No doubt about it, coal prices have been hopping. Yet when you compare coal with natural gas, the price still doesn't look all that bad -- a ton of coal has, on average, 20 times the BTU energy content of 1,000 cubic feet of natural gas, but a ton of steam coal sells for only about five times as much. Now, there are plenty of reasons why coal shouldn't trade at parity with oil or natural gas, but the point is that this is a very good environment for coal companies like Massey Energy (NYSE:MEE) -- the seventh-largest coal company in the U.S.

Total revenue in the fourth quarter was up more than 14%, as coal revenue climbed 18% on just a 4% increase in tonnage sold. The difference came from a double-digit rise in revenue per ton of coal sold (up almost 13% on average). While expenses are on the rise as well (cash costs were up more than 16% per ton this quarter), Massey nevertheless converted a year-ago loss to net income of $3.1 million after adjusting for the costs of certain financing transactions. Presented differently, operating income (again adjusted for financing) more than tripled from the year-ago quarter.

As we heard from Peabody (NYSE:BTU), Massey too will experience restricted production growth this year. It's not railroad tie-ups that are impairing Massey, but rather the aftermath of a fatal fire at one of its mines. That said, the company's new guidance still calls for production growth of about 12%, with a single-digit gain in 2007.

Longtime readers of my columns know that I'm not a big fan of relative valuation approaches. That said, it's very difficult to project the coal price, production, and cost levels accurately enough to come up with a good cash flow model. So I'll turn instead to the ratio of companies' enterprise value to proven and probable coal reserves, expressed in dollars per ton:

Company Ticker EV/Proven and
probable reserves
Massey Energy MEE $1.59
Arch Coal ACI $1.67
CONSOL Energy CNX $1.49
Foundation Coal FCL $1.46
Peabody Energy BTU $1.41

While this might suggest that Massey and Arch Coal are overvalued, consider this: Arch Coal has more of the highly desirable Powder River Basin coal in its reserves, and Massey has meaningful reserves of metallurgical coal -- a type of coal used in steelmaking that typically sells at a premium to steam coal (a 41% premium in the case of Massey's fourth-quarter operations).

In any event, barring a total collapse in coal prices -- which seems unlikely given inventory and production levels -- it seems that the sector as a whole has room yet to run. Still, don't let enthusiasm for the stocks lead you into paying more than your due diligence suggests you should.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).