Will Mr. Market present a new all-time high? Should we join the party? We maintain the TSX as the mo...
...and Mine Safety
03/03/2006 12:00 am EST
Another timely topic—due to the very unfortunate loss of life in recent mining disasters—is increased safety for mine workers. Here, Elliott Gue looks at this important area and highlights a company that is appropriately named Mine Safety Appliances.
"The tragic coal mine accident in Sago, West Virginia, ranks as one of the deadliest US mining accidents in the past decade. To put the tragedy into context, 22 miners died in the US in all of 2005 and 28 in 2004; 12 miners perished at Sago alone. While Sago was tragic, the safety record for the US coal mining industry has drastically improved in recent decades. Consider that in 1907, more than 3,200 miners died.
"Furthermore, the US mining industry is among the safest in the world. Sadly, in China and other developing countries, the safety record is far worse—roughly 5,000 coal miners die each year in Chinese mines. One of the major reasons for the improvement in US mine safety is simple: better equipment. Miners in the early 20th century would literally take a small canary or bird into the mine with them; if the bird died, that meant toxicgases were building in the mineshaft.
"Nowadays, miners are equipped with advanced gas detection systems, lights, and portable respirators. Better equipment and more stringent regulations on safety equipment have helped improve mine safety during the years. Mines in the Eastern US are becomingmore difficult and technically complex to mine. Unfortunately, Eastern mines are also becoming more dangerous—you can bet the need for advanced safety equipment will continue rising in the Eastern US.
"In fact, in response to the Sago tragedy, West Virginia recently passed a series of more stringent safety regulations for coal mines. Similar legislation is likely to pass in other states, and the federal government should enter the fray later this year. Ultimately, international mining operations will improve their safety records to a level closer to US standards. China is the world’s biggest consumer of coal and has been building coal-fired power plant capacity aggressively in recent years. Safety lapses have certainly hampered mine productivity in the nation and China is getting considerable criticism for the safety of its mines. Over time, look for the safety record to improve just as it has in the US.
"And it’s not just coal. South Africa is another big mining country—diamonds, gold, and other metals are all big export products. The African nation is starting to take steps to improve its checkered safety record as well. One of the world’s largest providers of mine safety products is the aptly named Mine Safety Appliances (MSA NYSE) a stock we’re adding to our Advantage Portfolio.
"The company sells everything from basic equipment like hardhats, facemasks, and respirators to more advanced gas detection systems. While the US is a key market, Mine Safety sells products in more than 120 countries worldwide, including developing markets like Brazil, South Africa, and China. A recent joint venture deal with the South African Mineworkers Investment Company will significantly enhance Mine Safety’s exposure to this key mining country.
"And Mine Safety is more than just a mining supply firm. It also supplies protective gear and equipment to firefighters, emergency medical workers, and the police. The US Dept. of Homeland Security has been boosting spending on these first responders; that’s a nice tailwind for this business. Mine Safety also makes ceramic body armor for the US and other militaries. Body armor has been widely deployed in Iraq and elsewhere, and demand is growing globally. This is a high-growth business for the company. Buy Mine Safety under 42.50 with a stop at 34.50."
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