Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Massey Energy (NYSE:MEE)

Q1 2011 Earnings Call

May 03, 2011 10:00 am ET

Executives

Baxter Phillips - Chief Executive Officer, President, Executive Director and Member of Finance Committee

Mark Clemens - Senior Vice President of Group Operations

Eric Tolbert - Chief Financial Officer and Vice President

J. Adkins - Chief Operating Officer and Senior Vice President

Roger Hendriksen - Vice President of Investor Relations

Analysts

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

Brandon Blossman - Tudor Pickering

Brian Gamble - Simmons and Company

David Lipschitz - Credit Agricole Securities (NYSE:USA) Inc.

Michael Dudas - Jefferies & Company, Inc.

Andre Benjamin

Curt Woodworth - Macquarie Research

Unknown Analyst -

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Operator

Good morning, and welcome to the Massey Energy Company's First Quarter 2011 Earnings Conference Call. [Operator Instructions] Roger Hendriksen, Massey Energy's Vice President of Investor Relations will now provide opening remarks. Please go ahead, Mr. Hendriksen.

Roger Hendriksen

Thank you, Christine. And good morning, everyone. Thank you for taking the time to participate in our call this morning. We appreciate your continuing interest in Massey Energy. As you know, we distributed our first quarter press release after the market closed last night. If by chance any of you have not seen it and care to look at it, it is posted on our website and has been furnished to the SEC on Form 8-K.

The members of our management team who have prepared comments for the call this morning are Baxter Phillips, Chief Executive Officer and President; Chris Adkins, Senior Vice President and Chief Operating Officer; and Eric Tolbert, Vice President and Chief Financial Officer; Marc Clemens, who is Senior Vice President of Group Operations; and Shane Harvey, Vice President and General Counsel, are also on the line and will be available to answer questions.

Before we begin, I need to remind you that the statements made in this presentation which are not historical in nature are forward-looking statements, made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on current factual information and certain assumptions, which management currently believes to be reasonable. Financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control. And I do have to read the fairly lengthy disclosure related to solicitations, in conjunction with the client merger. So bear with me for just another few minutes, please.

This communication contains information on the proposed acquisition of the company by Alpha Natural Resources, Incorporated, which was announced on January 29, 2011. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the ability to obtain regulatory approvals of the transaction on the proposed terms and schedule; the failure of Alpha or Massey stockholders to the approve transaction; the outcome of pending or potential litigation or governmental investigations; the risk that the businesses will not be integrated successfully or such integration may be more difficult, time-consuming or costly than expected; uncertainty of the expected financial performance of Alpha following completion of the proposed transaction; Alpha's ability to achieve the cost savings and synergies contemplated by the proposed transaction within the expected time frame; disruption from the proposed transaction making it more difficult to maintain a relationship with customers, employees or suppliers; the calculations of and factors that may impact the calculations of the acquisition price in connection with the proposed merger; and the allocation of such acquisition price to the net assets acquired in accordance with the applicable accounting rules and methodologies; general economic conditions that are less favorable than expected; changes in, renewal of and acquiring new long-term coal supply arrangements; and competition in coal markets.

Information concerning additional risk factors is available on the company's 2010 annual report on Form 10-K and other periodic filings with the SEC. In provided projections and other forward-looking statements, the company does not make and specifically disclaims any undertaking or obligation to update them. This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of any vote or approval.

In connection with the proposed merger, Alpha has filed with the SEC a registration statement on Form S-4 as amended that includes a preliminary joint proxy statement/prospectus regarding the proposed merger. The registration statement was declared effective by the SEC on April 28, 2011, and a definitive joint proxy statement/prospectus has been mailed to Alpha and Massey stockholders on or about April 29, 2011, in connection with the proposed merger. Investors are urged to read the joint proxy statement/prospectus, including all amendments and supplements thereto and other documents related to the merger filed with the SEC.

You may obtain a copy of the joint proxy statement/prospectus and other related documents filed by Alpha and Massey with the SEC regarding the proposed merger, as well as other filings containing information, free of charge through the website maintained by the SEC at www.sec.gov or by directing a request to Alpha's Investor Relations Department at Alpha Natural Resources, Inc., One Alpha Place, P.O. Box 2345, Abingdon, Virginia 24212, Attention: Investor Relations or to D.F. King & Co. Inc., 48 Wall Street, 22nd Floor, New York, New York, 10005 or to Massey's Investor Relations Department at (804) 788-1824 or by e-mail to investor@masseyenergyco.com.

