Sector Watch: Coal stocks

While much attention is focused on soaring oil, coal has followed a similar trajectory with prices up more than 60% this year, benefiting James River Coal Company (Nasdaq:JRCC) and National Coal Corp. (Nasdaq:NCOC), two small caps poised for triple-digit growth next year as a result of increased production and higher pricing. 

James River Coal mines, processes and sells bituminous, steam and industrial-grade coal through its six operating subsidiaries spread across Kentucky and Indiana. At year-end 2007, the company controlled approximately 267.9 million tons of coal reserves. It operates 15 underground mines, 11 surface mines,10 processing plants, and it produced 11.2 million tons of coal last year. Another 880,000 tons were purchased by the company for resale. James River sells most of its production to electric utilities and industrial companies.

Acquisitions and operational improvements are the company’s main strategies for increasing production and profits. Last month, James River signed an agreement to purchase coal reserves and permits from Kentucky-based Cheyenne Resources for $40 million. The deal includes 13.8 million tons of proved and probable reserves. The acquired mines are expected to produce at a 500,000 ton run rate by year-end 2008. During the 2008 first quarter, the company also completed a connecting beltway between two mines that allows coal to be belt driven to a processing plant, eliminating a 23-mile truck haul. In addition, operations ended at a high-cost,underground mine and began at a new lower-cost mine in April. Finally, James River completed shipments under older, low-price contracts in the first quarter, replacing these with . . .

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