Market Reacts to Massey Energy Disaster

An explosion at a coal mine owned by Massey Energy leaves 25 miners dead, and the disaster has spooked Massey investors, busy selling shares of the coal producer on Tuesday.
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(West Virginia mine explosion and Massey energy article updated for photos, updated trading, analyst commentary)MONTCOAL, W. Va. (TheStreet) -- A fatal explosion Monday afternoon at an underground coal mine owned by Massey Energy (MEE) has killed at least 25 mine workers.

The Massey Energy mine disaster is the worst in the U.S. in 25 years. On Tuesday, the fate of at least four additional miners was unknown.

Massey's Upper Big Branch mine is located about 30 miles south of Charleston. The mine, operated by Massey's Performance Coal subsidiary, has two emergency chambers stocked with food, water and enough air to survive for four days.

Massey Energy shares ended trading on Tuesday down 11.4%, with more than 39 million shares traded. The average daily trading volume of Massey shares is just under 6 million. The per share loss on Tuesday was $6.24, to a closing price of $48.45.

Rescuers were hopeful that trapped miners had made their way to the emergency chambers. However, 50 rescuers were forced to pull back from the search area due to the high concentration of gases underground. There was no indication as to when rescue efforts would resume, due to the conditions underground.

On Tuesday morning, Massey put out a statement confirming the 25 fatalities at its Upper Big Branch Mine. The company said two miners had been transported to hospitals and four miners were still missing.

"All we have left is hope, and we're going to continue to do what we can," Kevin Stricklin, an administrator for the federal Mine Safety and Health Administration, said at a news conference. "But I'm just trying to be honest with everybody and say that the situation does look dire."

The West Virginia Governor Joe Manchin said the rescue team was planning to drill a borehole to try to reach the missing men, but it could take until Wednesday evening for the borehole to reach the target of 1,100 feet.

The blast at the West Virginia coal mine is the worst U.S. mine disaster since 1984, when 27 miners died in a fire in Utah, according to the

United States Mine Rescue Association

.

The official cause of the mine disaster may not be known for months, but reports indicated that an unsafe level of methane trapped underground was a likely cause.

"Before you knew it, it was just like your ears stopped up, you couldn't hear and the next thing you know, it's just like you're just right in the middle of a tornado," a miner who escaped, Steve Smith, told ABC's

Good Morning America

.

Davitt McAteer, former director of the Mine Safety and Health Administration during the Clinton administration, told

CNN

Tuesday that Massey's company's safety record was "checkered."

Governor Manchin said there would be an investigation.

There have been three other deaths at the at the Upper Big Branch mine in the past 12 years, and the

Mine Safety and Health Administration

indicated that penalties levied against the Upper Big Branch mine reached nearly $1 million last year, including 50 "unwarrantable failure" violations.

Massey has a history of serious violations involving its plan for ventilating combustible methane gas,

AP

reports.

The Upper Big Branch Mine has had three fatalities since 1998 and has a worse-than-average injury rate over the last 10 years, according to federal records cited by

Reuters

.

Massey Chairman and CEO Don Blankenship was on site at the Upper Big Branch mine.

Massey's home page prominently displays its safety record, indicating that the coal producer's accident rate hit an all-time low in 2009. Massey's web site also states that 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."

Analysts who cover Massey Energy expected the swoon in the coal producer's shares, but they expressed a belief that while the disaster won't fade, the impact on Massey shares will mitigate.

"The price will lag for a few days as people absorb the tragedy, but we'll soon get back to focusing on strong market fundamentals," Credit Agricole Securities analyst David Lipschitz told

CNN

.

Massey shares had fallen as low as $38 at the end of January, before hitting a 52-week high on Monday at $54.80.

Jefferies and Stifel Nicolaus reiterated buys on Massey Energy on Tuesday morning.

Stifel Nicolaus noted that the Upper Big Branch mine produced 1.2 million tons of coal in 2009, representing approximately 3.3% of Massey's coal sales in 2009. Stifel Nicolaus analysts said that the mine disaster presents some unquantifiable risks to the Massey's reputation as a safe operator, but the securities firm believes that Massey maintains substantial levels of business interruption and liability insurance.

Jefferies put out a research note saying it still believes Massey shares are undervalued, but "public and government scrutiny will intensify for the industry in general, and Massey Energy in particular."

Last year witnessed the lowest rate of fatalities in the U.S. coal mining industry -- 34 -- according to Jefferies data.

An energy analyst who could not be quoted on the Massey Energy mine disaster -- because he had not written on the subject yet -- said that the coal industry has made significant strides in becoming safer. Still, the analyst added that the blast of a mine disaster rightfully drowns out any other noise. "You can have lots of violations add up through the years that are not individually significant, but when there is a blast, you are going to hear about it," the analyst said.

-- Reported by Eric Rosenbaum in New York.

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