This from Investment U:

Consider that your computer could contain up to 38 separate chemical elements and that all of those elements needed to be mined and refined. Everything from cell phones to housing supplies requires massive amounts of raw materials.

Our modern lifestyle encourages us to buy the latest products, all made with increasing amounts of technology – and more raw materials.

But industrialized nations aren’t the only players clamoring for these commodities. Developing nations around the world are pounding the table for more of everything. They want what the industrialized west has had for years. And they want it now.

And that’s just the problem. There isn’t enough of it being produced fast enough to satisfy everyone. An imbalance exists between producers, supplies and the market. It means that there will be an inevitable correction.

Prices will skyrocket for base metals and commodities. And for investors aware of this “supercycle,” the rewards and returns could be immense. Here’s what you need to know about the international demand for commodities – and how you can profit from their price explosion.

Supplies Are Low – And Demand Remains High

The whole idea of a supercycle, of higher commodity prices, remains well intact. Even with the recent slowdown, a massive supply/demand imbalance exists in the marketplace right now.

And nothing has emerged to change that story.

“It is a mistake to assume that current volatility within the commodities sector is proof that the prolonged rally in commodity stocks is running out of steam,” says Ian Henderson, manager of the JPM Natural Resources Fund.

“It is also misrepresentative to attribute it to a change in the basic fundamentals of supply and demand… In reality, it is the self-perpetuating irrational market sentiment in itself which is causing a sell off…”

In the short term, however, we’ll likely continue seeing a softening of commodity demand, along with a decline in prices. But that’s okay because stock prices already reflect the new paradigm in which mining companies are operating.

Mining companies sit at extraordinary valuation levels right now. So buying now ensures that you’re grabbing shares at rock-bottom prices.

But in order to make the most of the opportunity, you need to look above the forty-ninth parallel, to Canada – the world’s investment hotspot for profits from the bull market in metals.

Simply put, Canada is the preeminent leader of the world’s mining sector. According to Paul Stothart, Vice President of Economic Affairs at the Mining Association of Canada,

“About 19% of the total global spending on mining exploration was for exploration within Canada’s borders, well ahead of Australia at 13% and the U.S. at 8%…”

Consequently, Canada’s mining industry will be crucial to satisfying the world’s needs because of its experience and technological capacity. And Canada’s mining-friendly laws only add to the country’s investment appeal – a far cry from other resource-rich countries where regulators are downright hostile. But it’s not just the producing nation that we need to worry about.

Fact is, the United States, Europe and Japan are no longer the only countries vying for the world’s resources. Other countries with young, blossoming economies are now demanding an increasingly larger piece of the pie.

The BRICs (a conceptual coalition of emerging superpowers, which includes Brazil, Russia, India and China) encompass over 40% of the world’s population and hold a combined GDP of $12 trillion dollars, which makes it the largest entity on the global stage on almost every scale.

These countries are in the midst of an unparalleled building boom that is consuming resources like never seen before.

In China right now, a city the size of Philadelphia is springing up every 30 days. (It is estimated that China will need enough structural steel to build a Manhattan’s worth of new buildings every year for the next two decades.) And within another 20 years, China’s economic output is likely to be greater than Japan’s, greater than Germany’s, greater, even, than the United States’.

In short, these countries are going to be fueling international growth for years to come. They’re hungry for the new resources needed to continue their astronomical growth.

Solid Growth at a Deep Discount

Now that you see the potential, there are plenty of ways to profit from this commodities boom. You could trade futures… stockpile gold coins… even buy a copper mine. Unfortunately, none of these approaches – for obvious reasons – are very practical. They don’t make sense for the majority of investors.

But that doesn’t mean that we can’t profit like the titans of Wall Street. The recent turmoil in credit markets – and corresponding volatility in the stock market — has handed us an extraordinary profit opportunity for a number of companies

So we’re advocating a more direct approach to mineral profits. With such a pure supply-and-demand opportunity, a more pure play on precious metal prices is warranted for the largest gains. Accordingly, we’re going straight to the source and recommending buying shares of the mining companies themselves.

Lundin Mining Corp. (NYSE:LMC) is a Canadian mining company with facilities located around the world, which is run by its namesake, the Lundin family. They are easily the most important family in mineral and energy exploration finance around the world.

