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It's the same story with cobalt and platinum. Cobalt is used in rechargeable batteries for hybrid cars, such as Toyota Motor's (TM, news, msgs) Prius and General Motors' (GM, news, msgs) Saturn Vue, and in the lithium batteries used in digital cameras and other electronic devices.
(Cobalt, however, is tough to invest in. There are few publicly traded pure plays with operating mines, and fast-changing battery technology seems headed toward replacing cobalt in the next generation of lithium batteries, which makes the metal riskier than I'd like.)
Platinum, the blindingly white jewelry metal, has seen demand soar in Europe -- up 15% in 2006 -- because of the metal's use in the catalytic soot filters that have made Europe's clean diesels possible. In North America, platinum catalytic soot filters were fitted to light-diesel trucks for the first time in the 2007 model year.
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I think you can play all of these trends with a portfolio of the following five natural-resource stocks. First, four possibly unfamiliar names:Fortescue Metals Group (FSUMF, news, msgs). While the big iron-ore companies such as BHP Billiton (BHP, news, msgs) and Companhia Vale do Rio Doce (RIO, news, msgs) bulk up through acquisitions, this Western Australia upstart is just starting production. But what potential! On Dec. 19, Fortescue announced that its Solomon holding contained 70% more iron ore than previously estimated. The company increased its estimate for the area to 1.7 billion metric tons from 1 billion and said it might upgrade estimates for the eastern part of the Solomon project by an additional 25%, or 175 million metric tons, during the first half of 2008. The company is on schedule to produce its first ore in May. (Fortescue has been a member of Jubak's Picks since Dec. 19.)
HudBay Minerals (HBMFF, news, msgs). Zinc is supposed to be in oversupply for the next few years, so why pick a zinc-mining company? First, because everybody knows zinc will be in surplus, stocks in the sector have been beaten down in price. And second, because what everybody knows often turns out to be wrong.
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Desjardins notes that actual zinc production tends to fall short of projections in years when a lot of that production is supposed to come from new mines. That will be the case this year and next, and the Canadian investment house predicts actual production will miss projections by almost 2% in 2008 and almost 3% in 2009. That would be enough to throw the zinc market from surplus to deficit in both years and to send the price of zinc and zinc mining stocks climbing, which would turn HudBay Minerals' exposure to zinc (the company also mines gold, silver and copper) from a negative to a plus.
Impala Platinum (IMPUY, news, msgs). This hasn't been an easy period for South African mining companies. Power shortages have shut the country's deep mines. Without reliable power, miners can't descend in electric lifts, and equipment can't carry ore out of the mines. News that China passed South Africa to become the world's largest gold producer strengthens the impression of decline. However, nothing could be further from the truth in the case of platinum, specifically, and the platinum metals group of platinum, rhodium and palladium, in particular.
South Africa was the source of 50% of newly mined metal in the group in 2007, and that figure, Deutsche Bank projects, will climb to 55% this year. Impala Platinum, the second-largest of South Africa's three major platinum producers -- the others are Lonmin (LNMIF, news, msgs) and Anglo Platinum (AGPPY, news, msgs) -- was the only one to increase its output in 2007. Deutsche Bank projects a 214,000-ounce deficit for platinum in 2008 and estimates prices will climb 7.5% this year and 15% in 2009.
Thompson Creek Metals (TC, news, msgs). I already own this one in Jubak's Picks, but I'll be looking to add to positions when the overall stock market is more settled later in 2008. Thompson Creek, the second-largest publicly traded producer of molybdenum, projects production will climb to 16.5 million to 17 million pounds in 2008, up from a projected 15.9 million pounds in 2007, and then to 34 million pounds in 2009 as the company starts to work richer grades of ore in its mines. It's lowering costs, too: In 2006, the company spent about $6 to produce a pound of molybdenum, down from more than $7 in 2005.
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Jim Jubak: Credit crunch and youThe credit crunch isn't just for the big guys anymore. It means tighter credit on auto loans, credit cards and student loans. And that will really hurt the consumer economy.
Here's one last, more familiar name:
Freeport-McMoRan Copper & Gold (FCX, news, msgs). Maybe the company should change its name to Copper & Gold & Molybdenum. Proven and probable reserves of molybdenum total 1.9 billion pounds, and the metal made up 12% of 2006 sales. Copper does remain king -- especially after the 2007 acquisition of Phelps Dodge -- with reserves totaling 75 billion pounds.
The other natural-resource area that excites me right now is natural gas. I'll have more on that in my Feb. 15 column, after I get back from The World Money Show in Orlando, Fla. Hope to see some of you there. In my next column, on Feb. 12, I'll take a detour from natural resources to China.
Continued: Developments on a past column
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