Copies of the joint proxy statement/prospectus and the filings with the SEC that are incorporated by reference in the joint proxy statement/prospectus can also be obtained without charge from Alpha's website at alphanr.com under the heading Investor Relations and then under the heading SEC filings, and at Massey's website at www.masseyenergyco.com under the heading Investors and then under the heading SEC filings.

Alpha, Massey and their respective directors, executive officers and certain other members of management and employees may be deemed to be the participants in the solicitation of proxies in favor of the proposed merger. Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of proxies in favor of the proposed merger is set forth in the definitive joint proxy statement/prospectus when it is filed with the SEC. You can find information about Alpha's directors and executive officers in Alpha's definitive proxy statement filed with the SEC on April 1, 2011. You can find information about Massey's directors and executive officers in Amendment #1 to Massey's annual report on Form 10-K filed with the SEC on April 19, 2011.

You can obtain free copies of these documents from Alpha or Massey using the contact information previously described. I will now turn the call over to Baxter Phillips.

Baxter Phillips

Good morning, and thank you for joining us. I will begin this morning with an overview of our first quarter, and then I'll ask Chris and Eric to provide the operational and financial details. Following their comments, I will come back and provide some thoughts on our outlook for the coal markets.

Our first quarter results were below our earlier expectations, but indicate that we continue to make progress in our recovery from the operational disruptions we experienced last year. We were very pleased to set record highs for revenue and revenue per ton in the first quarter. Our contracted pricing position is very strong, and our shipments for the quarter came in very close to our plan. Export shipments were particularly strong, increasing more than 36% compared to the first quarter of last year. Utility shipments were also up 36% year-over-year.

We also achieved significant improvement in both shipments and production compared to the fourth quarter of 2010. Shipments were up nearly 16% and production was up almost 11%. Our efforts and plans to take advantage of the seaborne metallurgical coal markets are yielding strong results. Export shipments of metallurgical coal were up 54% compared to the fourth quarter of 2010 and increased more than 10% versus the first quarter of 2010.

This is partially the result of adding the Cumberland operations and shifting more of their production into the met market. The coals we produce at our Cumberland operations continue to be very well received in the met market. Our production in the first quarter, although improving, was lower than we had planned. Continued tightness in the labor market and perceived uncertainty about future employment have made it challenging to higher miners we need to operate the way we would like to. Now I'll ask Chris to go over some of the details of our operations in the quarter. Chris?

J. Adkins

Thank you, Baxter. Our overall coal production fell short of our plans by approximately 1.2 million tons in the first quarter. Approximately 700,000 of those tons came from our underground operations, 400,000 came from surface operations and 100,000 came from contract operations.

In our underground operations, approximately 300,000 of the shortfall is the result of not being able to staff 5 sections as per plan in the first quarter. The remaining 400,000 is split between about 1/3 of it coming from -- tons per foot coming in lower than what we had expected, and the other 2/3 was related to lower productivity as measured by feet of advance per shift.

In our surface operations, our strip ratio has remained somewhat higher that what we had expected, accounting for a production shortfall of about 200,000 tons. The remaining 200,000 tons of the shortfall can be attributed to our highwall miners. The production shortfall was spread broadly across all of our mining groups. No single operation has disproportionately made impact [ph] on the results.

Baxter mentioned the distraction and disruption created by ongoing integration activities. The labor market for steel and underground miners remained tight. Our productivity levels continued to be impacted by high turnover rates. But we believe that these turnover rates will decline once the uncertainty of the merger is behind us.

For now, we have implemented some pay hikes and adjustments to retain our key personnel. We are continuing to work on the development of our Marianna property, which will enable us to increase low-vol met coal production. The new Marianna processing plants remains on track to commence operations in August of this year and we will begin processing coal from our Guyandotte mines. We're also preparing to develop new deep mines on the property in the Pocahontas #3 seam and the Sewell seams with access to a total of 50 million tons of high-quality reserves.

We plan to invest $80 million to $100 million on this project this year. The combined operation will eventually produce about 1.2 million tons of high-quality metallurgical coal per year. Production from the first new mines is planned to begin late in mid-year 2012.

