The Sky's The Limit For Oil and Gold war peace money currency trade

Never has the threat of world war been more imminent than right now.
Most of the world's infrastructure continues to rely on outdated technology powered by oil and gas.
History proves no country is immune to the devastating effects war has on currency reevaluation.
This makes hard assets highly desirable - gold and oil being the two most coveted.  more demand means more liquid (easier to trade).

Take into account the widespread demand, as well as the scarcity of these commodities - and you have the perfect storm.

Still Bullish On Gold & Coal, Alpha Natural Resources ANR Seabridge Gold SA Undervalued Radar Stocks Commodities

Alpha Natural Resources nyse:ANR - I made the mistake of not recommending this stock in my last post.  ANR is up 15% since October 11th.  Though the company's balance sheet still needs some tweaking, it's already showing signs of improvement (good quick ratio (short term equity to debt ratio), quarterly earnings losses not as bad as they used to be, metallurgical coal market is picking up / ANR is the leading producer of this type).

A third of company revenue comes from outside the US where demand will continue to be strong (doesn't have to deal with the Environmental Protection Agency EPA).

On reserves alone, the company's valuation is in the billions.  In 2011 after acquiring Massey Coal, the company was worth more than $10 billion - it is now a measly $434 million.  So what went wrong ?  the debt it absorbed when it acquired Massey was substantial and just after making the deal the company was faced with a series of write-downs which took away its profitability and damaged its reputation.  Some of that stems from an overall decline in the coal price, but not all of it ;

Rumors of an Obama war on coal have been rampant but have yet to come to fruition - in some states coal is just too important to simply phase out.  ANR is a major producer of thermal coal (used in electricity generation) and it relies heavily on sales of this in states like Kentucky - Obama recently mandated a 30% cut in carbon emissions by fuel burning power plants by 2030.  The easiest way for the states to accomplish this is to completely overhaul the way power plants generate electricity in states like Kentucky where thermal coal is the number one source of electricity.

However, given that public opinion is against it (full implementation will cost a quarter of a million jobs) and that democrats have a strong interest in winning Kentucky, it seems unlikely that those radical changes will be implemented anytime soon.  Add to that the higher costs associated with using natural gas (9c per kWh) and renewables (23c per kWh vs 4c for coal) to make electricity and you have a lot of reasons to invest in undervalued coal stocks like ANR.

The Gold Price Fell 5.4% In September Then Another 4.6% In October = Down US $126 In Just 61 Days !  

It's not just equities and the dollar that are pressuring the price of gold.

gold: not as popular among hedge funds

Total holdings by gold exchange traded funds (ETP) is now at the lowest level since 2009.
SPDR Gold Trust GLD is the largest physically backed gold ETF (two-fifths of industry holdings) - SPDR net holdings are at their lowest level since 2008.

It doesn't matter whether it's for jewellery or bullion, gold demand worldwide has been down for the better part of this year.
In the first and second quarters it was probably the price that turned consumers off (remained in a tight range between $1250 and $1310 after hitting $1385 in late March 2014), and with currencies such as the Indian Rupee and Canadian Dollar nearing four year lows against the greenback, the price may have just been too high.  In Q1 demand fell -26%, Q2 -16%.

A Reason To Be Bullish - India

The Indian festival of Diwali is a big reason India is the world's largest market for gold (#2 in 2013 but #1 in 2Q2014).  Last year, demand for gold during Diwali was down -33%, but this year jewelry sales are up +20% !

2014 Diwali : the price for 10 grams of gold averaged 27.5th rupees which is 15% less than in the previous year (32.5th).

Gold Price In US Dollars                                        
sept 2013 1392.25 -> 1326.50  -4.7%         sept 2014 1286.50 -> 1216.50 -5.4%
oct   2013 1290.75 -> 1324.00 +2.6%         oct  2014 1216.50 -> 1160.40 -4.6%

I'm Still Bullish

Though recent trends point to a bear market I remain somewhat bullish, at least for the long run.  US dollar, though up has been unsteady.  It appears to be stronger versus the key reserve currencies yuan, yen, Canadian $, Australian $, Euro, but I don't consider the current level to be sustainable.
US economic growth forecasts remain subdued, the effects of a strong dollar can wreak havoc on exports of US products since prices get more expensive in other currencies (why China has long maintained a low yuan policy).  Also, less exports tip the US trade imbalance even more in China's favor - this will stunt jobs growth as companies would rather pay employees in a cheaper currency. With QE3 down to only $15 billion a month from a high of $85 billion a year ago, any growth the US experienced earlier this year could disappear just as quickly as it appeared (less stimulus / harder for small businesses to borrow).

Gold Update Seabridge Gold SA, Kinross Gold KGC, World Gold Production Up & Oil; 2012 Will Be A Volatile Year For Stocks Hecla Mining HL, Airline Stocks

     If the first two months are any indication, 2012 will be a very busy year for investors. Just when you think you're ahead of the game some external, unaccounted-for factor changes everything. It can be reassuring though, knowing that everyone has to adjust their portfolios accordingly. Take for example the airline industry;

Over the last month (Feb - Mar) the price of WTI oil shot up 11% from just under $99/bbl to $109/bbl. Consequently, brent crude hit a 43-month high of $128.40/bbl on March 1, 2012.  How did that affect airline stocks? They were BATTERED more than the fish at Red Lobster! Over the last month United Continental Holdings Inc (nyse:UAL) was -16%, Delta Air Lines (DAL) -14%, Lufthansa (DLAKY) -7%, negatives across the board all because of the price of oil. What's more, oil could soar even higher if Iran chooses to close the Strait of Hormuz because the Strait is used to transport 7% of the world's oil; Closure of the Strait of Hormuz is entirely possible now given that Europe has implemented an embargo on Iranian oil (supplied 4% of Europe's demand last year) and that it's already dealing with the toughest sanctions the West can impose on it (Iran is now demanding payment for its oil in gold). sidenote: India is one of a few countries that still imports oil from Iran.

Canadian bank stocks proving their value once again !  The two largest by size, Royal Bank of Canada (RBC) and Toronto-Dominion Bank (TD) raised dividends despite profits being lower.  At RBC the dividend increase was 5.6% bringing it up to 0.57/share in the latest quarter (eps was down 4.7% to $1.21/share).  At TD, the 1Q2012 showed mixed results.  Though TD earnings dropped marginally (-0.01/share to $1.55) revenue grew 3.3% to $5.64B.  Though profits did not grow the bank continued to hand out larger dividends (+4c quarterly to 0.72).

