March 28, 2024

Shareholders Approve Massey Energy Sale to Alpha

Many coal analysts say the future of the merged company is bright because economic growth in China, Brazil and other developing countries has tightened world supplies of metallurgical coal, which is used for making steel, and driven up prices.

Only four countries export metallurgical coal, also known as coking coal, and the newly merged company will be one of the few mining firms in the world that has access to sufficient port and rail infrastructure to expand exports substantially over the next several years.

The takeover of Massey by a competing Appalachian coal company came about after Massey was battered by legal troubles after an explosion in April 2010 at its Upper Big Branch mine in West Virginia in which 29 miners died. It was the most lethal United States mine accident in 40 years.

Michael J. Quillen, Alpha’s chairman, said in an interview that Massey operations would need to adopt Alpha’s safety procedures and culture and that important changes in management personnel would be announced in the next few days.

“There are obviously going to be some challenges,” Mr. Quillen acknowledged. “It’s going to take a little while to integrate something as massive as the Massey asset. We need to go in and understand all of their operations.”

In recent weeks, Alpha has come under criticism from union leaders, mine safety experts and senior Congressional Democrats for a decision to retain three senior Massey managers, including Baxter F. Phillips, Massey’s chief executive, who had been president at the time of the Upper Big Branch accident.

An official investigation into the accident by a panel appointed by the former governor of West Virginia blamed Massey’s management for the accident, saying it had “operated its mines in a profoundly reckless manner.”

Massey executives have long argued that the explosion was caused by a natural large methane release into the mine chamber, not bad safety procedures.

J. Davitt McAteer, the former federal mine safety chief who led the West Virginia inquiry, said in an interview that retaining senior Massey executives “certainly doesn’t help make a dramatic and abrupt change in safety culture.”

“The question for the new owners,” he added, “is where is the strong message that this heralds a new day in mine safety and health?”

Mr. McAteer said that several Massey executives that were expected to remain with Alpha had declined to testify before his group or federal and state investigators.

Mr. Quillen said Alpha was listening to the criticism. “There will be some announcements clarifying the management structure in the immediate future,” he said. “There’s definitely going to be some changes made.” He declined to be more specific.

The Massey side of the company will need to “adapt to the Alpha personality and not vice versa,” he said. “It’s not going to be Massey with another name.”

Mining industry analysts said Alpha had a good record of blending prior acquisitions into the company and the merger was likely to succeed.

“If they completely integrate their safety procedures into Massey, then I don’t think there will be a problem,” said Justin Molavi, an energy analyst at IBISWorld, a market research firm.

David Khani, director of research at FBR Capital Markets, said Alpha faced multiple challenges, including declining production at Massey’s mines, rising operational costs and conflicts with federal regulators.

But Mr. Khani said Alpha was up to the task and the transition could be worked out over a year or so. “They are smart managers and they are very professional,” he said of Alpha’s leadership.

The merger will make Alpha the mining company with the second-largest coal reserves in the country, after Peabody Energy, with about five billion tons. It will have the third-largest reserves of metallurgical coal in the world after BHP Billiton and Teck Resources of Canada.

But Alpha will also inherit more than a dozen lawsuits filed by families of the Massey miners who were killed in the Big Branch disaster.

The deal was completed a few hours after separate votes at meetings of Alpha and Massey shareholders. The merged company will keep the Alpha name.

The votes came a day after courts in Delaware and West Virginia refused requests by different shareholder groups to block the sale.

In the West Virginia suit, shareholders said that Massey managers had engineered the sale of the company to protect themselves from liabilities connected to the Upper Big Branch disaster. They also said that Alpha had quietly agreed to hire several Massey executives conducting an internal investigation of the accident.

In the interview, Mr. Quillen did not deny that Alpha discussed the possibility of hiring Massey executives as part of the merger talks. “That doesn’t mean you are going to hire all of them,” he said. “The other side is going to say ‘What about my people?’ That’s a common occurrence in any acquisition of any size.”

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Australia’s Economy Contracts Most in 20 Years

Data released Wednesday showed that annual growth in gross domestic product had slowed to a tepid 1 percent, down from 2.7 percent. The results were in line with a Reuters poll of analysts.

Damage from the flooding and Cyclone Yasi came at a time when rising utility and fuel prices were already crimping household spending and a strong Australian dollar was taking a toll on industries like manufacturing and tourism.

Add to that the effect of earthquakes in Japan and New Zealand, two major trading partners, and it is not surprising that the economy went into reverse.

“The economy has hit a temporary pothole courtesy of the natural disasters this year,” said Besa Deda, chief economist at St. George Bank.

“We are looking for the economy to recover as this year progresses, as a rebound in coal exports occurs and we get a boost from construction,” Mr. Deda said.

The Reserve Bank of Australia has said that it will look past the weather-induced slowdown in growth when setting monetary policy, believing that the effects will be temporary.

Indeed, coal exports have showed signs of recovering in March, helping push the country’s trade balance back into surplus. Analysts polled by Reuters expected data due on Thursday to show that the surplus had grown to 2 billion Australian dollars, or $2.15 billion, in April from 1.74 billion dollars in March as the recovery continues.

Australian miners have received higher contract prices for the quarter ending in June, with iron ore contract prices estimated to have been set 23 percent higher than the March quarter and coking coal contracts 45 percent higher.

That, in turn, is driving a huge expansion in mining investment, which should support growth for years to come.

Mining investment is already more than double the historic average at 4 percent of Australia’s G.D.P., and the central bank now expects that to exceed 6 percent by the 2012-13 budget year.

This investment boom is already straining the supply of skilled labor. The economy is close to full employment with a jobless rate at just 4.9 percent, a situation the Reserve Bank of Australia is watching closely.

“I think the R.B.A. is unlikely to raise rates in June, but the bad headline number really hides the strength of the economy,” said Matthew Johnson, senior economist at UBS. “The strength of domestic demand in particular tells me that the R.B.A. needs to slow demand down.”

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