Fording Canadian Coal Trust (FDG)

According to Yahoo Finance, Fording Canadian Coal Trust operates as an open-ended mutual fund in Canada. The trust owns a 60% interest in Elk Valley Coal Partnership, which produces and sells seaborne metallurgical coal. The partnership’s primary product is hard coking coal, which is a metallurgical coal that is used primarily for making coke in integrated steel mills. Elk Valley Coal owns interests in six open-pit mines that consist of Fording River, Coal Mountain, Line Creek, Elkview, and Greenhills mines that are located in the Elk Valley region of southeast British Columbia; and Cardinal River mine located in west central Alberta. Fording Canadian Coal Trust also owns 100% interest in NYCO, which engages in wollastonite mining operations in New York State and Mexico, and Tripoli mining operations in Missouri. Its product wollastonite is an industrial mineral that is primarily used in the manufacture of automotive composites, adhesives and sealants, metallurgical fluxes, friction material, paints and corrosion-resistant coatings, fire-resistant construction wallboard, cement-based products, and ceramics; and Tripoli is an industrial mineral that is used primarily in buffing and polishing applications. As of December 31, 2005, Elk Valley Coal had proved and probable mineral reserves of bituminous coal of approximately 682 millions tonnes, as well as NYCO had 111 millions tonnes of proved and probable mineral reserves of wollastonite and Tripoli. Fording Canadian Coal Trust was founded in 1991 and is headquartered in Calgary, Canada.

Fording looks more like a gold mine than a coal mining operation. FDG’s has been around about five years. It has outperformed the S&P 500. The current yield is 16.47%. Dividends are paid in Canadian Dollars, so they will fluctuate with the payout and with the exchange rate. Essentially all of the company’s income is paid out as dividends. Net income has increased by a factor of ten since 2001. Annual dividend payments from 2003 - 2006 have been .12, .74, 1.13, and 4.02. The stock has a low beta of .64, a Price/Earnings ratio of 6.1, and a Price/Cash Flow ratio of 5.4. The stock has a low 3-year correlation to all S&P sectors, the highest correlations being for energy, utilities, and industrials at .65, .55, and .42 respectively.

After a sharp nosedive, FDG’s trend appears to have turned up. The stock reached a high of 45.15 in 2005, then declined to a low of 18.90 in November 2006 due to several factors: legislation to impose heavy taxes on dividends from Canadian Royalty Trusts; an ongoing correction in the bull market for energy products; and the recent decline of the Canadian Dollar against the U.S. Dollar. FDG has subsequently rallied from the 18.90 November low to a high of 23.87 last week, where it became overbought, and it is now in a consolidation pattern. The Canadian Dollar has been rallying strongly this week too, after declining from 91.42 last summer to 84.22 last week. I do not own FDG now but I may buy some in the near future. If the proposed taxation of CANROYs does come to pass, I am willing to share some of the generous and rising dividend stream with the Canadian government to help fund their wonderful medical, educational and social services.