Massey pushes expansion to take advantage of increasing Asian coal demand

Massey Energy pushes expansion plans

CHARLESTON, W.Va. — Mine operator Massey Energy Co. is capitalizing on growing Asian demand for coal used in steelmaking.

The mining company from Richmond, Va., plans to develop a mining complex capable of producing 2 million tons a year of metallurgical coal. The complex announced late Tuesday would employ 500 people in southern West Virginia.

Work on the first mine at the site is expected to cost up to $160 million and start in the second quarter. The premium price of metallurgical coal and rising demand likely make the project a moneymaker for Massey.

The company also announced a deal with India’s Jindal Steel & Power for mines in Asia, Australia and the United States. The deal holds the potential for Massey to move into regions with direct links to the surging coal markets in China and India.

Major coal producers have shifted operations rapidly to accommodate demand from the East with operations in places like Australia that are resource-rich and close to Asia.

St. Louis-based Peabody Energy, acquired Australia operations in 2006.

Yet demand is outstripping supply there.

Government figures show that while U.S. coal exports plunged 30 percent last year, shipments to China jumped to 386,950 tons last year, from 86,596 in 2008.

Continuing strong Asian demand is expected to push up metallurgical coal prices to an estimated $165 a ton, up from $149.

And those prices typically do not include shipping, which is paid by the buyer.

“We are increasingly optimistic about the strength of the metallurgical coal markets around the world,” Chief Executive Don Blankenship said in a statement.

Massey’s expansion plan is a big change for a U.S. coal company. The industry chopped production about 8 percent last year as consumption dropped amid weak demand for electricity and cheap natural gas, according to the U.S. Department of Energy.

The industry also slashed capital spending, though Massey said it expects to up its budget this year by about $30 million to pay for the new West Virginia mine. Work is expected to start in the second quarter, with shipments in time for 2011 export.

“We believe the current and forecast shortage of metallurgical coal makes this the right time to proceed with the development of this high quality coal reserve,” Blankenship said.