The search for survivors at the Upper Big Branch mine in West Virginia was still under way two weeks ago when Massey Energy and some Wall Street analysts issued relatively rosy financial forecasts.
"We think the Upper Big Branch disaster won't have a dramatic impact on Massey Energy's valuation," equity analyst Michael Tian of Morningstar wrote on April 9.
Three days later, Mathew Christy of Standard and Poor's Equity Research told investors that Massey stock was a good buy.
"We believe that the financial impact of the Upper Big Branch mine tragedy to Massey Energy will be immaterial," Christy said.
Both analyses were bolstered by Massey's own statement to stockholders on April 8. "Following an event of this nature," the statement said, "there is always a period of uncertainty."
But Massey assured stockholders it was insured against lawsuits, would likely recover the equipment left in the Upper Big Branch mine and expected to reopen the mine "at some point in the future." The company said it was working on a plan to replace the coal it could not dig out while the mine was closed.
The Bottom Line
These forecasts seemed premature and inappropriate to some, given that some miners still lay dead in the mine and the funerals of others were under way.
"It's disturbing that at the time that Marlene Griffith still held out hope that her husband survived the blast, Massey and Wall Street were concerned about dollars," says Michael Moreland, a West Virginia attorney for the widow of miner William Griffith. Marlene Griffith filed the first wrongful death suit against Massey Energy.
"There are numbers crunchers at Massey headquarters trying to decide whether this disaster is going to affect its bottom line," Moreland continued. "Certainly, she didn't have the luxury of thinking about Massey's bottom line or her bottom line. She was worried about the survival of her husband."
Some Wall Street analysts were also queasy when their colleagues quickly issued financial forecasts.
"I think the reason you didn't see more of that is because, frankly, it is a little crass," says Meredith Bandy of BMO Capital Markets. "It's almost like saying the lives of these 29 people don't matter."
Christy acknowledges that the forecasts seem cold given the human costs of the disaster.
"It's an incredibly tragic accident; 29 miners died," Christy says. "But I have to look at the stock stoically."
Tian says the tragedy has "two separate parts" — the deaths of the mine workers and the financial impact on Massey Energy. "You still have to do the analysis," he explains. "If you don't do that, you're not doing your job."
The positive prospects for Massey are based on these characteristics of the company and the market, according to Tian, Christy and Bandy:
Massey's stock price: The day of the accident, Massey stock sold close to its yearly high. The next day it plunged 11 percent. It's even lower now. "I think it was a great opportunity for investors to be buying into the company," Christy says.
Projected losses: Massey estimates it may lose as much as $225 million in lost coal production, wrongful death claims, death benefits to families and lost equipment. That exceeds the company's profits last year, but it's not as daunting as it sounds, according to Christy.
"After the accident, they lost about a billion dollars in market value," he says, which greatly exceeds the actual projected losses to the company.
Tian expects Upper Big Branch to reopen "maybe in a couple of years ... and that profitability will be back." The disaster, he adds, "doesn't really dent the long-term earnings power of this company."
The value of the coal: Upper Big Branch produces metallurgical coal, which is used to manufacture steel. It is a "hot commodity," says Christy, with high prices and high demand, especially overseas. Massey says it can't replace all of the coal Upper Big Branch produced while it is shut down, but it is boosting production at other mines. And it vows to reopen the mine when the disaster investigation ends.
Fines, citations and lawsuits: Massey Energy has injury rates higher than the national rate at some of its mines, and Upper Big Branch had a serious safety citation rate 19 times the national rate last year. But, Bandy says, the record isn't so bad when the comparison involves similar kinds of mines.
"Someone like Massey that's doing a lot of underground mining ... [in] deep underground, sometimes gassy mines, will tend to have a higher incident rate," Bandy says, than a company with mostly surface mines.
And "it's not how many citations they have" that is important for Wall Street analysts, Bandy says, "but how expensive they were." And "fines are typically small," Tian says in his written analysis.
As for settlements and cash awards from lawsuits, Christy compared the history of payouts for mining accidents to the dramatic decline in Massey's equity.
"That decline was way overdone considering the potential ranges that the company could face if they were found completely liable for the miners' deaths," Christy concludes.
The analysts acknowledge uncertainty when it comes to negative publicity for Massey, tighter scrutiny from state and federal regulators, and tougher laws from Congress. Each can discourage investors, hurt productivity and/or increase costs.
Some Massey shareholders directly link the financial and human costs. Several have demanded the resignations of CEO and board chairman Don Blankenship, the rest of the Massey board or both.
Eight state pension funds, which collectively own 2 percent of Massey's stock, accused the board in a letter of failing "to manage the many risks the company faces." That failure, the letter continues, "has not only resulted in a loss of shareholder value but also may have resulted in the loss of the lives of its employees."
One shareholder has filed a lawsuit seeking to hold Blankenship and the board personally liable for damage claims and awards resulting from the disaster.
"Through a shareholder lawsuit, we can do that," says Badge Humphries, an attorney with Motley Rice, which represents the Manville Trust, an institutional investor.
An initial lawsuit that predates the Upper Big Branch explosion resulted in a settlement requiring Massey to establish a safety monitoring and reporting system. Another lawsuit was filed this past week alleging that the disaster and subsequent revelations about Massey's safety record show that the settlement has been ignored.