Also making news is SNC-Lavalin.  Partnered with Aecon, SNC won a $600M contract to refurbish Ontario, Canada's Darlington nuclear station.  That pushed the stock up 2.2% in just the last day helping it to climb over the $6B level of capitalization.  Prior to the news, the stock was reeling (lost $1.6B about 1/5th of its market cap in just the last couple days) because of reports of undocumented payments unrelated to company projects eroding away at 2011 profits.

The World is Producing More Gold but also Consuming More (led by China, Germany and Thailand)
     In 2011, 11 of the world's 14 leading gold producing regions raised their output according to the US Geological Survey's 2012 Mineral Commodity Summaries, which isn't surprising considering the 28% jump in gold price (and cash costs, accordingly).  On the year, world primary production was up 5.5% to 2700 tons (86.4M ounces).  The world's 14 major producers accounted for 76.7% of output down from 78.2% in 2010.  Although production in China was higher, the growth was not as great as it had been over the last couple years (+2.9% compared to +22.0% for #8 Ghana, +20.9% for #7 Canada and +16.4% for #11 Mexico).  South Africa is home to 11.8% of the world's gold reserves (2nd overall behind Australia) but was the source of only 7% of production in 2011 bringing its overall rank down to 5 from 1 in 2007.  Why the drop for South Africa?  Because of ridiculously high production costs; South Africa has the unfavorable distinction of being the most expensive country to produce in (among major producing regions).
When investing in gold mining companies be sure to have companies with projects in Australia high on you list (ie BHP Billiton - Olympic Dam).  Australia was the source of only 10% of global production last year but is home to 15% of reserves meaning growth will happen.  Production costs (South Africa) and barriers to entry (China) are also not as problematic in Australia.  In late 2011 China began drafting new standards for the gold industry which could have a significant effect on both investment and production in the country.

Most of China's gold output comes from small companies but the new standards will eliminate some of them while at the same time, making it more difficult for new companies to enter the industry.
With regards to the United States, the gold supply and demand situation there is not as dire as one would expect.  In 2011 GOLD CONSUMPTION ACTUALLY FELL -17% to 194.9 tonnes (2nd consecutive year that US gold demand dropped).  That's in stark contrast to China (+22% to 811.2 tonnes) and Germany (+26% to 159.3 tonnes). Global consumption of gold in 2011 was 4067.1 tonnes, highest since 1997. Interestingly in Thailand (#7 consumer) where total consumption grew +57% to 108.9 tonnes, jewelry only accounted for 3.8% of the total (fell 34% on the year) but bar and coin demand +66% to 104.8 tonnes. The top six consumers remained the same,

Investing in gold: Mining Companies
Did you know? Mining companies are actually LOSING CAPITAL TO ETF'S !  According to Bank of Montreal analyst Peter Miller ETF's are a "hoover of capital and competition for the gold companies".  To regain investor confidence (and capital) many producers are hiking up dividends.  I think that mining stocks present a unique opportunity for investors at the moment.  Yamana is raising quarterly dividends by 10%.

With regards to gold producers, 2011 wasn't as profitable as one would expect.  At Newmont Mining and Goldcorp, 2 of the 4 largest by market cap, net earnings were lower despite record breaking revenue.  Part of the reason has to do with rising cash costs; +12.5% to $460 at Barrick Gold, +20.5% to $591/oz at Goldcorp (though lower from $270 to $223 when by products are taken into account), +40% at Australia's Newcrest, since 2009 +29.7% at Yamana Gold.  Higher mining costs are atributable to increasing equipment, labor and raw material costs. Higher gold and silver prices buffered the effects of higher costs however companies need to do more to translate sales growth into earnings growth. The higher gold price allowed even AngloGold Ashanti to add to reserves; Anglogold's reserves went up 4.4M ounces bringing the total to 75.6M ounces; 3.7M of the 4.4M oz added came due to higher prices making extraction from ore at Vaal River economically viable (3.2M oz) and 0.5M oz attributable to improved ore reserve price at Geita.

South America increasingly important to major gold miners - Gold Fields will get 20% of its 2015 gold production from that region, up from 10% in 2011, 2% in 2008.  In 2011 Gold Fields produced 3.697m ounces of gold which is 4.0% less than in 2010 (3.851m ounces) but it did receive 28.6% more for each ounce of gold ($1569 vs $1220).  Barrick Gold's huge project Pascua Lama is in Argentina.  Goldcorp's largest venture is the Penasquito mine in Mexico.

Undervalued Mining Companies

Seabridge Gold (tsx: SEA) - In February released its 2012 Operations Overview and the new data is impressive to say the least (maybe that's why the stock is UP +8% since February 13, still down though over 20% last 6 months because of increased volatility in metal prices (even Barrick Gold is down 10% over six months).  Its flagship project, KSM has 2P reserves of 38.5M ounces for gold, 9.985B pounds for copper, 214M ounces of silver and 257M pounds of molybdenum;  That means it has more gold than world renown projects Pueblo Viego, Penasquito and possibly even Ivanhoe Mine's mega project Oyu Tolgoi (46.4M ounces of gold) if KSM reserves are increased in April which is likely given the successful M&I drilling results reported by the company on February 8, 2012.  Reserves in situ value is about 15% greater than Goldcorp's Penasquito and Seabridge's enterprise value per ounce of reserves is only $21 ! which is ridiculously low considering it's $1200 at Canada's other major gold junior-mid cap company AuRico.  At Detour Gold and Osisko Mining enterprise value/oz is around $400.  Don't forget that KSM isn't the only major Seabridge project, there's also Courageous Lake (8M oz M&I 16 year mine life). Because reserve grade is relatively low the company will benefit from rising metal prices moreso than say Yamana Gold.

The same month, on February 8, 2012 measured and indicated resources at KSM improved by 3.7 million ounces for gold (to 49.0 million ounces) meaning that drill results continue to be successful.  What it also means is that the company's next report on proven and probable reserves (April 2012) will likely indicate further increases in 2P reserves, past the current estimate.  In the February report, Seabridge Gold estimates annual production at KSM will be 854,000 ounces (gold), 166 million pounds (copper), 2.9 million ounces (silver), 1.1 million pounds (molybdenum) for the first seven years (the mine has a 52 year mine life, molybdenum production will actually grow after the first seven years).  Base cash cost will be $231/oz which is even lower than Goldcorp ($300).

