Paradigm Analysts: High Value in Western Canadian Coal Corp.

Like all other small mining companies, shares of Western Canadian Coal Corp. (WXJXF.PK) have been clobbered in the last couple of months, falling from a high of C$10.99 in June, to just over C$4.00.

Paradigm Capital analysts Jacob Willoughby and Dave Davidson think it is going right back to where it was. They initiated coverage on the stock with a "buy" rating and a target of C$11.00 a share.

They point out the obvious: metallurgical coal prices are at record levels and are expected to stay high for some time. Western Canadian, meanwhile, is slated to produce 3.5 million tons of it this year, and has the resources to ramp up to 7 million in 2012.

With coal prices locked in for the fiscal year, the company's profitability is also quite reliable. They wrote that Western Canadian is generating C$1 million in cash flow a day, and adjusted net margin should continue to increase in the coming quarters (it was 28% in the first quarter of fiscal 2009). Also, Western Canadian has excess port and rail capacity that allows it to boost output. Those are major constraints for other coal companies in Canada and Australia.

The target of C$11.00 a share is based on a multiple of just one times net asset value. The analysts noted that their NAV calculation makes some "fairly conservative assumptions" on Western Canadian's future capital requirements. The long-term metallurgical coal price assumption is $160 a ton, which is way below current levels.

Comments

[Don-n-ABQ:]

I wonder what they think now?

Oh, maybe they meant C$0.11, not C$11.00....

Mar 08 12:24 AM