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Appalachia’s coal comeback collides with grim opioid reality 12 January 2018 by Kyle Younker and Taylor Harrison

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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HUNTINGTON, West Virginia – Jeffrey Stevens* hit rock bottom early last year when he was arrested in his birthday suit. Strung out on painkillers and methamphetamines, his bare feet aching, Stevens, an unemployed, 13-year veteran of the coal industry, sighted a four-wheeler next to a rural house. He got on and drove off. But the vehicle belonged to the county sheriff, security cameras captured the incident, and the 39-year-old ended up in jail. Stevens’ story of unyielding addiction is all too familiar across Appalachia, one of the regions hardest hit by the ballooning opioid epidemic. And for all of the political focus on reviving the coal industry here, the crisis has created a formidable problem for companies looking to do just that. A wave of bankruptcies ignited by sagging coal prices since 2011 impacted no fewer than six of the largest producers in the region, while the Appalachian mining industry lost more than 30,000 jobs. But in a region that relies on coal as the backbone of its economy, the eligible workforce was decimated as the opioid crisis intensified and laborers with transferable skills sought stable jobs elsewhere. That dynamic left the coal industry ill-prepared for a dramatic change in fortune and unable to quickly increase the productivity of the region’s dozens of mines, experts say. With the sector showing signs of life – coal prices have spiked, and President Trump took office after waging an improbable pro-coal election campaign -- coal companies are still scrambling to rebuild their labor force. But for

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some companies, those sought-after workers are nearly impossible to find. “I hear almost every day from coal companies who can’t find workers to staff their mines,” said Bill Tucker, who oversees the drugscreening program for the industry at the West Virginia Office of Miners’ Health, Safety, and Training (MSHT), in Charleston. “If a company needs to hire five workers and they send ten to get drug tested, they’d be lucky if five passed the test,” Tucker said. Sometimes workers will show up at a job site, and once they realize they have to take a drug test, they’ll get up and walk out, he said. “It’s a real problem.” For his part, Stevens aims to be part of the solution. He is focused on rehabilitation in hopes of turning his life around and eventually restarting work in the coal trade. “I was lying to myself about my addiction,” he said in an interview at Recovery Point, one of West Virginia’s few in-patient addiction rehabilitation centers. A closet, functioning addict for much of his time in the industry, Stevens would steal equipment from job sites in order to sell or swap for drugs. When he landed in jail, he says he told the sheriff he needed help, rather than a prison sentence. “The sheriff told me to find a treatment facility,” said Stevens. “He saved my life. I mean, who steals a four-wheeler buck naked?”

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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*Debtwire Investigations agreed to change the name of Jeffrey Stevens to protect his identity. Price shock Despite the industry upheaval, getting coal out of the ground became crucial in late 2016, when floods in Australia and production cutbacks in China drove prices for metallurgical (met) coal, the kind used in steelmaking, to multi-year highs. Spot pricing for met coal climbed to as much as USD 300 per ton in late 2016, compared with trough pricing around USD 70 per ton earlier that year. Prices have remained resilient, and are trading today around USD 250 per ton. The rally has come as welcome news to the battered space, which had been through a near-wholesale restructuring, including the bankruptcies of James River Coal, Patriot Coal, Walter Energy, Arch Coal, Alpha Natural Resources, and Peabody Energy. The six companies were valued by the stock market above USD 40bn at their highs in 2011 and carried more than USD 22bn of outstanding debt at the time of their filings. Meanwhile, from 2011 to 2016, the mining industry in Appalachia lost 33,500 jobs, according to a study from the Appalachian Regional Commission. Coupled with the improving pricing environment, the sector has cheered the election of President Trump, who has promised to bring back coal jobs, and so far has taken action in the form of rescinding several of what he calls job-busting Obama-era environmental protections: the Clean Power Plan, the Stream Protection Rule, and

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the Paris climate accords. And at a cost to taxpayers of up to USD 11bn, the Trump administration also proposed to modify power generation rules in order to support certain coal-fired power plants in the name of “grid resiliency.” The tweaks would have helped prop up the coal suppliers to power companies by providing subsidies for those that keep a 90day fuel supply on site. However, federal regulators this week rejected the plans. Human capital