This company screams undervalued.  How does a company with 40M ounces of 2P gold reserves (more than Yamana Gold, Agnico-Eagle Mines) at just one of its projects have a market cap under $1 billion ?  Royal Gold has shown confidence in the company's numbers (invested $100m in Seabridge last year).  The construction costs remain quite high but I think that $2000 gold (when it happens) will open up more financing options (like Eldorado Gold recently got from Qatar Holdings).  Consider this:  2 years ago when gold prices were a lot lower, Barrick Gold paid Kinross Gold $475m ($455m cash) for 25% interest in the Cerro Casale gold copper project which has only 60% as much gold as KSM.  That would value KSM at over 3X Seabridge Gold's market cap at present.

Hecla Mining Company (nyse: HL) - On January 11, 2012 Hecla announced that the Lucky Friday Mine in Idaho which produced 31.5% of the company's 9,498,337 ounces of silver in 2011, will be shut down for the entire 2012 year.  The day of the announcement the stock fell 18.7% from $5.67 --> $4.61.  All this because of a December 2011 accident at Lucky Friday in which a number of employees were injured when the mine collapsed (including a couple fatalities).  You can be sure that whatever structural problems caused the collapse will be dealt with quickly (only two months was needed to fix the problem, the 12 month closure is due to new inspections and safety procedures required by federal regulators;  A group of shareholders even tried to sue the government over the closure).  Hecla wasn't the only miner that suffered fatalaties last quarter, 6 people died in accidents at three AngloGold Ashanti mines.

Though Lucky Friday is the source of only 31% of silver output (0% for gold) and 30% of 2P silver reserves, it's Hecla's only source of proven silver reserves (~21 million ounces);  In 2011 it was the source of all of Hecla's total increase in 2P silver reserves (+7 million ounces), so it remains a significant growth project for the company.  Lucky Friday also makes the company more diversified, being home to three-quarters of its 1.5 million ton lead resource.  The other operating mine, Green's Creek was purchased from Rio Tinto in 2008.

There are many reasons to like Hecla Mining

* The price of silver jumped 74.2% in 2011, single handedly causing Helca's profit to grow 286% to $150.6M.  Revenue reached a record high of $477M even though it sold 13.3% less silver; in fact sales of all four metal types were down (-17.5% for gold, -16.6% for lead, -12.4% for zinc).  The company's stock value is down -50% from a year ago even though revenue and profit is up significantly;  Even considering the 30% drop in silver production, next year company profits probably won't be less than they were in 2010 with high commodity prices a mainstay.
* The company has no debt and nearly $290M in cash and cash equivalents.
* Lucky Friday structural damage only needs two months to fix.
* Hecla Mining has three other significant projects at San Sebastien, San Juan and Noonday.  Company's valuation at present definitely isn't giving any of those projects respect.

Thompson Creek Metals (tsx: TCM) - The stock has been in selloff mode for the better part of a week after the company reported that the Mt. Milligan project will cost more than previously thought.  That prompted TD Bank to downgrade it.

Barrick Gold - Pueblo Viejo (60%) and Pascua Lama mines will begin producing in 2012/2013.  When fully operational (2016) the mines will add 1.5 million ounces of annual output to Barrick Gold's current production of 7.68 million ounces.  Pueblo Viejo is 90% complete.  Barrick profited 25% more in 2011 than it did last year ($4.48 billion, $$4.67 billion adjusted).  In February Barrick exited Russia when it sold off its last remaining asset there (25% interest in Highland Gold).

Goldcorp - 2011 production was 2.5147 million ounces.  By 2016 production will rise to 4.2 million ounces.  Revenue grew by 43% in 2011 more than any other top 10 gold miner.  El Morro in Chile ($3.9b project) is one of the reasons for the higher output projection.

Newcrest Mining - 515,000 oz of gold in 2011 came from the Telfer mine representing about 20% of company total (Telfer is home to 14.9% of its 79.1M oz of reserves, 7.7% of the 8.36M tonnes of copper reserves).  Total company production in the 2Q2012 FY (ending December 2011) was 579,023 oz down 19.9% qoq, the quarter before that 1Q2012 output was down 16% to 587,296 oz.  Over the last two quarters production from Telfer was down 50,000 oz.  2011 calendar year production increase comes entirely from the Lihir Gold acquisition.

Kinross Gold - Yes it was hit with a $2.94 billion impairment charge stemming from an unexpected writedown on its Tasiast mine in Mauritania absorbed during the fourth quarter of 2011.  That effectively more than wiped out any profit the company was on track to make in 2011 (ended up losing just over $2B on the year).  But keep in mind the company's revenue (+31%), gold production (+13.0% to 2.6M oz), and cost of sales (+28% even though production up more than 30%, production cost of sales up 17.7% to $596/oz which is comparable to its peers in the industry).  Another telling statistic: cash margins up 32% to $906/oz ($965 in 4Q +23%), margins were also up 32% at America's largest gold miner Newmont Mining (Newmont's stock is up 16% last 12 months, Kinross is down -32% even though Newmont also suffered from a bad fourth quarter; -$1B losses at Newmont in 4Q2011 brining total profit for the year down to $366m).  Also to consider; Agnico-Eagle Mines took on a $644.9m writedown on its Meadowbank mine in the 4Q giving the company a net loss of $601.4m in the 4Q.  The mine plan had to be changed because of its 'high cost nature'.
Also, annual dividend was up 10% to record high 11 cents a share (though none was paid in the problematic 4th quarter).     The company was valued at $19B as recently as May 2011 which is almost 60% more than it is today.  That brings its market value per ounce of reserve to a near industry low $130/oz (compare that to Goldcorp's $618/oz at, $708/oz at Yamana Gold).  Cash flow from operating activities +40.3% to $1.8093b on the year, convinced yet?  Then consider the possible takeover offers.  European Goldfields which isn't even producing yet and has only a fraction as much gold as Kinross, recently got $2.5B from Eldorado Gold.  Kinross has low cash costs, lucrative projects (Cerro Casale) and a growing revenue stream and that makes it a lot more valuable in a M&A scenario.  CAPEX was +163% to $1.6515.
Don't forget that Kinross's current market cap of about $12B is about the same as it was before it acquired $7B Red Back Mining.

Eldorado Gold (nyse: EGO) - Coming off a record year for gold production (+4% to 658,652 oz), revenue (+33% to $1.042b) and even profit (eps +41.5% to 58c) while dividends more than doubled from 5c a share to 11c. Operating cash flow was also strong, up 40%. AND unlike the other major gold producers total cash costs only went up marginally ($382 --> $405). The European Goldfields acquisition will make it the biggest gold producer in Europe by 2015 (1.5m ounces a year) which couldn't come at a better time; European demand for gold is stronger than ever as is the price of gold.

