FORDING CANADIAN COAL TRUST $71 (Toronto symbol FDG.UN; Aggressive Growth Portfolio, Resources sector; Units outstanding: 148.7 million; Market cap: $10.6 billion; SI Rating: Average) is one of the world’s leading producers of metallurgical coal, a key ingredient in steelmaking. It came into existence as part of the break-up in October 2001 of the old Canadian Pacific holding company, rather than a new issue from a broker. Fording’s reserves should last 25 years at current production rates.

Fording’s main asset is its 60% stake in the Elk Valley Coal Partnership, which operates six coal mines in British Columbia and Alberta. Teck Cominco owns the remaining 40% of Elk Valley, and operates the partnership. Teck also owns 19.95% of Fording’s units, which gives it an effective 52% stake in Elk Valley.

In the first quarter of 2008, Fording’s earnings before unusual items fell 45.8%, to $0.26 a unit from $0.48 a year earlier. Cash flow per share fell 28.3%, to $0.38 from $0.53. Sales fell 5.3%, to $332.0 million from $350.5 million. Lower coal prices offset a 22% jump in production. Fording sells its coal in U.S. dollars, so it’s also vulnerable to the rising Canadian dollar.

Due to growing demand for steel in China, plus supply shortages caused by flooding at coal mines in Australia, Fording’s average price per tonne for the current coal year will rise to around $275 U.S. from $93 U.S. in the prior year.

Unlike most commodities, there is no futures market for coal. Consequently, Fording must negotiate new prices directly with its customers. Fording has now finalized contracts covering about 90% of its expected production for the coal year that began on April 1, 2008.

Fording’s quarterly distributions peaked at $1.80 a unit in 2005, but have moved down to $0.50 in 2008 for a current yield of 2.8%. However, higher coal prices should let Fording raise distributions later this year.

Fording is still reviewing various strategic alternatives to increase unitholder value, including the sale of certain assets or the entire company. The units have gained over 80% since the start of 2008 on the prospect of a big jump in coal prices, so a sale seems less likely now.

Despite the sharp rise, the units trade at just 9.7 times Fording’s projected 2008 earnings of $7.33 a unit.

Fording is a buy. However, investors may wish to take partial profits, particularly if Fording now represents more than 10% of your total portfolio.