U.S. court overturns ban on West Virginia surface mining

NEW YORK (Reuters) - A U.S. Court of Appeals on Friday overturned a lower court ruling that had banned surface, or mountaintop, mining in West Virginia, according to court documents.

The ruling was hailed by the coal mining companies who have turned to mountaintop mining as an economical alternative to traditional underground mines in Appalachia where production is declining.

The environmentalists who brought the original case said they would assess their next legal move, but vowed to fight on against the mining method which basically slices the top off hills and mountains.

Stock in Massey Energy Co which brought the appeal with the U.S. Corps of Engineers, was up 7 percent in late trading on the New York Stock Exchange.

The 4th Circuit judges in Richmond, Virginia, reversed a ruling by U.S. District Court Judge Robert Chambers, who had found that the U.S. Army Corps of Engineers had not fully evaluated the potential environmental damage before approving permits for mountaintop mining for four mines operated by subsidiaries of Massey.

"We reverse and vacate the district court's opinion and order of March 23, 2007, and vacate the district court's injunction," Friday's opinion said.

It said that under existing regulations, the state of West Virginia has "exclusive jurisdiction over the regulation of surface coal mining and reclamation operations."

The appeal had been brought by Massey and the West Virginia Coal Association. Surface mines account for about one-third of coal from West Virginia and half of that from Kentucky.

"We're pleased with the court's decision," said Roger Hendriksen, director of investor relations for Massey.

Judge Chambers had originally ruled in favor of a petition filed by a number of groups led by the Ohio Valley Environmental Coalition. (OVEC)

Basically, OVEC contended that the Corps of Engineers had violated the Clean Water Act and the National Environmental Policy Act. Since then, the Corps has effectively frozen so-called 404 permits for surface mining.

Janet Keating, executive director of OVEC said: "We are deeply disappointed with the court's decision. We will assess our next step, but obviously we will continue to organize against surface mining."

In their ruling the appeals judges said basically that the Corps of Engineers had acted within regulations in place. "We cannot say that the Corps' assessments of stream functions in the challenged permits were arbitrary and capricious.

"It is not our place to dictate how the Corps should go about assessing stream functions and losses," they said.

Analysts had said if the ruling was upheld, Appalachian coal prices could spike and producers with a significant amount of surface exposure in Appalachia could get hurt.

Several mining companies -- Massey, International Coal Group, Alpha Natural Resources and Patriot Coal Corp -- would lose production if the ruling went against the miners, the analysts said.

One analyst Mark Morey, director of power systems strategy for Allstom Co Ltd said investors might hold off until the issue had been definitively resolved.

"Decisions like this are long term, so if you have any uncertainty, that's still gonna guide what your investment is.

"Does this 'overturn' mean they can have a whole new round of capacity? People have been thinking this decision might be held up anyway so they've been making decisions for the past two years with this hanging over their heads."

(Reporting by Steve James; editing by Carol Bishopric)