Fording's Cool Coal Sales

Fording Canadian Coal (NYSE: FDG  ) is a Canadian Royalty Trust (CanRoy) that owns an interest in a metallurgical coal-producing partnership along with miner Teck Cominco (NYSE: TCK  ) . Much like a REIT, the trust passes through all of its profits to shareholders in the form of monthly distributions. Unfortunately, those distributions tighten up when results turn down.

That's exactly what's happened this year. Fording's price realizations have fallen 13% this year, measured in American greenbacks. The fall is even steeper in terms of native Loonies, which have appreciated strongly against the dollar. A lot of this weakness stems from the miners' achievement of significant production increases since coking coal doubled in price to $125 a ton back in 2005. Revenues came in 9% below last year, and quarterly distributions fell a dizzying 35%.

It might seem unfair for this industry to be punished for its success, but such is life in the natural resources sector. Targets are always moving, and things like nasty weather and port congestion can wreak havoc on the best-laid production plans.

In the case of Fording, you're actually investing in the capabilities of Teck Cominco, whose affiliate manages the partnership's mining affairs. You could do a lot worse in that regard -- Teck is a terrific miner. But if you're looking for leverage to relatively near-term coal prices, I think you could do better. Fording's coal prices are locked into full-year contracts through the end of March 2008. While Peabody Energy (NYSE: BTU  ) also faces some difficulties in the North American market, it has more exposure to the spot market, particularly through its growing coal trading operations. I only wish Peabody were priced as cheaply as Fording. Each has its charms, but neither looks like a compelling buy today.

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Fool contributor Toby Shute tried to ford the river, and all his oxen drowned. He doesn't own shares in any company mentioned. The Motley Fool has a charming disclosure policy.