New Gold (tsx: NGD) - In June 2012 its fourth operating mine will open.  That will push company production over 400,000 ounces for the first time.  Goldcorp's El Morrow (New Gold's interest is 30%) will reach full production in 2018 which should give the company an additional 150,000 ounces annually.

Newmont Mining - Gold reserves grew 9% in 2011 to 99M ounces a third of which is in Nevada, 17% in Africa.  Reserves were 93.5M one year earlier and 91.8M oz December 2009.  Biggest source of attraction at Newmont right now are the dividends, 4Q2011 quarterly dividend up 133% to 0.35 a share.

Also of interest:
-On March 1, 2012 Newcrest Mining, Australia's largest pureplay gold company began trading on the Toronto Stock Exchange.  It will be the 4th largest mining company with a listing in Toronto.
-USA has 3rd highest corporate tax rate in the world.

Rio Tinto (RIO) Production up only for Aluminum, Bauxite, Iron, Salt, Borate & Titanium; Copper Will get a boost from Ivanhoe Mines (IVN), Pilbara, Escondida

Rio Tinto's largest projects as of January 2012 (indepth look here)

Project												New Annual Output												Metals												Year												Total cost
Pilbara 283												53 Mt												iron ore												2014												$9.7 bil
Oyu Tolgoi												1.2b lb 650th oz 3m oz												copper gold silver												mid 2013												$6.0 bil
Kitimat												400th tonnes												aluminum												3Q 2014												$3.3 bil
Yurwun 2												2 Mt												alumina												3Q 2012												$2.3 bil
Argyle												20 mil carats capacity												diamonds												2Q 2013												$2.1 bil
Hope Downs 4												15 Mt (30 yr life)												iron ore												mid 2013												$2.1 bil
Kestrel												1.3 Mt												coal												mid 2013												$2.0 bil
AP 60 Quebec												60 kt												aluminum												2Q 2013												$1.1 bil
Marandoo Aus												15 Mt												iron ore												early 2015												$1.1 bil
Iron Ore Company Canada 1 2												5.3 Mt (Rio owns 59%)												iron ore												early 2013												$763 mil
ISAL Iceland												40th tonnes												aluminum												mid 2012												$487 mil

      Rio Tinto (RIO) had a lot going for it and against it in 2011. Copper grades and low exit-year prices affected earnings in the second half. Fiscal year results were buoyed by iron ore which saw prices peak mid year and output grow to record levels (ended the year at $140/tonne vs high of $180/tonne mid year). Rio Tinto is Australia's biggest iron ore exporter and also a major producer of its coal (coal is Australia's single largest export earner). A $7 billion share buy back plan is nearing completion.

Of the $33 billion capital projects underway the largest one, Pilbara 283 ($9.7B) won't be ready until the end of 2013. The second largest, Oyu Tolgoi phase 1 ($6B) will be ready midyear 2013. Nine of the eighteen projects will be completed in 2012. 2015 is on track to be a big year for Rio with 167.7 million tonnes/yr of new iron-ore production coming online.

Notes:
-Grasberg, Indonesia has been a joint venture with Freeport-McMoran since 1998.
-Sold 100% interest in Colowyo on Dec 1, 2011
-Rio is no longer in the business of talc as of August 1, 2011. That's why talc output is down; No attributable production from there since the 3Q 2011 when output fell to below 100 mil tonnes for the first time ever.  The talc unit, Luzenac which is the world's leader in talc production, was sold to a French company for $340 million.
-2012 will see new copper production from Coal & Allied in which Rio Tinto now has an 80.0% interest up from 75.7% (effective December 16, 2011).
-Spun off US coal operations in Dec 2010. That transaction netted the company $2 billion however it cut off nearly three quarters of Rio Tinto's coal production going back to 2009. The new company formed in the spinoff is Cloud Peak Energy which trades on the New York Stock Exchange as CLD.
-On Feb 20, 2012 announced a $518M investment in autonomous Iron Ore rail cars that will operate in Pilbara, Australia beginning in 2014 (at present Pilbara is the site of a major expansion project underway that will boost copper output significantly over the coming years beginning in 2013).
-all of the company's molybdenum comes from Kennecott Utah
-February 3, 2012: Rio Tinto Alcan begins restarting aluminum smelters in Shawinigan, Quebec
-Doubled interest in Richards Bay Minerals to 74% from 37%. RBM is a South African titanium dioxide company. That will lead to an inevitable increase in titanium production.
-Hecla Mining, the US's largest primary producer of silver gets 68% of its silver from a mine that Rio Tinto owned up until April 2008 (Green's Creek).

Financial Highlights quoted in US Dollars
Higher commodity prices led to a record in underlying earnings (+11% to $15.5 billion), record in ebitda (+10% to $28.5 billion) and record in cash flow from operations (+16% to $27.4 billion). Capex was 2.67X higher at $12.3 billion. Surprisingly all of this didn't translate into higher net earnings which were down 59% to $5.8 billion on account of impairment costs amounting to $8.9 billion, associated with the aluminum business. Don't be too concerned about the fall in EPS to $3.035 from $7.31 in 2010; dividend per share was $1.45 +34% vs 2010. Here's some background on what Rio Tinto excludes when determining underlying earnings.

In 2011 Rio Tinto spent $6.1 billion on acquisitions, $2.2 billion on dividend payouts and $6.2 billion on taxes. Cash flows from operations have nearly doubled since 2009. Targeted 2012 capex is $16 billion or over 30% higher than 2011 with about 3/4 of it going to Australia (over half) and Canada (less than a quarter).

Iron Ore
This continues to be Rio Tinto's backbone. It is the largest source of EBITDA contributing 73.4% of the group's product total of earnings before taxes ($20.93b/$29.491b) which is up from 62.4% in 2010 (was as low as 43% in 2008). Iron ore contributed 78.0% of group earnings in 2011 up from 67.6%.

Iron ore output from the 6 of 8 Hamersley iron ore mines that Rio owns outright, was 7.8% higher on the year (121.525M tonnes). The other two Hamersley mines are 60% owned and produced 15.994M tonnes (up 1.13% from 15,816 in 2010).

As of 2011 global iron ore production capacity was announced for 800 Mt annually but by 2011 4Q only 200 Mt was achieved.

