Alpha, acquiring Massey, eyes more expansion

By Steve James

ABINGDON, Virginia (Reuters) – Alpha Natural Resources (ANR.N: Quote, Profile, Research) expects its takeover of rival coal miner Massey Energy (MEE.N: Quote, Profile, Research) to be completed by the end of June and sees further expansion, possibly into Australia, its chief executive said.

Kevin Crutchfield also told Reuters the acquisition of Massey — owner of the Upper Big Branch mine where 29 miners died in a blast a year ago — would result in better safety measures at the more than 20 mines it will take over.

“You’ll see over time that the safety performance will improve, productivity will improve.”

The merger, valued at more than $7 billion last month, will position Alpha as a major supplier of steel-making metallurgical (met) coal, Crutchfield said in a recent interview at Alpha headquarters in Abingdon, Virginia.

“When you look at the met footprint of Alpha and the met footprint of Massey, we’re obviously going to create a formidable entity,” he said. “We think that in a couple of years time we could be perhaps the No. 2 supplier of metallurgical coal globally, certainly No. 3.”

Crutchfield said the regulatory process was moving ahead and he expects a shareholder vote in time to complete the deal by the end of June. Synergies, or cost-savings, after a year, should be better than the $150 million he originally forecast.

Talking of future expansion at a time when global coal demand and prices are rising, Crutchfield said he was looking toward Australia. “Long-term we have several folks that have some operating experience in Australia, me among them. It’s a logical next step for us, the question is can we find an entry point there that makes sense?”

Although he was not considering coal-rich regions like Mozambique or Mongolia, “there are some jurisdictions where our chances of being successful are higher — Australia being one of them, western Canada and perhaps Colombia.”

Crutchfield was frank about mine safety when asked how Alpha’s takeover of Massey would affect the issue as the first anniversary of the April 5 disaster at the Upper Big Branch mine in West Virginia disaster approached.

“We experienced some pretty difficult times with respect to safety. Our record was pretty good, relative to everybody else. But being in the 50th percentile in the industry and sitting down with the family of an injured miner and saying we’re as good as half the industry, that doesn’t really resonate all that well with them.”

He said Massey had introduced a program to encourage hourly-paid miners to report unsafe activities anonymously. “We’ve empowered them to control their workplace.”

On Tuesday at 3:02 p.m., flags at Alpha facilities will be lowered to half staff and a moment of silence observed. Massey said it will idle all underground coal production for the day and hold safety sessions.

Massey, whose name will disappear with the merger, has often been cited for safety violations by the federal Mine Safety and Health Administration (MSHA). An investigation into the Big Branch accident is expected to be issued later this year.

As a result of the mining disaster, the worst in four decades in the United States, Massey took a $150 million charge in the fourth quarter and Crutchfield has said he is comfortable with that and any exposed risk from future litigation. Massey eventually put itself up for sale and its combative chief executive, Don Blankenship, retired.

“They’ve (Massey) had a tough run, not only UBB, but a sale process and their CEO has retired. Anxiety had manifested itself in a lot of uncertainty, which has driven their (labor) turnover rate up and they’re running shorthanded,” said Crutchfield. “I think we can remedy that on day one just by introducing some stability.”

He said there was a difference between the two companies in their attitude to safety. At Massey, “there was always this public conflict while with Alpha it’s not that we don’t have conflict with regulators, because we do, but we chose to have our conflict behind closed doors.

“When the deal closes, I can assure you that MSHA or any regulatory body is not going to cut Alpha any slack. What will change will be our performance — it has to change.”

Alpha stock rose 21 cents to close at $60.47 and Massey finished 61 cents higher at $69.87 on the New York Stock Exchange.

(Reporting by Steve James; Editing by Gary Hill, Bernard Orr)

Alpha, acquiring Massey, eyes more expansion