Fording’s Long-term Prospects Look Strong

Article Excerpt

FORDING CANADIAN COAL TRUST $39 (Toronto symbol FDG.UN; Aggressive Growth Portfolio, Resources sector; SI Rating: Extra risk) is a leading producer of metallurgical coal, a key ingredient in steelmaking. It gets 98% of its revenue from its 60% stake in Elk Valley Coal Partnership, which owns six mines along the Alberta-B.C. border. Teck Cominco owns the other 40%. At 2005 production rates, these reserves should last at least 25 years. With further development, the reserves could last 100 years. Unlike most commodities, coal does not trade on a futures market. Instead, Fording must negotiate supply contracts directly with its major customers, mostly steelmakers in Japan and China. About 95% of these are long-term deals that require the customer to buy minimum amounts of coal. However, the two sides negotiate new prices every year. Coal prices still near all-time highs In the coal year ended March 31, 2006, Fording received an average price of $122 U.S. a tonne, more than double its 2005 coal year…

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