was improperly operated or illegally operated or anything like that would be unfounded. None of these groups would have allowed this mine to operate had it been unsafe.

The Washington Post has more on the mine’s safety record:

And although the company says that its safety record is better than the industry average, Massey has frequently been cited for safety violations, including about 50 citations at the Upper Big Branch mine in March alone. Many of those 50 citations were for poor ventilation of dust and methane, failure to maintain proper escape ways, and the accumulation of combustible materials.

The U.S. Mine Safety and Health Administration cited the mine for 1,342 safety violations from 2005 through Monday for a total of $1.89 million in proposed fines, according to federal records. The company has contested 422 of those violations, totaling $742,830 in proposed penalties, according to federal officials.

When it comes to safety violations in the mining industry, it turns out contesting them is more common than complying with them. According to the House Education and Labor Committee website, mining companies are appealing about 67 percent of all violations. That is triple the number since tougher regulations were imposed in 2006.

The committee held a hearing in February on the safety risks posed by the growing backlog of contested violations:

When the Mine Safety and Health Administration cites a mine operator for a safety violation, the owners can challenge the violation to the Federal Mine Safety and Health Review Commission that currently employs ten administrative law judges.

Mary Lu Jordan, the chair of the Review Commission, testified that the average time it takes to dispose of a case has increased over the last three years, from 178 days to 401 days this year.  There are currently approximately 16,000 cases at the Review Commission with at least $195 million in outstanding fines. In 2006, this backlog was only 2,100 cases.

According to data provided by the Review Commission, if current trends and funding for the agency remain the same, the backlog would dramatically increase to 47,000 cases by 2020.

Witnesses testified that the backlog of cases give incentives for mine operators to abuse this appeals process because it can delay steeper penalties for repeat violators.

“It is important that we remove the incentive for operators with significant and substantial safety violations at their mine to contest violations simply to delay enforcement,” said Joseph Main, Assistant Secretary of Labor for Mine Safety and Health. “Delay in addressing [significant and substantial] hazardous conditions puts miners at risk, is at odds with the purpose of the Mine Act and mission of MSHA, and is unacceptable.”

For Massey, it appears fines, fees, and settlements are just the cost of doing businesses. When it comes to the bottom line, dealing with safety violations can be more cost efficient than complying with the regulation. It isn’t just safety regulations either, but also those from the Environmental Protection Agency.

Two years ago, the company agreed to pay $20 million to settle a lawsuit with the EPA over environmental violations. In January, the Sierra Club threatened to sue the company because it had continued to violate pollution limits.

But the strategy of paying to break the rules is a strategy that seems to work. The company more than doubled its profit in 2009 to $104.4 million in 2009. And despite the company’s stock slipping 14 percent since the incident, financial analyst Jefferies & Co. say the company is undervalued.

Massey is a major producer of metallurgical coal, which is sold mostly to Asia, where it is used in steel production. The demand for that is not going to dissipate anytime soon.

From BNET.com:

Massey, realizing the opportunity to cash in on the tight met coal market, has ramped up production at its met coal mines and started to develop new ones. Upper Big Branch, for example, was on target to raise production by more than 66 percent to 2 million tons. And just last month, Massey offered $960 million in cash and stock to buy Cumberland Resources, a privately held company that holds some 416 million tons of coal in reserves — half of which can be used as met coal.

Clearly, the Upper Big Branch mine won’t be producing coal for some time. Meaning, about 16 percent of Massey’s planned steelmaking coal shipments will be taken off the table. At first glance, it looks like Massey will lose money if the mine is closed. And it will. But the company won’t take as big a hit thanks to a tightening met coal market and strong margins. Taking the Upper Big Branch mine offline will reduce supplies of the steelmaking coal — at least in the short term — and that will only push prices higher.

As for all the ado about miner safety, it should be noted that drastic improvements have been made in the past few decades.

From AOLNews:

Deaths have declined over the years, as has the number of American coal miners. There are about 130,000 miners in the U.S. now, compared with a peak of more than a quarter-million 30 years ago. Even with fewer workers in the mines, the death rate has fallen from 180 per 100,000 miners in 1970 to 13 per 100,000 last year.

In fact, on a recent list of 15 of the country’s most dangerous jobs compiled by Business Insider, miners do not even make the cut. According to the list, which is based on government statistics, it is more dangerous to be a cab driver or construction worker.

Even so, all eyes are on Massey Energy and the ramifications of the recent incident go beyond Montcoal, W.Va.

Massey Energy began as A.T. Massey, a coal brokering business, in 1920. The Richmond company acquired its first mining operation in 1945.  The last family member to run the company was E. Morgan Massey, who retired in 1972.

Al Harris is a BizSense reporter. Please send news tips to Al@richmondbizsense.com.

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6 Comments »

  1. kyle April 7, 2010 at 1:22 pm - Reply

    Thank you so much for presenting an unbiased report on this local company and their records in reguards to our environment and the level of responsibility they have for their employees.

  2. SPO101 April 7, 2010 at 4:01 pm - Reply

    This coal mining disaster is the epitome of Republican Party, “Conservative Labyrinth” economic planning since the late 70’s. Profit over fair wages and safety of the working class with a side of UNION BUSTING and TAX EVASION. Republicans have devastated the regulatory side of government, the rich and powerful have bought off politicians, judges, inspectors to achieve these ends.

