–Take the Mexican stand off between BHP and Rio Tinto. BHP feels its exposure to coking coal, oil, and gas gives it an earnings advantage over Rio. Not so!, says Rio. Rio says its exposure to iron ore, copper, and aluminium means it will grow is earnings more and sooner than BHP.

–Energy earnings versus metals earnings. It kind of reminds you of the Priority Dispute between Newton and Leibniz over who invented the calculus, doesn’t it? Chicken, egg. Egg, chicken. Cluck.

–Aluminium is an energy-intensive metal, and therefore more price sensitive in an energy-scarce world. This is to Rio’s advantage, the company reckons. “The price for aluminium now has a new base,” Rio’s chief economist Vivek Tulpule told investors in Melbourne this week.

–”Margins for existing aluminium producers who have cheap energy, their own bauxite, and who aren’t exposed to the Chinese currency, go up. This is a phenomenon that people have only started to clue on to very recently.”

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–Tulpule also said that, “Though Chinese aluminium supply had traditionally risen in tandem with demand, keeping a lid on prices, soaring energy costs in China and rising bauxite costs had made Chinese producers the most expensive in the world.”

–In gold, the mantle of lowest-cost producer has always been coveted. In resource, the mantle of lowest-energy-intensity may be the key to figuring out which resources will go up the fastest. Energy-sensitive resources will see producers get hit hard by rising costs. This will cause some to close up shop, reducing production and supply. Prices will rise.

–”An energy shortage in Chile may do for copper what cuts in electricity supplies did for platinum in South Africa — spark a record-setting rally in prices,” according to Heather Walsh at Bloomberg. “Chile may be forced to limit power use for the first time since 1999 because a drought has reduced water levels at hydroelectric reservoirs.”

–Proximity and possession of energy may even better than access to cheap capital in coming years. Energy is a kind of capital, isn’t it? If that’s the case, Australia has a huge capital base, with its reserves of coal, natural gas, and uranium.

–Thermal coal prices are set to double from US$55 to US$125. That’s based on the agreement between Japan’s Chubu electric power and Xstrata which should be come the benchmark for 2000-09 contract prices. Spot prices for thermal coal have tripled in the last year. Spot coking coal (steel marking) prices have quadrupled in the last 12 months, and in the last two months they’ve doubled. Notice a pattern?

–”The value of announced cross-border acquisitions by China so far this calendar year is now US$24.5 billion from 56 deals according to Thomson Financial-already almost equaling the record of $US29.8 billion for all of 2007,” according to Colleen Ryan in the Financial Review. As usual in the financial world, the easiest way to find where asset prices are headed is to follow the money.

–”China’s acquisitions of foreign targets reached US$15 billion in the mining sector-the most active sector, largely comprising companies engaged in metals, mining, and chemicals-rising from just US$243 million in the same period last year,” Ryan writes. Are you listening BHP?

–While the great strategic game for control over Australia’s tangible resource wealth plays out here, a tawdry game of “hide the garbage assets” continues to play out in New York. “One look at the Goldman Sachs’ numbers Wednesday should tell you the credit crunch is far from over,” reports Liz Moyer at Forbes.

–”Despite the Federal Reserve’s dramatic efforts to shake loose the financial system, banks still can’t come up with accurate prices for hundreds of billions of dollars’ worth of mortgage securities, corporate loans and other assets.”

– These assets that can’t be traded and which no one wants to buy are called Level Three assets, named for the part of the balance sheet on which they reside. The banks have stuck them there the way some people might stick a crazy Aunt in the attic to avoid being embarrassed in front of the neighbours. Shut up Aunt Tilda!

–There are a lot of Aunts in the attic. “Level 3 assets now make up 13% of the $771 billion of assets Goldman holds at fair value, according to regulatory filings. Of the $96 billion, Goldman is on the hook itself for $82 billion, and that ‘economic exposure’ is up 50% from the fourth quarter.” And it’s not just Goldman.

–”The increases from the fourth quarter in Level 3 exposures weren’t as stark at Morgan Stanley or at Lehman Brothers. Morgan Stanley had $78 billion of Level 3 assets, or 17% of its assets held at fair value, up 6% from last November. Lehman had $42.5 billion in Level 3 assets, 14% of assets held at fair value, up 1% from November. The three investment banks are the first of a series of banks to file their quarterly reports detailing Level 3 exposures. The total is only expected to rise.”