Coal miner Massey Energy Company (MEE) has reported an adjusted loss for the third consecutive quarter. The company’s fourth quarter witnessed a loss of 69 cents per share, significantly higher than the Zacks Consensus Estimate of a loss of 34 cents. The disappointing quarter results stemmed mainly from the continued production disruptions and shortfalls.
Massey’s full-year 2010 results were also hurt by its struggles to recover from the deadly mine incident that occurred in April 2010. The company posted a net loss of 53 cents per share for the year (excluding the Upper Big Branch related charges), which was also above the Zacks Consensus Estimate of 40 cents.
Revenue
Net revenues in the fourth quarter jumped 25% year over year to $730.0 million, mainly due to higher average prices realized on produced coal volumes. However, the company’s revenue in the quarter came in below the Zacks Consensus Estimate of $781 million.
For the full-year, the company’s revenue was $3.04 billion, marginally below the Zacks Consensus Estimate of $3.09 billion and up 13% year-over-year.
Operating Results
Massey Energy said that the produced volumes sold in the fourth quarter totaled 8.9 million tons compared with 7.8 million in the year-ago quarter. This brings the full year 2010 coal shipments to 37.1 million tons, which shows a decline of nearly 1.4 million tons from the company’s guidance of 38.5 million tons. Total tons sold for the year was, however, higher than the 36.7 million tons sold in 2009.
Coal production in the fourth quarter was hampered by a significant reduction in the number of shifts operated, lower productivity at deep mines and higher ratios on surface mines. Coal shipments in 2010 were adversely affected by the lower production, inconsistent rail service and delays in export shipments at the ports during the fourth quarter.
Average produced coal revenue was $71.76 per ton (or $641.1 million) in the reported quarter, an increase of nearly 12% from $64.13 per ton (or $498.7 million) reported last year. The improvement was mainly driven by a 16% rise in realized utility coal prices and a 23% increase in realized metallurgical coal prices during the quarter. Massey's average produced coal revenue per ton increased 11% for full-year 2010 as compared to full-year 2009.
Average cash cost per ton for the reported quarter was $62.67, increasing 25.7% from the year-ago quarter, mainly on account of lower productivity in underground mines and higher ratios and supplies costs at surface mines. Massey's average cash cost per ton (excluding Upper Big Branch related charges) for 2010 increased 19% year-over year to $60.05.
Liquidity
Massey Energy ended 2010 with $327.2 million in cash and equivalents compared with $665.8 million at year-end 2009. The company had $122.8 million available under its asset-based revolving credit facility for a total liquidity of $450 million as of December 31, 2010.
Debt and Capital Resources
Massey Energy had a total debt of $1.316 billion as of December 31, 2010, with a total debt-to-book capitalization ratio of 42.5%.
Total capital expenditures in the fourth quarter were $156.3 million. Massey’s significant capital projects for the quarter included continued development at the Marianna property where it is constructing a new preparation plant and a new low-volatile metallurgical coal mine, and the completion of the Zigmond processing plant and load-out at the Logan County resource group.
Guidance
Massey Energy expects produced coal shipments for 2011 in the range of 43 to 47 million tons with an average realized price range of $81.00-86.00 per ton.
For fiscal 2011, Massey has commitments for sale of 41.4 million tons of coal, including 37.3 million tons that are sold and priced at roughly $78.00 per ton. The sold and priced tons include 6.2 million tons of metallurgical coal. Massey now expects metallurgical coal shipments for 2011 in the range of 10 to 14 million tons.
Average cash cost per ton for 2011 is expected to be in the $59.00-62.00 range. Other income is guided at $20-100 million for 2011.
Capital expenditure for 2011 is expected in the $400-550 million range. DD&A is expected to be nearly $390 million for 2011 with about $60 million from the amortization of acquired sales contracts and other intangibles.
For fiscal 2012, Massey has commitments for coal shipments of 28.3 million tons. Of these, 18.1 million tons are sold and priced at roughly $70 per ton, including about 850,000 tons of metallurgical coal.
Our Take
Last week, Massey Energy announced that it has agreed to merge its resources with Alpha Natural Resources Inc. (ANR). On its year-end release, the company said that it strives to bring production back on track as it prepares to merge with Alpha.
We believe the Massey-Alpha merger is going to prove beneficial for both companies, as the merged entity will become America’s largest supplier of metallurgical coal for the world’s steel industry and a highly diversified supplier of thermal coal to electric utilities in the U.S. and overseas. The combined company will have at its disposal about 5 billion tons of coal reserves with diversified operations in Central and Northern Appalachia, the Illinois Basin and the Powder River Basin in Wyoming.
Additionally, the merged company will also have a robust balance sheet and a significantly enhanced scale with a combined enterprise value of approximately $15 billion.
Massey Energy currently holds a Zacks #3 Rank (short term Hold). We retain our long term ‘Neutral’ rating on the stock.
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