The prospects for coal are bright, with strong demand expected to continue on the back of fast-paced growth in emerging markets while supply remains tight until around 2015. But analysts disagree on whether this will translate into strong earnings gains and stock appreciation for coal-mining companies.

Coal prices have soared in recent months as a result of massive flooding in Australia, the world’s largest exporter of the commodity, and weather problems in other key producing areas. Prices will fall once these weather disruptions are past. But demand is strong and prices are expected to remain high by historical standards.

But how much of this is already priced into coal-producers’ stocks. Several analysts — including Darren Lekkerkerker, Boston-based co-manager of the Fidelity Global Natural Resources Fund, sponsored by Fidelity Investments Canada ULC of Toronto — say the coal producers will be generating significant cash flow and their stock prices can go higher. (All companies cited are based in Toronto, unless otherwise noted.)

Others — such as Benoît Gervais, vice president of investments and resources sector manager with Investors Group Inc. in Winnipeg — say costs for labour, inputs and developing new mines will lower margins. At this point, Gervais says, he would invest only in coal producers with leverage achieved through increased volumes, offering a substitute for coal or some technological advantage in the production process.

There are two kinds of coal: metallurgical, used in coking mills; and thermal, used for heating. However, the line between them isn’t as precise as for other commodities because thermal coal can be cleaned and used as coking coal. Metallurgical coal is rarer and, thus, is priced accordingly.

China is a major coal consumer, and its demand far exceeds its production. Gervais warns, however, that China’s steel mill build-out is slowing as that economy shifts to more value-added products.

However, Lekkerkerker adds, demand from India will “ramp up.”

Demand for thermal coal will probably be affected positively by the earthquakes and tsunami that hit Japan in March. But demand was already expected to be strong — and the negative sentiment toward nuclear energy may not last.

Here is a closer look at three metallurgical coal companies: Calgary-based Grande Cache Coal Corp. ; Vancouver-based Teck Resources Ltd. ; and Tampa, Fla.-based Walter Energy Inc. , which has just acquired Vancouver-based Western Coal Corp.

> Grande Cache Coal Corp. By far the smallest of the three companies. Lekkerkerker says Grande Cache’s output is expected to double to about three million metric tonnes by 2013. Its costs are about $134 a metric tonne, which is well below the US$200-US$300 per tonne price range Lekkerkerker expects for the commodity during the next few years.@page_break@A March 4 report issued by UBS Securities Canada Inc. had a “buy” rating on the stock, with a 12-month price target of $11.60. The 97.7 million outstanding shares closed at $8.31 on April 11.

Net income, including comprehensive income, was $24 million for the year ended Dec. 31, 2010, (vs $37.7 million the year prior) on revenue of $251.6 million (vs $220.5 million).

> Teck Resources Ltd. While Teck is one of largest metallurgical coal producers in the world, its stock is not a pure play because the firm is also a major copper and zinc producer. However, most analysts like the prospects for all three commodities.

Teck’s coal production is expected to increase to more than 30 million tonnes by 2013 from 23 million tonnes in 2010. Lekkerkerker says Teck’s coal costs are around $110 a tonne.

Bad weather adversely affected Teck’s coal transportation in Canada and its copper production in Chile. There was a 44-day strike at one of Teck’s coal mines in British Columbia during the first quarter of this year, and the collective agreement at the company’s Fording River coal mine, also in B.C., was set to expire on April 30; Fording accounts for 30%-40% of Teck’s coal production.

Analysts’s reports with “buy” ratings on the stock include Desjardins Securities Inc. (12-month target price of $76), J.P. Morgan Securities LLC in New York ($73), Montreal-based MacDougall MacDougall & MacTier Inc. ($70), TD Newcrest, a division of TD Securities Inc. ($68), Royal Bank of Canada ($65) and UBS ($64). Teck’s 591 million outstanding shares closed at $48.77 on April 18.

J.P. Morgan’s analysts like Teck’s exposure to emerging markets, its organic growth opportunities in both coal and copper, and its 20% interest in some oilsands assets.

Net income attributable to common shareholders, excluding gains from asset sales, for the year ended Dec. 31 was $1.2 billion (vs $1.7 billion the year prior) on revenue of $9.7 billion (vs $7.9 billion).

> Walter Energy Inc. Lekker-kerker expects Walter Energy’s production to grow significantly in the next three years as the firm brings on new mines. Also, costs are very low, at around US$71 a tonne.

The acquisition of Western Coal, completed on April 1, increases Walter Energy’s revenue by about 50% and makes the firm the fifth-largest global metallurgical coal producer. The acquisition also gives Walter Energy access to Asian markets; previously, the firm had been exporting primarily to Europe and South America.

The acquisition is even more valuable in terms of expansion potential. By 2013, production from Western Coal’s assets is expected to increase by more than 60% while the growth from the pre-existing Walter Energy assets will rise by about 20%-25%.

UBS has a “buy” rating on the stock, with a 12-month target of US$163 a share. The 53 million outstanding shares closed at US$128.41 on April 18.

Net income was US$426 million for the year ended March 31 (vs US$106 million a year earlier) on revenue of US$1.7 billion (vs US$1 billion). IE