We've also completed the face up of our new Cedar Grove #2 mine at Aracoma, and we have received the necessary permits and approvals to begin the slope into the Beckley seam at our Rowland property.

Now I'll turn the call over to Eric for a discussion of the financial details of the quarter.

Eric Tolbert

Thanks, Chris. The first quarter of 2011 on a GAAP basis, we reported a net loss of $7.7 million or $0.07 per share. This compared to net income of $33.6 million or $0.39 per diluted share in the first quarter of 2010. Excluding the impact of derivative charges and costs related to UBB and the pending merger, net income would have been approximately $19.5 million or $0.19 per share.

Our produced tons sold totaled $10.3 million in the first quarter of this year compared to $8.5 million in the first quarter of 2010. Our average produced coal sales realization, $80.96 per ton in the first quarter, was $13.58 per ton or higher than in the first quarter of 2010, an increase of over 20%. This improvement was driven by higher average prices realized in all product categories. Average cash profit per ton for the first quarter of 2011 was $66.04 per ton and this compared to $55.38 per ton in the first quarter of 2010 and $62.67 in the fourth quarter of 2010.

These per ton figures exclude SG&A costs and UBB-related charges. Key drivers of the year-over-year cost increase were lower productivity rates in our underground mines, higher labor rate, higher cost for mining supplies, including diesel fuel, explosives and steel products and higher sales related to expenses on the higher pricing. At March 31, 2011, Massey had cash and cash equivalents totaling $208.7 million, and this compared to $327.2 million December 31, 2010.

In addition to our cash and cash equivalents, we had $122.8 million available under our asset-based revolving credit facility for total liquidity of $403.5 million at March 31, 2011.

Total debt at March 31, 2011 was $1,319,000,000 compared to $1,316,200,000 at December 31, 2010. Massey's total debt-to-book capitalization ratio was 42.4% at March 31, 2011, compared to 42.5% at December 31, 2010.

Capital expenditures for the first quarter of 2011 totaled $100.8 million compared to $56.1 million in the first quarter of 2010. Included in the first quarter CapEx is the continued construction work on the Marianna plant and several other development projects that Chris had previously mentioned. Even though the increased CapEx year-over-year, the first quarter total was less than our original plan.

Depreciation, depletion and amortization was $97.2 million in the first quarter of 2011 compared to $64.5 million in the first quarter of 2010, and DD&A for the first quarter of 2011 included $12.3 million in amortization of market sales contracts and other intangible assets acquired in the acquisition of Cumberland Resources.

Now let me turn the call back to Baxter.

Baxter Phillips

Thank you, Eric. I will conclude our prepared comments with just a few words about our outlook for operations and the coal markets in general.

We included updated guidance ranges for 2011 in our press release. We have conservatively lowered the high-end of our range per ton shift based on our production levels in the first quarter. We believe improvements can and will be made, but we choose to set the range without incorporating increases in productivity.

Our cost projections for the year are higher based on lower productivity, higher labor rates and higher supply costs for diesel fuel, explosives and root vaults and other steel products, as Eric mentioned previously. The greatest opportunity to bring down cost per ton will come from increases in productivity.

On the positive side, we were able to tighten the range for revenue per ton based on the strong product mix we have in the plan and the strong pricing achieved on met coal contracts for the year. We also lowered the upper end of the range for our CapEx. Higher cost and our lower production in Eastern U.S. and the possibility of thermal coal exports have pushed the forward price curve to $85 per ton for high BTU, low-sulfur thermal coal in 2012.

The most recent quarterly benchmark for hard coking coal was around $330 per metric ton and the price spread between top-quality, low-vol coal and high-vol coal has been narrowing. This has created opportunities to sell some of our mid-vol met coals such as that from Cumberland at very favorable prices. Our pricing outlook is strong with 100% of our thermal coal sold in 2011 at approximately $67 per ton and 7 million tons of met coal sold and priced at $128 per ton.

We believe there is significant upside potential for pricing our remaining unsold or unpriced tons. We expect to ship between 10 million and 13 million tons of met coal for the year at an average price of approximately $137 per ton. As I said in our last call, market conditions today are stronger and offer more promise than any time during the 30 years I've been with Massey. Because of this, I remain extremely enthusiastic about the opportunities that combined Alpha and Massey organizations will have to increase the value of your investment.

