Three reasons to invest in Xstrata PLC (PINK:XSRAF)

Xstrata (PINK:XSRAF) shares trade at a 10 percent discount to the company’s coal and copper assets alone. If that isn’t enough, here are three more reasons to consider adding Xstrata to your portfolio.

The world’s largest producer of thermal coal and a world-class copper miner, Xstrata’s (PINK:XSRAF) earnings spiked 86 percent during fiscal year 2010. Metals analyst John Tumazos of John Tumazos Very Independent Research tells Barron’s the company’s significantly under-valued compared to its peers. Indeed, shares trade at a 10 percent discount to Xstrata’s coal and copper assets alone. If that isn’t enough, here are three more reasons to consider adding Xstrata to your portfolio:

1) Leader of the pack. Xstrata has “the greatest growth upside” of any of the large-cap miners, according to analysts at Credit Suisse. Copper and coal volumes are expected to surge at an average of 50 percent over the next five years Barron’s reports. That’s good news as prices for both commodities have surged toward record levels this year. Xstrata’s also got significant nickel, zinc and alloy deposits including primary vanadium and platinum group metals. As a bonus, the company provides technology services for large-cap miners including Anglo Platinum Limited (PINK:AGPPY) and Goldcorp Inc. (NYSE:GG).

2) Rain, rain go away. Flooding in Australia has temporarily halted output at the company’s Ulan mine, which has an annual output capacity of 4 million tonnes of thermal coal, according to The Australian. The flooding has also affected coal output at BHP Billiton, Rio Tinto, Peabody Energy and Anglo American, stoking coal prices around the world. Xstrata’s strong balance sheet should help the company get the mine back online quickly, and Xstrata claims the shutdown will have little effect on profits.

3) Dividends are good. Xstrata recently returned its dividend to pre-crisis levels with a year-end payout of 20 cents. It was a move that was significantly higher than expected, Paul Galloway, analyst at Sanford Bernstein, tells the Financial Post. If copper and coal prices keep climbing, expect even better dividends in the years to come.

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Avalon Rare Metals Inc. surges on ‘speculative buy’ rating (AVL)

Mackie Research has initiated coverage on Avalon Rare Metals Inc. (AMEX:AVL) with a “speculative buy” rating. The stock rose 7 percent on the news.

Avalon Rare Metals Inc. (AMEX:AVL) rose nearly 7 percent yesterday on news that Mackie Research initiated coverage on the company with a “speculative buy” rating, according to Reuters Canada.

Avalon has long looked under-valued, particularly after news broke that the company had increased its indicated resources at its flagship Nechalacho or Thor Lake mine last month. “We think that the market is not anywhere close to where the valuation of the mine should be,” Mackie Research analyst Matt Gowing told Reuters. Mackie set a price target of C$10.50 on the stock.

The enthusiastic rating added to momentum in rare earth stocks after China announced plans for ‘stricter’ regulation of the sector earlier this week. China currently controls as much as 95 percent of the world’s supply of rare earth minerals, and the government there has capped exports dramatically over the past year. That’s led to a big rise in prices for rare earth stocks, and Avalon has been one of the primary beneficiaries. The stock’s up more than 80 percent since starting to trade on the AMEX in December. That’s not bad for a company that expects to start production at Thor Lake in 2015 after completing a C$1.3 billion rare earth processing facility. Initial output of rare earths will be around 10,000 tons per year.

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China plans ‘stricter’ control of rare earth mining

Despite the fact that China promised more cooperation with foreign buyers of rare earths, the government was vague enough to make investors nervous about the changes underway in the sector as stocks in several rare earth mining companies rose yesterday.

Citing environmental concerns, China’s Premier Wen Jiabao unveiled a new plan for rare earth mining earlier this week. The five-year plan would push new technology, stricter environmental regulations and move toward consolidating the rare earth mining industry in China.

Despite the fact that China promised more cooperation with foreign buyers of rare earths, the government was vague enough to make investors nervous about the changes underway in the sector as stocks in several rare earth mining companies rose yesterday. Avalon Rare Metals Inc. (AMEX:AVL) shot up nearly 7 percent, and Australia’s Lynas Corp. (PINK:LYSCF) rose more than 2 percent.

The announcement was also a clear sign that China’s committed to cracking down on the illegal mining of rare earth minerals within its borders. Much of this stock is smuggled out of the country and into Japan where it’s used in numerous high-tech products.

Earlier this month, news leaked out of China that the country was building facilities to house rare earth strategic reserves in the northern region of Inner Mongolia, according to AFP. Now, the government would like to forcibly consolidate the mining of the minerals in the hands of fewer companies.

China’s also planning to consolidate some of the governmental agencies that oversee rare earth mining. “The rare earth industry regulation and management involves several ministries, which, sometimes, have inconsistency in policy making,” Yang Wanxi, director of a government-connected rare earth institute, told Xinhua.

