An analyst warned Friday that Imperial Sugar Co. may have problems with insurance claims following massive fines by the Occupational Safety and Health Administrations.
Federal officials said Friday that Imperial Sugar should face fines of more than $8.7 million for violations at two plants, including a Georgia facility where an explosion killed 13 people. The fines would be the third-highest in OSHA history.
Hamed Khorsand, an analyst at BWS Financial Inc., maintained his "Sell" rating on the Sugar Land, Texas, company and kept his price target at $9.
"We fear that the findings brought by OSHA could be used by the insurance carriers for reasons not to pay IPSU," Khorsand said.
BWS had a "Sell" rating in place based on fundamentals of the refinery business prior to the explosion. But the added risk of the explosion, along with the subsequent investigation and rebuilding, further built the case, Khorsand said in his research report.
OSHA investigators concluded the explosion was most likely caused when a large bucket used to haul sugar in a silo elevator broke loose and struck the metal siding, causing a spark that ignited sugar dust accumulated beneath the 100-foot silos.
The agency said its investigation uncovered company audits, insurance records and other documents showing Imperial Sugar had been warned about combustible dust hazards in its plants since 2002.
In a statement, Imperial Sugar said it has filed with OSHA a "notice of contest" to challenge the allegations and the proposed penalties.
"We believe that the facts do not merit the allegations made," President and Chief Executive John Sheptor said in a statement.
Imperial Sugar is scheduled to report fiscal third quarter results on July 30, 2008. Shares of Imperial Sugar dropped more than 9 percent on Friday.
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