Given that this is likely our last quarterly earnings call, I want to express on behalf of myself and all of the members of the Massey management team our gratitude and thanks for your interest and support over the past 10 years. We have enjoyed working with you and for you. This concludes our prepared comments. We'd be happy now to answer any questions that you have but ask that you limit questions to topics related to our operations and results as we will not be able to address questions about the pending merger. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Andre Benjamin with Goldman Sachs.

Andre Benjamin

I was hoping to walk through a little bit of the cost changes over the last 4 to 5 quarters. I know the first quarter of 2010, before UBB, you sold about 2.4 million tons of met and 6 million tons of thermal and your costs were about $55 a ton. The last quarter you sold a comparable amount of met coal and more thermal but costs were about $9 a ton higher. I know some of that is royalties. But just trying to get a sense, if you could, of how much of that you view as secular things like regulatory spendings and staffing levels, et cetera, as shift-per-shift even into 2012 versus more cyclical things that you're getting under control now?

Baxter Phillips

Eric had anticipated that question and Eric could give you some answers.

Eric Tolbert

Andre, it's of course, difficult to identify what is specifically related to the regulatory when you're breaking it down by the different components of our cash costs. If we had approximately -- and we did have year-over-year in the first quarter about a 19% increase in those cash cost numbers, almost $11 a ton. About $3 of that was labor in regards to different labor rates. And one of the things I'll overlay as I go through these different components is that also it's dependent on the productivity levels on a per ton basis and what we retain year-over-year. But about $3 for labor, we had about $1.50 increase on our diesel costs, a combination of both volume and on pricing, explosives about $0.25, steel products about $0.80 year-over-year. In addition, Cumberland has a number of contractors that we didn't previously have. That was probably another $1.25 onto our per ton cost, all in. And just overlaying it all, supplies and repairs were a significant increase, part of that. In terms of a higher pricing standpoint, our pricing, of course, was more than $10 a ton, year-over-year increase, and we have sales-related cost of almost $2 increase per ton based on the higher pricing as well. So you can see it's spread throughout the cost structure, and, again, dependent upon productivity and other things. Chris, do you want to comment at all in terms of the productivity impact or year-over-year for underground or surface?

J. Adkins

I think that you've covered it pretty much on the tons or shortfall, on not being able to run and meet the tons on our plan is our biggest impact for the first quarter.

Andre Benjamin

Great, that's helpful. And I guess one follow up would be, you shipped about 2.3 million tons of met during the first quarter, what do you think would need to happen in order for you to hit the 13-million ton upper end of your range for 2011?

J. Adkins

Basically, the labor market and what we've seen in the first quarter is we had a really bad January with 18.7% turnover, and then we're seeing it sort of go up and down during the quarter, we're about 360 people short at this time. But what we're able to see and forecast here is as the merger comes closer, we're able to see that our workforce is stabilizing, and we anticipate that we would be able to hire at a better rate than what we've been hiring because people were just uneasy about the merger and whether or not they'll have a job and where they'll come out once the merger takes place. But we're seeing that number go down and turnover rate go down, and, actually, in April it was down to 14%, it's 14.9%. Hiring people and being able to get the additional sections running will be the biggest gain for us.

Operator

Our next question is from Brett Levy with Jefferies & Company.

Brett Levy

In terms of like, I don't know, anything customer-related or you just mentioned the turnover issue, getting things permitted, is there stuff that sort of is stuck in limbo? Or is it any way changing kind of as you await the transaction? I don't know, just sort of talk about the environment in terms of like customers, permitting, that sort of thing? Is there a lot of stuff that's sort of kind of in limbo right now as you guys kind of await the last strokes to get this done?

Baxter Phillips

No, Brett, not from an operational or a customer standpoint. It's business as usual. The noise around the announcement of the merger probably impacted the labor force. And as Chris has said, that has improved considerably as we get closer to the merger date. So we see that improving and stabilizing, and we would expect that post that time, with things being settled down, we'll be able to attract the manpower necessary to staff the sections that will give us the production and production increases. But with regards to permitting, sales or other activity, there's nothing that's being held in limbo.

Operator

Our next question comes from Curt Woodworth with Macquarie.

Curt Woodworth - Macquarie Research

In terms of Cumberland and shipping an additional 2 million, 3 million tons there into the met market, what's the price level you're assuming for that? And are all of those tons included in your coking coal guidance range?

