It said it supported Cockatoo’s strategy of shipping pulverised coal injection grade coal – which is used in steel making – as its primary commodity.

“We are pleased the company has advanced Cockatoo’s North Baralaba mine as it will produce metallurgical coal,” Fat Prophets said.

“We hold a positive view of metallurgical coal as it is a key ingredient in the manufacture of steel.

“Our view is premised on steel production in China remaining at robust levels and the rest of the world showing marginally higher levels of production.”

Australian hard coking coal is trading around $A113 per tonne. PCI coal prices could be discounted down further.

“Operating margins in the current pricing environment will be very fine,” Fat Prophets said.

“We remain very supportive of the development approach Cockatoo Coal is taking to build value in its Baralaba PCI asset.”

The matching of production with market access through Queensland’s congested coal terminals has been a key to Fat Prophet’s confidence in the company.

“Despite the backdrop of negative investor sentiment towards the sector in general, the company continues to drive to becoming a premier medium-sized Australian PCI coal exporter,” it said.

Cockatoo’s shipments of PCI coal for the March quarter 2014 was significantly higher than for the same quarter in 2013 by 160.3%, at 158,310 tonnes.

Shipping PCI coal attracts a higher premium price than thermal coal, while mine extraction costs are compatible.

This makes for higher operating margins for Cockatoo, Fat Prophets said.