UPDATE 1-Dahlman starts James River Coal with buy

June 11 (Reuters) - Dahlman Rose began coverage of James River Coal Co (JRCC.O) with a "buy" rating, citing attractive contracts and improving liquidity, and said the coal producer is a logical takeover target for potential consolidators in Central Appalachia.

The company's assets are near or adjacent to a number of larger players in the region, including Massey Energy Co (MEE.N), Alpha Natural Resources Inc (ANR.N), International Coal Group Inc (ICO.N) and TECO Energy Inc (TE.N), the brokerage said.

"In addition to geographic logistical synergies, JRCC's small size and non-union work force make it an attractive potential takeover target," analyst Daniel Scott wrote in a note to clients.

The Richmond, Virginia-based company, whose operations are located in the Central Appalachian basin of the United States, mines and sells bituminous, steam and industrial-grade coal in Kentucky and Indiana.

The company is well positioned with attractive contracts through 2011, which should translate into strong positive free cash flow for the company over the next three years, helping alleviate liquidity concerns, the analyst said.

Scott set a price target of $28 on the stock, which was up 2 percent at $22.85 in morning trade on Nasdaq.

Shares of the company have traded in the range of $5.05 to $62.83 in the last one year. (Reporting by Hezron Selvi in Bangalore; Editing by Deepak Kannan)