Massey Energy Reports Second Quarter Operating Results
Wednesday, July 28th, 2010
Massey Energy Company (NYSE: MEE) report a net loss of $88.7 million or $0.88 per share for the quarter ended June 30, 2010. The Company generated $693.1 million of produced coal revenue in the quarter from the sale of 9.8 million tons of coal. By comparison, Massey reported net income of $20.2 million on produced coal revenue of $603.2 million in the second quarter of 2009 from the sale of 9.4 million tons of coal.
For the first half of 2010, Massey generated produced coal revenue of $1.26 billion and recorded a net loss of $55.1 million or $0.59 per share. This compared to produced coal revenue of $1.28 billion and net income of $63.6 million in the first half of 2009. EBITDA was $169.3 million in the first half of 2010 compared to EBITDA of $261.7 million in the first six months of 2009.
The second quarter and first half 2010 results include pretax charges of $128.9 million in incurred costs, asset impairments and accrued reserves associated with the tragic accident at the Upper Big Branch mine (UBB) that occurred in April 2010. These charges include estimates for loss of equipment, investigation costs, workers compensation and other compensation and benefits provided to the families of the UBB miners, charges expected to be incurred for litigation, net of insurance proceeds and other related costs. Excluding the UBB related charges, the Company reported a net loss of $1.6 million or $0.02 per share in the second quarter of 2010 and net income of $32.0 million, or $0.34 per share in the first half of the year.
Commenting on the Company’s second quarter results, Massey’s Chairman and Chief Executive Officer Don Blankenship said, “This was clearly a difficult quarter for everyone associated with Massey. The tragedy at Upper Big Branch and the ensuing, contentious investigation overshadowed our day to day operations and largely occupied the time and attention of management and many of our members. We continue to grieve the injury and loss of our miners. Our efforts to provide for the needs of the families of the injured or lost miners continue as well.”
“We remain intensely focused on the safety of all our mines and members even as the investigation to determine the cause of the explosion at UBB continues,” Blankenship added. “We are also continuing our efforts to mitigate the lost production from UBB in order to serve our customers as best we can. These efforts have been disruptive to operations as we move crews and equipment to different locations but they should allow us to improve and stabilize production in the coming quarters.”
Average produced coal revenue per ton was $70.45 in the second quarter of 2010 compared to $64.14 in the second quarter of 2009. The nearly 10 percent improvement was driven by higher average prices realized on thermal coal tons, mainly attributable to the addition of higher priced thermal coal contracts assumed in the acquisition of Cumberland Resources and its affiliated companies (“Cumberland”). The operations acquired from Cumberland shipped 1.6 million tons of coal during the quarter at an average price of $85.35 per ton. Additionally, an increase in the proportional mix of higher price metallurgical and industrial coal sold during the quarter added to the overall improvement in average produced coal revenue per ton. Metallurgical coal represented 21 percent and industrial coal represented 8 percent of the total tons sold in the second quarter of 2010 compared to 19 percent and 6 percent, respectively, in the second quarter of 2009.
Average cash cost per ton for the second quarter was $59.51 compared to $51.53 in the second quarter of 2009 (2010 Average cash cost per ton is calculated exclusive of UBB related charges; see Notes 2 and 6 in the attached financial statements). Lower productivity attributable to discrete geologic conditions, increased regulatory enforcement actions and related temporary shutdowns, increased labor turnover rates, unplanned transfers of crews and equipment, and higher surface mine ratios, were the key drivers of the cost increase.
Total shipments in the second quarter fell short of the Company’s expectations by approximately 1.0 million tons. Lower productivity and temporary shutdowns accounted for approximately 700,000 tons of lost production and shipments. Three export shipments expected to leave port in late June were delayed until early July, accounting for approximately 220,000 tons of the shortfall.
The second quarter 2010 results included a pretax loss on derivative instruments of $12.4 million, which was comprised of $10.3 million of realized gains and $22.7 million of unrealized losses. The quarter results were favorably impacted by the following pretax items: $9.7 million of Other revenue from the settlement of certain claims against a service provider and $7.2 million of Other revenue related to the sale of a claim in a customer bankruptcy proceeding. The quarter results were negatively impacted by the following pretax items: $8.5 million reserved in relation to a customer pricing dispute recorded in Sales, general and administrative expense and a $5.0 million bad debt reserve related to a note receivable from a supplier recorded in Other expense.