| By Steve James
NEW YORK (Reuters) - With coal fetching sky-high prices, mining
companies should be making money as fast as they can dig it out of the
ground and ship it to customers.
But not when there is a shortage of skilled miners, and the
railroads are backed up.
That's what Massey Energy Co., one of the Big Four U.S. coal companies, has
discovered.
"We are concerned with the lack of performance in productivity, but
we understand the challenges," Chairman and Chief Executive Don
Blankenship told analysts on a conference call on Friday. "I try not
to be depressed, keep an even keel and work day to day to deal with
them."
His comments came after the Richmond, Virginia-based company
reported a healthy third-quarter profit on Thursday on strong pricing
for coal. But at the same time, it said production is struggling to
keep pace with demand.
Earlier, Massey had warned earnings would fall short of estimates
because of lower shipping volumes and higher costs, in part due to
fuel price hikes after Hurricane Katrina.
The company also cautioned it faced profit problems this year
because of rail delivery disruptions that would keep it, like many of
its competitors, from shipping as much coal as it could produce from
the older Central Appalachian coalfields of Virginia, Kentucky and
West Virginia.
On Friday, the company's stock slumped as much as 14 percent on the
New York Stock Exchange, following the release of its results and a
Merrill Lynch downgrade to "neutral" from "buy." The shares rallied
later in the day, but still closed down 6.39 percent at $40.00 on the
NYSE.
"We thought that the company would deliver better productivity, but
unfortunately, they continue to stumble operationally," Merrill Lynch
said in a note to customers. "This was reflected in the third-quarter
results and now is anticipated for the fourth quarter."
MINER SHORTAGE VS. COAL DEMAND
Analyst Ian Synnott of Natexis Bleichroeder, an equity brokerage,
said the Appalachia region was affected by a shortage of skilled labor
after years of declining mines.
| Suddenly with a surge in industrial use ranging from
steelmakers' need for coking coal to power stations' appetite
for steam coal, there were not enough miners to handle the
demand.
"It's difficult to keep a workforce, there's little room
for expansion there, and there are equipment and
transportation problems," Synnott said.
For two years, railroads serving the eastern coalfields
have struggled to handle increased traffic while carrying out
essential track maintenance. In addition, with expanded global
mining, not only for coal, but copper, gold and other metals,
there is a critical shortage of heavy equipment and tires.
Then there is the increased cost of diesel fuel, which
mining companies need to run their operations and truck the
coal out to the railroads.
"The biggest reason for our cost increases is the diesel
fuel price explosion -- from 84 cents (a gallon) to $2.60 to
$2.70," Blankenship said.
Asked on the conference call about the labor situation, he
said: "There is a lack of experienced workers, so we are
training them ourselves, which helps cut costs.
"However, we are not making progress on retention. There is
progress in getting qualified electricians and we have
stabilized the situation with supervisors, but it's not taking
a hold with younger workers.
"The issue is with first-time, first-year coal miners," he
said. "It has been more difficult than I thought. We are
trying to find the answer for young people to come into the
industry and stay."
On the railroad situation, Blankenship said Massey was
adding loading facilities in West Virginia and working to
improve trucking to mitigate railroads. And he said Massey's
estimate of shipping 48 million tons in 2006 -- more than
2005's 42.5 million to 43 million tons -- was "achievable."
"It's been really difficult and had a significant impact
earlier in the year. It's 50-50 our problem and the railroads'
(problem), but it was more our problem in the third quarter,"
he said, referring to the company's shipping problems.
Blankenship was asked on the conference call if his board
was satisfied with Massey's stock performance, given its gain
this year, compared with the surge in a major competitor's
share price.
"I have not asked them," he said, "but I know there is
satisfaction with what we have achieved.
"But quarter to quarter, I am sure board members and
shareholders are disappointed with results."
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