Mineral Resources Outstanding Alumni Speech

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HUMOR AND HUMILITY IN A PECULIAR CALLING
PRESENTED TO: WEST VIRGINIA UNIVERSITY
COLLEGE OF ENGINEERING AND MINERAL RESOURCES
 
23 SEPTEMBER 2005

BY: W. DOUGLAS BLACKBURN, JR.
CLASS OF 1972

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MINING IS A PECULIAR PROFESSION; A PECULIAR CALLING ACCORDING TO AGRICOLA, THE AUTHOR OF DE RE METALLICA, THE FIRST MINING TEXT. IT IS NOT SURPRISING THAT I WAS DRAWN TO IT. I AM A FOURTH GENERATION COAL MINER FROM SOUTHERN WEST VIRGINIA; WELCH THE HEART OF THE BILLION DOLLAR POCAHONTAS COAL FIELD. MY FATHER, GRANDFATHER AND GREAT GRANDFATHER WERE ALL MC DOWELL COUNTY COAL MINERS. FOR OVER 100 YEARS, COAL MINING IS THE ONLY LEGAL THING A BLACKBURN HAS DONE.

WHAT IS SURPRISING IS HOW I MANAGED TO GET HERE TONIGHT. THIS AWARD, THE MINERAL RESOURCES OUTSTANDING ALUMNI, IS ESPECIALLY IMPORTANT TO ME. TO HAVE THE RECOGNITION OF MY FRIENDS IN THE MINING COMMUNITY IS THE HIGHEST PERSONAL HONOR THAT I COULD CONCEIVE. I AM HONORED AND HUMBLED. I THANK YOU.

IN THE 1960’S, MY FATHER WAS AN ASSISTANT MINE FOREMAN AND ULTIMATELY WENT INTO BUSINESS FOR HIMSELF AT D&O COAL COMPANY. THAT WAS THE GOOD NEWS. UNFORTUNATELY THE 1969 COAL MINE HEALTH AND SAFETY ACT MADE HIS BATTERY EQUIPMENT OBSOLETE AND HE CLOSED THE COMPANY JUST BEFORE THE 1973 COAL BOOM THAT WOULD HAVE PUT US ON EASY STREET. THAT WAS THE BAD NEWS. IT WAS NOT LIKELY THAT MY FAMILY WOULD BE ABLE TO SEND ME TO COLLEGE.

I APPLIED FOR AND RECEIVED U. S. SENATOR ROBERT C. BYRD’S APPOINTMENT TO THE UNITED STATES NAVAL ACADEMY FOR THE CLASS OF 1972. NOT ONLY DID THE NAVAL ACADEMY PROVIDE A FIRST RATE EDUCATION, IT WAS FREE. THAT WAS THE GOOD NEWS. THE BAD NEWS WAS THAT I BECAME ILL AND WAS MEDICALLY BOARDED OUT OF THE PROGRAM. SO I CAME HOME TO WELCH WITH AN HONORABLE DISCHARGE BUT NO GOOD PLAN FOR A COLLEGE EDUCATION.

WHILE IN HIGH SCHOOL I HAD CONVERSATIONS WITH THE HEAD BASEBALL COACH AT VPI.  WHEN I GOT HOME I CALLED HIM ABOUT JOINING HIS TEAM AND HE OFFERED ME A PARTIAL SCHOLARSHIP: FREE BOOKS AND MEALS.THIS WAS SO LONG AGO THAT THERE WEREN’T FULL SCHOLARSHIPS FOR BASEBALL PLAYERS. COACH LAIRD ALSO ARRANGED FOR ME TO TUTOR VPI QUATERBACKS IN MATH FOR EXTRA MONEY. THAT WAS THE GOOD NEWS.
THE BAD NEWS WAS (1) I COULDN’T PITCH AT THAT LEVEL AS A FRESHMAN AND (2) I COULDN’T AFFORD OUT OF STATE TUITION.