    Most card carrying conservatives are so ignorant they don’t even know their own ideological CREDO. “Limited intervention in the economy. Substantial intervention in morality”. This means let the RICH/POWERFUL do whatever they please while finger pointing and preaching to the average Joe and Jane Schmuck.

    I’m wondering if those Tea Party morons even realize they’ve been working for the Aristocrats and their Corporate masters. I suggest every Tea Party member rent a copy of the movie classic “The Grapes of Wrath” (Henry Fonda version) In today’s society the Tea Baggers would be the mob that killed the Preacher.

    Can ANY Republican/Conservative out there explain to me how DEREGULATION ever worked in the best interests of the American PEOPLE! And I don’t care WHAT those 5 Conservative morons on the Supreme Court say… I’m going to stand firm in the belief that CORPORATIONS ARE NOT PEOPLE!
    consciousmc.blogspot.com

  3. clay ton April 7, 2010 at 6:50 pm - Reply

    Thank you Al Harris for pointing out for Massey Energy ‘fines, fees, and settlements are just the cost of doing businesses….Witnesses testified that the 16,000 case backlog of U.S. Mine Safety and Health Administration cases give incentives for mine operators to abuse this appeals process because it can delay steeper penalties for repeat violators…Massey is a major producer of metallurgical coal, which is sold mostly to Asia, where it is used in steel production…’ And thank you consciousmc.blogspot.com for your insights.

    Why do you think the coal miners organized a union on the 19th and 20th century? Answer: the coal mine owners were ruthless and cruel. Here again in 2010 we find the workers victimized by greed. Those who invest in Massey Energy and other firms that do not place a high value on the workers who make their profit are complicit in guilt. Miners are held hostage to the almighty dollar and there are not many $20-25 an hour jobs where they live and for that matter in America today.

    CEO DON L BLANKENSHIP annual benefit cash and stock around $11 million

    MAJOR DIRECT SHARE HOLDERS Massey Energy
    Holder Shares Reported
    BLANKENSHIP DON L 291,223 8-Feb-10
    PHILLIPS BAXTER F JR 86,644 17-Nov-09
    INMAN BOBBY R 35,186 16-Feb-10
    JAROSINSKI JEFFREY M 34,068 17-Nov-08
    GEE GORDON 28,191 17-Feb-09

    TOP INSTITUTIONAL HOLDERS
    Holder Shares % Out Value* Reported
    BlackRock Advisors, LLC 6,328,390 7.31 $265,855,663 31-Dec-09
    STATE STREET CORPORATION 4,761,576 5.50 $200,033,807 31-Dec-09
    DUQUESNE CAPITAL MANAGEMENT, LLC 4,271,900 4.94 $179,462,519 31-Dec-09
    VANGUARD GROUP, INC. (THE) 3,972,694 4.59 $166,892,874 31-Dec-09
    WESTFIELD CAPITAL MANAGEMENT COMPANY 3,224,315 3.73 $135,453,473 31-Dec-09
    LAZARD ASSET MANAGEMENT LLC 2,492,594 2.88 $104,713,873 31-Dec-09
    BLACKROCK INC. 2,118,723 2.45 $89,007,553 31-Dec-09
    BlackRock Institutional Trust Company, N.A. 2,111,323 2.44 $88,696,679 31-Dec-09
    WELLINGTON MANAGEMENT COMPANY, LLP 11,191,080 12.93 $470,137,270 31-Dec-09
    FMR LLC 9,416,110 10.88 $395,570,781 31-Dec-09

    TOP MUTUAL FUND HOLDERS
    Holder Shares % Out Value* Reported
    HARTFORD CAPITAL APPRECIATION FUND 2,459,340 2.84 $92,618,744 30-Nov-09
    Blackrock Funds-Energy & Resources Portfolio 1,944,840 2.25 $54,241,587 30-Sep-09
    FIDELITY SELECT PORTFOLIOS – ENERGY 1,796,705 2.08 $75,479,577 31-Dec-09
    VANGUARD/WINDSOR II 1,468,285 1.70 $42,712,410 31-Oct-09
    SELECT SECTOR SPDR FUND-ENERGY SELECT 1,302,031 1.50 $54,698,322 31-Dec-09
    SPDR (R) Ser Tr-SPDR (R) S&P (R) Metals & Mining ETF 1,080,278 1.25 $30,128,953 30-Sep-09
    FIDELITY SELECT PORTFOLIOS – NATURAL RESOURCES 1,058,900 1.22 $44,484,389 31-Dec-09
    HARTFORD MID CAP FUND 1,052,500 1.22 $39,637,150 30-Nov-09
    FIDELITY SELECT PORTFOLIOS – NATURAL GAS PORTFOLIO 995,100 1.15 $41,804,151 31-Dec-09
    FIDELITY BLUE CHIP GROWTH FUND 944,800 1.09 $39,691,048 31-Dec-09

  4. Ed April 8, 2010 at 7:49 am - Reply

    Good, balanced report.

    The next step for an inquisitive journalist would be (if possible) to tour working mines with both a federal inspector and mine safety officer, all the while noting the challenges of simultaneously working a mine and keeping miners safe. It may not be the piece of cake that many outside the industry consider it to be — or that are implied by improving overall mine safety figures.

  5. Erika April 8, 2010 at 8:54 am - Reply

    Great article

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