Massey Energy Reports Second Quarter Operating Results, Solid Positive Cash Flow

-   Net Income totaled $20.2 million or $0.24 per share
-   Produced Coal Tons Sold totaled 9.4 million 
-   Operating cash margin per ton of $10.48
-   EBITDA totaled $116.3 million
-   Cash balance increased by $42.9 million

Richmond, VA, July 28 – Massey Energy Company today reported net income of $20.2 million or $0.24 per share for the quarter ended June 30, 2009. These positive results were achieved on the sale of 9.4 million tons of produced coal which generated total produced coal revenue of $603.2 million during the quarter. By comparison, Massey reported a net loss of $93.3 million on produced coal revenue of $710.3 million in the second quarter of 2008 (the prior year's quarterly results included a litigation charge that offset otherwise strong operating performance: see Note 10 below). Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter of 2009 was $116.3 million compared to ($46.3) million in the second quarter of 2008. In addition, the Company reported a net increase of $42.9 million in its cash balance during the quarter. The increased cash balance was primarily driven by earnings and changes in working capital.

Commenting on the Company's second quarter results, Massey's Chairman and Chief Executive Officer Don Blankenship said, "We are extremely pleased to be generating strong cash flow for our shareholders in a very difficult market. We have had to make tough decisions to control costs and adapt our operating plans as coal demand remains weak but our operations have performed well."

"We are also pleased to have increased our market share in the first half of the year," Blankenship added. "Our coal tons shipped to utilities increased 8 percent compared to the first half of 2008 while it is estimated that total shipments of Central Appalachia coal to utilities declined by 7 percent in the same period."

For the first half of 2009, Massey generated produced coal revenue of $1.28 billion and recorded net income of $63.6 million or $0.75 per share. This compared to produced coal revenue of $1.25 billion and a net loss of $51.4 million in the first half of 2008. EBITDA was $261.7 million in the first half of 2009 compared to EBITDA of $83.0 million in the first six months of 2008.

Massey's second quarter operating cash margin per ton was $10.48. Though a strong result, this was down from the record high operating cash margin per ton of $15.94 reported in the second quarter of 2008. The decline was driven by a 3 percent decrease in average realized prices on coal shipped and an increase in cash cost per ton of approximately 8 percent as compared to the second quarter of 2008. Average realized prices were impacted most significantly by product mix as utility coal shipments increased by 0.3 million tons and metallurgical coal and industrial coal shipments decreased by 1.2 and 0.5 million tons, respectively, compared to volumes in the same period a year ago. The impact of the weaker mix was only partially offset by price increases of 12 percent and 18 percent for utility coal and industrial coal, respectively. The average realized price for metallurgical coal shipped in the quarter declined by approximately 3 percent. Average cash cost per ton for the second quarter was $53.66 compared to $49.84 in the second quarter of 2008. The increase was largely the result of higher fixed cost absorption on lower volume shipped.

Coal Market Overview

The continuing global economic weakness has caused a significant deterioration of world coal markets. Coal contracting and shipment activities remained slow as end market coal consumers further reduced production and power generation targets.

    --  Coal burn at utilities in the Southeastern United States was down 19

        percent in the first six months of 2009 compared to the same period a

        year ago according to industry estimates.   It is also estimated that

        the burn of Central Appalachia coal was down 25 percent in the first

        six months of the year.  These declines are due in part to lower

        overall electric power demand and increased use of natural gas for

        power generation purposes.

 

    --  Receipts of coal at Southeastern utilities were estimated to be down 6

        percent in the first six months of 2009.  Coal stockpiles in terms of

        tons increased by about 50 percent in the region since the end of June

        2008.  Receipts of Central Appalachia coal were estimated to have

        declined by 7 percent during the first six months of the year as

        compared to the same period a year ago.  Stockpiles of Central

        Appalachia coal increased an estimated 60 percent year over year.

 

    --  The Energy Information Administration (EIA) projects that coal-fired

        generation in the domestic electric power sector will decline by

        approximately 6 percent in 2009 due to lower overall electric power

        demand and an increase of about 3 percent in generation fueled by

        natural gas.

 

    --  Steam coal export volumes by U.S. producers decreased 14 percent in

        the second quarter of 2009 compared to the second quarter of 2008.

        Metallurgical coal exports declined 53 percent in the same period.

        The EIA forecasts that steam coal exports will decline by about 17

        percent for the full year and met coal exports will decline by 27

        percent as the weak global economy and a relatively strong U.S. Dollar

        are combining to reduce demand in international markets.

 

    --  According to the World Steel Association, global steel output declined

        22 percent in the first five months of 2009 as compared to the same

        period in 2008.

 

    --  US steel production was at 44 percent capacity utilization for the

        first half of the year, down 51 percent compared to the first half of

        2008.

 

    --  The EIA expects the coal industry to respond to the weak market

        conditions by reducing production by about 8 percent in 2009.

        According to EIA estimates, total U.S. coal production was down about

        6 percent in the first half of the year.  Production in Appalachia was

        down about 8 percent in the same period.

While market conditions remained weak in the first two quarters of the year and high stockpile and inventory levels in both thermal and metallurgical coal point to further weakness, there have been some positive data points in the industry recently that may signal some market improvement:

    --  The economies of China and India have continued to grow throughout the

        economic downturn.  China reported economic growth of 7.9 percent in

        the second quarter of the year and forecasts are for full year growth

        of 7 to 8 percent.

 

    --  Reports indicate that China's steel production and its demand for

        metallurgical coal imports have increased in recent months.  The

        country is expected to be a net importer of as much as 56 million tons

        of metallurgical coal in 2009.

 

    --  India's increasing electrification has led to increasing coal demand.

        The country is presently experiencing some shortages of coal and power

        outages.  Thermal coal stockpiles are as low as 2 days of burn in some

        regions.