They amassed a fortune in commodities – valued in excess of $4 billion – when oil cost about $20 a barrel and gold traded for $300 an ounce. By having an innate ability to spot value. In fact, just about everything this family associates with ends up being a massive commercial success.

The Lundin family’s flagship mining operation is trading in the $1 to $2 range, which is about 70% off of its October 2007 high, thanks to the recent commodity cool-off. That means that investors who buy now will get this incredible mining operation for less than half of its book value. Even better, our analysts say that the book value should be much higher than it is, which makes the case for investment here even stronger.

Furthermore, LMC has no debt, which gives it an incredible edge over most other industry players. It can fund its growth entirely on the cash it generates from operations – and not have to rely on the credit markets.

Fact is, the credit crunch is far reaching. And tighter lending practices have meant fewer loans to risky mining ventures. That leaves most miners in a pinch – but not LMC.

Lundin Mining is a phenomenal play on base metals, specifically copper, nickel, lead and zinc. Its operation includes six mines around the world, including five key mines in Portugal, Spain, Sweden and Ireland. Here are some highlights of these massive and highly productive mines:

• Zinkgruvan, Sweden: The primary metal produced is zinc, with lead and silver as byproducts. Costs have been reduced by 22% over the last year and new copper production is scheduled to begin in 2010.
• Neves-Corvo, Portugal: It’s an underground copper and zinc mine. Last quarter’s sales surged 52% over the same quarter a year ago. And it just approved a new program to profitably process mine tailings, which should substantially improve margins. (Mine tailings are the materials left over after processing the ore.)
• Aguablanca, Spain: This nickel and copper mine recently bumped operating efficiency up 46%.
• Galmoy, Ireland: About 100 miles from Dublin, the lead and zinc mine benefits from having a sound infrastructure already in place.
• Aljustrel, Portugal: The lucrative zinc mine is still ramping up capacity, which gives us an opportunity to get in on the ground floor.

What’s more, Lundin Mining has a few up-and-coming operations in the pipeline that are showing incredible promise, too.

One is the world class Tenke Fungurume copper/cobalt project in the Democratic Republic of Congo. It’s being touted as the largest and richest known copper/cobalt discovery in the world, covering almost 600 square miles of the Katanga Province. This blockbuster mine has an expected life of 40 years. And is projected to be in the lowest quartile of operating costs for copper producers.

The reasons for owning Lundin are numerous, but in spite of its enviable (and growing) inventory of proven reserves, shares can be had for a steep discount. The company is valued at $2 billion, which is only 0.63 times its book value. Even better, the forward price-to-earnings ratio is a measly 5.73, despite the company’s mines having a growth rate around 30% to 35% a year.

The market’s been noticing Lundin’s value as well. In recent days, a takeover bid has emerged that could drive share prices higher if it’s approved. However, in light of the number of merger agreements that have gone unfulfilled, there may not be a takeover.

Regardless, of whether it happens or not. These developments should serve to remind you that while the market may not see the value in Lundin, it’s competitors do. And so do we.

Source: Unearth Big Gains from the Commodity “Supercycle”

It’s no secret that China has largely been responsible for the commodity run-up of the past few years. Now the question remains if the latest deal with Cuba could give China a new lost-cost provider of commodities. If so, it could be a bit of bad news for investors looking for a China-driven commodities run-up.

On Tuesday, Chinese president arrived in Cuba as part of a Latin American tour to strengthen ties with the resource-rich region. And his timing was impeccable.

Just weeks after Cuba’s farm sector and overall economy were rocked by three hurricanes which inflicted more than $10 billion, China parachuted in with almost a dozen trade agreements, according to Cuba’s state-run news agency.

In exchange for wider access to Cuba’s natural resources, China will rehabilitate the country’s decrepit infrastructure.

High on China’s Cuban shopping list were nickel, sugar and other agricultural products. By going direct, China is able to bypass the public markets whose fortunes have been riding on its voracious appetite for commodities.

As it now stands, China is Cuba’s second-largest trading partner, with both sides generating $2.7 billion annually – only about 3% of China’s overall trade with Latin America last year. This ranks China as second, after Venezuela, whose trade with Cuba was pegged at $7 billion.

