1 Huge Reason Coal Won't Cut It

Coal mining is a dangerous business, and not just because of the black lung. Lawsuits are a part of life, and some mining companies could be caught between their rocks and a hard place. Here's the latest:

Alpha's beta
Alpha Natural Resources
(NYSE: ANR  ) could find itself under the Environmental Protection Agency's (EPA) ax in the near future. The Center for Coalfield Justice served legal notice to the company last week, citing hundreds of Clean Water Act violations at its Emerald mine in Pennsylvania. 

"For years the public has paid the price of coal's dirty pollution into our rivers and stream," said Patrick Grenter, Director of Coalfield Justice. "Emerald has been illegally violating the terms of their permits for years without being held accountable. These ongoing violations must come to a stop." 

The letter of notice (link opens in PDF) lists over 350 alleged pollutant discharge violations, as well as 18 alleged instances of Alpha's failure to properly monitor its discharges. 

According to Alpha's most recent annual report, its Emerald mining complex shipped 3.7 million tons of coal in 2011, about 3.6% of its total production.

But lawsuits aren't exactly news for mining companies. Alpha's 10-K states: "We are aware of potential citizen suit actions against a small number of our permits, however, it is not clear if these actions will proceed. During the past several years, similar actions have been filed against other companies." At least on the surface, Alpha seems to consider Coalfield Justice a nuisance, rather than a legitimate concern.

Coal contingencies
Coalfield Justice's legal action piqued my interest, so I decided to dig into coal company SEC filings for additional lawsuits. Here are some lowlights:

  • Alpha Natural Resources – A 2010 mine explosion at subsidiary Massey killed 29 workers. Families of the miners and angry shareholders alike responded with a barrage of lawsuits. Many are pending, but some have been settled via levies, improved safety measures, restitution, and the establishment of a mine safety charity. Natural Resource Partners (NYSE: NRP  ) is in the fight, too, as 22% of its revenue originates from Alpha. 
  • Arch Coal (NYSE: ACI  ) – Engaging in mountaintop removal is a fast track to make enemies of environmentalists. With lawsuits bouncing back and forth between the EPA, Corps of Engineers, and Arch, the core issue of most battles is water contamination. Rulings are mixed, and many are pending. 
  • Cliffs Natural Resources (NYSE: CLF  ) – Partners can be pricey. A Rio Tinto (NYSE: RIO  ) mine in Nevada has been cleaning up its river-polluting act since 2001. As of 2012, Rio has agreed to pay $25 million to clean up the old mine and river, and Cliffs will foot about half of that. 
  • Peabody Energy (NYSE: BTU  ) – Superfund sites are rarely fun. Its Gold Fields subsidiary is the not-so-proud owner of 11 sites damaged from pre-1950's mining. Clean-up-related costs are currently estimated at just under $50 million, but Peabody expects liability to drop to $8 million over time. 

Caveat emptor
As I flipped through filings, I found "will not have a material effect" to be a common phrase – and it's true. Most lawsuits are business as usual, and each company has weighed the risks. Some have pollution insurance, some are covered by government funds from coal-friendly states, and all have a hefty team of lawyers.

But that doesn't mean cases like these don't matter. Regardless of the dollar amount, any legal loss sets precedent for a litany of lawsuits down the road. The federal Clean Water Act just celebrated its fortieth anniversary, and yet it's still the fighting force behind anti-coal and anti-fracking legislation.

Coalfield Justice's legal notice could end up cutting 3.6% of Alpha's coal supply – or it could fail. Either way, shareholders should cast a wary eye on companies under legal attack. As a long-term investor, I place value on corporations that strive to get things right from the start, rather than relying on retorts to clean their dirty laundry. For those companies that aim high, sustainability isn't just a buzz word – it's the way they run their businesses.

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Justin Loiseau has no positions in the stocks mentioned above. You can follow him on Twitter, @TMFJLo, and on Motley Fool CAPS, @TMFJLo.

The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. 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 has a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 05, 2012, at 10:44 PM, Blackbeered wrote:

    zdo you think "JUstin" is a pen name for some poor Bangalorean who was paid $0.25 for this pitiful article?

    Has ANYONE EVER found MF to be helpful?

    Wish I could find a way to filter their "news" from my "clipping" service.

  • Report this Comment On November 06, 2012, at 2:27 PM, bunngolf wrote:

    In case you have not noticed, coal has been rallying, including today. Something tells me Obama is out and Romney is in. If that is the case, coal should be fine. My advice is to watch what the markets are telling you.

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