China’s cap on rare earth exports are at the center of what’s quickly becoming a contentious international issue. Last summer, China limited rare earth exports by 72 percent, according to Bloomberg. Six months later, the country announced it would further slash exports by 35 percent for the first six months of 2011.

That’s caused an enormous spike in prices for rare earths as China controls as much as 95 percent of international supply. Slowing that supply to a trickle while demand for rare earths is rising has mining companies from Australia to Wyoming to Canada clamoring to move into production. It’s also ruffled the feathers of governments including the U.S., Mexico and the EU with all three filing complaints with the World Trade Organization over China’s manipulation of the raw materials market, according to the Wall Street Journal.

While the current WTO case against China doesn’t cite rare earths but rather other raw materials, a second case that specifically cites raw earths will likely be opened if the first succeeds. In its defense, China argues that they’re limiting the export of raw materials in order to protect the environment. Many believe that’s a thin argument so that the country can hoard raw materials in an attempt to woo foreign corporations into setting up shop in China.

The WTO is expected to deliver a report to all four countries today that will reject China’s argument that it’s limiting raw materials for environmental reasons. China will then have the option to appeal or open up exports of raw materials. If the government refuses to comply it may face sanctions by the WTO and a future case arguing against export caps on rare earth minerals, which could lead to further sanctions. Either way, it doesn’t appear the rare earths sector will see increased supply out of China anytime soon. That will likely keep upward pressure on the metals through at least July.

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Top 10 best stock sectors for 2011

One of the toughest parts of investing is being in the right stocks at the right time. Here are the Top 10 sectors that I believe have the best prospects for a break-out year in 2011.

One of the toughest parts of investing is being in the right stocks at the right time. In general, sectors move together on a combination of factors: the macroeconomic outlook, changes in demand, materials costs and the regulatory outlook among other things. Based on those considerations, here are the sectors that I believe have the best prospects for a break-out year in 2011:

1) Rare earth stocks. Rare earths mining companies seek out or dig up deposits of rare earth metals – a collection of 17 chemical elements that are increasingly used in high-tech products from iPhones to wind turbines and electric vehicles. Rare earth stocks exploded upward at the start of the year on news that China is hacking exports of the metals by 35 percent through the first six months of 2011. That’s not good considering the fact that China produces 95 percent of the world’s rare earths supply. Rare earth mining stocks outside of China will have to make up for the plummeting supply in coming years. While shares in rare earths companies have cooled off recent weeks (putting several of them in the red since the start of the year), I fully expect the long-term trend to be intact. Among my favorite stocks in the sector? Avalon Rare Metals Inc. (AMEX:AVL), which is up 19 percent on the year.

2) Technology IPOs. A number of multi-billion dollar technology IPOs appear to be on the slate in 2011. From LinkedIn to Groupon, expect lots of press, surging prices and a good opportunity to make a quick buck. Check out my unofficial tech IPO calendar for 2011 to see all the tech companies that might IPO this year.

3) Oil stocks. Political turmoil coupled with rising demand pushed oil over $100 a barrel in London for the first time in three years. The IEA expects demand to grow 1.7 percent to 89.3 million barrels this year, and that’s pushing up share prices for the majors and small-cap exploratory companies as well. Shares in Exxon Mobil Corporation (NYSE:XOM) are up 13 percent since the start of the year.

4) Precious metal stocks. It’s been a tough start to the year for gold and silver as investors have cheered corporate profits and robust consumer spending. That’s had some predicting gold’s peaked, but I’m convinced the long-term outlook for gold – and particularly silver – is still up. Central banks became net buyers of gold last year, and they’re expected to continue that trend in 2011. The SPDR Gold Trust (NYSE:GLD) is down 4.5 percent and the iShares Silver Trust (NYSE:SLV) is up 2 percent since the start of the year.

5) Fertilizer stocks. Rising food costs are the product of inflation and rising demand. As producers try to cope with growing demand, they’ll rely on phosphates, nitrates and potash to try to squeeze more food out of the same acreage. That’s caused an explosive surge in small-cap phosphate exploration stocks. Allana Potash Corp. (CVE:AAA) is up more than 100 percent since the start of the year. Bellweather fertilizer stocks like Potash Corp. (NYSE:POT) and The Mosaic Company (NYSE:MOS) are both up more than 20 percent as well.

6) Copper stocks. The looming threat of a supply crunch has helped push copper prices above $10,000 per ton for the first time in history. Analysts are calling for a worldwide deficit of about 500,000 tons of copper this year, and that will help propel copper mining stocks after what’s already been a great start. Shares in small-cap and mid-tier copper stocks have performed the best to date with Augusta Resource Corp. (AMEX:AZC) rising 21 percent YTD.