While it may be easy to pooh-pooh Cuba’s contribution as minor, the fact is the Castro brothers are sitting on a bounty of nickel, tobacco, sugar, offshore oil, iron ore and copper. And most of it could conceivably head straight into China, deflecting potential gains from the open markets.

Earlier this month, when China said it would spend an estimated $586 billion over the next two years on a massive national infrastructure build-out, the commodity bulls roared out of the gates – expecting this new initiative to give prices a boost.

At the time, we wrote that the impact of the China plan would be minimal on commodity prices – and now with the Cuban deal we’re sticking to our guns.

But if anyone really wants to know what China’s plans for Cuba really are, just look to Macau.

Venezuela has finally come out and stated that it is taking over (TSE:CRY) Crystallex’s Las Cristinas gold project. The Venezuelan government aims to have it up and running next year. Crystallex fell C$0.13 to close at C$0.38.

Shares of Pure Nickel (TSE:NIC) added C$0.03 to close at C$0.10 after the company granted a Japanese firm the right to earn up to 75% of the Man property in Alaska by spending $40 million.

Atac Resources (CVE:ATC) hit 46.42 metres running 2.92 grams gold per tonne at its Rau property in the Keno Hill district of the Yukon. Atac ended the session up C$0.015 at C$0.125.

Upstart Gold Wheaton(CVE:GLW) tabled a third quarter loss of $2.3 million on the sale of 10,804 ounces of gold. At the end of the quarter the company had some $67 million in cash. Gold Wheaton ended the day unchanged at C$0.38.

The election of a historical new president in the United States was not reason enough for a stock market rally. The winning streak for the junior bourse ended at six but there still appears to be more buy side interest then we have seen in several months. We will see what Thursday trading has in store.

Source: Resource Stock Roundup…Thursday, November 06th, 2008

Many of the mines in ROY’s portfolio are not yet producing. When they do, and commodity prices recover, ROY stands to make serious profits.

This from The Rude Awakening:

When panic guides the financial markets, reason is an orphan. It enjoys no comfort whatsoever. It wanders aimlessly – wondering when it sorrows might end. But the sorrows do end eventually. Reason does ultimately reunite with profitable investment results. Therefore, the successful investor clings to well-reasoned tactics, even when the stock market calls him crazy. At the moment, the stock market is calling a lot of investors crazy. But successful investors use such moments to capitalize upon the stock market’s lunacy. They use these moments to buy good stocks on the cheap.

International Royalty Corp seems like a good stock that has become way too cheap.

International Royalty Corp. (AMEX:ROY) is like a big bucket of call options on more than 80 mining projects. But the great thing about these options is that they don’t expire. Only one of ROY’s projects is really producing big cash flow. A few gold mines come online in 2008. And then you have 78 other properties that could pay off down the road.

ROY is a unique company. It doesn’t operate any mines. It doesn’t own any mines. What it does is acquire royalties. Basically, ROY is like a venture capitalist of mining companies. It provides funding. Early in a mine’s life, before anybody is sure what might come of it, a miner might go to investors and partners and look for ways to spread the risk a bit.

Enter ROY. The management team at ROY takes a look at the property and runs it through their hurdles. If they like it, they come back and say something like, “OK, we’ll give you $10 million. In exchange, you pay us 3% on the gross price, minus shipping and insurance costs, of everything that comes out of this mine for the life of the mine.” Also, ROY points out, it’s up to the miner to run the place. “It’s still your mine, Mr. Miner, and any other money required will have to come out of your pocket.”

The miner says yea or nay. If it agrees, it gets its money and starts work on the mine. It may be years before the mine produces anything. It may never produce much of anything at all. Or it could turn into a huge mine… in which case, ROY’s little initial investment pays off big.

This is what happened with Voisey’s Bay, which turned into a huge nickel mine. The miner in this case is a giant – Companhia Vale do Rio Doce (CVRD). No one knows just how much nickel CVRD will get out of Voisey’s Bay. But right now, Voisey’s Bay is one of CVRD’s core assets. CVRD has sunk nearly a billion dollars into it. The mine should produce for 20-25 years yet.

Voisey’s Bay beckons comparisons with Goldstrike, a fabulous gold mine owned by Newmont (NYSE:NEM). A little royalty company called Franco Nevada had the royalty on that mine. It went up 50-fold over a decade. Shareholders who sunk some money in Franco Nevada and just sat on it got rich.

