Since the U.S. government shut down, Alliance Resource Partners (NASDAQ: ARLP ) , CONSOL Energy (NYSE: CNX ) , and Berkshire Hathaway's (NYSE: BRK-B ) MidAmerican Energy Holdings Company have all experienced fatalities at their coal facilities. Is this a direct result of the U.S. government shutdown?
The impact on inspections
There are things that governments do poorly and things that they do well. One of the good things has typically been the regulation and policing of dangerous job sites. Being a coal miner is one such dangerous occupation. When the U.S. government shut down, however, the Mine Safety and Health Administration, or MSHA, had to trim back its inspections, looking only at mines with a history of problems. A 60% staff reduction pretty much forced that change.
But, in the short time the government has been shut down, there have been four deaths, and some of those deaths have come at public companies with a history of operating safely, like CONSOL Energy and Alliance Resource Partners. In fact, in its 2012 annual report, Alliance highlighted its success on the safety front: "During 2012, our employees' lost-time accident rate was below the industry's average and was one of the best in ARLP's history."
CONSOL, meanwhile, recently opened an underground mine training facility. The goal is to properly train employees to help ensure their safety. It is the only such facility in the country, and CONSOL had 14 teams participate in a mine rescue competition, with one of its crews winning top honors. This is another company that clearly takes safety seriously.
From a cynical point of view, squeezing out a few more pounds of coal might sound like the only thing a coal company cares about. However, companies, particularly public ones, have to care about the safety of their employees because it makes financial sense. Employees getting hurt slows production, leads to lawsuits, increases tensions between the company and unions, and is a public black eye. These are things no company wants to deal with.
Taking the lead
In fact, both Arch Coal (NASDAQOTH: ACIIQ ) and Alpha Natural Resources (NASDAQOTH: ANRZQ ) recently told The Wall Street Journal that safety remains a key focus, regardless of government inspections. Arch Coal and CONSOL even noted that inspections continue to take place regularly at their mines, though perhaps not at the same rate as before the shutdown. While Alpha Natural Resources made the comment that, despite the shutdown, the company intends "to run right and run as safely" as possible.
To Arch Coal's credit, when the shutdown closed an MSHA training facility, it just moved its annual safety drill to one of its own nearby mines. It would have been much easier to just forgo the drill. Clearly all of the companies, even those that have experienced fatalities, make safety a priority.
Someone looking over your shoulder
Humans, however, are human. It helps to focus the mind knowing that there is someone looking over your shoulder. That's MSHA's job. A lax employee could let a little thing go that, in the end, leads to someone getting hurt. At the time, it might not have seemed like a big deal. If he or she knows that MSHA could show up at any time, however, that little thing might not get overlooked.
Without a full compliment of inspectors, the chance of an inspection is obviously reduced. That's particularly true for mines with historically good safety records. While it is going too far to suggest causality, the sudden increase in deaths is certainly concerning. According to the Journal, there were 20 mine deaths last year. So far this year, including the most recent incident, there have been 18, and there's still more than three months to go in the year.
To make matters worse, coal is sitting in the political cross hairs right now. Increasingly stringent environmental regulations and coal's dirty image have made coal front page news in a not so good way. Adding safety concerns to the picture doesn't help the image of this country's most abundant and lowest cost fuel source.
Coal is a small portion of Warren Buffett's portfolio. Find out more here:
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.