MASSEY ENERGY REPORTS FIRST QUARTER 2009
OPERATING RESULTS
First Quarter Highlights
| · | Produced coal revenue increased 25 percent to $681.0 million |
| · | Total coal tons produced increased by 14 percent |
| · | Produced coal tons sold increased by 12 percent |
| · | Revenue per produced coal ton sold increased by 12 percent |
| · | EBITDA increased 13 percent to $145.4 million |
| · | Net income totaled $43.4 million or $0.51 per diluted share |
Richmond, Virginia, April 28, 2009 - Massey Energy Company (NYSE: MEE) today reported that produced coal revenue for the first quarter of 2009 increased by 25 percent to $681.0 million which represents a first quarter record. The improved revenue results were achieved as produced coal tons sold increased by 12 percent and produced coal revenue per ton also increased by 12 percent as compared to the first quarter of 2008. On the strong sales, earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $145.4 million, an increase of 13 percent compared to EBITDA of $129.2 million in the first quarter of 2008. Net income for the quarter totaled $43.4 million compared to $41.9 million in the same period a year ago.
Commenting on the Company’s first quarter results, Massey’s Chairman and Chief Executive Officer Don Blankenship said, “We were pleased to start off the year with strong sales and earnings. Our total tons produced increased significantly year-over-year for the fourth straight quarter as a result of last year’s expansions. The strong quarter was on track to meet our full year production targets. In addition, our cash cost per ton, while higher than last year, was essentially on plan for the quarter.”
“Market demand and pricing remained weak, however,” Blankenship continued. “Continuing weakness in the global economy has reduced demand for electric power and steel, thereby reducing demand for coal. 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’s first quarter operating cash margin per ton was $10.48 compared to $10.74 in the first quarter of 2008 as increased cash costs offset higher revenue per ton. Average cash cost per ton for the first quarter was
$52.55 compared to $45.62 in the first quarter of 2008. The increase was due largely to higher sales related and operating costs, particularly labor costs.
The reported net income for the first quarter included the recognition of $12.2 million in pre-tax income ($5.1 million benefit recorded in Cost of purchased coal revenue and $7.1 million in interest income) from the receipt of black lung excise tax refunds as authorized by federal legislation passed in October 2008.
1st Quarter Comparative Statistics
| | | 1st Qtr. 2009 | | | 4th Qtr. 2008 | | | 1st Qtr. 2008 | |
| | | | | | | | | | |
| Produced tons (millions) | | | 11.4 | | | | 10.3 | | | | 10.0 | |
| Produced tons sold (millions) | | | 10.8 | | | | 10.2 | | | | 9.6 | |
| Produced coal revenue (millions) | | $ | 681.0 | | | $ | 640.0 | | | $ | 543.2 | |
| Produced coal revenue per ton | | $ | 63.03 | | | $ | 62.69 | | | $ | 56.36 | |
| Average cash cost per ton | | $ | 52.55 | | | $ | 49.66 | | | $ | 45.62 | |
| EBITDA (millions) | | $ | 145.4 | | | $ | 144.4 | | | $ | 129.2 | |
Expansion Update
The construction of Massey’s new processing plant at the Coalgood resource group in Harlan County Kentucky continued through the first quarter as planned and is now nearing completion. The Company now anticipates the plant will be capable of full production by mid-May. Additionally, Massey acquired and deployed two new highwall miners during the quarter. There are no further expansion projects anticipated through the remainder of 2009.
Coal Market Overview
The continuing global economic crisis has caused a significant deterioration of world coal markets. Coal contracting and shipment activities remained slow as end market coal consumers further reduced production and power generation targets.