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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Positive headwinds aside, in order to meet customer demands and return to a profitable heyday, companies need to get back to the basics. And so far there are early indicators that Appalachian coal miners have made some progress in adding to payroll and production. When comparing 3Q17 data to the same prior-year period, mines owned or controlled by 10 of the largest producing companies in the region added 2,434 jobs, an increase of nearly 18%, according to data from the federal Mine Safety and Health Administration. Meanwhile, production increased by 1.8m tons, or 9%, over that timeframe.

Nevertheless, the increase is a drop in the bucket in the face of what Appalachia has already lost. Production fell by approximately 53%, from 390m short tons in 2008 to 180m short tons in 2016, according to statistics from the Energy Information Administration (EIA). In West Virginia the collapse of the industry was particularly harsh, http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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given the central role it plays in the state’s economy. The state had a massive USD 4bn overall loss in economic output stemming from the downturn, when comparing 2015 to 2008, drying up resources available for the state’s public institutions, like schools and hospitals, according to John Deskins, a professor of economics at West Virginia University and the director of the school’s Bureau of Business and Economic Research. That’s because coal production in West Virginia fell by roughly 50% between 2008 and 2016, from 158m tons to 80m tons. That figure bounced back to around 90m tons in 2017, according to EIA data. Because the market had fallen so far, companies throughout the region had a lot of hot-idled tons – coal production that can essentially be turned on with the push of a button – that should have been relatively easy to push forward in the last year when prices bounced, said Jeremy Sussman, an equity analyst who covers the coal industry for Clarksons. Still, “when companies began restarting their mines, many of them struggled to find qualified workers,” Sussman continued. In order to further expand production beyond current metrics, coal investors would need to cough up hundreds of millions of dollars for capital expenditures – something they’re unwilling to do at this juncture due to worries about the long-term secular decline of the industry, he said. Sussman added, similarly, that because of industry volatility, many

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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coal industry workers have shied away from returning to the mines, preferring instead to invest time and energy in pursuing other fields of work. “I think there’s a concern all around about how long this cycle will last, and as a result, a lot of workers are still reluctant to go all-in on coal at this stage.” In fact, over the last year, coal companies have had to lure employees back to the mines by offering higher salaries and signing bonuses. They’ve held job fairs. And they’ve put ads on the radio. Promises to revive the industry will fall short in Appalachia, though, if policymakers cannot first address the region’s human capital shortages, Deskins said, especially since the foremost driver of worker shortages across Appalachia is the expanding presence of opioids. In a September paper that garnered national attention, Princeton economist Alan Krueger wrote that, among other findings, “labor force participation is lower and fell more in the 2000s in areas of the U.S. that have a higher volume of opioid medication prescribed per capita than in other areas” – such as in Appalachia. This is in part due to the higher prevalence of deaths from diseases of despair, which include overdose deaths, in Appalachia compared with the rest of the country, says Michael Meit, Co-Director of the NORC Walsh Center for Rural Health Analysis and the lead researcher on a recent study examining mortality rates in Appalachia.

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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“If you’re a male in Appalachia age 25-44, you’re around 75% more likely to die from an overdose. If you are a woman you are twice as likely to die. These are working-age people,” Meit says, referencing data from 2015. Once data from 2016 becomes available, Meit expects it will show a further spike in overdose deaths following the introduction of the deadly drug fentanyl into heroin supplies. “We are going to see these numbers increase dramatically.” To avoid a similar grim fate, workers like Gary Bentley don’t plan to go back. Bentley spent 12 years in the industry, bouncing among several different companies, and now has a stable job with similar pay and benefits outside of coal. He says he wouldn’t consider going back to what he views as an unstable and unforgiving industry. He also runs a blog about the realities of underground mining, and is an aspiring writer. On his first day on the job more than 16 years ago, Bentley says he saw a fellow miner snort a crushed pill and walk into the mine for work. That was just the first experience among many that led him to deem drug use in the coal industry “rampant.” Bentley believes that, in many ways, the problem with opioid addiction stems from the pervasive use of painkillers in the industry. He alleges that many miners take addictive opioid-based medication after an injury, and continue to do so long after the initial injury in order to work through lingering pain.