Some call Voisey’s Bay the Goldstrike of nickel…

And ROY has a piece of it. Every ounce of nickel that CVRD pulls out, ROY gets a cut. Doesn’t matter if CVRD makes money or not. Doesn’t matter what happens to mining costs. When CVRD pulls nickel out of Voisey’s Bay, a piece of the proceeds goes right in ROY’s pockets.

This makes ROY a straight-up play on metals. Higher nickel prices mean more money for ROY. More volume through the mine means more money for ROY. It’s price and volume, and that’s it.

Well, that’s not all…

Because ROY owns a portfolio of royalties, not just Voisey’s Bay. Most of them don’t produce anything right now. But they may. And most certainly, some will. Recently, ROY picked up another 16 royalties from mining giant Rio Tinto (NYSE:RTP) for $61 million in cash. It was a big acquisition for ROY, boosting its total portfolio by 20%. Now ROY owns a portfolio of over 80 royalty properties.

And so what?

Now that commodity prices are tanking, ROY’s share price is also tanking. This looks like a buying opportunity to me. Commodity prices will recover eventually. And when they do, ROY’s stock should provide ample rewards.

Source: A Good, Cheap Stock

Zinc slumped badly from the pre-dawn hours straight through, just coming off its intraday lows to end at $0.8345/lb., down 6 2/3 cents. Aluminum also hit the skids day-long, finishing at $1.4362/lb., down 4½ cents, while lead took a very jagged path back to its starting point, at $0.8946/lb., unchanged.

Copper’s loss was its biggest in a week, as traders gave in to negative thoughts that a global economic slowdown will reduce demand.

“The atmosphere of gloom and doom about the economy is severe,” said William O’Neill, of Logic Advisors in Upper Saddle River, New Jersey. “We’re seeing an economic malaise that’s not bullish for long-term copper demand.”

Bernanke didn’t help generate any enthusiasm when he told Congress that a weakening housing market, tighter credit conditions and rising oil prices threaten the economy.

And, “There’s no evidence that we can expect a turnaround in the economy anytime soon,” O’Neill added. The problem is that, “It’s not just the U.S., it’s global. The pervading factor here is that there is virtually no confidence that there is going to be any imminent change.”

On the supply side, inventories monitored by the LME rose 325 metric tons, to 125,050 tons on Tuesday.

Copper will continue to fall given that global weakness, Standard Chartered prognosticators wrote yesterday. Usage in China, for example, which rose 17% last year from 2006, will slow to an increase of 8% this year, in their opinion.

And Platt’s chipped in, saying that, “The demand side does not look like it is getting better. In the absence of any fresh labor problems or production problems, the market could be prone to working itself down toward the $3.60 area.”

Despite all the dark talk, though, the fact is that copper remains within spitting distance of its alltime high.

Source: Base Metals Little Changed, Growth Issues Keep Lid On

Nickel poked through the $10 barrier at mid-morning, then fell off steeply before closing with a meager gain of 5¾ cents, at $9.6812/lb. Zinc had another strong day and, though it pulled back nearly 3 cents from its highs, still ended at $0.8711/lb., up more than 4 cents. Aluminum went vertical in the pre-dawn hours, continued higher until mid-morning, then eased to $1.4466/lb., up more than 3 cents, while lead was smoking, adding another 7¼ cents to Wednesday’s 6 cent gain and finishing at $0.8616/lb.

Aluminum hit its highest level ever, breaching the $1.50 mark at 10:30 before subsiding later in the session.

The metal was the talk of the sector as it took off after the Aluminum Corp of China (ACH) and its peers – a group of 20 companies which produce over 70% of the country’s aluminum output – signed an accord that will cut output by 5-10% , the China Nonferrous Metals Industry Association said .

That may remove as much as 1.2 million metric tons, RBS Sempra Metals says, which would go a long way toward easing the current supply glut. The global supply surplus was 458,000 tons in the first four months of this year.

The gang of 20 “also call for other producers in the country to cut output, showing support for the Beijing Olympic Games and creating an easier market condition for the industry,” the Association said.