Humphries is seeking a court order holding the Massey board and company executives in contempt "so that these types of incidents do not recur in the future, and so that there is a different safety culture." That, Humphries says, will make Massey Energy "a sounder, more valuable investment for long-term investors."
Support For CEO
Massey Energy did not respond to NPR's requests for comment in response to this story. But the board issued a statement Friday reaffirming "full support and confidence" for Blankenship.
"During times like these," the statement said, "a change in senior management is not appropriate or in the best interest of our members and shareholders."
Blankenship spoke with Wall Street analysts in a conference call Thursday. "No one wants to learn what caused the explosion at Upper Big Branch more than we do," he said. "The explosion was not caused by willful disregard for safety regulations, as the media would have you believe."
Asked about the plunge in the company's stock price, Blankenship said, "We think the stock is clearly impacted by the tragedy, and we will move through this time, as hard as it is."
The conference call began with a moment of silence for the 29 employees killed at Upper Big Branch. Then Blankenship and other company executives spent 90 minutes answering questions about the company's financial outlook.
Massey's financial prospects and the performance of Blankenship and the board are expected to be hotly debated when the company holds its annual shareholders meeting in Richmond, Va., on May 18.
In the meantime, Massey executives have scheduled a news conference in Charleston, W.Va., on Monday.
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JACKI LYDEN, host:
Shares of Massey Energy were down about 4 and a half percent last week. Two weeks ago, though, when the search for survivors was still under way at the Upper Big Branch Mine, the company and some Wall Street analysts issued rosy financial forecasts. They essentially told investors, don't worry.
NPR's Howard Berkes has more.
HOWARD BERKES: Five days after the deadly blast, Morningstar analyst Michael Tian didn't see a big problem for Massey Energy investors.
Mr. MICHAEL TIAN (Analyst, Morningstar): Maybe in a couple of years, they're going to restart that mine and that profitability will be back. It doesn't really dent the long-term earnings power of this company.
BERKES: And a few days later, Mathew Christy, of Standard and Poor's Equity Research, told investors to buy Massey stock.
Mr. MATHEW CHRISTY (Standard and Poor's Equity Research): I think it was a great opportunity for investors to be buying into the company.
BERKES: That's because the Upper Big Branch Mine produces coal that's used to make steel, and it is high-priced and in high demand, especially overseas. Massey says it may lose as much as $225 million to less coal production, wrongful death suits and destroyed equipment, but Christy still says buy.
Mr. CHRISTY: After the accident, they lost about a billion dollars in market value. And taking a look at past mining accidents, that decline was way overdone, considering potential ranges that the company could face if they were found completely liable for the miners' deaths.
BERKES: Twenty-five analysts track Massey Energy, but few commented right away. Among those holding back was Meredith Bandy, of BMO Capital Markets.
Ms. MEREDITH BANDY (Analyst, BMO Capital Markets): I think the reason you didn't see more of that is because frankly, it is a little crass. It's almost like saying that the lives of these 29 people don't matter. People aren't going to want to sort of pound the table and insist that investors buy it because I think there is a perception, even on Wall Street, that that's quite crass.
BERKES: But Bandy agrees with the general analysis of Christy and Tian, and all three note the same wildcards: bad publicity, tighter scrutiny from regulators, and tougher laws from Congress. They could hurt productivity, increase costs, and scare off investors.
Christy knows this sounds cold, given the human cost.
Mr. CHRISTY: It's an incredibly tragic accident; 29 miners died. But I have to look at the stock stoically.
BERKES: And here's Michael Tian.
Mr. TIAN: These are two separate parts. You can sort of feel, like, oh man, you know, all these people died and whatever it is, but you still have to do the analysis. If you don't do that, you're just not doing your job.
BERKES: Some Massey shareholders link the financial and human costs, demanding the resignation of CEO and board chairman Don Blankenship. Eight state pension funds - owning 2 percent of the company - say Blankenship and the board diminished the value of their investment, and may have cost workers their lives.
Badge Humphries is an attorney for another investor, the Manville Trust. It is suing to hold Blankenship and the board personally liable.
Mr. BADGE HUMPHRIES (Attorney, Manville Trust): Through a shareholders' lawsuit we can do that, so that these types of instance do not recur in the future and so that there's a different safety culture - so that it's a sounder, more valuable investment for long-term investors.
BERKES: There is at least one group, of course, that could care less about the investment, the investors or the analysts. Mark Moreland is a West Virginia attorney representing the widow of William Griffith, one of the four missing miners found dead five days after the blast.
Mr. WILLIAM GRIFFITH (Attorney): There are number-crunchers at Massey headquarters trying to decide whether this disaster is going to affect its bottom line. Certainly, she didn't have the luxury of thinking about Massey's bottom line or her bottom line. She was worried about the survival of her husband.
BERKES: Marlene Griffith later went after Massey's bottom line, filing the first wrongful death suit.
Massey Energy did not respond to NPR's request for comment for this story. In a conference call with Wall Street analysts Thursday, Massey executives observed a moment of silence for the dead, and then took 90 minutes of questions about the company's financial outlook.
Howard Berkes, NPR News. Transcript provided by NPR, Copyright NPR.