Massey Energy Company Q1 2010 Earnings Call Transcript

Massey Energy Company Q1 2010 Earnings Call Transcript
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Massey Energy Company

(

MEE

)

Q1 2010 Earnings Call Transcript

April 22, 2010 9:00 am ET

Executives

Roger Hendriksen – Director, IR

Baxter Phillips – President

Eric Tolbert – VP and CFO

Don Blankenship – Chairman and CEO

Mark Clemens – SVP, Group Operations

Analysts

Kuni Chen – Bank of America/Merrill Lynch

Shneur Gershuni – UBS Securities

Brett Levy – Jefferies & Company

Jim Rollyson – Raymond James & Associates

Curt Woodworth – Macquarie

Paul Forward – Stifel Nicolaus

David Gagliano – Credit Suisse

Meredith Bandy – BMO Capital Markets

Jeff Kramer – UBS

Michael Dudas – Jefferies & Company

Brian Gamble – Simmons & Company

Jen Marcello – Tuohy Brothers Investment Research

Justine Fisher – Goldman Sachs

Brian Singer – Goldman Sachs

Wayne Cooperman – Cobalt Capital

David Khani – FBR Capital Markets

Dave Katz – JPMorgan Chase & Company

Gaurav Bana – AllianceBernstein

Brian Yu – Citigroup Incorporated

George Caffrey – Miller Tabak Roberts Securities

David Lipschitz – CLSA

Presentation

Operator

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Good morning, and welcome to Massey Energy Company's first quarter 2010 earnings conference call. Today’s call contains copyrighted material and may not be recorded or rebroadcast without Massey Energy Company's expressed permission. Your participation in our call implies consent. Please disconnect if you do not agree with these terms.

Roger Hendriksen, Massey Energy's Director of Investor Relations will now provide opening remarks. Please go ahead Mr. Hendriksen.

Roger Hendriksen

Thank you Jackie and good morning everyone. Thank you for taking the time to participate in our call this morning. We appreciate your continuing interest in Massey Energy. As you know, we distributed our first quarter press release after market close last night. If by chance any of you have not seen it, it is posted on our Website and has been furnished to the SEC on Form 8-K.

I need to remind you that the statements made in this presentation which are not historical in nature are forward-looking statements made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. And they are based on current factual information and certain assumptions which management currently believes to be reasonable. Financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control. Information concerning those factors is available on the company's 2009 annual report on Form 10-K and other periodic filings with the SEC. In providing projections and other forward-looking statements, the company does not make and specifically disclaims any undertaking or obligation to update them.

The members of our management team who will be speaking with you today are our Chairman and Chief Executive Officer, Don Blankenship; our President, Baxter Phillips; and Eric Tolbert who is Vice President and Chief Financial Officer.

Before we begin this morning, we feel it would be appropriate to observe a moment of silence in memory of the fallen miners at the Upper Big Branch mine. Please join us now in that remembrance.

Thank you. I will now turn the call over to Mr. Baxter Phillips.

Baxter Phillips

Good morning and thank you for joining us. As you might imagine, the past two-and-a-half weeks have been an incredibly challenging and emotional time for our Massey members. I would like to start this morning by once again expressing our sincere condolences and sympathy to all those who are impacted by the trouble tragedy at the Upper Big Branch mine. Please note that we are and have been doing everything we can think of to provide for the needs of the families who lost loved ones in this disaster.

I would also like to thank the many shareholders and analysts who have called or written to express their condolences and to offer support. Words cannot express how much your support means to us at this time.

In our call this morning, I will give you an overview of our operations and results for the quarter, and Eric will follow with a discussion of relevant financial details after which Don will conclude our prepared comments with a few words about Upper Big Branch and our outlook for the rest of the year. As we reported a few weeks ago, our operations in the first two months of the year were challenged due to extremely harsh weather and related transportation delays and production issues.

Our shipments in January and February were well below our plans at 2.7 million tons and 2.6 million tons respectively. In March, our operations improved, but not enough to fully offset this slow start. Shipments improved to 3.2 million tons in March for a total of 8.5 million tons shipped in the quarter. The most significant improvement in March was the increase in metallurgical coal shipments. Metallurgical coal shipments exceeded 1 million tons in March compared to 700,000 tons shipped in each of January and February.

For the quarter, we shipped 2.4 million tons of metallurgical coal, and we expect that with our mitigation efforts, this level will be approximately in line with our capabilities in the second half of 2010. Metallurgical coal represented 28% of our total shipments in the quarter compared to 17% in the same period last year. Approximately two-thirds of our metallurgical coal shipments were exported in the first quarter.

We expect to continue expanding our export sales particularly to Asia. I travelled to Asia at the beginning of this quarter to meet with some of our metallurgical coal customers. As a result of this travel and these meetings, I am very optimistic about opportunities for continued growth in the Asian market. I am also very pleased to tell you that we will soon be formally announcing the opening of a European sales office to assist with our global coal sales. We have hired a highly qualified professional to oversee this office, and we expect this extension of our sales force will enable us to better leverage our met coal reserves and production capabilities.

This international office will be particularly important as we integrate the recently acquired Cumberland Resources operation and work to maximize the value of the additional production capabilities this acquisition provides us. We are extremely pleased we have been able to close the Cumberland transaction as planned, and I want to express appreciation for the hard work of all those who made this happen on both sides. We also want to once again welcome our new members from Cumberland who joined Massey this week.

Finally, I want to mention our plans to mitigate loss production from the Upper Big Branch mine. Beginning immediately, we are adding Saturday production at all over the met coal mines we are presently operating, and additionally, we are adding there new continuous miner section at our Elk Run resource group. Combined, we expect these measures will give us an estimated 1.3 million tons of annual met coal production.

Now, I will turn the call over to Eric for a discussion of the financial details of the quarter.

Eric Tolbert

Thank you Baxter. For the first quarter of 2010, we reported net income of $33.6 million or $0.39 per diluted share compared to net income of $43.4 million or $0.51 per diluted share in the first quarter of 2009. As Baxter mentioned, our produced tons sold totaled 8.5 million in the first quarter of this year compared to 10.8 million tons in the first quarter of 2009.

Our average produced coal sales realization of $67.38 per ton in the first quarter was $4.35 per ton higher than in the first quarter of 2009. This improvement was driven largely by price increases for utility and industrial coal, both in the range of 9% year-over-year, and a proportional increase of met coal in the total product mix.

Average cash cost per ton for the first quarter of 2010 was $55.38 per ton compared to $50.53 per ton in the first quarter of 2009. These figures both exclude SG&A costs. The increase was due to weather-related production issues, a higher percentage of underground versus surface mining production, higher labor costs, higher sales-related costs, and higher fixed cost absorption the total volume produced.

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