Eric Tolbert

Yes, all those 2 million to 3 million tons is included in our 10 million to 13 million range, and in Cumberland, coal has been well received in the met market currently our assumption is roughly $135, $150 on the unsold Cumberland business.

Curt Woodworth - Macquarie Research

And how much of that do you think you could sell into the met market, looking out into 2012, of the Cumberland?

Eric Tolbert

Depending what the existing steam contracts that we have. We're hoping to get anywhere from possibly 3 million to 4 million tons of the met market in '12.

Curt Woodworth - Macquarie Research

So as you think about total coking coal potential for '12, you have maybe another 1 to 2 at Cumberland, you'll have some incremental from the expansion of Marianna, what do you think your kind of the coking coal production rate should look like, kind of as you get through the year in 2012?

Eric Tolbert

Yes, it's probably roughly 12 million to 16 million tons.

Curt Woodworth - Macquarie Research

And just last question on the labor side. Is there a way to estimate kind of what the productivity loss would be? I mean, you said $3 a ton, do you think if you can optimize the labor situation and fill that gap, that a lot of that would go away? Or is there an issue where it's hard to get labor therefore you're having to pay up to get people and that's more of a structural component going forward?

J. Adkins

We've had to increase the pay, especially on our Route 3 operations, due to the competitiveness of the labor market. The combining of Alpha and Massey will eliminate a lot of the pull back and forth between operations and so forth that's struggling to recruit the same people, as well the announced combination of assay g and ore [ph] will slow it down as well, I think. So once we get a competitive, wage package in that's across the board between Alpha and Massey, I think that we will continue to attract people into the metallurgical areas. That's our goal, anyway.

Operator

Our next question is from Michael Dudas with Jefferies & Company.

Michael Dudas - Jefferies & Company, Inc.

The export market, you talked about your increase there. Maybe, what has Massey done over the past six months to expand your export opportunities from a transportation standpoint? How much more river coal versus rail coal do you have and are you looking forward to going forward into the future? And as you look out maybe to the 2012 timeframe, of course, things will be different with the merger, what's the export opportunity capacity for Massey as a standalone company today?

Baxter Phillips

I'll ask Mark to address that because he's got the numbers on the barging. But as you know we haven't increased that capacity and, of course, combined with what Alpha has in place, it will give the new company a tremendous export capacity. But Mark if you could address what Massey currently has.

Mark Clemens

Thank you. In 2011 on the export side, we're looking at, probably, anywhere from 10 million to 12 million tons of total export capacity. And in 2012, it'd be somewhere between 12 million and 15 million tons. But 2012, basically being split close to down the middle between what's going through the Gulf and what's going on in the East Coast.

Michael Dudas - Jefferies & Company, Inc.

Fair enough. A follow-up question is maybe a sense of -- I know you've had some discussions with potential joint ventures with the Indians. Where does that stand right now? Is there still an appetite you're seeing, maybe not specifically with Massey but generally in the market at least for joint venture investment from either thermal or the coking coal side?

Baxter Phillips

I think that the appetite is out there, of course, is that we spend at all discussions on any major sale or merger or joint venture on the coking coal side. There's still appetite interest on the steam coal side and we actually have two of our development people in India this week.

Operator

Our next question comes from Brian Gamble with Simmons and Company.

Brian Gamble - Simmons and Company

Baxter, maybe you talked a little bit about your turnover and, obviously, with everything up in the air that it's understandable that it increased. Could you give us a sense of what has been historically, as I know you've given that in the past, but maybe what it was last year? And what you guys from an operation standpoint can handle and keep the productivity at planned levels?

Baxter Phillips

But first, let me just -- Chris has got those numbers. Let me just cite -- what's been going on is that our competition is attacked or going after our workforce to attract them away, and they've used the, if you will, the thread of uncertainty as a tool to try to draw people away, as they develop mines around us. And we struggle to retain people. I think we've stated that we have just not been able to garner all of the people that we need, as we have people using, if you will, the future against us. So that's about to change. And based on the announcements that are ongoing in the industry, we may have the opportunity to use that same tactic now. So Chris, if you would give us the statistics on the turnover?

