Coal producer Massey: mine permitting hurts growth

People search for usable coal near a coking factory at a cinder dump site in Changzhi, Shanxi province November 19, 2008. Coal, which produces more climate-warming carbon dioxide than oil or gas, will remain the world's main source of power until 2030 and nuclear will lose market share, the International Energy Agency said.

NEW YORK (Reuters) - The demand for coal to generate power and make steel is growing, but environmental bureaucracy is making it more difficult to mine the fuel, the head of Massey Energy said on Wednesday.

"Our government is at least temporarily impeding the attainment of coal's full value ... and frustrating domestic opportunities for production growth," Chief Executive Officer Don Blankenship told Wall Street analysts.

"More production reductions will likely occur in central Appalachia as a result of the generally weak economic conditions and increasing regulatory and permitting constraints."

"But coal will continue to be in demand throughout the world and ultimately people will demand the benefits to be derived from coal," he said.

There was no immediate comment from the Environmental Protection Agency (EPA).

Last month, the EPA ruled that all 79 pending mine permits in Appalachia must undergo additional evaluation, because they pose a potential hazard to water in parts of Kentucky, West Virginia and Ohio.

Blankenship's broadside at tighter permitting procedures came a day after Massey reported a drop in third-quarter profit and trimmed its shipment outlook as demand, particularly for steam, or thermal coal for power generation, remained weak.

Stock in the company -- one of the Big Four U.S. coal producers -- was down 8.3 percent at $28.70 on the New York Stock Exchange on Wednesday afternoon.

During a conference call with analysts to discuss the results, Blankenship was asked how a more active EPA mine permitting process was affecting miners' operations.

"When we look at acquisitions or properties we might acquire, we pay quite a bit of attention to which of them are permitted and what stage of the process their permitting efforts are in," he said.

Blankenship said worldwide production and use of coal will likely increase by more than 120 million tons per year during each of the next five years.

But "the macroeconomic factors facing all businesses and particularly the coal industry have never been more challenging," he said.

Blankenship said Massey looked to take advantage of increased demand for metallurgical, or coking coal, which is used to fire steelmaking blast furnaces. "As this growth occurs, we expect to have many opportunities to expand the export of our coal."

But he said he expected domestic thermal coal demand to remain weak for the next several quarters and perhaps through 2010. Utility stockpiles remain very high and the amount of coal being burned was low.

"Absent a resurgence in international demand for U.S. thermal coal, we would need to see significant reductions in domestic stockpiles before we would anticipate pricing to measurably improve."

But he said the weaker U.S. dollar and continued Asian economic growth could spur international demand for U.S. coal.

"We continue to be encouraged by the positive news we are hearing from the seaborne metallurgical coal export markets," he said, noting steel production in China was up 22 percent in August and 5 percent for the first eight months of the year.

Steel producers have restarted or announced plans to restart more than 40 blast furnaces that have previously been idled, Blankenship said, adding that Massey has the capacity to produce more than 12 million tons of metallurgical coal per year.

(Reporting by Steve James, editing by Matthew Lewis)