Last year's deadly explosion at Massey Energy's Upper Big Branch coal mine in West Virginia continues to be a drain on the Richmond-based company's profits.
In its final financial report for 2010, Massey said it suffered a net loss of $166.6 million last year. That's down from a $104.4 million profit in 2009, despite higher revenues in 2010.
Close to 70 percent of last year's loss, or $115 million, were the result of costs associated with the Upper Big Branch disaster that killed 29 coal miners.
The April explosion focused attention on the company's record of safety violations and drew intense scrutiny from federal mine safety regulators. Massey has cited the increased oversight, an ongoing mine disaster investigation and resulting production declines as reasons for its losses. The company also blamed its lower productivity on difficulty in finding enough mine workers.
In the last quarter of 2010 alone, the company's losses totaled $70.1 million.
Baxter Phillips, Massey's new chief executive, said in a written statement that the company is "disappointed with our results in the fourth quarter but we remain committed to making significant improvements going forward."
In the year ahead, Massey will add at least $10 million to its costs to pay for a retirement package given to former CEO Don Blankenship, whose stormy but profitable tenure at the company ended suddenly in December with his unexpected resignation.
Blankenship had opposed an effort by Massey's board of directors to consider selling the giant Appalachian coal company, which operates mines in West Virginia, Virginia and Kentucky. This past weekend, the board agreed to a buyout offer from another coal company, Virginia-based Alpha Natural Resources.
Tuesday's reported losses were predicted early last month, but that did nothing to stem Wall Street's enthusiasm for the buyout and for Massey's stock, which rose three percent Tuesday and close to ten percent Monday. The final 2010 financial report came after stock market trading ended Tuesday.
Massey executives will brief industry analysts in a conference call Wednesday morning at 11 a.m. ET, which can be heard here.
The company said it does not expect underground coal production to improve this year. Missing from its 2011 outlook is continued costs stemming from the Upper Big Branch disaster, including lost coal production, an ongoing investigation, continued regulatory scrutiny, possible cash settlements with the families of some victims, wrongful death and shareholder lawsuits, and the potential for criminal and civil penalties.
Federal investigators already blame poor equipment maintenance, failed safety systems and deficient safety practices in their preliminary conclusions about the explosion.
Massey has its own working theory, which cites natural factors that could have overwhelmed safety systems.
Also expected in 2011: high prices and high demand for the metallurgical coal produced by many Massey mines. That's what makes the company an attractive takeover target and continues to feed strong investor interest, despite the mounting losses and last year's deadly disaster.
Updated Feb. 2, 2:08 p.m. ET:
From Massey Energy's conference call with industry analysts this morning:
1. On the difficulty in getting enough mine workers - COO Chris Adkins said "voluntary quits" were up 12% in the 4th quarter over the same period last year and blamed a hot market in metallurgical coal. "The labor market for skilled underground miners is getting tight." But Adkins says the labor shortage was even worse during the third quarter of last year.
2. Massey's labor shortage and increased federal regulation in response to the Upper Big Branch explosion account for a quarterly production shortfall of 300,000 tons. That's about a third of the total production shortfall for quarter.
3. A question about Massey's contentious relationship with federal regulators prompted CEO Baxter Phillips to say that he's "passed down throughout the organization" that "we would like every conversation to be professional and businesslike" and that he wants to "basically turn down...the tension that appears to exist." But Monday, Phillips said in a joint conference call with Alpha Natural Resources, which announced a takeover of Massey, that he would work with Alpha to "reduce regulatory impediments."