Copper
Contributed 6.9% of ebitda down from 16.9% in 2010. Copper earnings were down 23.6% and the reason for that is two-fold: total mined copper down 23% stemming from lower grade ore at Escondida and Kennecott Utah, the same thing that negatively affected results at the end of last year and also the price of copper, down to $3.44/lb in December from $4.24/lb mid year. The lower grades are only temporary given that grades will come in higher in the coming years due to the commencement of operations at new projects/expansion projects

Oyu Tolgoi - Construction is currently 70% complete, by 2013 it should be producing 1.2 billion pounds of copper per year then working its way up to 1.7 billion pounds by year seven in 2019-2020. Ivanhoe Mines has a direct, controlling stake in the project (66%, ownership is not through South Gobi) and Rio Tinto has a 49% interest in Ivanhoe Mines and strong board representation (7/13 Ivanhoe board members represent the interests of Rio Tinto). Just recently Bank of America said that Ivanhoe Mines will be a leading position for copper in 2018 when it will be "one of the world's 10 leading copper producers".
Escondida - the site of major project expansions underway in Chile where just last week Rio Tinto and its partners (30/70 interest) approved a $1.4B expansion.
Pilbara - Output expands to 283M tonnes/yr by 2013, 353Mt by 1H2015. The company just announced yesterday its US$518 million autonomous rail network which will the first of its kind. Rio Tinto's rail network is currently 1,500 km long and has 148 trains. Copper production from Pilbara was down 7% in 2011 due to lower recoveries key equipment being unavailable.

Rio Tinto is probably not complaining about the temporary decline in copper production considering that copper prices ended the year at a low point (3.44/lb Dec 31 vs $4.24/lb June 30).

Northparkes was only one of five major copper operations that recorded a year on year increase in output. Mined copper was +29% on the year, +34% in the 4Q as a result of optimization projects being implemented & higher grades from section E48.

Gold and Silver
Lower grades caused gold (-12.3%) and silver (-27.0%) output to decline from 2010 levels however that is expected to change in 2hlf 2012 and 2013 when grades will get a boost from new mining activity in Mongolia and elsewhere. Oyu Tolgoi possibly beginning in 2013, will produce silver at a rate of 3 million ounces a year (59 year mine life) and 650,000 ounces of gold.

33.2% of the decline in silver output (605/1823) was due lower production from Grasberg, the smallest of Rio's four silver mines; Grasberg is a joint venture. Silver production from the largest of its operating mines, the 100% owned Bingham Canyon mine was 20% lower to 2.976 mil ounces. The second largest source of silver, Escondida is only 30% owned (prod there down 29.5%).

Though mined silver production fell on the year, refined silver output (all of it occurring at Kennecott Utah) was +32.61% to 4.732 million ounces.

Primary Aluminum
13 of the 21 mines are 100% owned. Those 13 produced 2442 thousand tonnes of aluminum in 2011 up 30.73% from 2010 when output was 1868.

Diamonds
The largest of Rio's three diamond mines is Argyle in Western Australia. Argyle produced 7.441m carats in 2011 which is down 24.1% from 2010. In contrast, the 60% owned Diavik mine in NWT increased its output by 2.72% to 6.677m carats while 77.8% owned Murrowam Zimbabwe produced 2.06X more at 367,000 carats.

Diversified Investments Hon Hai Precision Industry, Seabridge Gold -sorry Motley Fool, Royal Gold

     With all the market turbulence it's imperative that investors not only diversify their stock portfolio but choose companies that are already diversified within themselves. Here are a few companies that fit the bill.

Hon Hai Precision Industry better known as Foxconn - This is the company that manufactures everything from the xbox game console for Microsoft to the iPhone4S for Apple as well as laptops for Hewlett Packard; Its HP laptop plant in Chong-qing that produces upwards of 20 million laptops annually, was built in 2009/2010 and made Hon Hai into one of the leading employers in China's 23rd largest mainland economy (where the electronics industry ranks first ahead of vehicle manufacturing). Keep in mind that each plant can have anywhere from a couple to 15 or even 20 factories, in fact Hon Hai's largest in Shenzhen is home to some 300,000 workers. In total Foxconn has factories in nine Chinese cities.

The technology industry has recorded massive growth over the last seven years led by Apple Inc (market capitalization 6X bigger today than it was in 2005 - 390 billion vs 65 billion) which is important to remember since Hon Hai plays an integral role in Apple's success (the iPad is made by Hon Hai at a plant in Chengdu, China, the iPhone4s is manufactured at the world's largest smartphone production facility, the 200,000 unit/yr plant at Science Park, Zhengzhou). In January 2012 it announced a plan to increase its workforce by ten times in a major Chinese manufacturing city, as well Hon Hai recently stated that it will be doubling the size of its flagship smartphone-manufacturing plant in Henan province with a $1.1B investment.
-The company is obviously preparing itseslf for huge jump in size and why not? the iPad holds anywhere from 60-90% of the global tablet market, a market which could grow by 42% in 2012 to 40 million units up from 29 in 2011. As of January 2012 Hon Hai's workforce numbers 1.2 million. On March 11, 2011 Hon Hai Precision Industry (Foxconn) had a market capitalization/valuation of $36.9 billion US dollars. (source: Forbes Global 2000 List 2011 Edition)

Hon Hai recently reported a 19.8% year-on-year jump in revenue to $92 billion over the 2011 calendar year (37% increase in December) boosted by especially strong results in the month of December (revenue in the fourth quarter alone was $30B). That's significant considering that Taiwan's other technology companies Quanta Computer, Compal Electronics and Acer, all reported decreases in revenue (-1% for Quanta to $60b, -21% for Compal to $23b, -23.5% for Acer to $12.4b). Hon Hai profited over $2.5B in 2010 only slightly higher than 2009. The company has $32.0B worth of assets. One thing that could become a problem for Hon Hai is fake Apple products in China. Since the iPhone4s launch was delayed in China, more fake products have been introduced to the market.