SOMEONE TOLD ME ABOUT WVU’S SCHOOL OF MINES AND GAVE ME THE NAME OF DEAN CHARLES T. HOLLAND. I WROTE DEAN HOLLAND AND EXPLAINED MY SITUATION. THE GOOD NEWS IS THAT HE CALLED IMMEDIATELY AND OFFERED ME A FULL SCHOLARSHIP AND GOT ME A JOB ON THE AFTERNOON SHIFT TO SUPPORT MY NEW FAMILY. THAT WAS THE GOOD NEWS. I WORKED THE AFTERNOON SHIFT 60 HOURS PER WEEK FOR THE NEXT THREE AND ONE-HALF YEARS UNTIL I GOT LAID OFF WHEN THE MINE HAD A MAJOR CUT BACK. THAT WAS THE BAD NEWS.

I WENT TO MY ADVISOR, E.J. SANDY AND ASKED FOR PERMISSION TO TAKE 30 HOURS AND MAKE UP A FIVE (5) HOUR INCOMPLETE IN SURVEYING AND GRADUATE IN DECEMBER OF 1972. SANDY IMMEDIATELY TURNED ME DOWN BUT OFFERED TO LET THE DEAN’S COMMITTEE REVIEW MY CASE. THE GOOD NEWS IS THAT THE COMMITTEE ALLOWED ME TO TAKE THE CLASSES. THE BAD NEWS IS THAT SANDY GAVE ME A “B” IN MINE DESIGN THAT KEPT ME OFF THE DEAN’S LIST WITH 35 CREDIT HOURS.

THANKS TO A GREAT UNDERGRADUATE EDUCATION AND THE DEVELOPMENT PROGRAM AT A.T. MASSEY COAL COMPANY, I WAS ALSO FORTUNATE TO RECEIVE THE MBA AND JD DEGREES BUT THAT IS ANOTHER STORY FOR ANOTHER DAY.

YOU MIGHT SEE A PATTERN FORMING!

I HAVE BEEN FORTUNATE TO WORK ON SOME INTERESTING PROJECTS. SOME WERE SUCCESSFUL BUT SOME OF THE MOST SUCCESSFUL WERE PROJECTS THAT I DID NOT DO. AT A.T. MASSEY COAL COMPANY I WORKED ON MOST OF THE DUE DILIGENCE PROJECTS FROM 1977 UNTIL 1990. THIS WAS ALWAYS FUN AND EDUCATIONAL. NOT ALL OF THEM WERE SUCCESSFUL, HOWEVER.

ON ONE OCCASION, MORGAN MASSEY, THE LEGENDARY CEO, ASKED ME TO VISIT A DATA ROOM THAT BP OIL HAD SET UP TO SELL THE LARGE, WESTERN PENNSYLVANIA, MANOR PROPERTY THAT THEY HAD ACQUIRED YEARS BEFORE FROM U.S.STEEL. I HAD FOUR YEARS OF EXPERIENCE IN THE PITTSBURGH SEAM AND SOME KNOWLEDGE OF THE MINING CONDITIONS, QUALITY AND MARKET AT THE TIME.

MY CONCLUSION WAS THAT THIS WAS A LARGE, 500 MILLION RECOVERABLE TONS, AND VALUABLE TRACT BUT IT WAS OUT OF THE OPERATING FIELD. TRANSPORTATION AND MANPOWER WOULD BE ISSUES. FURTHER, WITH ALL THE PITTSBURGH SEAM MINES OPERATING, I CONCLUDED THAT THE PROPERTY PROBABLY WOULD NOT BE ECONOMICAL DURING MY CAREER. MORGAN ACCEPTED MY RECOMMENDATION AND INFORMED BP OIL THAT WE WOULD NOT BE BIDDING. THAT WAS THE GOOD NEWS. THE BAD NEWS IS THAT CONSOL SAW IT DIFFERENTLY AND DEVELOPED THE INCREDIBLE BAILEY AND ENLOW FORK MINES IN THE TRACT.