http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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Jeffrey Stevens, for example, started out in the industry at 25, and says he began using the powerful painkiller OxyContin in order to get through long days and difficult work. He didn’t have to worry about getting caught taking painkillers on the job: he could go to one of the local “pill mills” and get a valid prescription. “A coal miner’s got good insurance, so you could find doctors that would throw anything at you,” he says. Stevens’ go-to doctor eventually got shut down, however, and he lost his prescription. He failed his first urine test in 2014, resulting in a suspended coal-mining license. He ended up in a treatment program through the WV MSHT, run by Bill Tucker. Under the regimen, still in effect in West Virginia, Stevens was administered Suboxone, another prescription narcotic designed for medical detox, to help ease the effects of withdrawal from Oxycodone. But for Stevens, this program only substituted one addiction for another. After about four months in treatment, Stevens says he “sweet-talked” a doctor into writing him a note – with the doctor describing Stevens as an ideal patient – in order to get out of the program. He said the doctor also gave him a prescription for Suboxone, sending him back to work doing mine maintenance with a fresh supply of “strips” – a reference to the sublingual, dissolvable form that Suboxone usually takes. “I was on two strips of Suboxone a day,” Stevens said. “And there http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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was no way I could just cold-turkey that,” because the withdrawal symptoms made him sicker than anything he had ever experienced, including heroin withdrawal. Blackhawk down One company that could benefit from having workers like Bentley or Stevens back on the job is Blackhawk Mining, a current example of the Appalachia coal comeback falling short of its own ambitions. Blackhawk borrowed heavily from hedge funds in early 2017 in order to refinance debt that helped it purchase mines formerly owned by bankrupt coal producers Patriot Coal and James River Coal. In presentations, Blackhawk told potential investors that, in response to the soaring price of met coal, it would increase coal output such that the company would be able to pay back its new loans through aggressive amortization payments within a maximum of three years, sources said in interviews with Debtwire at the time. But for the financial quarter ending on June 30, the privately-held Blackhawk disclosed earnings results that were a staggering 54% below its own projections from just a few months before, putting the amortization schedule at risk. And company executives told their investors that mine development was taking longer than expected due to difficulties finding equipment and skilled workers to work in the mines. In December, Blackhawk had to ask its lenders to amend the terms of the outstanding loans due to a liquidity shortfall. Without that, it http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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likely would not have been able to make large interest and amortization payments on the loans due at the end of 2017. “The labor market is incredibly tight,” said a company executive, who asked to remain anonymous to discuss the matter candidly. The executive admitted the opioid crisis was impeding the company’s ability to grow as planned. “It has claimed a portion of the region’s labor force.” Beyond Blackhawk, other coal companies that have been able to operate more efficiently in the region have fared better. Notably, Warrior Met Coal, the former Walter Energy, late last year paid its shareholders a USD 600m dividend. And Alpha Natural Resources, which was left with its predecessor’s bad assets, is on track to surpass its own bankruptcy plan earnings projections for 2017 by over 1,000%, mostly due to high coal prices. In contrast to Blackhawk, these companies didn’t require the same intensity of capital and labor investments to get their mines up and running. Similarly, even as power plants that burn thermal coal are slowly phased out across the U.S. due to competition with cheaper natural gas and renewables, coal companies like Murray Energy are hoping to take advantage of export markets serving Europe and Asia in which prices are relatively booming. Passing the test