Royal Gold (MV 3.77B, 5-day -2.37%, 1 month -4.01%, 3 month +2.77%) Is one of the world's largest and most diversified royalty companies with direct exposure to many of the world's key mining operations through royalty agreements (buys the royalty usually before the mine enters production phase). It then collects royalties (in most cases net smelter return royalties) on the net revenue made from one of five precious or base metals (or all as in the case with Peñasquito). There is little risk considering it is not responsible for mining or exploration costs (like Silver Wheaton). Considering the fact that many of the mines are either not producing or in very early stages of production (Penasquito, Pascua Lama, Malartic) strong growth in revenue (& profit) is likely; unlike other mining stocks, for Royal Gold growth isn't contingent on metal prices (unless of course they collapse which is unlikely given that we're in a commodities bull market). In the 3rd quarter of 2011 Osisko Mining's Malartic gold property reached commercial production producing 73,814 ounces of gold and 40,000 ounces silver (Malartic is home to 10.71 million ounces of gold) - Royal Gold owns a 3% royalty on Malartic.
Diversification: The company remains gold-dominant but that's slowly changing with new base-metal mines coming on tap (like Goldcorp's billion ounce silver Penasquito mine in Mexico). During the 2011 fiscal year 64% of revenue came from gold which is down sharply from 81% in 2010 and 84% in 2009. In 2011 silver contributed 6% to revenue (up from 3% the two previous years), copper steady at 10%, nickel up significantly to 15% from 4% in 2010, 1% in 2009. Other minerals like zinc and potash made up 5% of revenue up from 3% and 1% in 2010 and 2009 respectively. Most of the royalty agreements are for 2-5% however a couple like Andacollo (1.6M oz of gold reserves) which is at 75%.
more on Royal Gold HERE including nickel, lead & zinc production data by mine by year updated to reflect 2011.

Financials: Stock is up 2.77% between Oct 17 and Jan 13 2012, up 7.98% during the six month period ended Jan 13 but down 9% in the month of December. Key royalty claims; 2% NSR claim on Canada's biggest gold/silver/copper/molybdenum project (KSM) purchased in 2011 for $160m; 2% claim on Goldcorp's only major silver mine Penasquito; Barrick Gold's Pascua Lama mine in Chile. In fiscal 2011 (ends in June) revenue was up 58.5% to US$ 216m which is great considering total operating expense was virtually unchanged at $97m pushing gross profit up 190.0%. The company profited 232% more ($71.39m) however dividends were up only 23.5% to 42 cents/share. Update second quarter 2012 fiscal year (ends December 2011): profit/earnings were a record for a quarter at $23.4M up 28% yoy or 42 cents a share on royalty revenues of $68.4M, up 22% qoq. For the 2012 half, net income was $45.9M (up 52.5%) or 83 cents a share (up from 55c) on revenue of $133.3M (up 31.07%). adjEBITDA was 90% of revenue in the second quarter or $62.1M up from $48.9M in 2Q2010. For the September-December 2011 period (2Q of the company's 2012 fiscal year) the price of gold increased 23% from $1367 to $1688 an ounce. The company recently paid $170 million on its debt (credit facility) expanding available credit under the facility to $225 million. $268.3 million was raised in an equity offering held in January 2012.

Royal Gold production update for 2012 Second Quarter
According to Goldcorp/operator of Penasquito (one of Royal Gold's most lucrative interests) gold production will be 425,000 ounces and silver production 26 million ounces for the 2012 calendar year. Malartic (1.0-1.5% nr) will produce between 610,000 and 670,000 ounces of gold in 2012. Barrick Gold's Pascua-Lama mine will bein producing during mid 2013 at 800,000 to 850,000 ounces a year in the first five years. Thompson Creek's Mt. Milligan (31% complete end of 2011) will begin producing 4th quarter 2013. Lac Cruces (produces copper cathode) will operate a 90% of design capacity in 2012, total production estimated to increase by 55% versus 2011 (calendar year). In the second quarter of 2012 Andacollo contributed $16.18 million of the comany's $68.84 million in royalty revenue which is 23.50% of the total up from 20.12%. The only other mine that contributed over 10% of RG's revenue is Voisey's Bay (2.7% net smelter return royalty) which gave the company 17.49% ($12.04M) of its second quarter 2012 revenue (up from $8.06M in the corresponding period of 2011). Royal Gold's four largest sources of revenue contribute 56% of revenue (second quarter 2012); total gold production by them was approximately 92,358 ounces of gold (up from 65,862 ounces) 27.4 million pounds of nickel (all from Voisey's Bay) in addition to Penasquito's output of 5.0m oz silver, 40.2m pounds lead, 78.4m pounds zinc. Quarter on quarter increases at Penasquito were mostly from zinc which was up 35.0%, silver was down 100,000 ounces but gold was up 23.8% or 13,052 ounces.


Seabridge Gold - Unlike Motley Fool I take a bullish position on the company. Since January 6 when Motley Fool considered a plunge in the stock Seabridge Gold is up 10% after being down more than 27% over the three months prior. Why has the stock underperformed in the long term? a couple reasons stand out. The spot price for gold is down 11.0% since early September, also down is silver (-29.1%), copper (-27.5% to $3.63/lb from $4.2 in September) and molybdenum. But unlike other metal companies Seabridge's long term valuation is predicated upon development of key mines Kerr-Sulphurets-Mitchell (capital cost is $4.7B) and Courageous Lake (capital cost is $1.26B).

When those projects do reach production-stage the company could become the next Ivanhoe Mines (keep in mind that royalty company Royal Gold has already committed $160m for a 2% nsr royalty on KSM). KSM is 100% owned by Seabridge and has a 52 year mine life (adjusted up in May 2011 from 37 yrs due to reserves increasing by 27% for gold and a whopping 61% for silver) and very low cash costs ($105/yr in the first seven years). Also of note: about half of the world's molybdenum production comes from China and China has at times threatened to limit production by labeling it a "national mining resource," which limits the export of the metal in the same fashion as rare earth elements and China can do that through its control of the China Molybdenum, the country's leading molybdenum producer. Seabridge is also exposed to Molybdenum having 257 million pounds of molybdenum in reserves.

Why have investors suddenly shown more interest over the last week? On January 10, 2012 the Courageous Lake property in the NWT added approximately 1.2 million ounces of gold to measured and

More Industrial uses for Silver (photovoltaics, rfid), Gold Reserves Increase with Price

    Higher gold prices mean higher resources because lower cutoff grades become economically viable (producers can absorb higher production costs without sacrificing margins). Osisko Mining on November 7 raised its inferred resource estimate solely due to the higher market price of gold. Osisko said that @ $1,000/oz production was economically viable at an average grade of 0.72 g/t but @ $1,800/oz the lower cutoff grade results in a 103% increase for inferred resource (from 5.32M to 10.79M ounces grading 0.51g/t or 29% smaller than at $1,000). Osisko's 3Q production was up 172% for gold (to 73,814 oz) and 147% for silver (to over 40,000 oz) between quarters. At Centerra Gold the higher price of gold led to a five-fold increase in third quarter earnings per share (35c vs 7c) while its revenue was up 132% to $278.4 million. The 500% change in earnings came mostlly due to the change in gold price (avg realized up 37.8% to $1705/oz) since sales increased 68.5% to 163,283 ounces (3q).

