International Coal Group (ICG) now owns and operates Sago mine (under the name of a subsidiary.)
The mine was formerly owned by Horizon Mining, which went bankrupt to avoid paying its contractual obligation to union retirees for healthcare costs (including black lung claims. Black lung kills and debilitates far more many miners than explosions, but doesn't make for dramatic news coverage.)
International Coal Group's business plan consists in part of buying bankrupt mining operations after union contracts are voided by federal bankrupcy courts. ICG openly boasts of its union-busting and avoidance tactics.
In the absence of government regulation, union power is the only way miner's can assure their own safety. When their unions are busted, they lose that ability - and the mining companies will not pay for safety maintenance and upgrades out of the goodness of their own hearts - MSHA won't force them. They're alone and trapped.
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Using the bankruptcy courts to void collective bargaining agreements and bust unions is becoming more and more common - in all industries (see Delphi, Northwest Airlines, etc.) In the case of the current disaster, the workers in Sago mine were not organized in a union. They had no mechanism with which to pressure their employer to pay safety costs. 168 MSHA violations (some serious - including air quality violations) and the paltry fines levied against ICG for those violations were not sufficient to force the ICG to remedy safety violations. History reveals the tragic truth that without strong unions and their aggressive enforcement of safety regulations, coal miners die.
See this this article from the Militant (Oct 2004) for more information about ICG's business model and its systemic use of bankruptcy as a union-busting tool that in this case has contributed to unsafe working conditions in the mining industry.
For more about the bankruptcy of Horizon Mining.
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"A New York private equity firm, WL Ross & Co. LLC, created ICG to buy coal companies that lacked capital to maintain mines. It purchased Horizon Natural Resources Co. out of bankruptcy in October for $786 million." (source - The Daily Deal - Dec. 14, 2005.)
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"[C]onfident in his formula for old-industry investments, he [Wilbur Ross of ICG] is shopping for more companies. Late last year, a Ross-led group of investors bought Horizon Natural Resources Co., a coal company with mines in West Virginia that shed retiree medical obligations in Bankruptcy Court. On March 31, Ross announced that he had acquired two additional coal companies to add to his International Coal Group Inc." (source - Philadelphia Inquirer - April 10, 2005)
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"Still, coal offers a value player such as Ross a great opportunity. Underneath all the environmental issues are lots of hard assets, namely a key natural resource whose supply is dwindling.
Again, while his initial foray into the sector wasn't serendipitous, Ross ultimately was in the right place at the right time.
Ross originally tried to help Morgantown, W.Va.-based Anker Coal Group Inc. by attempting to convert 30% of his $126.7 million in Anker debt into a 100% stake in the company in January 2001. But Anker filed for bankruptcy the following October after it could not restructure the deal with its creditors.
Because he retained 70% of his Anker debt, Ross was eventually able to convert it into a controlling stake in a reorganized Anker.
Then came Ashland, Ky.-based Horizon Natural Resources Inc., which also ended up in Chapter 11. Ross wanted to acquire Horizon's nonunion assets, but the deal couldn't go through until the bankruptcy estate figured out how to shed $800 million worth of pension and healthcare benefits, including payments made to retirees covered by the Coal Industry Retiree Health Benefit Act of 1992.
The retirees immediately sought a stay on the sale with Judge Henry R. Wilhoit Jr. of the U.S. District Court for the Eastern District of Kentucky in Lexington. Wilhoit sided with the retirees, but lifted the stay 48 hours later on Sept. 30. Ross went to work, lining up agencies from fertile coal mining states such as Kentucky and West Virginia and the Office of Surface Mines in the U.S. Department of the Interior to agree on a unified memorandum of understanding as to how the company would handle reclamation concerns. It worked. In October 2004, ICG bought Horizon for $786 million and added it to its growing stable.
Today, black-lung litigation worries don't hinder ICG -- those liabilities, thanks to Section 363, stayed with the Anker and Horizon bankruptcy estates. Meanwhile, it's virtually debt-free and sitting on top of a billion tons of coal reserves.
Still, that's not what stirs Ross these days. He has carefully steered ICG toward low-sulphur coal, and for good reason: The most hazardous part of coal is the sulphur, so the less of it there is, the more valuable it is. Low sulphur coal sells for $55 to $60 a ton, while the high content variety goes for $12 to $15. Most of Anker and Horizon's coal reserves are low sulphur. "Our coal is a good coal that is used to blend with higher sulfur coal to bring it within federal standards," Ross says. "This coal trades at a real premium."
Even personally, Ross is on a roll these days. In October, he married Hilary Geary, a society writer for Quest magazine. It was his third trip to the altar. (He has two children, Amanda and Jessica, from his first marriage to Judith Ross. His second marriage to former New York Lt. Gov. Betsy McCaughey also ended in divorce.)
Can anything ruin Ross' run? Well, Ross has looked at another hidebound American industry, though one not from the 19th century: airlines. But it doesn't inspire him much, even though many of the same fundamentals -- unionized labor costs, steep legacy liabilities -- that existed with steel are also present with airlines. Plus, many of the companies have landed in bankruptcy court, where Ross does some of his best work. Is it time to move?
"We've known the industry for quite some time," he says. "We just haven't found the magic formula yet, and it's frustrating because we keep looking."
These days Ross can pick his spots. After all, it's good to be the wizard." (Source - "The Wizard of Commodities", Daily Deal/The Deal, January 17, 2005 Monday)