Massey update: More on the Alpha buyout

January 30, 2011 by Ken Ward Jr.

Back in early December, when Massey CEO Don Blankenship announced his, er, retirement, from the company, United Mine Workers President Cecil Roberts offered this hope for what the change in Massey’s leadership might mean for the company, its workers, and the communities where it operates:

This also represents an opportunity for the coal industry in West Virginia and across the country to take a step away from the negative image that has cast a pall over our industry, created in large part because of the actions of Don Blankenship and Massey Energy while he has been at the company’s helm. Let us take this opportunity to move forward in a reasonable, rational way as we work to overcome the many difficult issues that confront our industry.

So, what now, given the other shoe that dropped with Saturday’s announcement that Massey — free from Blankenship’s control and reported opposition to such a deal — has agreed to a buyout by Alpha Natural Resources?

Well, Cecil Roberts and the mine workers have so far declined to comment on the news. And we’ll have to wait until early tomorrow morning to hear much more than the press release quotes from Alpha and Massey executives. A conference call with industry stock analysts is scheduled for 8 a.m. and will be broadcast to the rest of us via the Web.

But who is Alpha Natural Resources, and what exactly will this huge transaction mean for the companies involved, their workers, their communities and the crucial issues facing the coal industry and coalfield families who work for, live near, or care about the future of the region?

It’s far too soon to offer a clear answer, but let’s talk about a few things that we do know.

First, how about the UMWA? Well, union spokesman Phil Smith did note last night that the mine workers represent hourly employees at two Alpha operations in southwestern Virginia and at two very large underground mining complexes in western Pennsylvania. Those two western Pa. operations — Cumberland and Emerald — are both longwall mines that together produced nearly 11 million tons of coal with 1,300 employees in 2010. And those two mines were both added to Alpha fairly recently, in its 2009 purchase of Foundation Coal.

But like Richmond, Va.-based Massey, Alpha Natural Resources is mostly a non-union company. Company executives brag in their most recent report to shareholders  that 87 percent of its production comes from “union free” operations. As of Dec. 31, 2009, 79 percent of Alpha employees were “union free,” the company said.  They warned in that SEC filing:

Any further unionization of our subsidiaries employees, or the employees of 3rd party contractors who mine coal for us, could adversely affect the stability of our production and reduce our profitability.

An interesting side note: Alpha’s official corporate history notes that among the company’s first moves after being formed in 2002 was to acquire from Brinks the coal holdings of Pittston Co. Many folks will remember that Pittston took a page out of Massey’s playbook in the late 1980s, when it refused to sign the UMWA’s national coal contract in a move aimed at breaking from the union’s strong health-and-retirement programs for miners and their families. The result, as it was with Massey, was a bitter and divisive strike.

Given the media’s fairly understandable obsession with all things Massey, it probably is no surprise that most West Virginians and others in the region who aren’t that involved in the coal industry don’t know too terribly much about Alpha Natural Resources.

It would probably surprise the average newspaper reader to learn that Alpha in 2009 ranked as the nation’s fourth largest coal producer. This U.S. Department of Energy chart shows that rank, listing Alpha — with nearly 84 million tons produced — ahead of arguably better known companies such as CONSOL Energy, Patriot Coal, International Coal Group and — yes, Massey Energy.

But nearly half of that production came from Alpha’s two huge surface mines in the Powder River Basin of Wyoming. The Belle Ayre and Eagle Butte mines together produced more than 50 million tons with about 600 workers  in 2010, according to U.S. Mine Safety and Health Administration data.

The Massey buyout changes that east-west picture significantly, adding major underground and sprawling mountaintop removal operations to Alpha’s portfolio. It also further solidifies the company’s dominant spot producing valuable steel-making coal. Yesterday’s press release noted:

… The combination is expected to permit Alpha and Massey to benefit from geographical and asset diversification, including operations and reserves in Central and Northern Appalachia, the Illinois Basin and the Powder River Basin in Wyoming.