As for silver, production has risen in response to higher prices. From 1990 to 2007 demand for silver exceeded mine production by more than 1.5 billion ounces (The Silver Institute) but since then, production has met demand (recycling also helps balance demand - about 250M ounces of silver is recycled every year with all silver used in photography contributing back to supply this way). About 15% of silver production comes as a by-product of gold mining so higher gold prices, even if silver doesn't follow suit, will automatically increase silver production. Over history 45 and 40 billion ounces of silver has been produced (42.62B up to 2004) compared to about 6 billion ounces of gold. (goldeagle.com:The World's Cumulative Gold and Silver Production)

According to the US Geological Survey in 2009 silver mine production totalled 697.6M ounces a 23.86% ten year growth (annual basis) at the same time the average price rose by a factor of 2.2 while total supplies amounted to 922.2m ounces. Between 2010 and 2020 it is estimated that production will increase by 100-150M ounces while industrial demand alone increases by more than 250M ounces so supply deficits could become a factor again in the near future even though higher prices are causing more companies to build new mines/initiate exploration even in areas that have high production costs. Most of the increase in demand for silver is coming from industry (in 2000 it accounted for 35% of total demand but by 2009 it was over 50%). In 2010 silver supplies increased 14.60% to 1.0568b ounces but mine production was only 2.45% higher (contributed 70% of supplies in 2010 compared to 77.9% the year before). Net government sales of silver was nearly tripled to 44.8m ounces. On the demand side, industrial applications demanded 20.7% more in 2010 than in 2009 (difference of 83.6m ounces).

Silver Uses
Silver is a highly conductive metal (without much oxidation) and that makes it popular for use in electronics.
- RFID technology used in id tags. The antenna portion of it that is scanned and read is where the silver is used. The antenna can be scanned up to 15 meters away. Each tag uses over 1% of a gram of silver however billions of the tags are produced every year so it adds up).
- Jewelry remains the second largest source of demand at 167m ounces (2010) which represents a 5% increase on the year.
- Photography including x-ray film (however demand is falling due to digital replacements). Demand fell by 8.3% in 2010 to 72.7m ounces accounting for only 6.885 of total demand.
- Silver Coins : 8-10% of demand and increasing with people looking to invest in precious metals and gold perhaps becoming too expensive for some (bars aren't included, there are about 700M ounces of silver in bar form (large bars) that's up from just over 200M ounces in 2009).
- Medical Equipment & products such as pacemakers. Coins and medals increased 22.3m ounces in 2010 to 101.3m ounces (up 28.23% on the year).
- Photovoltaics/Solar Panels : The mirrors are coated with silver (specifically the energy conducting silicon cells). With solar energy use growing both in Europe/America & China greater demand from this sector is a sure thing.

Nautilus Minerals, Solwara 1 Usher In New Era In Deep Sea Mining (Autonomous Vehicles, High Mineral Grades & Vast Resources of Rare Earth Metals/Diamonds)

   Nautilus Minerals is the first among only a handful of mining companies aiming to commercially exploit the ocean floor by 2014. Known as Seafloor Massive Sulfide Deposits, the deep sea ore formations occur at places such as hydrothermal vents located at mid ocean ridges. Deep sea mining is a relatively new concept that last received widespread attention in 2010 when China's rare earch metals embargo on Japan raised interest in metal rich manganese nodes located beneath the ocean floor (China controls 95% of the world's rare earth metal supply). Update on China's rare earth metal quota: The first group of companies passing stringent environmental tests, have received their export quotas for the 2012 year and it totals 10,546 tons which isn't bad considering more than 10,000 more tons is expected in upcoming tranches and that rare earth export demand amounted to only 14,750 tons in the Jan to Nov period of 2011 or 49% of the 2011 government conceived quota (30,184 with total production capped at 93,800 tons). It should be noted however that China haulted production at three mines in September which account for 40% of production, and that China only has 37% of the the world's proved reserves despite being the source of 97% of global supply (as recently as the 1980's California was a major source but lower prices forced many mines to close).
Deep sea mining appears to be economically viable, with copper concentrations reportedly higher than at a number of other mines including the one in Chile that received notoriety in October when 33 trapped miners were rescued. (NY Times: Rare-Earth Minerals Hold Promise for Seabed Mining) Manganese nodules are manganese-iron based potato sized sedimentary rocks containing rare earth metals (between the sediment grains), elements which have a myriad of uses in everything from computers and lasers to rechargable batteries (electrodes). Another advantage deep sea miners have: Organizations like the International Seabed Authority which oversee environmental management, don't have regulatory authority over the mineral resources meaning companies can apply for exploration leases without worrying over whether their conservation practices adhere to another's strict guidelines (the vents are home to tubeworms and clams as well as microbes which feed off the sulfides). Interest in deep sea mining began in the 1980's (oil in the 1940's) and came as a result of a recognition that deep ocean ore contains high copper grades. One of the reasons it took so long for companies to begin mining projects is a lack of submersible, deep-water vehicles used in mapping and sampling. Advancements in autonomous/remote operated vehicles have since removed those barriers. (Yale:Deep-Sea Mining is Coming: Assessing the Potential Impacts by Erica Westly)

Some background information on ocean floor mining: Sea floor deposits can be found anywhere from the surf zone to a depth of 5,600 m. Interest in deep sea mining has experienced rapid growth evidenced by the rise of companies which develop underground mining technology (5-fold increase in Cape Town's IHC Marine and Mineral projects between 1998 and 2008). (Mining Weekly: Australia will be first to excel at mining ocean floor for gold, copper, top Canadian professor predicts) Oil drilling went offshore in the 1940's followed by diamonds many years later (De Beer's mines at a grade of 0.1 carats/sq meter off the coast of South Africa which is higher than average grades on land) and a brief period in the 1970's when gold was mined offshore from Alaska. Offshore mining presents great opportunities considering that 70.8% of the world's surface is covered by water and that for many countries, land offshore exceeds their dry land base. In terms of polymetallic mining, Toronto-based Nautilus isn't the only company engaged in exploration. There's also London's Neptune Minerals (licenses cover more than 278,000 km2 in New Zealand, PNG, Micronesia and Vanuatu) circa 1999 and Toronto-based private firm Marine Mining Corp. which searches off the coast of Ghana for gold circa 1993. Rio Tinto was one of the first mining companies to trial autonomous vehicles in 2007 (used in aluminum mining/smelting), since then they have implemented their use at various mining sites including the Port Dampier iron-ore facility where operations are conducted by huge remote controlled stackers and reclaimers. Also of note: Molybdenum is the 54th most abundant element in the Earth's crust and the 25th most abundant element in the oceans.

