Alpha Natural Resources, the third largest US coal company, had a rough few days in the stock market last week. First, it tumbled after news that the company would have to pay $200 million to stop illegally dumping toxic pollution into the waterways of Kentucky, Pennsylvania, Tennessee, Virginia and West Virginia, as well as a $27.5 million fine – the largest penalty in history under section 402 of the Clean Water Act, according to the US Environmental Protection Agency.
(Of course, a better approach would be to properly regulate the coal industry and actually prevent pollution into our waterways from the mining, processing, transport, and burning of coal, as several community and environmental groups pointed out.)
Then, Alpha’s stock “slumped the most in seven months after Goldman Sachs Group Inc. cut its rating to sell and lowered price estimates for the commodity,” according to Bloomberg News. Goldman Sachs, which published a report last year titled “The window for thermal coal investment is closing” highlighted a few reasons why Alpha is a particularly bad bet among its peers in the shrinking US coal industry, such as, “competitively disadvantaged assets, including higher-cost met coal assets and lower-quality PRB mines.” But the Goldman Sachs analysis also pointed to challenges facing the entire US coal sector like “an expected slowdown in the growth of Chinese imports,” and the stock prices of other coal companies like Peabody and Arch fell as well, even while the S&P 500 closed at a record high.
Now you might think that Alpha’s top executives, CEO Kevin Crutchfield and President Paul Vining, would be worried about their company’s tumbling stock price, record fines, and dim outlook. Nope: SNL reports that Crutchfield and Vining were each offered $2 million bonuses because of the “particularly difficult market and regulatory conditions which could affect the company and the coal industry generally in the coming years.”
Virginia-based coal producer Alpha Natural Resources Inc. offered top executives hefty retention bonuses to remain with the company during bleak market conditions, according to a Form 10-K filed with the U.S. Securities and Exchange Commission.
Alpha Chairman and CEO Kevin Crutchfield and President Paul Vining will each receive a total of $2 million if they remain with the company through August 2016 and February 2016, respectively.
And that’s just their bonuses – both have been well compensated in recent years despite their company’s falling stock. CEO Kevin Crutchfield took in more than $6.1 million in 2012, on top of the $6.7 million in 2011. President Paul Vining got $5.1 million in 2012, and $2.5 million in 2011. Meanwhile, Alpha’s stock price has lost more than 90% of its value since early 2011.
Alpha Natural Resources (ANR) stock price has lost 92% of its value since January 2011, and other US coal companies like Peabody Energy (BTU) and Arch Coal (ACI) have also fallen, even as the Dow Jones Index rose 41%
As the US moves away from coal and countries around the world respond to the urgent need to reduce carbon pollution, some shareholders are questioning the business model pursued by Alpha and other coal companies. The Unitarian Universalist Association of Congregations has filed a shareholder resolution calling on Alpha Natural Resources to report on “the company’s goals and plans to address global concerns regarding fossil fuels and their contribution to climate change, including analysis of long and short term financial and operational risks to the company.” That’s one of 142 climate related shareholder resolutions announced by CERES that companies will face this year.
While shareholders who haven’t already heeded calls to divest may continue to get hit by coal companies’ falling stock prices, it appears many coal company executives are getting out of the industry now. From SNL:
Top executives at several major coal companies have retired or resigned in recent years amid mounting challenges facing the industry. One executive recruiter suggested to SNL Energy in 2013 that the pressure may be prompting some executives to re-evaluate their futures.
In 2012, Arch Coal Inc.‘s Steven Leer, the company’s CEO since its formation in 1997, announced plans to retire. Leer said Feb. 28 that he was retiring as board chairman following Arch’s annual shareholder meeting in April.
Richard Whiting exited as Patriot Coal Corp.‘s president and CEO just before the company filed for bankruptcy protection in 2012.
In July 2013, metallurgical coal and iron ore producer Cliffs Natural Resources Inc. said President and CEO Joseph Carrabba informed the company’s board of his plans to retire. He had served as president and CEO of the company since September 2006.
In August 2013, coal and gas producer Rhino Resource Partners LP announced that CEO and President David Zatezalo was retiring as CEO.
The flurry of retirements has not been limited to the U.S. BHP Billiton announced the retirement of CEO Marius Kloppers in February 2013. Tom Albanese stepped down as Rio Tinto‘s CEO in early 2013 following the company’s $14 billion write-down on investments.
So if you like lavish CEO payouts along with falling stock prices, record pollution fines, and diminishing prospects in a carbon constrained world – invest in coal! Otherwise, it might be time to take a hint from these coal executives and abandon this ship.
