Having dealt with some of the largest coal companies out there, like Peabody Energy (NYSE:BTU) and Arch Coal (NYSE:ACI), let's look at one of the smallest -- James RiverCoal (NASDAQ:JRCC). While there are some risk factors to keep in mind here, there could yet prove to be some real opportunity for the stock.

Like most other coal companies, earnings for the first quarter were quite strong. Revenue rose 50%, with double-digit increases in both shipment volumes and realized coal prices. And while costs are increasing at a double-digit rate, margins nevertheless expanded, and operating income was up about 56% for the quarter.

From where I sit, the rising operating costs at James River are linked to some of the aspects that make it an interesting story. Some of the costs are because of growth project expenses like hiring and paying miners before the mine itself is ready. Other expenses are tied to the inefficiency of the workforce -- James River is non-union, but many of its workers are young and not as experienced as at other companies.

James River is a different kind of company in several respects. First, it's one of the only companies that I know of that operates in the Appalachian and Illinois Basin region and is growing its reserves. Second, it seems to have some measure of expertise in working thin seams, and that makes smaller mines that are relatively unattractive to the big folks more interesting (and profitable) to James River. I don't want to push the analogy too far, but it could be something akin to what Apache (NYSE:APA) does in energy -- it's able to work over fields that larger oil companies can't operate as efficiently.

Certainly there are risks here. James River has a lot of unpriced production that makes it vulnerable to movements in the coal markets (good and bad). It also would seem to be in a position where it has to buy new equipment, and companies like Joy Global (NASDAQ:JOYG) and Bucyrus (NASDAQ:BUCY) certainly aren't offering discounts these days. And of course there are risks inherent in mining in general -- safety issues, economic sensitivity, transportation (it relies on Norfolk Southern and CSX (NYSE:CSX) to some extent), and so on.

Here we have a small, fast-growing company with growing reserves made up of rather valuable coal. We also have a stock that has significantly lagged its peers in the last year. Assuming that free cash flow grows like I think it should, this could yet be a relative value in a sector that should have strong fundamentals for at least a couple more years.

For more Takes on the coal sector:

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