The move was seen as an attempt to curb energy use (aluminum being the most electricity-intensive of the metals) ahead of the Olympics. Authorities eliminated preferential power rates to smelters in January this year, and have also been cutting rebates for aluminum end-products.

But analysts at MF Global (MF) cautioned against irrational exuberance, writing that “while today’s price reaction may be justified, the situation is very fluid, and may not necessarily be sustainable given the uncertainty about the time-line of the reductions, and more importantly how demand, exports, and duties, all play out against this production decrease.”

Taking an opposite tack, Gayle Berry, of Barclays Capital London (BARC), said that, “We think these cut-backs in production will be a long term issue, and is not going to last for only a few weeks. They will continue to categorize the market going forward and could intensify in nature.”

Source: Base Metals Strong for a Second Day – Aluminum Hits All-time High

Nickel noodled around little changed until the late morning, then it too took off, climbing to close near its intraday high at $9.6245/lb., up 42¾ cents. Zinc was up from the pre-dawn hours straight through, ending at its high of $0.8301/lb., up 4¼ cents. Aluminum rebounded well, adding a penny and two-thirds, to $1.4148/lb., while lead also turned in a banner day, gaining just over 6 cents, to $0.789/lb.

Copper was up for the first time in four sessions, as analysts cited the declining dollar, and concomitant inflation fears, as a catalyst. The metal also got a boost after union leaders said that workers at Freeport McMoRan’s Verde copper pit in Peru plan to strike starting July 16.

But Catherine Virga, an analyst with CPM Group in New York, played that down, saying that, “In Peru, they are normally not long-running issues. As long as it’s just them, I don’t think it will be something sustainable, especially with continued increases in stock levels on the LME.”

Copper advanced despite supply increases, as inventories monitored by the LME shot up by 1.8%, to 124,325 metric tons. It was the biggest increase since May 21 and put levels at their high point since May 30.

Meanwhile, lead and zinc were making powerful up moves as short sellers began covering their positions after recent declines, traders said.

“[Lead] stocks appear to be levelling out after four months of strong gains,” said analyst David Thurtell of BNP Paribas (BNP).

“Cancelled warrants have jumped in recent days, which suggests that the low prices of recent weeks has sparked some significant offtake,” he added. Lead prices have dropped more than 50% since March as inventories have more than doubled, due to a slowdown in demand.

Regarding aluminum, which has been lingering near its alltime high, analyst Daniel Smith of Standard Chartered said that, “There’s a lot of metal around on the LME and off-warrant, and premiums are generally drifting lower.”

“It’s difficult to create a particularly bullish scenario for aluminium,” in his opinion.
Source: Base Metals Come Roaring Back, Considerable Short Covering Seen

Nickel finally experienced a positive day, climbing through most of the session and only coming a bit off its intraday high to close at $9.4083/lb., up more than 17 cents. Zinc pushed higher from the pre-dawn hours straight through, ending at $0.815/lb., up nearly 2 1/3 cents. Aluminum was very strong, rising to $1.4755/lb., up almost 7¼ cents, while lead showed a spark of life after its recent woes, adding 2 cents to $0.7223/lb.

Copper recouped most of its early losses, the most in five weeks, that came after Sunday’s announcement that Peruvian miners had called off a week-long national strike, to allow talks with government officials over profit-sharing and pensions to proceed.

China also played in, as that country is projected to have shipped in 4% less refined copper in June than in May, as high world prices, weak demand and strong domestic production have sliced into the need for imported metal.

However, investment bank Citi likes what it sees going forward. Analysts there have raised copper price forecasts for the next two years, in light of a supply shortfall that looms as larger than expected. Citi predicts that copper will average $5/lb. in 2009, up sharply from an earlier forecast of $3.50/lb., and $5.50/lb in 2010 versus $3 in its previous forecast.

And on the supply side, inventories monitored by the LME fell by 500 metric tons, to 122,075 tons, yesterday.

Aluminum jumped to a 2-year high that was just off its alltime record, as worry escalated over power problems in China, the world’s largest producer and consumer of the metal.

Coal shortages have led to record power shortfalls in northern China’s Shanxi province and the coal-rich region had to ration supplies and even import electricity from Beijing to reduce deficits.
Source: Base Metals Stage Comeback, Aluminum Near All Time High