ON ANOTHER OCCASION, MORGAN HAVING NOT LEARNED HIS LESSON, I WORKED ON A PROJECT TO ACQUIRE THE VESTA AND DEHUE MINES FROM J&L STEEL. THE ACQUISITION OF THESE MINES REPRESENTED OUR FIRST EFFORT TO IMPLEMENT THE STRATEGIC PLAN THAT WE HAD JUST COMPLETED. ONE FACET OF THE PLAN WAS TO ACQUIRE MINES FROM THE STEEL COMPANIES AS THEY EXITED THE BUSINESS AND NEGOTIATE LONG TERM CONTRACTS TO SUPPLY THEM METALLUGICAL COAL IN THE SAME TRANSACTION.

THE GOOD NEWS IS THAT WE WERE ABLE TO SUCCESSFULLY ACQUIRE THESE MINES AND BEGIN THE TRANSFORMATION FROM CAPTIVE MINES TO COMPETITIVE MINES. THE BAD NEWS IS THAT WITHIN FOUR (4) MONTHS, J&L STEEL FILED FOR BANKRUPTCY PROTECTION AND TERMINATED THE COAL SUPPLY AGREEMENTS. WE WERE LEFT WITH UNECONOMICAL PROPERTIES THAT ONLY BECAME VALUABLE WITH THE PRICE RISE OF THE LAST FOUR YEARS,TWENTY YEARS LATER. WE ALSO HAD SPENT VALUABLE CAPITAL AND CREDIBILITY WITH OUR BOARD AT A TIME WHEN INVESTMENT FUNDS FOR COAL DEVELOPMENT WERE DIFFICULT TO ACQUIRE. WHERE DID THAT COME FROM?

AS MINING MEN WE PRIDE OURSELVES ON EVALUATING THE ECONOMIC, SOCIAL AND POLITICAL RISKS OF OUR DECISIONS. THERE ARE KNOWN KNOWNS, KNOWN UNKNOWNS AND UNKNOWN UNKNOWNS. UNKNOWN UNKNOWNS CAN KILL YOU.

AS SENIOR VICE PRESIDENT OF OPERATIONS FOR ZEIGLER HOLDING COMPANY I GOT TO PARTICIPATE IN THE CONSOLIDATION OF THE COAL INDUSTRY DRIVEN BY THE MARKET DECLINE OF THE 1980’S AND THE CLEAN AIR ACT OF 1990. ZEIGLER WAS A SMALL REGIONAL PRODUCER OF HIGH SULFUR STEAM COAL UNTIL ITS ACQUISITION OF BP COAL IN 1990.
AT THAT MOMENT, THE THREE (3) MILLION TONS PER YEAR ILLINOIS BASIN PRODUCER ACQUIRED 14 MILLION TONS OF PRODUCTION IN THE CENTRAL APPALACHIA AND ILLINOIS BASINS. THIS WAS A STRETCH BUT THE MANAGEMENT WAS NOT THROUGH AND IN 1992 FOLLOWED THIS WITH THE ACQUISITION OF SHELL MINING THAT WAS TWICE THE SIZE OF THE BP ACQUISITION. AFTER WE GOT THE INDIGESTION UNDER CONTROL WE FILED FOR AN IPO AND BECAME A PUBLIC COMPANY AND EVERY PROBLEM WE HAD WAS PUBLIC KNOWLEDGE. THE COAL MARKET WAS NO HELP BUT INSPITE OF DECLINING AVERAGE SALES PRICES IN EACH OF OUR FIVE (5) YEAR PUBLIC LIFE WE RAISED THE STOCK PRICE BY 242%.

ZEIGLER HAD DEVELOPED A STRATEGIC PLAN THAT MIRRORED A.T. MASSEY’S SOMEWHAT. ACQUSITIONS OF OIL COMPANY OPERATIONS AFTER THEY MADE THE DECISION TO EXIT THE INDUSTRY HAD PAID OFF HANDSOMELY FOR THE ZEIGLER SHAREHOLDERS. IN 1997, WITH THIS IN THE BACK OF OUR MINDS, WE PURSUED THE ACQUISITION OF THE COAL OPERATIONS OF ARCO PETROLEUM, IN THE POWDER RIVER AND INTERMOUNTAIN BASINS OF THE WEST.

