Massey makes more cuts

DESPITE produced coal revenue jumping 25% in the first quarter, Massey Energy has said it will cut production and employee pay and benefit packages.
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massey energy

Donna Schmidt

For the March quarter, the Appalachian producer reported $US681 million in revenue on the back of produced coal tons sold and produced coal revenue per ton, both up 12% versus the same period last year.

Net income was up year-on-year as well, to $43.4 million compared to $41.9 million.

"We were pleased to start off the year with strong sales and earnings,” Massey chairman Don Blankenship said, citing expansion plans from last year for the company’s fourth consecutive-year increase in output.

Despite the rise in revenue, Blankenship said market demand and pricing remained weak.

“Our metallurgical coal shipments were lower than we had anticipated in terms of both volume and price, and this was the major reason for our cash margins being lower than planned."

Massey did see some expansion growth at the start of the year, including the continued construction of its Coalgood processing plant in Harlan County, Kentucky, which is expected to be completed and ready for full production by mid-May.

Additionally, the producer put two highwall miners online during the period, but noted that no other projects were planned for the remainder of the year.

As part of a collection of cost-cutting measures across the company, Massey says it will implement “significant” reductions in wages and benefits beginning May 1 to the tune of about 6%. It will also limit overtime for workers and make several changes to administrative costs.

Operationally, Massey said its market condition-driven decision to realise “measurable cost improvement” included the idling of several higher-cost operations and the renegotiation of supply contracts, though it did not indicate specific locations or deals.

The company noted the rise in stockpile levels and decline in electric generation demand had created another challenge, that of shipment deferrals, but it was working to modify schedules and terms with its customers.

“Shipment deferrals will allow Massey to selectively reduce production at higher-cost mining operations in 2009,” it noted.

Looking ahead, and taking into consideration the market paired with shipment deferrals, the company projected coal shipments for the year to be 38-41 million tons at an average realised price of $US60-63/t. Its average per-ton cost guidance remained unchanged at $50-53.

For next year, Massey has sold and priced 20Mt of output, along with an additional 2Mt with pricing collars and 8Mt sold and unpriced. It anticipates shipments for 2010 will be 25-40Mt at a sales price of $60-65/t.

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