Fording hopes steel signals turnaround
Stock down 40% from 52-week high
Shaun Polczer
Calgary Herald
Wednesday, May 02, 2007
Fording Canadian Coal Trust is hoping a rebound in global steel markets will help to reverse sagging fortunes in 2006, the company's CEO said Tuesday.
"Today the steel market is very strong, with very strong prices for their steel products and very high rates of production. We like that very much," Boyd Payne said following the company's annual general meeting in Calgary.
Fording holds a 60 per cent interest in Elk Valley Coal, the second-largest metallurgical coal producer in the world, with West Coast mining giant TeckCominco holding the rest.
Unlike thermal coal used to generate electricity, Fording is only one of a handful of firms that produce hard coke used in blast furnaces to make steel.
Four of the top five producers that control more than two-thirds of the global supply are based in Australia, with Fording as the sole exception.
After a banner 2004 that saw unitholders enjoy 100 per cent returns, growth slowed and eventually declined starting in 2006. Fording's units, which gained three per cent or 76 cents in Toronto to close at $27.32 on Tuesday, are down about 40 per cent from a 52-week high of $42.20.
In April, the company reported lower than expected first-quarter results after particularly bad weather in British Columbia lowered production from the company's Elk Valley and Cardinal River mines.
Windstorms in the early part of the year played havoc loading offshore cargoes. Fording was also hard hit by rail strikes that impeded transportation to the coast.
The setbacks came on top of a higher Canadian dollar, lower steel prices and weaker demand, particularly in China.
Payne warned that a larger than expected snow pack in the high mountains could put a further damper on spring coal output.
In addition, the company is suffering the same cost pressures associated with shortages of manpower and materials faced in the oilpatch.
The lower quarterly numbers prompted the trust to slash distributions by almost a third while it rides out the down cycle.
Chairman Michael Grandin told the meeting the federal government's decision to revoke trusts' tax-advantaged status capped off the company's annus horribilis.
"The past year hasn't been that much fun," he said. "But we've been through a number of downturns before."
Also looming on the horizon are provincial and federal government-mandated efficiency targets for greenhouse gas emissions.
Payne noted that Fording's emissions footprint is lower than comparable thermal coal producers, but said the company would struggle to meet the new benchmarks nonetheless.
The biggest chunk of the company's operating costs come from earth moving and transportation.
"The biggest thing for us is to improve efficiencies," he said. "That's the key thing for us. We need to look at the efficiency of our operations."
Despite the gloom, Payne said Fording is looking for emerging markets like Brazil to fuel a rebound in 2007.
"We have all the things we need to succeed," he said. "Our future is very strong."
spolczer@theherald.canwest.com
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