Nautilus
Nautilus is notable in that it is the world's first company to start a seafloor polymetallic mining project, the copper-gold project known as Solwara 1. The project, located 1600 meters below the Bismark Sea of Papua New Guinea could usher in a new era in deep sea mining. Nautilus owns many other projects as well with more than 600,000 km2 in possible liceneses in the pacific ocean between Tonga and Papua New Guinea (in Fiji it is joint ventured with Tech Resources).

Solwara 1 grades (indicated) 6.8% copper, 23 g/t for silver and 4.8 g/t for gold (out of 670,000 tonnes of massive sulfide deposits) but inferred resource grades jump to 7.5% copper, 37 g/t for silver and 7.2 g/t for gold with initial annual production estimated at 1.2 million tonnes (ore).In 2008 Ian Lipton of Golder Associates Pty Ltd estimated resources at: Copper: 870,000 lb indicated (1.3M lb inferred); Gold: 134,000 ounces indicated (300,000 oz inf); Silver: 643,000 ounces ind (1.55M oz inf); Zinc: 7.67M lb ind (22.93M lb inf). source: page 149 of 275 of Nataulus Solwara 1 Offshore Porduction System Definition and Cost Study June 21, 2010. About 60% of the total resource is inferred.

Solwara 1 last received board approval in April 2011 just after a strategic partnership was formed with shipping company Harren & Partner. The joint venture provides Nautilus with a floating platform from which production machinery will be remotely operated, the platform will also serve as a production support vessel housing a dewatering plant/anchoring barges. There are 2 joint ventures overseeing construction and chartering of the vessel, one is 70% owned (other 30% by Petromin) by Nautulis, the other is under 45%. The production support vessel won't be delivered until the first half of 2013 just 2 quarters prior to commencement of production; The build program is 30 months long and started after Nautilus's board approved the project. The shipping joint venture cost a total of $127M of which only about $35-$40M will be Nautilus's responsibility ($75M is with Germany's Harren). The total capital cost of

Big Exploration Companies Only An Investment Away From Becoming Major Industry Players

&nbsp&nbsp It seems weird when a company with more resources of a particular commodity isn't valued higher by the stock market (compare, for example Seabridge Gold or Northgate Minerals to Detour Gold; Cenovus Energy (oil) to Anadarko Petroleum). When companies aren't producing (such as the case with many big exploration companies) people are more skeptical of their estimates, especially if they don't have the financing in place to turn projects into operations; Ivanhoe Mines suffered from that for years before Rio Tinto confirmed the company's standing by calling Oyu Tolgoi 'the biggest copper resource in the world'. Examples of companies that have gotten away with lieing about resources include Greywolf Resources, a group of companies in Argentina which the president claimed in 2004, lied about reserves, even Shell has been caught but that was at a time when regulations industry-wide, were softer. Furthermore, energy consumption experienced the biggest yearly increase since 1973 in 2010, in 2010 it was up 5.6% largely due to China (up 11.2% surpassing the USA) and non-OECD nations (63% higher than 2000 levels). (World energy consumption up 5.6% in 2010, biggest rise since 1973: BP) Brazil, for example was on pace to import 50% more gasoline in 2011 than in 2010 (3.2M barrels Jan-Aug compared to 3.2M barrels Jan-Dec accounting for 5% of domestic fuel needs). In 2010 90% of cars sold in Brazil run on a combination of bio-fuel and gasoline but bio-fuel is getting more expensive: Sugar cane price is up 85% over the last year. (Brazil boom takes world fuel markets by surprise)


Here are three companies that I think would benefit from more investment and media exposure.

Meg Energy - Recoverable oil resource is close to 6 billion barrels. That's almost as much as Canada's biggest petroleum companies Suncor (7-8 billion, with a market value of over US$50 billion), and Canadian Natural Resources (over 6 billion, MV is over US$40 billion). Being heavy oil doesn't really make a difference anymore as synthetic oil is easier to produce and more widely used than it used to be (though oil prices need to be at least $50/bbl for it to be economically viable to produce but I don't think that level will be breached anytime soon). Phase 2B of the Christina Lake project has costs totaling $1.4 billion (about the same as MEG's total cash and cash equivalents) that will be spent in 2011. The biggest phase of the project (will increase production by 250,000 barrels per day or 7X more than what phase 2B will produce) is the third phase. You can imagine the price tag there, receiving regulatory approval shouldn't be a problem but more investment will probably be needed. The company recently reached $10 billion in market value and China's third biggest oil company has already invested in it so attracting more shouldn't be difficult, but when it's announced, individual investors could show a lot more interest. Update: In October 2011 JP Morgan, the world's #1 bank in terms of revenue, forecast oil at $121/barrel by 2013, at the same time it expects oil prodction that year to rise by about 2M bbls/d to 91 million barrels a day.
By 2045 oil sands will produce close to 11M bbls/d and that will continue for a century. Between 2012 and 2020 oil output from the tar sands will double (1.7 mbpd --> 3.4 mbpd) and triple in the next 25 years to 5.1 million barrels per day. Tar sands crude is over five times more expensive to extract than middle east oil however with oil prices up more than 400% since 2001 and Alberta continuing to charge one of the lowest royalty rates in the world (fell from $3 to $2/bbl between 2001 and 2009) there is much profit to be made.

Bankers Petroleum - Has interest in Europe's largest onshore oil field (7.5 billion barrels in place). 2P reserves are over 268 million barrels and rising fast (proved reserves up 30% in 2010), including stakes held

mining companies to keep watch of

1 Ivanhoe Mines - Due for a breakout year in 2011 could go from minor producer (1 million tonnes of copper annually) to major producer (billion tonne copper, million ounce gold producer) and is a lot less risky than people think (even if all its operations outside of the oyu tolgoi project are a bust rio tinto's interest in that project will keep Ivanhoe's value at or above US $6.5 billion).

2 Osisko Mining - Involved in many underrated projects and its 2 largest ones could make it a 1 million ounce of gold producer quickly.  Its reserves estimate is conservative and as a mid cap exploration company it could be the subject of a lucrative takeover.