Kevin Crutchfield, Alpha’s chief executive officer, called the deal “truly transformational,” saying:

Together we will be America’s largest supplier of metallurgical coal for the world’s steel industry and a highly diversified supplier of thermal coal to electric utilities in the U.S. and overseas. The strategic and operational fit of our two companies is clear and compelling. Both companies’ stockholders will gain an opportunity to participate in the upside potential of a global industry leader with a robust production portfolio, attractive growth profile and substantial reserve base.

That sounds good to large shareholders and to the stock analysts that drive Wall Street and the institutional investors. But how about to people who live and work in coal communities, many of whom have complained for many years that Massey’s policies put production ahead of worker safety and the environment?

Crutchfield added:

Together, we are committed to creating a stronger company that has the scale to capitalize on further growth opportunities, succeed in a changing regulatory landscape and maintain the absolute highest standards in safety and environmental excellence.

And the latest Associated Press dispatch I saw on the deal included this passage from an interview with Crutchfield:

Asked about safety concerns at Massey’s operations, Crutchfield said, “We try to let our performance speak for itself. Nobody is perfect, but we have a very good record regarding safety and a good working relationship with regulators.”

He added, “Massey has a lot of great people who want to do the right thing.”

But this was about all of the context that AP provided to those remarks:

Massey has faced questions about its safety practices since a fire killed two miners at it Aracoma Alma No. 1 mine in West Virginia in January 2006. The fire helped persuade Congress to pass sweeping safety changes that year.

Alpha, on the other hand, has faced few questions about its safety practices and Crutchfield has been an invited speaker at industry safety conference. It has avoided major disasters, though several miners have died at its operations. Most notable was a roof collapse that killed two miners in Cucumber, W.Va., in January 2007.

Well, questions about Massey’s safety practices certainly predated the Aracoma fire, which is one of the things that made that tragedy so maddening to safety and health advocates. And do most people believe that the test of a safe company is that they don’t have a major disaster that kills 29 workers? Is that a low bar for this industry?

How about that 2007 roof fall at Alpha’s Brooks Run Mining subsidiary’s Cucumber Mine in McDowell County? What happened there?

Two miners — 48-year-old James David Thomas and 33-year-old Pete Poindexter — died in that incident, when a piece of mine roof that measured 8 feet by 9 feet by 18 inches thick fell on them. The section foreman, Richard Baugh, narrowly escaped being killed.

In their final report on that incident, MSHA investigators concluded:

Thomas, Poindexter, and Baugh were allowed to travel closer than the minimum safe distance of 20 feet from the MRS [mobile roof support] machines specified in the approved roof control plan. This travel was also inby a previously mined portion of the adjacent coal pillar. While in this position, MRS #1 was lowered so that it was no longer pressurized against the mine roof. The accident occurred because effective safe work procedures and practices specified in the approved roof control plan were not enforced by mine management. In addition, miners were not properly trained in safe work procedures for retreat mining.

MSHA issued two major enforcement orders citing violations by the company, and Brooks Run paid $80,000 in fines.

An MSHA photo shows culverts at the mine portal.

But the incident that strikes me is the May 2009 mine innundation in which Alpha Natural Resources may have narrowly avoided a mine disaster.  Readers may recall that 7 workers at subsidiary Cobra Resources’ Mountaineer Alma A Mine in Mingo County, W.Va., were trapped  underground for nearly 24 hours by a serious mine flood. In its final report on that incident, MSHA concluded:

The accident occurred because storm runoff water entered the mine portals after being diverted when culverts underneath the portals were blocked by debris, mud, and rock, caused by scouring and erosion from a mud slide. The slide prevented water flow through the culverts, which caused the water to back up and enter the mine. Another factor that contributed to the accident was the inability of the mine’s system of diversion ditches to handle the storm water flow, as designed. The diversion ditches were not maintained or kept cleared of sediment, rocks, or vegetation, such as trees and underbrush. This allowed the runoff water to overtop the diversion ditches, flooding surface areas above the mine portals. The mine’s escapeways were blocked when the surface water entered the mine, preventing seven miners from exiting the mine and entrapping them for approximately 24 hours.

