This article originally published in WVEC

October 3, 2006

Massey hires Goldman Sachs to help drive up shareholder value

By TIM HUBER  / Associated Press

Massey Energy Co., under pressure from shareholders who want the company to put itself up for sale or undertake a large stock buyback, said Monday it has hired investment banking firm Goldman Sachs to review ways to increase shareholder value.

Richmond, Va.-based Massey, the nation's fourth-largest coal company by revenue, has been unable to do that on its own lately. Its stock has plunged from $52.97 a year ago to as low as $18.77 last week. After the announcement, shares rose 35 cents to $21.29 in midmorning trading on the New York Stock Exchange.

"Massey's board of directors recognizes the challenges we have faced in achieving our operational goals," Chief Executive Don Blankenship said in a prepared statement, "and continues to review strategic opportunities to maximize sustainable shareholder value."

Massey's profits have plunged this year amid rising costs, falling coal production at its mines in West Virginia, Virginia and Kentucky and the six-month shutdown its Aracoma Alma No. 1 Mine in Logan County following a beltline fire that killed two miners in January.

Declining coal prices haven't caused as much pain for other large coal companies and some are putting profits into building through small acquisitions. St. Louis-based Peabody Energy, the nation's largest coal company, is trying to buy Australia's Excel Coal Ltd. And St. Louis-based Arch Coal recently bought one-third of Percy, Ill.-based Knight Hawk Coal.

Alpha Natural Resources Executive Vice President Kevin Crutchfield touted the Abingdon, Va.-based company as the "consolidator of choice" during the Davenport & Co. Metals and Mining Symposium last month in New York.

Massey's announcement was accompanied by more bad news about its operations.

For the second time, Massey lowered its estimate of the amount of coal it expects to ship this year.

Massey said it expects shipments to total between 39 million and 40 million tons for the full year. Massey originally expected to ship as many as 47 million tons, but reduced that estimate in late July to 41 million to 43 million tons.

Massey is one of several companies, including Pittsburgh-based Consol Energy and Scott Depot, W.Va.-based International Coal Group, who recently reduced production to combat slumping demand and declining prices, particularly for high-priced Central Appalachian coal.

But Massey also is encountering production problems. The company said restarting the longwall mining machine at its Aracoma Alma No. 1 Mine in West Virginia had been more difficult than expected. The mine was idle for much of the early part of 2006 after a beltline fire that killed two miners in January. Massey said that setting up a dragline at one of its surface mines took several weeks longer than expected and a large surface mine shovel that broke down was idle for two weeks.

Separately, Massey said it has raised $31 million by selling non-strategic coal reserves in Boone County, W.Va.

Massey also has been in hot water with shareholders.

This spring, Massey shareholders elected two representatives of New York hedge fund Third Point to the company's board instead of the company's nominees. Third Point CEO Daniel Loeb, who now holds a board seat, has advocated borrowing money to finance a $500 million stock buyback.

Massey has the authority to repurchase that much stock, but Blankenship has balked at borrowing. The company did, however, repurchase $50 million worth of its shares shortly before the board election.