Hard Hard Coal

In the offices of Drexel & Co., Philadelphia associates of J. P. Morgan & Co., there is an upstairs room on the walls of which are large maps. When Drexel-Partner Thomas Newhall is talking about Philadelphia & Reading Coal & Iron Corp. (he is chairman of the executive committee, also a director), he is very likely to take his listener to this room, punctuate sentences with references to the maps.

Philadelphia & Reading Coal & Iron Corp., known to stockmarket traders as PRC, is a holding company formed in 1923, marking the complete segregation of Reading Railroad's coal properties. For the first few years after 1923, it is safe to say that PRC's bankers, Drexel & Co., were not especially proud of these properties. Production fell off, profits came hard, sometimes did not come at all. In the opinion of coalmen, statisticians and investors, PRC was definitely on the downgrade. Now Drexel-Partner Newhall is very apt to feel proud when he points to PRC maps. A noble experiment seems to be working out.

In the matter of production, PRC is one of the two largest anthracite mining companies. Glen Alden Coal Co. is the other, but Glen Alden carefully withholds figures that might settle the question of production primacy. PRC has underground reserves of 2,700,000,000 tons, which amounts to one-third of all known anthracite reserves in the U. S. And its average annual production of slightly under 10,000,000 tons constitutes one-eighth of the U. S. total. Its workers number 26,000.

With this physical foundation for possible prosperity, a rehabilitation of PRC was begun in 1927. A new president was obtained. He was Andrew J. Maloney, 46, vice president and sales manager of a western coal company. Looked at externally, the choice was startling. President Maloney's experience had been in bituminous coal, and between the bituminous and anthracite businesses there is a difference almost as great as between handling airplanes and handling airships, building bridges and building skyscrapers. But men who knew Mr. Maloney praised the Morgan choice.

Andrew Maloney's grandfather was a coal miner in the Pennsylvania anthracite fields. So was his father, who rose from the mines to a constableship. By the time Andrew Maloney was eleven, he himself was working in the mines. Once, during a shutdown, he studied stenography. A few years later his brother, a Philadelphia telegrapher, obtained work for him as a stenographer and usher in a vaudeville theatre. He went to Philadelphia, was discharged in a week. He obtained work with a sewer-pipe sales agency. The firm failed. He went to work for a metallurgical engineer, learned how to read blueprints. Six months later he went to work for a cement firm. By 1906, when he was 22, he was making $125 a month, had helped bring his parents to Philadelphia. One day he was summoned to his employer's office. The owners of the cement company had coal mines in Illinois. Three successive managers had resigned, the last one taking with him the entire sales force. Salesman Maloney was asked if he would take charge. For the next 21 years mounting production figures, mounting profits, wrote the biography of his success in the bituminous field. And then PRC found him.

Few men who have met President Maloney fail to tell their friends about him. Work in the mines gave him a physique such as few tycoons possess; 16-hour mine days gave him an enormous disdain for the eight-hour office day. He speaks briefly, forcefully, never detours issues. His formula for success is simple, not banal: "I have not cluttered my head with things not in my line."

The first of President Maloney's moves was to inspect the PRC properties. He did not find things just the way he would like them. Steam was the chief power used by PRC. It was produced in hand-fired boilers, carried in long, wasteful pipes. There were 32 old, uneconomical coal breaker-plants. A large amount of haulage was done by mules.

Engineers from Stone & Webster were called in. They prescribed complete electrification, the construction of six large central breakers. They said $30,000,000 would be needed and compiled a table showing that if the work had been done six years before, PRC's profits, after interest charges on the new money, would have averaged $1,525,000 a year instead of $594,000.

About a year after this inspection, PRC raised the needed money by floating a $30,800,000 debenture issue. Apparently even the name of Drexel on the offering would not have been sufficient to sell it as a straight 6% issue. The bonds were given the remarkable conversion feature of being exchangeable at any time during their 20-year life into 40 shares of common stock.

With this cash the modernization was begun. Last year was still too early to show results, and a deficit of $950,000 against 1928's profit of $33,000 was reported. But in 1927 the company had lost $6,218,000. For the first quarter of this year (no statements since then) PRC made $650,000, and while of course summer profits will not be so much, the company's inventory now is relatively low, its production growing at a rate greater than the industry's average.

Last week a deal was announced which removes one of the mysteries in PRC, will also be a milestone in its history. Long have there been rumors that PRC would go into the power business, using its own small grade anthracite and reclaiming culm banks for fuel. Last year, with several such power plants operating, PRC sought power franchises in 33 townships. Last week all PRC power properties were sold to Pennsylvania Power & Light Co., prosperous subsidiary of National Power & Light Co., member of the Electric Bond & Share group. In return, PRC will be given a large block of National Power & Light stock, the size of which remains undisclosed.* Included in this deal is a power site at Herndon, Pa. on the Susquehanna, where a 1,000,000 horsepower dam is contemplated. Important clause in the agreement is a long-term contract by which PRC will obtain its power from Pennsylvania Power & Light which, in turn, will buy anthracite from PRC.

Thus last week PRC perhaps moved a step nearer prosperity. And Drexel-Partner Newhall had new things to tell about PRC. But the anthracite road has become rough. Although most of the consumption is by domestic users (80%), therefore relatively steady, these users have been hard to hold. One reason is that the coal companies have had difficulty in making regular deliveries. This has made the consumers ready to accept such substitutes as gas, oil. Then too, imported coal has been mounting. The U. S. S. R. and Wales have been leading foreign sellers of coal to the U. S., but last fortnight Burns Bros., most potent distributor of coal in the New York area, announced it would start importing some anthracite from Germany. If Andrew J. Maloney, flanked on one side by Stone & Webster engineering skill, on the other by Morgan-Drexel financial shrewdness and potency, can lead PRC to stability of earnings, perhaps eventually to dividends, he will have won one of the hardest battles in U. S. industry.

* Big stockholder in National Power & Light is Lehigh Coal & Navigation Co., which in 1928 exchanged power properties for 610,000 National Shares.

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