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Massey Rises on Alpha Natural Takeover Speculation

Massey Energy Co., owner of the Upper Big Branch mine where 29 people died in April, surged after the Wall Street Journal said the company is weighing a takeover offer from Alpha Natural Resources Inc.

Massey, based in Richmond, Virginia, jumped $4.73, or 11 percent, to $46.94 in New York Stock Exchange composite trading. Alpha Natural dropped $1.26, or 2.8 percent, to $44.45.

“Everyone out there is speculating that it’s Alpha because it makes the most sense,” said Pearce Hammond, an analyst at Simmons & Co. International Ltd. in Houston. “There’s a whole number of things besides the normal synergies.”

Massey, the largest coal producer in Central Appalachia, has plunged 14 percent since an April 5 blast at the operation near Montcoal, West Virginia, which was the worst U.S. coal mining accident in 40 years.

Jeff Gillenwater, a Massey spokesman, declined to comment. The company doesn’t comment on merger and acquisition matters, he said in an e-mail. Ted Pile, an Alpha spokesman, also refused to comment in an e-mail.

The company is attractive because of its more than 1 billion tons of metallurgical coal reserves, used to produce steel, according to Hammond. Benchmark prices for that fuel have soared 62 percent to $209 a ton for the fourth-quarter benchmark contract from $129 a year ago, driven by demand from China and India.

Coal Prices

“M&A activity tends to heat up when metallurgical coal prices are strong and getting stronger,” said Jeremy Sussman, an analyst at Brean Murray Carret & Co. in New York.

Alpha, based in Abingdon, Virginia, supplanted Consol Energy Inc. as the third-largest U.S. coal producer when it bought Foundation Coal Holdings Inc. on July 31, 2009, for $2 billion.

Chief Executive Officer Kevin Crutchfield said on a Nov. 3 conference call with analysts and investors that the company is assessing “growth opportunities” in the U.S. and “beyond U.S. borders” and that he “aims to penetrate” global growth prospects.

The company may seek to buy Whitehaven Coal Ltd., an Australian coal producer, after it said it’s open to takeovers as well as transactions such as joint ventures, UBS AG said in a Nov. 1 note to clients.

Crutchfield said this week that “on an international basis right now things are pretty expensive.”

Massey’s Board

Massey’s board is in a “deliberate process” of exploring ways to increase shareholder value, Chief Executive Officer Don Blankenship said on an Oct. 27 conference call with analysts and investors.

Alpha, the largest metallurgical coal producer in the U.S., controls about 717 million tons of reserves in the Appalachian region and 709.3 million tons in the Western U.S., which includes Wyoming’s Powder River Basin.

If it were to acquire Massey, the company could use some of the same railroads in Appalachia to ship the coal, some of the same processing plants and spread costs across more tons of coal in the region, Hammond said.

Last month Massey posted its first back-to-back quarterly loss since the first quarter of 2004 amid the lost production from Upper Big Branch and lower productivity due to increased scrutiny from the U.S. Mine Safety and Health Administration.

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