J. Adkins

For instance, in the fourth quarter, we were about 18.5% turnover versus the neighborhood of 14.9% or 15% turnover. So we're seeing it go down. Our goal has always been to be the employer of choice. So you have to have something different and something better that people want to work for you. And I think that we've been able to keep a solid base of our members, but we've not been able to expand to the degree that we have anticipated that we would be able to. I think that there's a lot of exciting things between the joint venture between Alpha and Massey. It's going to give us lot of opportunities to make us the employer of choice and to be a company that people realize that they have a long-term ability to stay in this area and work for and retire from one company, and that's something that's not been able to be offered by too many people, previously. So I think it's something that we're excited about and some of the things we've put in place to where we can stop the turnover rate.

Baxter Phillips

Chris, what was the number in January?

J. Adkins

In January we were about 19%, almost 19%.

Baxter Phillips

So it's improved from 19% down to 14% month-to-date in April.

J. Adkins

Yes.

Brian Gamble - Simmons and Company

And then from the productivity side just the part of it that you can handle in regards to what you'd expect quarter-on-quarter just from natural progression of things?

J. Adkins

Naturally, we're going to have some turnover, but we'd like to be down to a 12% range. It would be something that we would be -- target for us, but at the 12% to 13% range, we would be fine.

Brian Gamble - Simmons and Company

And then on the met site, maybe you could break out what you have left to price from a quality standpoint in 2011?

Baxter Phillips

Mark, answer that question.

Mark Clemens

I don't know that we have it by quality, to break it out by quality, but we have it in gross.

Brian Gamble - Simmons and Company

That works.

Mark Clemens

Yes, I think that maybe the unpriced met that we still have is roughly a little over 5 million tons, but we do have about 0.5 million tons or 1.5 million tons of mid-vol, and about 1 million tons of high-vol A and about 3 million tons, roughly 2.5 million tons of high-vol B coal.

Baxter Phillips

Mark, you'll give away all the market now.

Operator

Our next question is from Jeremy Sussman with Brean Murray.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

You were able to cross over Cumberland or, at least, to some extent quite successfully at some pretty big prices this quarter. Can you I guess, talk a bit about this and give us a sense of what you're seeing out there?

Baxter Phillips

Well, coal, as we alluded to in the opening remarks, it has really been an issue with the acceptance problems [ph]. Met quality coal, it's been received much better than, frankly, we had initially anticipated. We've had opportunity to put it into the market or the need to put it into the market as we replaced -- tried to help customers either as we work to replace lost production at Upper Big Branch and recognizing it's not the same quality of coal, but as we work to help out with blends, we were able to get Cumberland coal into the market sooner than we had initially expected. The biggest, if you will, concern or, if you will, challenge that we've faced in taking the Cumberland coal to the metallurgical market is exactly what we had previously announced, and that is that coal being in a little while haven't been sold due to this crossover, coal have previously have been committed into the utility market. And so we have to work all through sales in order to move the coal into the markets. And so, therein, lies, if you will, the greater challenges opposed to actually getting it into the market, but we're working through that as well.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Great. And then just as a quick follow-up, despite a volume shortfall relative to your expectations, your overall volumes were up versus Q4, but at the same time, so were your per ton costs. So it's a bit unusual to see both go up, at least, to the degree they did. So was it with -- was labor really the biggest -- was labor the biggest issue for this? Or is there something else we should be looking at?

J. Adkins

I'll take that, in Q4 and Q1, essentially the way we looked at the cash cost, we've broken down, granted, it's up about 5%, about $1 of that was sales-related on the higher price, and essentially we jumped up almost $9 quarter-over-quarter on price, and so a significant portion of that was sales-related. There was some that was -- in labor, about $0.50, and, again, that was somewhat related to the productivity. We did see our, for example, our feet per shift declined a little bit over the course of Q4 to Q1. Also supplies costs, in terms of our diesel fuel costs, it went up about $0.90 per ton. Explosives about $0.25, and against the old products, $0.30. We saw a mixture within our cash costs, both in terms of on a volume basis and somewhat price basis, that impacted our increase in price or increase in cash cost, again, with the overlaying on the productivity quarter-over-quarter. So even though we did have more production on a volume basis, we were set up to run at these higher levels and didn't achieve it.

Jeremy Sussman - Brean Murray, Carret & Co., LLC

Got you. That's very helpful.

Operator

Our next question is from Lynch Ottis [ph] with Three Brothers [ph].

