From: Platts

US coal producer Alpha Natural Resources, which continues to integrate Massey Energy coal-producing operations it acquired in June, said Thursday the integration process is making inroads on the safety and financial fronts.

This is despite several former Massey mines being under the US Mine Safety and Health Administration’s “Potential Pattern of Violations” program of enhanced scrutiny, and continuing costs resulting from the integration, including from the now-shut Upper Big Branch mine in West Virginia.

UBB was shut in April 2010, under Massey ownership, after an underground explosion killed 29 miners. It was the deadliest US coal mine accident in 40 years and investigations in the accident continue.

Alpha touted its “Running Right” safety program as changing the safety culture at the former Massey operations. Massey management was widely criticized for placing production and cost-cutting ahead of safety, even before the UBB accident.

Alpha CEO Kevin Crutchfield gave some measurements touting the success of “Running Right” at the former Massey operations during the company’s third-quarter earnings conference call Thursday.

“By the end of August, we completed ‘Running Right’ training” for the entire Massey workforce — 7,300 personnel — at the acquired Massey operations,” he told analysts.

“Reception has been good from the former Massey employees” and integration has “been swift, comprehensive and very successful.”

“The year-to-date incident rate for our legacy Massey operations has decreased by more than 13% compared to the incident rate at these operations in 2010. In fact, the legacy Massey workforce is now generating more than 11,000 observation cards — which is the basis of the ‘Running Right’ program — per month, up from just 3,000 in June,” Crutchfield said. “This number of observations is nearly equal to the number generated by the Alpha work force with a similar number of employees where the ‘Running Right’ system has been in place for many years.”

But two of the former Massey operations — Inman Energy’s Randolph and Independence Coal’s Justice No. 1, both underground operations in Boone County, West Virginia — received MSHA PPOV notices August 30, meaning those operations are now under enhanced scrutiny from safety regulators over concerns about potentially hazardous safety conditions.

To get a mine off of PPOV status, Crutchfield said, “it’s a pretty prescriptive process” involving a 90-day cycle. The tracking period began October 1, so the process is just 32-33 days along at this point, he said.

“We said that MSHA wasn’t going to cut us any slack [concerning safety at the former Massey operations], and they didn’t,” Crutchfield said. “I would expect that, over time, you’ll see the violation rate fall and the incident rate going down — not because they’re cutting us slack, but because we’re doing the right thing.”

But Crutchfield added, “I think MSHA has a fair degree of respect for Alpha — I don’t think I’m out of line saying that.”

As for the costs of integrating the Massey operations, Alpha said in its Q3 earnings that total costs and expenses during the quarter were $2.2 billion, up from $952 million for Alpha alone in Q3 2010.

“Cost of coal sales in the third quarter was $1.7 billion, which included $770 million from legacy Massey operations,” Alpha said. “Adjusted cost of coal sales in the East averaged $75.81/ton compared with $63.04[/ton] for Alpha, stand-alone, in the third quarter last year.

Alpha’s Q3 net income was $66.4 million, or 29 cents/diluted share, up from $31.9 million, or 27 cents/share, for Q3 2010.