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Has Massey Become a Tough Pill to Swallow?

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Even as Alpha Natural Resources (NYSE: ANR  ) prepares to sit down for a feast and finally gobble up former rival Massey Energy (NYSE: MEE  ) in the closing of their $7.1 billion transaction, Massey managed to slip in one final reminder why Massey's viability as a stand-alone company became impaired in the first place.

Barely more than a year has passed since the horrific explosion at Massey's Upper Big Branch mine took the lives of 29 miners, and further soiled a Massey legacy already tarnished by prior environmental and safety concerns.

Now, in a parting blow to miners and shareholders alike, Massey has been cited for a slew of safety violations at the Randolph mine in West Virginia, which a regulator characterized as "nothing short of outrageous." In a surprise visit, inspectors found miners so covered in coal dust as to place workers "at serious risk to the threat of fire, explosion and black lung." It seems the Massey name cannot go away fast enough, and Alpha shareholders must now recognize that integrating these operations in a way that ensures their future safety may present a challenging task.

Massey also managed to rain on Alpha's earnings parade. Alpha turned in an enviable 256% increase in net earnings for the first quarter, recording profit of $49.8 million. Boosted by strong met coal pricing, and a 37% increase in met coal sales volume to reach 3.6 million tons, Alpha realized a 23% increase in revenue and a slight improvement in consolidated coal margin. In contrast, Massey reported a $0.07-per-share loss for the period, which was not quite in the same galaxy as the $0.39-per-share result that analysts anticipated.

While Massey may be leaving a decidedly sour taste for now, Alpha may yet savor its just deserts. After all, Massey's immense treasure of 1.3 billion tons in met coal reserves will now be matched with a proven management team eager to realize rapid expansion of production capacity from Massey's mines toward the 20-million-ton mark that Massey had previously targeted for 2015. Alpha's current annual capacity is about 14 million tons, and I don't think I need to remind Fools just how profitable met coal production of more than 30 million tons per year could be within the strong price environment of a long-term global supercycle (as Peabody Energy (NYSE: BTU  ) has frequently discussed). The industry is in unanimous agreement about the bullish long-term outlook for met coal, as evidenced by the powerful M&A cycle that has already seen Walter Energy (NYSE: WLT  ) woo Western Coal and -- just this week -- Arch Coal (NYSE: ACI  ) go after International Coal (NYSE: ICO  ) in a $3.4 billion deal.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Peabody Energy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool scrubs its disclosure policy before releasing it into the atmosphere.

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