It’s nice to know that, as soaring energy prices reallocate wealth globally, not all of the redirected flow of wealth ends up in the hands of Saudi princes and Houston wildcatters. While we Virginians are paying at the pump and paying at the electric meter, at least a few amongst us — owners of and workers in Virginia’s coal mining companies — are seeing some benefit.
The biggest business news story in Virginia of the past week, largely ignored outside of Southwest Virginia, was the decision by the board of Alpha Natural Resources to accept an offer by Cleveland Cliffs Inc., to buy the Abingdon-based coal mining company for $10 billion in cash and stock. If the merger goes through, it will create a natural resources giant with assets in iron and coal in North America, South America and Australia.
Alpha Natural Resources didn’t even exist 10 years ago. Michael Quillen, a life-long veteran of Virginia’s coal mining industry, built the company in the early 2000s by assembling cast-off coal properties that no one else wanted. As he told me when I interviewed him for VA Newswire back in 2004, there was no better time to buy than when everyone else wanted out. He foresaw the inevitable increase in electric consumption, especially in China, and had faith that the market would turn.
And turn it has. Coal prices have shot through the roof. Profitable back in 2004, Alpha Natural Resource is super-profitable now, and it’s investing heavily in expansion. The company’s shares, which sold for $20 in 2005 are now going for $95, as investors anticipate the likely closing of the Cleveland Cliffs deal.
Of course, only a sliver of that $10 billion will trickle down to the inhabitants of SW Virginia. The big beneficiaries are investment firms in New England and, surprisingly enough, Bank of America, which own most of the stock. CEO Quillen, who owns 370,000 shares (according to the March 2008 proxy) won’t do too shabbily. The deal should make his cut worth about $35 million.
Yeah, I remember Quillen when he was just a working stiff… Well, maybe not a working stiff, but just the number two guy for a midsized coal company, Paramont Coal, a non-union outfit that kept running during the UMW strikes of the early 1980s. I was a reporter for the Roanoke Times, and Quillen hauled me around from one of Paramont’s operations to another in his 4-wheel drive, weaving past placard-waving picket lines and watching out for jackrocks (mean, spiky things made of nails and shaped like toy jacks that picketers threw in the road to give coal trucks flat tires.) Maybe it’s just my imagination more than 20 years later, but I’ll swear he kept a shotgun in the back rack.
Other big winners here in Virginia include:
- Massey Energy, a publicly traded company headquartered in Richmond.
- James River Coal, another publicly traded company headquartered in Richmond.
- Norfolk Southern, which with CSX enjoys a duopoly in hauling coal, extracts an outsized share of price fetched by coal on the global market
- The coal-loading piers in Hampton Roads, which are handling booming exports.
I haven’t kept track of him for the past few years, but another beneficiary should be E. Morgan Massey, the former Massey Energy CEO who retired then pioneered U.S. investment in Chinese and Venezuelan coal mines. I’m not sure if he spends much time in Richmond anymore. He’s got nice spreads down in Florida and the Bahamas.
AMVEST Corporation, based in Charlottesville, could be another. Founder Carl Smith (for whom I worked briefly some two decades ago) created a highly profitable enterprise based on coal mining in Virginia and West Virginia. Carl, for whom the University of Virginia football stadium is named, died a few years ago, and AMVEST was sold last year to Consol Energy of Pittsburgh. The administrative offices in Charlottesville might have moved as well — I haven’t kept track.
Sad to say, the people who actually live in the coalfields aren’t seeing much of this vast wealth creation. They’re better off to be sure. After years of contraction, the coal industry is back in job-creation mode, and wages and benefits are stronger. But the region doesn’t seem to be spitting out a new generation of home-grown entrepreneurs like the industry did back in the 1970s coal boom. Coal mining is a big corporate game now, requiring lots of capital and big engineering staffs to sort through all the environmental and safety regulations. There isn’t any room anymore for the plucky guy with a bulldozer, a backhoe and a plot of land like there was 30 years ago.
Back in the ’70s and ’80s, Virginia’s bootstrap coal barons made quite an impression down in the lowlands. They donated huge sums of money to state gubernatorial candidates. Every candidate had to travel down to Bristol and kiss the ring of Jim McGlothlin, founder of the United Coal Co. Since then, McGlothlin sold United Coal and invested his money in natural gas and golf courses, among other things. Although he remains involved with William & Mary, where he went to law school, he keeps a very low profile in Virginia these days.
While the distribution of coal wealth was always unequal, at least the “coal barons” kept the politicians in Richmond focused on the needs of the coalfields back then. There’s really no one around to stand up for the region today.