Why this mining stock surged 6% today in a flat market

What: The S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is virtually unchanged in morning trade. Despite this, Telstra Corporation Ltd (ASX: TLS) has again equaled the yearly high of $5.40.

The star performer has been WHITEHAVEN COAL LIMITED  (ASX: WHC) which today traded up 9.5 cents or 6.4% at the highest point to $1.57. The shares are currently up 5%. The rise resulted from a fourth quarter production report that revealed outstanding results. New records were set for all producing mines during the year and construction remains on schedule and budget for Maules Creek.

The Maules Creek project is the largest coal mine under construction in Australia and will be one of the lowest cost open cut mines. It will produce high quality thermal coal for use by electricity generators and specialist metallurgical coal (MC) for use by steel makers.

So What: This announcement sends mixed signals. While production exceeded expectations, margins remain compressed. The MC price realised US$94 per tonne in the quarter, down from US$101 in the prior quarter. The thermal coal price also dropped US$3 per tonne for the same period.

Other coal stocks today:

Major coal producer BHP Billiton Limited  (ASX: BHP) is only 10 cents up, while New Hope Corporation Limited  (ASX: NHC), which is 60% owned by Washington H. Soul Pattinson and Co. Ltd  (ASX: SOL), remains unchanged.

Now What: Should management predictions for a modest recovery in prices for the metallurgical coal market by the end of the year eventuate, then Whitehaven Coal is an excellent medium-to-long term proposition. However, improving prices are not guaranteed, yet positive momentum remains for high dividend paying stocks like Telstra.

Readers would be well advised to target an undervalued stock with higher dividends and growth than Whitehaven Coal …

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Motley Fool contributor Mark Woodruff does not own shares in any of the companies mentioned in this article.

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