| · | Eastern U.S. steam coal prices declined during the first quarter of 2009. |
| · | Energy Ventures Analysis estimates that coal burn at utilities in the Southeastern United States was down 18 percent in the first quarter of 2009 due in part to lower overall electric power demand and some switching to natural gas. Receipts of coal at Southeastern utilities were down 4 percent in the same period. Coal stockpiles in terms of tons increased by about 15 percent in the region during the first three months of 2009. |
| · | The Energy Information Administration (EIA) projects that coal-fired generation in the domestic electric power sector will decline by approximately 3 percent in 2009 due to lower overall electric power demand and an increase of about 2 percent in generation fueled by natural gas. |
| · | Steam coal export volumes by U.S. producers increased 29 percent in the first two months of 2009. Metallurgical coal exports declined 7 percent in the same period. The EIA forecasts, however, that total coal exports will decline by about 11 percent for the full year as the weak global economy and a relatively strong U.S. Dollar are combining to reduce the demand for U.S. steam coal and metallurgical coal in international markets. |
| · | According to the World Steel Association, global steel output declined 23 percent in the first two months of 2009 as compared to the same period in 2008. |
| · | The EIA expects the coal industry to respond to the weak market conditions by reducing production by about 5 percent in 2009. According to EIA estimates, total U.S. coal production was down about 2 percent in the first two months of the year. Production in Central Appalachia was down about 5 percent in the same period. |
In spite of the current weak market conditions, Massey continues to believe the following factors will contribute to a supply/demand balance that is favorable to Central Appalachian coal producers in the longer term:
| · | Total Central Appalachian coal production is constrained by increasing environmental and safety regulatory requirements and enforcement activity as well as depleting reserves. |
| · | The quality of Central Appalachia coal allows it to enjoy significant market diversity and its proximity to sea ports makes it a viable source of coal to fill the growing demand for energy throughout most of the world. |
| · | Economic expansion continues in the world’s largest developing countries. In the longer term, this economic development will drive higher demand for steel and sustain the global demand for metallurgical coal produced in Central Appalachia. |
Cost Cutting Measures
In response to the current market conditions, Massey has taken meaningful action to reduce overall costs and expects to see measurable cost improvement going forward. These actions include the idling of several higher cost mines, limitation of overtime, selective general and administrative cost reductions, renegotiation of supply contracts, and the implementation of significant wage and benefit reductions beginning on May 1, 2009. Additional cost cutting initiatives are under way.
In addition, meaningful productivity increases are expected as Massey’s new mines and work forces mature.
Shipment Deferrals
Increasing coal stockpiles and weak demand for electric power generation and steel production in both domestic and international markets have created challenges among Massey’s customer base to accept shipments of coal according to contracted schedules. Massey is working with its customers to modify shipment schedules and amend contract terms where necessary.
Shipment deferrals will allow Massey to selectively reduce production at higher cost mining operations in 2009.
Liquidity and Capital Resources
Massey ended the first quarter of 2009 with $566.7 million in Cash and cash equivalents. This compared to $607.0 million at December 31, 2008. In addition, the Company had $24.9 million invested in the Reserve Primary Fund at the quarter’s end, which is classified as a short-term investment as the availability of these funds remains subject to the liquidation of the underlying assets of the Fund. The Company had $99.5 million available under its asset-based revolving credit facility at March 31, 2009.
Total debt at March 31, 2009 was $1,316.4 million compared to $1,312.2 million at December 31, 2008. Massey's total debt-to-book capitalization ratio was 52.9 percent at March 31, 2009 compared to 53.8 percent at December 31, 2008. After deducting available cash and short-term investments of $591.6 million and restricted cash of $46.0 million, which supports letters of credit, net debt totaled $678.8 million. Total net debt-to-book capitalization was 36.7 percent at March 31, 2009 compared to 35.5 percent at December 31, 2008. (December 31, 2008 amounts have been adjusted to conform with accounting guidance related to the Company’s 3.25% convertible notes. See note 5 in the attached financial statements.)
Capital expenditures for the first quarter 2009 totaled $103.7 million compared to $123.5 million in 2008. For the full year 2009 Massey currently expects CAPEX of $300 million or less.
Depreciation, depletion and amortization (DD&A) was $72.6 million in the first quarter 2009 compared to $60.2 million in the first quarter of 2008. DD&A is expected to be in the range of $280 million to $290 million for the full year 2009.
Outlook, Guidance and Commitments
The ongoing economic turmoil, the global financial crisis and the uncertain regulatory environment make it more difficult than usual to forecast coal prices and coal demand with a high degree of accuracy. Coal markets and the financial condition of both coal producers and coal consumers could change rapidly in this environment. In consideration of this fact and current expectations for shipment deferrals on existing contracts, the Company projects produced coal shipments for the full year 2009 will be between 38 and 41 million tons, with average produced coal realization between $60.00 and $63.00 per ton. Guidance for average cash cost per ton in 2009 remains unchanged and is expected to be between $50.00 and $53.00. Other income is expected to be between $40 and $80 million.