 

    --  Domestically, steel production has increased and total capacity

        utilization exceeded 50 percent in early July for the first time since

        November 2008.

Massey continues to believe that the quality of Central Appalachia coal allows it to enjoy significant market diversity and its proximity to sea ports makes it a viable source of coal to fill the growing demand for energy throughout most of the world. As coal demand strengthens in Asia, Massey believes more Australian produced coal will be sold into that region, resulting in increased opportunities for Massey to export coal to customers throughout the Atlantic basin.

Cost Cutting Measures

Massey continued efforts to reduce costs in the second quarter through the idling of higher cost mines, limitation of overtime, selective general and administrative cost reductions, renegotiation of supply contracts and significant wage and benefit reductions. Total workforce has been reduced by approximately 700 members since the beginning of the year. The resulting savings offset a significant portion of the Average cash cost per ton increases that were driven by lower production and sales volume in the quarter.

In addition, Massey expects to benefit from meaningful productivity increases as its new mines and work forces mature and total turnover declines.

Shipment Deferrals

Massey is continuing to work with its customers to modify shipment schedules where necessary. The number of customer requests for such deferrals has declined significantly in the second quarter, likely in anticipation of the peak summer demand. The possibility remains that customer requests for shipment deferrals will increase again in the fall if utility stockpiles remain high.

Shipment deferrals have allowed Massey to selectively reduce actual and planned production at higher cost mining operations in 2009.

Permitting

During the second quarter Massey was granted approval to begin work on four permits that had been previously issued by the Army Corps of Engineers but were subsequently held up in litigation. Combined, these permits provide Massey access to surface mine over 100 million tons of coal and are expected to provide significant competitive advantages going forward.

Other surface mining and valley fill permit applications have been submitted and are at various stages in the approval process. Because of changes and uncertainty in the Environmental Protection

Agency's review process, many permit applications remain on hold with little clarity on the timeline for approvals going forward.

Massey continues to work with state and federal agencies to process permit applications in conformity with existing and, where possible, anticipated regulations.

Safety

Massey is on track for another record year in terms of safety. Through the first six months of 2009, Massey reported a non-fatal days lost (NFDL) incident rate of 1.72. The Company's previous best rate for a full year was 1.93, achieved in 2008. By comparison, the bituminous coal industry average NFDL rate was 2.95 in 2008.

The coal mining industry is continually confronted with new and changing regulation by state and federal agencies. The implementation of initiatives required by the MINER Act of 2007 has been a major focus over the past two years. Massey is currently making the investments to comply with requirements for reinforced seals, underground shelters and miner communication and tracking devices. Capital spending on these initiatives totaled more than $8 million in the first half of the year and is expected be more than $30 million for the full year. Massey is concerned that some regulatory requirements are ineffective and may divert capital from more effective programs or initiatives. Massey remains committed to working with regulators to identify and develop the most effective safety programs possible.

Massey has long been an innovator in mining safety initiatives. Consistent with this history, Massey has recently developed a comprehensive Hazard Elimination Program which will be implemented in conjunction with Federal and State mine safety agencies. This program is intended to reinforce Massey's members' ability to recognize and remedy potential violations of state and federal mining laws, educate members on recent changes to those laws, and enhance compliance throughout its operations. The new program will be implemented August 1, 2009 as a continuation of Massey's long-standing commitment to the health and safety of its members.

"We are very excited about this new safety program," said Chris Adkins, Massey's Senior Vice President and Chief Operating Officer. "We are confident that it will be very effective and enable us to take our safety performance to a new level."

Liquidity and Capital Resources

Massey ended the second quarter of 2009 with $609.6 million in Cash and cash equivalents. This compared to $607.0 million at December 31, 2008. In addition, the Company had $15.1 million invested in the Reserve Primary Fund at the quarter's end, which is classified as a short-term investment as the availability of these funds remains subject to the liquidation of the underlying assets of the Fund. The Company had $99.5 million available under its asset-based revolving credit facility at June 30, 2009.

Total debt at June 30, 2009 was $1,319.7 million compared to $1,312.2 million at December 31, 2008. Massey's total debt-to-book capitalization ratio was 52.5 percent at June 30, 2009 compared to 53.8 percent at December 31, 2008. After deducting available cash and short-term investments of $624.7 million and restricted cash of $46.0 million, net debt totaled $649.0 million. Total net debt-to-book capitalization was 35.2 percent at June 30, 2009 compared to 35.5 percent at December 31, 2008. (December 31, 2008 amounts have been adjusted to conform with accounting guidance related to the Company's 3.25% convertible notes, effective January 1, 2009.)

Capital expenditures for the second quarter 2009 totaled $75.4 million compared to $178.2 million in 2008. For the full year 2009 Massey currently expects total CAPEX of $300 million or less.

Depreciation, depletion and amortization (DD&A) was $67.6 million in the second quarter 2009 compared to $62.3 million in the second quarter of 2008. DD&A is expected to be in the range of $280 million to $290 million for the full year 2009.

Guidance Update

The Company tightened the ranges for most guidance categories and now expects 2009 produced coal shipments will be between 38.5 and 40.5 million tons, with average produced coal realization between $61.50 and $63.50 per ton. Average cash cost per ton for the full year 2009 is expected to be between $51.50 and $53.00. Other income is expected to be between $75 and $100 million.

For 2010 Massey expects produced coal shipments to be in the range of 37.0 to 42.0 million tons, with an average sales price in the range of $60.00 to $65.00 per ton. Cash costs for 2010 are expected to be in the range of $48.00 to $52.00 per ton. Expectations for capital expenditures in 2010 remain in the range of $100 to $200 million. With results in these ranges, the Company believes it would generate solid free cash flow for the year.