"This was clearly a difficult quarter for everyone associated with Massey,” chairman and chief executive officer Don Blankenship said.

“The tragedy at Upper Big Branch and the ensuing, contentious investigation overshadowed our day to day operations and largely occupied the time and attention of management and many of our members.

“We continue to grieve the injury and loss of our miners. Our efforts to provide for the needs of the families of the injured or lost miners continue as well.

"We remain intensely focused on the safety of all our mines and members even as the investigation to determine the cause of the explosion at UBB continues.

"We are also continuing our efforts to mitigate the lost production from UBB in order to serve our customers as best we can.

“These efforts have been disruptive to operations as we move crews and equipment to different locations but they should allow us to improve and stabilize production in the coming quarters."

Government and company investigation teams are making slow progress in determining the cause of the Upper Big Branch explosion.

A team appointed by West Virginia Governor Joe Manchin is not expecting a report until year-end.

“Based on preliminary surveys conducted during the investigative process, it appears there was a significant amount of damage to the longwall equipment, the mine infrastructure and the longwall development sections,” Massey said.

“However, two continuous miner sections at the mine, which are located about two miles from the longwall, appear to have been largely unaffected by the explosion.

“A possible date for reopening the mine is unknown but is not expected during 2010.

“Massey is considering alternative plans for accessing the coal reserves that had been mined by Upper Big Branch.

“One alternative being considered is the development of a new mine entry in the same reserve block. Massey may also seek authorization to recommence operations in the continuous miner sections that appear to be unaffected by the explosion as investigatory work in that area is concluded.”

Adjusting for UBB’s lost output

Massey added Saturdays to the five-day roster at its metallurgical coal mines and also put in two continuous miner sections at the mines within the Elk Run resource group.

A third continuous miner section is expected to be ready at Elk Run this quarter.

Massey is expecting 1.3Mt of met coal production from these mitigation efforts once they are complete and fully operational.

Prior to the accident, UBB’s production capacity was 2Mt per annum

“In the second quarter, the incremental production from added Saturday shifts and the two added sections was more than offset by production lost when miners were diverted from their normal jobs to assist with the UBB rescue, recovery and support efforts and from lost shifts resulting from increased regulatory enforcement,” Massey said.

Zigmond prep plant fire

A fire at the construction site for the Zigmond coal preparation plant on June 29 has delayed completion of the project. Full production was scheduled for mid-September but has been pushed back until December.

Second-quarter results

Coal revenue and sales were higher than in the June 2009 quarter but other costs weighed down on earnings.

Revenue reached $693.1 million on the back of 9.8 million tons of coal sales in the recent quarter compared to $603.2 million from 9.4Mt of sales in the corresponding period of 2009.

But Massey was in the black for the 2009 June quarter with net income of $20.2 million.

Coal prices in the recent quarter were also better than a year ago at an average of $70.45/t compared to $64.14/t.

Massey noted the better average prices came from the higher priced thermal coal contracts taken on after the acquisition of Cumberland Resources and its affiliated companies.

The Cumberland operations managed to ship 1.6Mt during the June quarter at an average price of $85.35/t.

Massey also improved the sales mix with metallurgical coal accounting for 21% of tons sold in the June quarter and industrial coal at 8%.

In the previous June quarter, met coal was 19% of the sales mix and industrial coal was 6%.

Coal market outlook and guidance

Massey is forecasting that permitting constraints will cut about 5Mt of production from surface coal mines in Central Appalachia in 2011.

Along with some falls in coal stockpiles, the company is expecting stronger thermal coal pricing in 2011 and 2012.

Massey also expects that global demand for metallurgical coal will continue to outpace the global capacity to produce the commodity over the long term.

The company is expecting to ship 39-45Mt of coal for this calendar year at an average price of $71-73/t.

Massey has cash and cash equivalents of $496.2 million at the end of June – down $169.6 million at the end of December.