For 2010, Massey presently has approximately 20 million tons of coal sold and priced, 2 million tons sold with pricing collars and 8 million tons sold but currently unpriced. Based on management’s current market views, Massey’s produced coal shipments for 2010 are currently expected to be in the range of 35 to 40 million tons, with average sales prices in the range of $60.00 to $65.00 per ton. Cash cost per ton is anticipated to be in the range of $48.00 to $52.00. The Company also anticipates significantly reducing capital expenditures to a range of $100 to $200 million for the full year 2010. With results in these ranges, the Company believes it would generate solid positive free cash flow for the year.
“As in past periods of market decline or uncertainty, we are well positioned in terms of our balance sheet, our market position, our far superior reserve holdings, and our operating performance to increase our competitive advantages in Central Appalachia,” Blankenship stated. “In this market we anticipate opportunities to
possibly to expand our exposure in other regions or in non-core businesses to further increase sustainable shareholder value,” he concluded.
Conference Call, Webcast and Replay
Members of the Company’s senior management will hold a conference call to discuss the first quarter results and operations on Wednesday, April 29, 2009, at 11:00 a.m. ET. The call can be accessed via the Massey Energy Company website at www.masseyenergyco.com. A replay of the call will be available at the same site through May 29, 2009.
Company Description
Massey Energy Company, headquartered in Richmond, Virginia, with operations in West Virginia, Kentucky and Virginia, is the fourth largest coal company in the United States based on produced coal revenue and is included the S&P 500 index.
FORWARD-LOOKING STATEMENTS: Certain statements in this press release constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to come within the safe harbor protection provided by those sections. Any forward-looking statements are also subject to a number of assumptions regarding, among other things, future economic, competitive and market conditions. These assumptions are based on facts and conditions as they exist at the time such statements are made as well as predictions as to future facts and conditions, the accurate prediction of which may be difficult and involve the assessment of circumstances or events beyond the Company’s control. The Company disclaims any intent or obligation to update these forward-looking statements unless required by securities law, and the Company cautions the reader to not rely on them unduly. Caution must be exercised in relying on forward-looking statements including disclosures that use words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “may,” “plan,” “project,” “will,” and similar words or statements that are subject to risks, trends and uncertainties that could cause the Company’s actual results to differ materially from the expectations expressed or implied in such forward-looking statements. Factors potentially contributing to such differences include, among others: the Company’s cash flows, results of operation or financial condition; worldwide market demand for coal, electricity and steel; the successful completion of acquisition, disposition or financing transactions; future economic or capital market conditions; foreign currency fluctuations; governmental policies, laws, regulatory actions and court decisions affecting the coal industry or our customers’ coal usage; competition among coal producers in the United States and internationally; inherent risks of coal mining beyond the Company’s control, including weather and geologic conditions or catastrophic weather-related damage; the Company’s ability to expand mining capacity; the Company’s production capabilities to meet market expectations and customer requirements; the Company’s ability to obtain coal from brokerage sources or contract miners in accordance with their contracts; the successful implementation of the Company’s strategic plans and objectives for future operations and expansion or consolidation; the Company’s assumptions and projections concerning economically recoverable coal reserve estimates; the Company’s assumptions and projections regarding pension and other post-retirement benefit liabilities; the Company’s interpretation and application of accounting literature related to mining specific issues; failure to receive anticipated new contracts; the Company’s reliance upon and relationships with our customers and suppliers; the creditworthiness of the Company’s customers and suppliers; adjustments made in price, volume or terms to existing coal supply agreements; the Company’s ability to manage production costs, including labor costs; the Company’s ability to timely obtain necessary supplies and equipment; the Company’s ability to obtain and renew permits necessary for existing and planned operations; the availability and cost of credit, surety bonds, and letters of credit that the Company requires; the Company’s ability to attract, train and retain a skilled workforce to meet replacement or expansion needs;
the cost and availability of transportation for the Company’s produced coal; legal and administrative proceedings, settlements, investigations and claims and the availability of insurance coverage related thereto; the lack of insurance coverage against all potential operating risk; and environmental concerns related to coal mining and combustion and the cost and perceived benefits of alternative sources of energy such as natural gas and nuclear energy.
Additional information concerning these and other factors can be found in press releases and Massey's public filings with the Securities and Exchange Commission, including Massey’s Annual Report on Form 10-K for the year ended December 31, 2008, which was filed on March 2, 2009, and subsequently filed interim reports. Massey’s filings are available either publicly, on the Investor Relations page of Massey’s website, www.masseyenergyco.com, or upon request from Massey’s Investor Relations Department: (866) 814-6512 (toll free). For further information, please visit Massey’s website at www.masseyenergyco.com.
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