Linthicum Heights-based Foundation Coal Holdings Inc. announced yesterday that it will shutter a coal mine in southern Illinois, one of three struck by union workers after the two sides failed to reach a collective bargaining agreement.
The Wabash mine in Keensburg, Ill., had been in financial trouble, posting a $26 million loss for 2006, and Foundation Coal was looking for concessions on wages from United Mine Workers of America in exchange for capital improvements to keep the mine open. When the union balked and struck instead, the company announced it would shut down the mine.
Union members walked off the job at 12:01 a.m. yesterday at Wabash and two other mines - Cumberland and Emerald, near Waynesburg, Pa. In all, about 1,200 workers struck, including 236 hourly workers at the Wabash mine, 530 workers at Cumberland and 417 at Emerald.
"This is a step that we sincerely hoped we did not have to take and worked hard to avoid," UMWA international President Cecil E. Roberts said in a statement yesterday.
United Mine Workers, which represents 39 percent of the company's 3,150 employees, wanted the company to offer members at the three mines the same contract, known as the 2007 National Bituminous Coal Wage Agreement, that covers members at Foundation Coal's other mines. The company argued that the three mines operated under unique cost conditions, and wanted separate agreements for each.
As a result, the more than 30-year-old Wabash mine, which employs 290 hourly and salaried workers, is slated to close over the next few months. To keep salaried workers on the job through the shutdown, the company is offering a severance package that includes cash payments, medical benefits and outplacement services.
The company intends to reach an agreement with the union for the other two mines, said spokesman Peter Vietti.
Foundation Coal, the nation's fourth-largest coal producer with 14 mines in Illinois, Pennsylvania, West Virginia and Wyoming, primarily supplies coal to utility companies for generating electricity. Last year, the company's mines produced 71.6 million tons.
Production at Cumberland, which sold 7.6 million tons last year, and Emerald, which sold 6.2 million tons, set annual records, the company said in a filing with the Securities and Exchange Commission. However, Wabash saw a 32 percent decline in production to 1.2 million tons due to infrastructure problems.
Analyst Mark Morey, a director at Cambridge Energy Research Associates in Washington, said the success of a mine depends on not only supply and demand, but also its geology, mining conditions, transportation costs and infrastructure. Foundation Coal blames these factors for its inability to keep Wabash open.
In mid-February, Standard & Poor's downgraded Foundation's Coal's credit rating from "positive" to "stable" due to shrinking margins.
"The outlook revision reflects the company's weaker credit metrics and operating earnings due to industrywide cost pressures and declining prices, operational challenges in its Central Appalachian mines and soft industry conditions over the immediate term," analyst Marie Shmaruk said in a statement.
Other companies are feeling the same pressures. Last week, International Coal Group idled the Sago mine in West Virginia, where 12 workers died a year ago. With falling coal prices and rising production costs, the company said it could not operate the mine profitably under current market conditions.
Morey said coal prices have declined but are still stronger than five years ago.
"The industry is generally profitable," Morey said. "Like any commodities business, you have prices that fluctuate from time to time."
Analysts at Stifel, Nicolaus & Co. Inc. said in a report that a strike could have a positive effect on coal pricing.
With costs soaring for other fuels such as natural gas and oil, analysts say coal, which is relatively cheap by comparison, has a profitable future.
That's why investor Wilbur L. Ross Jr., who picked up a string of steel plants - including Sparrows Point in Baltimore County - on the cheap during a period of widespread bankruptcies and consolidation in the steel industry and sold them off for a hefty profit, is attempting to build a similar empire in coal. Ross is chairman of ICG, owner of the Sago mine.
Foundation Coal's stock rose nearly 5 percent or $1.64 yesterday to $35.68 per share on the New York Stock Exchange.