The MSHA report listed two primary causes for the incident:

– The mine operator did not regularly monitor and properly maintain the mine’s system of diversion ditches, designed to route storm runoff surface water away from the mine portals and into ponds constructed to handle runoff.

– The mine operator failed to monitor the portals of the underground mine where storm runoff surface water entered the portals, accumulated in a low area in the mine and blocked the primary and alternate escapeways.

The other incident that was in the back of my mind was a legal settlement Alpha subsidiary Brooks Run Mining entered into in June 2009 with the U.S. Equal Employment Opportunity Commission. Here’s what the press release about that said:

Brooks Run Mining Company and staffing firm Neal & Associates will pay $115,000 to settle a sex-based discrimination lawsuit filed by the U.S. Equal Employment Opportunity Commission (EEOC), the agency announced today.

In its lawsuit, the EEOC had charged that women security guards as a class were discriminated against because of their sex. The EEOC asserted that once the women complained about sexual harassment, they were prevented – either by layoffs or transfers – from working at the Brooks Run Cucumber mine site, although security jobs were available to men.

As I wrote at the time this suit was originally filed (subscription required):

… The EEOC said change occurred after one  of the women complained in the summer of 2006 that she could see men undressed in the bathhouse, which was located near the guard station.

The lawsuit alleges that Cecil Daniels, manager of mines for Brooks Run, later told Neal & Associates not to assign female security guards to the Cucumber Mine. Neal & Associates then moved Drema Harmon and Jacosta Harmon to its Raw Coal site, also in McDowell County. Neal & Associates has not assigned any female security guards to the Cucumber Mine site since at least December 2006, the lawsuit alleges.

The EEOC charged that female security guards as a class continue to be discriminated against because of their sex, and once they complain about sexual harassment, they are prevented from working at the Cucumber Mine when security jobs are available to men.

Sexual harassment and retaliation for complaining about it violate the Civil Rights Act of 1964, which prohibits employment discrimination based on race, color, religion, sex – including sexual harassment and pregnancy – or national origin.

“The mining industry is one of the industries still dominated by men, therefore, I believe these women displayed an extreme amount of courage in bringing forward their complaints,” said EEOC regional lawyer Jacqueline McNair.

In yesterday’s press release, Alpha’s Crutchfield said:

As we demonstrated in the Foundation transaction, we have a proven history of successful integrations since our inception in 2002, and we’ve built a strong track record of creating value through thoughtful strategic growth. We’re already prepared to launch a seamless integration process, which includes implementing our employee-driven Running Right philosophy of safety and environmental stewardship across the business. This is not just a combination of strong asset portfolios, but a transaction that will empower a combined group of almost 14,000 people and with a focus on continued investment in safety, the environment and our communities.

Stay tuned …

11 Responses to “Massey update: More on the Alpha buyout”

  1. rhmooney3 says:

    Alpha Natural Resources has done very well in the coal mining business — keeping itself in all the main coalfields of the U.S.

    It is purchasing Massey Energy at a very opportune time for the met coal market as the impacts from the flooding of the coalfield in Queensland, AU has openned up that market. (Several years ago, Alpha Natural Resources shifted away from the met market at the right time too.)

    If the Massey Energy logo still exists anywhere within another month, I will be very surprised. That company killed itself, not just its miners.

  2. graig says:

    Handwashing….Alpha will run the same mines, with the same people. The name change will “fix” the Massey history and mistakes?

  3. rhmooney3 says:

    None of the deadly mining disasters before the Upper Big Branch disaster had economically destroyed a company; that lesson will stick.