Unknown Analyst -

Just wanted to kind of clarify the employment issues. I believe you just said the actual unemployment or the turnover rate actually went down in 1Q from 4Q, so I guess you were just a little above target. But I guess, can you guys -- I guess, they're worried about the merger, but can't there be some kind of guaranteed contract or something where, I mean to me clearly -- these mines are going to be staying open. So I just kind of have a tough time understanding why you're having so much difficulty getting these people, and also the follow up would be how much of the production decline or production shortfall that comes from the employment issues?

Baxter Phillips

Yes, we do have a contract for underground miners but getting people to sign those contracts in the midst of a merger announcement, basically, went to Neill. Because everybody was uncertain on whether or not that they wanted to sign a contract and how it would resolve out. What we do see is that we have a, for those people that do sign contracts, we get down to a lot lower numbers as far as our turnover. So it's our goal to do exactly what you're saying is, to have employment agreements with those and to get the target numbers down. In January, our turnover rate was almost 19%. So it was much higher than what it is currently. So I think that we had pushed it into the right direction. I think people are getting excited about the merger and the opportunities that will present themselves and they're finally figuring out that there'll be more opportunities after the merger to be more job secure and have job advancement than what there ever was prior to the mergers.

Unknown Analyst -

And how much of the shortfall was related to labor issues?

Baxter Phillips

We can quantify that with the fact that we had 300,000 tons that were basically due to sections that we were not able to -- wasn't unable to bring online due to not being able to staff it, basically, approximately 360 people.

Unknown Analyst -

And then what was the rest of the shortfall, I guess, if you could go over that?

Baxter Phillips

Yes, basically out of the 700,000 underground, 300,000 of it was due to the sections, about 400,000 came from our surface operations and about 100,000 from our contract mining operations up from one of our Cumberland jobs.

Operator

[Operator Instructions] Our next question is from Brandon Blossman with Tudor, Pickering, Holt & Co.

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

I guess to follow-up on the last question. You kind of broken that out earlier, of the 1.2 million ton shortfall, 400,000 of that was due to lower productivity. Is that lower productivity in the labor force or lower productivity just due to geologic factors?

Baxter Phillips

I don't think I understand.

J. Adkins

He was asking, how much of the breakdown from our plan, from labor versus geologic, in terms of what that claim tons per foot?

Baxter Phillips

About 150,000 tons, I think, were attributed to the claim tons per foot, geological.

Brandon Blossman - Tudor Pickering

Was that concentrated on any particular complex?

Baxter Phillips

It was at our Allegiance Mine, at our Independence Complex, at our Taylor Fork mine, at our Sidney Complex and at our Indian operation. Are we on that one? [ph]

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc.

That's useful. And then I think I heard CapEx, a little bit lighter. Is there anything we should be aware of under that?

Baxter Phillips

No. I just -- What I would tell you is this, Chris and Mark went back through, and Sabrina and stroked CapEx again at my request, and then have been very tight with dispersing CapEx and following our success in the first quarter of controlling our CapEx we, looking at that review, we elected to narrow the range in the section [ph]. That being the new range.

Operator

Our next question is from David Lipschitz with CLSA. [Credit Agricole Securities]

David Lipschitz - Credit Agricole Securities (USA) Inc.

In terms of -- what was your employee count in the fourth quarter?

J. Adkins

The quick and dirty on that answer is that we've been running about 360 people behind, and we can't gain on it.

David Lipschitz - Credit Agricole Securities (USA) Inc.

And so employee count did go up?

J. Adkins

It remains pretty well staggered. We've had turnover, we've been able to employ, but we have not been able to get ahead on the employment to staff the additional section.

Baxter Phillips

And we're roughly about 7,300 people.

David Lipschitz - Credit Agricole Securities (USA) Inc.

So what's the number in that table?

Mark Clemens

At the year end table, it was 7,359 in the prior press release. Current press release is showing 7,613. So you're up about 280.

David Lipschitz - Credit Agricole Securities (USA) Inc.

So you're up, but I'd say you're just not up enough?

Baxter Phillips

That's correct.

J. Adkins

Correct.

Operator

There are no further questions at this time. Now I'll turn the program back to Mr. Hendriksen.

Roger Hendriksen

Okay, everybody, thanks again for joining our call. We appreciated the questions, and if you have further questions that come to mind after the call concludes, please feel free to give me a call. I'll be around all day. Thanks, again. This will conclude our call.

Operator

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Massey Energy's CEO Discusses Q1 2011 Results - Earnings Call Transcript
This Transcript
All Transcripts