(Massey Energy mining disaster article updated with CEO and blast survivor testimony.)
NEW YORK (TheStreet) -- In the aftermath of the tragic explosion at Massey Energy's (MEE) Upper Big Branch West Virginia mine, the coal producer has continued to deny allegations of mining safety violations, even as the company's chief executive Don Blankenship testified in front of a senate committee hearing last Thursday.
According to the
Wall Street Journal,
Blankenship said that while company officials had resisted installing a more complex ventilation plan at the mine, one mandated by the federal Mine Safety and Health Administration, he couldn't determine whether any of this had anything to do with the explosion; he added that the company values safety over production.
In a separate congressional hearing on Monday, miner Stanley Stewart described a poorly ventilated mine, where unstable methane gas was difficult to dilute, according to the
Wall Street Journal.
The mine was "a ticking time bomb," he said.
Stewart also described situations where mine supervisors would change mine ventilation controls while the miners were working,
says; this is illegal. Stewart, was several hundred feet underground when the mine explosion occurred on April 5.
In the meantime, its impact on the seaborne metallurgical coal market appears likely to be limited.
S&P has actually upgraded its recommendation on shares of Massey Energy to buy from hold since the explosion. After an analysis of industry mining accidents, Massey's indemnification to litigation through insurance, and sales and production considerations, "we believe that the financial impact of the Upper Big Branch (UBB) mine tragedy to MEE will be immaterial," S&P coal analyst Mathew Christy noted.
Still, Christy is reducing his 2010 earnings estimate for Massey by 7 cents to $2.55 on higher costs from transporting equipment and some production loss, while keeping his price target at $55, given that "the shares are attractively valued."
Shortly after the blast, analysts and coal sector observers produced varying reports on how much financial damage the tragedy would result in for Massey. Read on for analyst reactions that took place shortly after the explosion -- and note that views may have changed since then.
"An accident like this plainly affects all Appalachian miners,"
analyst Michael Tian wrote in a note to investors. Tian explained that history shows that terrible accidents of this nature have attracted intense Federal government investigations leading to more safety equipment, training and mine modification regulations -- which have done much to raise the cost of mining in Appalachia over the last several years. "History could repeat itself," he wrote.
Tian's thoughts were echoed by Jefferies analyst Michael Dudas, who noted that "public and government scrutiny will intensify for the industry in general, and Massey Energy in particular." Other coal miners with a presence in Appalachia include
Alpha Natural Resources
In light of this, Tian surmised that it's possible that the least of Massey's worries right now is the financial implications of the mining accident. These losses include the likelihood that Massey could lose production in the Big Branch mine and expend millions of dollars sealing or restoring the mine. "If Massey's at fault, a large fine or lawsuits are also very possible," Tian wrote.
Capital Markets analyst Meredith Bandy noted that it's currently difficult to quantify the impact of the accident on Massey's earnings for this year, the repercussions of possible lawsuits against the company, or government action against it.
She added that the resulting supply interruption from the accident "is unlikely to affect the seaborne met coal market, which is approximately 200Mt in size, as it is unlikely 100% of the mine's 1.2Mt of production would have been sold into the seaborne market."
Dudas noted that 2009 may have registered the lowest rate of fatalities, or 34, in the history of the U.S. coal mining industry, but that the tragic loss of lives at Massey's mine just goes to show the potential perils associated with underground mining in methane-rich seams.
The AFL CIO, for its part, issued on Wednesday some harsh words for mining companies since the accident. "This incident isn't just a matter of happenstance, but rather the inevitable result of a profit-driven system and reckless corporate conduct," AFL CIO said in statement. "Many mining companies have given too little attention to safety over the years and too much to the bottom line."
The labor organization added that Massey Mine and its CEO, Don Blankenship, "have been cited for over 450 safety violations in this mine," paying more than $1 million in penalties just in the past year alone "and
have failed to pay hundreds of thousands of dollars more in fines that it is contesting. "
Massey Energy in March announced that it signed a definitive agreement to buy
and its affiliated companies for $960 million in a combined cash and stock transaction. It's unclear right now how the deal could be affected in the aftermath of the mining tragedy, though word is that the deal will go on, albeit with the possibility that Massey could raise the cash portion of its offer.
-- Reported by Andrea Tse in New York
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