    Also, MSHA will now be pulling the trigger instead of just cocking the trigger. And their inspections will actual be done unannounced and at irregular times as had always been required.

  4. rhmooney3 says:

    No doubt there will be some major restructing…and increased efficiencies — fewer mines with increased productions.

    Alpha is now poised to become the world’s third-biggest producer of coal used by steelmakers just when global demand for the resource is growing and supplies are increasingly scarce. The combined company will have more than 110 mines and 5 billion tons of coal reserves, including reserves of high quality metallurgical coal used in steelmaking.

    “We’ve always thought the combination between Massey and Alpha could be very compelling,” Mr. Crutchfield said in an interview Saturday evening. “We were fundamentally convinced that the world was going to remain fundamentally under-supplied for metallurgical coal for the foreseeable future.”

    Mr. Crutchfield said Alpha will also be better able to take advantage of long-term export opportunities for U.S. coal producers as demand in China and India and short-term supply disruptions like recent massive flooding in Australia and other countries. He said the combined company will have 25 million tons of port capacity. He said port capacity wasn’t a big deal for coal producers until recently. “Now, it’s a hot commodity.”

  5. Monty says:

    What is the most interesting to me in all of this is how QUICKLY it came about after Blankenship was given the heave ho, retired, became a long-term consultant, whatever it was at the end of December – less than a month, and Massey Energy is being gobbled up. Kind of makes you wonder which wheels were turning within wheels and for how long prior to Dec. 31.

  6. Scott14 says:

    For all of the folks who expect major changes from Alpha. Just remember that this is the old Pittston coal company under a different name. Just look at who a lot of upper management worked for. Look at what reserves arc light Capital bought to start alpha. Pittstons Virginia operations.

  7. Scott14 says:

    Ooops sorry Ken you already covered this. Alpha,brought to you from the same people that brought you buffalo creek.

  8. Jeff Lester says:

    It’s true that Alpha’s roots are partly the legacy of the former Pittston (actually, not Pittston proper but its Paramont Coal subsidiary here in Virginia’s Wise, Russell and Dickenson counties). But a substantial portion of Alpha’s management/holdings also comes from the old VICC/Coastal Coal operations in this same part of Virginia. I’m talking about folks (including Alpha Chairman Mike Quillen) who grew up in SWVA and have spent their lives here.

    With all concerns about Pittston and its legacy recognized, I feel compelled to note that I and my colleagues are personally acquainted with a lot of former Paramont and VICC folks who are within Alpha management in Southwest Virginia. They are fine human beings who genuinely care about the region and its people (to the extent that anyone accepts the notion that you can be in the coal business and exhibit that genuine care; I know some Coal Tattoo readers would fundamentally reject that premise).

    SO, compared to Massey’s record and rhetoric, I’m hoping that folks in West Virginia are very pleasantly surprised by what Alpha brings to the table.

  9. Concerned Miner says:

    Scott 14

    Ken needs to stop the presses, you have apparently discovered the fatal flaw with the Buffalo Creek Impoundment. Looking at Alpha’s Sr leaders bio’s most appear to be in their late 40’s up to mid 50’s. These guys were in charge of the dam’s construction nearly 40 years ago before most of them went through puberty.

    I on the other hand was a 20 year old and witnessed the devastation first hand, and don’t appreciate people who “no not of what they speak” using the tragedy for sensationalism.

  10. Scott14 says:

    Concerned miner. I’m just wondering. My self as a veteran of pittston coal company and as a operator who build a impoundment for them. Have you ever worked for them and do you know what your talking about.

  11. concerned miner says:

    Scott 14

    I’m not sure what you mean, I am in no way taking up for Pittston, just simply doing the math that would indicate Alpha’s management couldn’t have had any thing to do with the construction of the Buffalo Creek Impoundment. Also pointing out that it is a shame that people use the tragedy to stir up the emotions of the public and disrespect the many that died.

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