THE GOOD NEWS IS THAT WE WERE THE WINNING BIDDER OF THESE POWERFUL PROPERTIES. OUR BID OF $1.1 BILLION WAS SELECTED AND WE WERE INVITED TO LOS ANGELES, CALIFORNIA TO MEET WITH ARCO’S CFO, MR. FERNANDEZ. AFTER A SUCCESSFUL MEETING WE RETURNED TO PREPARE OUR AUTHORIZATION FOR EXPENDITURE FOR THE OPERATIONS AND A SPECIAL BOARD OF DIRECTORS MEETING WAS CALLED IN CHICAGO, ILLINOIS TO REVIEW THE ACQUISITION.

I MADE THE PRESENTATION TO THE BOARD AND RECOMMENDED THAT WE GO FORWARD TO CONCLUDE THE TRANSACTION. ZEIGLER WOULD HAVE BEEN THE SECOND LARGEST COAL COMPANY IN THE NATION AND WOULD BE ABLE TO RESPOND TO OUR CUSTOMER’S NEEDS FROM FOUR MAJOR COAL BASINS AND OUR PORTFOLIO OF COALS WOULD HAVE BEEN EQUIVALENT TO ANY PRODUCERS. THIS WAS A MATCH MADE IN HEAVEN. THE GOOD NEWS WAS THAT ZEIGLER HAD SUCH A GOOD REPUTATION FOR BORROWING AND REPAYING LARGE SUMS FOR ACQUISITIONS THAT FUNDING WOULD NOT BE A PROBLEM.

BUT AS HAPPENED SO MANY TIMES DURING MY CAREER THERE WAS BAD NEWS. THE BOARD SAID THAT IF ARCO WAS WORTH $1.1 BILLION THEN ZEIGLER WAS WORTH THAT MUCH AND WE SHOULD SELL THE COMPANY FOR THE BENEFIT OF THE SHAREHOLDERS. THAT WAS THE BAD NEWS. ON OCTOBER 4, 1998 WE SOLD ZEIGLER TO ADDINGTON ENTERPRISES FOR $1.1 BILLION OF CASH AND DEBT ASSUMPTION AND THE ORIGINAL SHAREHOLDERS RECEIVED AN 11,000 % RETURN ON THEIR INITIAL INDIVIDUAL INVESTMENTS. THAT WAS THE GOOD NEWS. THE BAD NEWS WAS THAT ADDINGTON ALREADY HAD A MANAGEMENT TEAM AND I WAS ONE OF THE MANAGERS THAT DID NOT TRANSFER TO THE NEW COMPANY.

THE GOOD NEWS IS THAT I HAD MADE LOTS OF CONTACTS OVER THE YEARS AND WAS ABLE TO ACQUIRE CLIENTS SUCH AS GOLDMAN SACHS, AEP, AIG AND OTHERS FOR MY NEW CONSULTING PRACTICE.

IN JANUARY 1979, I REVIEWED AN OPPORTUNITY TO BRING MODERN MINING PRACTICES TO CHINA. THE SHANXI PROVINCE OF CHINA IS VERY SIMILAR TO CENTRAL APPALACHIA. HOWEVER, IT IS MORE SIMILAR TO THE CENTRAL APPALACHIA OF THE 1930’S. THE GOOD NEWS WAS THAT WITH MODERN U.S. TECHNOLOGY AND MANAGEMENT, CHINA WAS A GREAT OPPORTUNITY.

THE FIRST THING THAT WAS NOTICEABLE ABOUT THE MAP OF THE TWO PROJECTS UNDER CONSIDERATION WAS THAT THEY WERE SURROUNDED ON THE SOUTH AND EAST BY COMMUNITY AND PRIVATE MINES. KNOWING THAT ALL RESOURCES IN COMMUNIST COUNTRIES ARE OWNED BY THE PEOPLE, I WAS REMINDED OF A THEORY OF ECONOMICS AND A DOCTRINE FROM LAW SCHOOL CALLED THE “TRAGEDY OF THE COMMONS”. THE THEORY HOLDS THAT WHEN EVERYONE OWNS AN ASSET, NO ONE HAS AN INCENTIVE TO TAKE CARE OF IT.