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Prior to publication, Debtwire Investigations reached out to the ten primary coal operators in the Appalachian region, seeking comment regarding how the prevalence of opioids is impacting the coal labor force. Representatives of nine of the companies either did not respond to the requests, declined to comment on the record, or referred inquiries to the West Virginia Coal Association, an industry trade group, which did not respond to multiple calls and emails. The only company that responded was Ramaco Resources, a small, publicly-traded start-up that began operations in 2016, and employs 111 workers. Executives from the company told Debtwire that their workforce so far has been relatively unaffected by drug use – they’ve only had to fire one person due to a failed drug test. But they expect there will be more issues, especially around their West Virginia operations, where they noted the “terrible” presence of opioids. “What we do see in the communities indirectly is just a huge problem,” Ramaco CEO Mike Bauersachs said. In terms of drug testing, the company has “done the very best we can because it’s so critical when you’re underground and you have all this equipment moving around, and one weak link could have multiple fatalities,” Bauersachs said. To address drug use in the coal industry, in 2013 West Virginia implemented a drug-testing system requiring companies that operate there to randomly test 25% of their workforce every year. http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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Prior to implementation, Tucker says there was a patchwork regulatory scheme led by the coal companies themselves. When one company would suspend a worker for a failed drug test, that worker could simply walk up the road to the next mine and get another job, he says. Amid the growing opioid epidemic, especially around Southern West Virginia’s coalfields, the agency realized the need for state-level enforcement, Tucker says. And though it’s one of the longest-running programs in the region, the scheme is not without flaws, he noted. Suboxone – the painkiller substitute propagated by Tucker’s program -- is now the number one prescription drug for which miners are suspended, Tucker says. And a lack of regional reciprocity for testing means that a West Virginia coal miner who has his license suspended for drug use can simply move to a nearby state like Ohio and get a new license. Workers with drug habits also regularly cheat on urine tests, according to Tucker, by carrying with them “clean” urine samples at all times, since the tests are administered randomly. Stevens, for his part, admits to cheating on multiple urine tests during his time in the industry. ‘One thing leads to another’ On a recent Wednesday afternoon at a clinic in downtown Charleston, West Virginia, the waiting room for the needle-exchange program was bustling. http://investigations.debtwire.com/appalachias-coal-comeback-collides-with-grim-opioid-reality/

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West Virginians addicted to heroin and other injectable drugs filter through the clinic in order to anonymously exchange their used needles for clean ones, with the idea of preventing the spread of HIV as well as hepatitis B and C. Implemented in 2015, such programs are relatively novel for places like West Virginia, says Robert Pack, a professor of community and behavioral health at East Tennessee State University, where he is also the director of the Center for Prescription Drug Abuse Prevention and Treatment. One of the major problems facing workers laid off due to a failed drug test is a lack of affordable drug treatment options, Pack says. Dismissed workers without health insurance can’t afford the cash payments required to start and stay in rehab. “A huge amount of attention needs to be paid to this,” Pack says. Meanwhile, proposals from the Trump administration and Republican Congressional leaders take aim at programs like Medicaid, the expansion of which, under the Affordable Care Act, allowed an additional 170,000 people to gain access to health care in West Virginia. Still, local West Virginia politicians deserve credit for recognizing the scope of the opioid problem and moving to tackle the issue with programmatic and funding initiatives starting several years ago, says Lara Lawson, the director of development at Recovery Point, where Stevens is in rehab.

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Recovery Point, for example, offers a free six- to nine-month inpatient program thanks to private donations along with state and foundation grants, Lawson says. But Lawson still doesn’t see the colossal state and federal interagency mobilization that will likely be required to sufficiently address the opioid epidemic. More funding along with comprehensive strategies among sectors are vital, but she says, “It’s more about people understanding that folks are suffering from an illness and they need help.” In the needle-exchange waiting room, counselors from nearby rehab centers approached those people who are going through addiction, trying to get them to commit to a program. A reporter who was milling around quickly encountered several former coal miners who had come for a new supply of needles. One of the former miners, a man in his mid-40s who asked not to be named, said he was blown off the top of a mine in a 2013 explosion. Due to the injuries he sustained, he began taking painkillers. One thing led to another, he says, and he began using heroin, which is cheaper and easier to find on the street. He remains unemployed and addicted – a cycle he would prefer to break. “I don’t like it,” he said, his voice quavering. “It ain’t good.”

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