Massey’s stock price way up despite legal challenges
- July 9, 2008
Paula C. Squires
A barrage of litigation hasn’t stopped investors from warming up to Richmond-based Massey Energy Co. As prices for coal and other commodities track upward, Massey is one of the top performers on the Virginia Business Stock Index for the 12 months that ended June 30. During that time, Massey’s stock price rose by more than 251 percent, from $26.65 to $93.75 a share.
The stocks of two other Virginia-based coal companies, Alpha Natural Resources Inc. and James River Coal also shot up, rising 401.2 percent, and 352.8 percent respectively.
Lots of people are boarding the coal train. Massey’s average daily trading volume in June was 3 million to 3.2 million shares compared with 1 million shares in August 2007, said Steven F. Marascia, a research analyst with Anderson & Strudwick in Richmond. “As the commodity bubble continues to expand creating more momentum, investors are moving their investment dollars into the coal sector, helping to drive higher the price of coal stocks,” he noted.
Massey’s stock closed today at $76, nearly $20 below the $93.75 reached on June 30. Yet the tripling of its stock price over the past year also makes it a top performer in the Standard & Poor’s 500 index.
While the fourth-largest U. S. coal producer continues to wow analysts by outperforming their projections, Massey faces several lawsuits and a hefty penalty. It began 2008 by agreeing to pay the U.S. Environmental Protection Agency a $20 million civil penalty — the largest ever for Clean Water Act violations at coal mines in West Virginia and Kentucky.
Now, reports Bloomberg.com, the company may be looking at $125 million in damages if it loses a pollution case insurers refuse to cover. The amount equals more than half of Massey’s estimated 2008 net income. The company reported net income of $94.1 million in 2007 on revenue of $2.4 billion.
According to Bloomberg, Massey is accused of contaminating ground water with waste from a mine in Rawl, W. Va., and causing two deaths. Insurance carriers have refused to cover claims on the grounds that their policies exclude payments for pollution. Court arguments on coverage are scheduled to begin in August. Punitive damages in the case could be as much as $1 billion.
In other legal actions, Massey is appealing a $220 million award to Wheeling-Pittsburg Steel Corp. in a contract dispute case, and it faces trial in October over the deaths of two miners during a 2006 underground fire at its Aracoma Coal Co. unit in West Virginia.
“A $125 million hit to most companies would be of note,” says Marascia. “On a short-term basis, there is risk from a potentially adverse legal decision against them. But longer term that remains to be seen. The central question is how long will this court case drag out? Is there a possibility of some settlement between the legal parties involved?”
In the meantime, Massey plans to open many new coal mines this year as part of a $90 million, capital expansion plan designed to boost production.