THIS PLAYS OUT IN MINING BY TRESPASS. IN CHINA THAT IS OFTEN FATAL. CHINA REPORTS OVER 7,000 FATALITIES PER YEAR COMPARED TO 25-30 FOR THE U.S. COAL INDUSTRY. SEVENTY PERCENT OF THE FATALITIES ARE FROM EXPLOSIONS OF METHANE AND THE NEXT LARGEST CATEGORY OF FATALITIES IS INUNDATION.

CHINA HAS THOUSANDS OF PRIVATE AND COMMUNITY MINES AND MOST OF THESE DO NOT CONFORM TO ANY COMMON STANDARDS OF SAFETY.

THESE MINES OFTEN COVER VAST LINEAL DISTANCES WITHOUT ANY ATTEMPT AT ACCURATE SURVEYING. THIS MEANS THAT MOST MINING REGIONS FACE THE “QUECREEK PROBLEM” CONSTANTLY. WHEN THE CHINESE MINE UPDIP INTO ABANDONED, UNMAPPED WORKS THEY ENCOUNTER WATER AND INUNDATE THEIR MINE. WHEN THEY MINE DOWNDIP IN TO ABANDONED, UNMAPPED WORKS THEY HIT EXPLOSIVE LEVELS OF METHANE.

NOW THE BAD NEWS. AFTER THREE YEARS OF DIFFICULT DUE DILIGENCE, WE FOUND THROUGH SURFACE OBSERVATION AND SEISMIC LINES THAT, IN FACT, TRESPASS HAD OCCURRED ON EACH PROJECT. THIS MADE THE LIKELIHOOD OF SUCCESS MUCH MORE DIFFICULT. WE, IN FACT, ABANDONED THE LARGEST PROJECT BECAUSE THE TRESPASS WAS SO EXTENSIVE AS TO MAKE THE OPERATIONS UNECONOMICAL AS WELL AS UNSAFE.

ALTHOUGH THE FIRST PROJECT HAS GONE FORWARD, ITS IMPACT ON THE CHINESE MINING INDUSTRY HAS BEEN NEGLIGIBLE AND ITS FUTURE AS A LAUNCHING PAD FOR MODERN MINE MANAGEMENT IS UNCERTAIN.

IT SHOULD HAVE BECOME CLEAR BY NOW THAT AN INTERESTING CAREER IS NOT BUILT SOLELY ON YOUR SUCCESSES. OFTEN TIMES IT IS HOW YOU HANDLE THE FAILURES THAT YOU INEVITABLY ENCOUNTER THAT TIPS THE SCALE.
I HAVE TRIED TO APPROACH THE SUCCESSES AND THE FAILURES OF THIS PECULIAR CALLING WITH A DEGREE OF HUMILITY AND A DOSE OF HUMOR. IT HAS ALLOWED ME TO CONTINUE THIS AFFECTION FOR THIS PECULIAR PROFESSION.

THE POET WROTE:
“IT FORMS AS A HABIT AND SEEPS IN YOUR SOUL, TILL THE STREAM OF YOUR BLOOD RUNS AS BLACK AS THE COAL. LIKE A FIEND FOR HIS DOPE OR A DRUNKARD FOR HIS WINE, A MAN WILL HAVE LUST FOR THE LURE OF THE MINE”. THIS OLD APPALACHIAN BALLAD RINGS TRUE TO ME TODAY AS I LOOK BACK ON A LONG AND INTERESTING CAREER.

HOPEFULLY, YOU WILL ALSO PARTICIPATE IN MANY PROJECTS OVER A LONG AND INTERESTING CAREER IN THIS PECULIAR PROFESSION; THIS PECULIAR CALLING.

H2 YOU ASK? I HOPE YOU HAVE AN OPPORTUNITY, AS I HAVE HAD, TO MAKE GREAT MISTAKES AND FAIL GLORIOUSLY AND HEROICALLY. I HOPE THAT YOU DO IT WITH HUMILITY AND HUMOR.