7) Uranium stocks. Uranium prices have been on a tear rising 70 percent in the past seven months. In January alone, the spot price for uranium shot up 17 percent to $73 a pound. Uranerz Energy Corp. (AMEX:URZ) in particular has been shining with its shares up 35 percent this year. As countries around the world look to go green, nuclear power will get less press than wind and solar, but it will likely be the backbone of any plan to move away from coal.

8) Coal stocks. Flooding in Queensland and rapidly-growing demand in China have led to a surge in coal prices around the world. If oil prices remain high, coal will be the go-to substitute for power generation in many countries around the world. Year-to-date, the Market Vectors-Coal ETF (NYSE:KOL) is nearly flat, but its up almost 40 percent over the past six months.

9) Blue chip stocks. As the dollar begins falling relative to currencies in other countries, shares in high-quality, blue-chip U.S. stocks begin to look very attractive – particular blue-chip stocks with international exposure. The beneficial exchange rates should make U.S. exports look more attractive and will overfill the coffers at America’s biggest corporations. Shares in General Electric Company (NYSE:GE) are up more than 19 percent since the start of the year.

10) China e-commerce stocks. A recent report by Credit Suisse predicts that e-commerce will grow by 400 percent through 2015 in China. With most of the leading Chinese retail sites in private hands, investors on American exchanges don’t have a whole lot of options to cash in on the trend outside of the Amazon-like site E-Commerce China Dangdang, Inc. (NYSE:DANG). Taobao.com controls 75 percent of all e-commerce transactions in China. If they IPO in 2011 or 2012, I’d recommend cleaning up your portfolio and taking a long position.

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Osisko Mining nears completion on Canada’s largest gold mine (OSK)

Osisko Mining Corp. (TSE:OSK) is preparing to bring Canada’s largest gold mine, the Malartic gold deposit, into production in Q2 2011.

Changes are afoot at Osisko Mining Corp. (TSE:OSK) as the company prepares to bring Canada’s largest gold mine, the Malartic gold deposit, into production in Q2 2011. Earlier this week, Goldcorp Inc. (Public, NYSE:GG) sold its 10.1 percent stake in Osisko for $530 million.

The move alleviates speculation that Goldcorp intended to acquire Osisko, and TD Newcrest analyst Daniel Earle sees that as a bullish sign. “Over the long term, we expect Osisko shares could benefit from the elimination of the perceived overhang created by Goldcorp’s sizable stake in the company,” he wrote in a note to clients.

Earle also believes Osisko’s well-positioned to meet its goal of bringing the Malartic deposit online next quarter despite some “execution risk.” The mine is expected to produce more than 600,000 ounces of gold a year over a 12.2-year mine life with operating costs of just $319 per ounce.

In other news, Osisko announced yesterday that six of its exploration properties are set to be acquired by Colorado Resources Ltd. (CVE:CXO) pending approval by Kinross Gold Corporation (NYSE:KGC). Osisko will also contribute $500,000 in an equity financing to help fund exploration of the properties in exchange for 200,000 shares in Colorado.

“This transaction between Colorado, Osisko and Kinross allows Colorado to continue the great work started by Brett and Kinross,” Colorado Resources’ President Adam Travis said. “We welcome Osisko as a shareholder in Colorado and look forward to advancing the British Columbia projects with Kinross and strengthening our partnership with them.”

Shares in Colorado Resources have risen 78 percent since they started trading on Nov. 5, 2010. Shares in Osisko have see-sawed in recent months, with shares up 1 percent over the past six months. Expect a pop if and when the Malartic deposit goes into production.

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Three reasons to invest in Avalon Rare Metals Inc. (AMEX:AVL)

Three reasons to invest in Avalon Rare Metals Inc. (AMEX:AVL)

Avalon Rare Metals Inc.’s (AMEX:AVL) heavy rare earth deposits make the stock look cheap relative to its peers.

While they’re still four years from actual production, Avalon Rare Metals Inc. (AMEX:AVL) has enough metal in the ground to warrant a serious look. The company’s market cap has catapulted 70 percent higher to $678 million after shares moved off the OTC market and onto the AMEX on Dec. 27. Here are three reasons to consider buying shares in Avalon even with the stock’s recent gains:

1) Rare earths outlook. China’s thirst for rare earth metals has tossed the sector into chaos. China supplied 95 percent of the world’s rare earth’s supply last year, and early this year, the country announced it would forcibly trim exports by 35 percent during the first half of 2011 while simultaneously raising tariffs on the metals. China’s so concerned with future supplies of rare earths that its silently moved to create its own rare earth strategic reserves, per a report from the Wall Street Journal. That’s catapulted shares in rare earth mining stocks higher with Avalon up more than 70 percent in a month and a half.

2) Bargain basement rates per ton. In an excellent piece at SeekingAlpha.com, contributor Michael Filloon compares Avalon’s Total Rare Earth Oxides (TREOs) holdings to its peers on a price-per-ton basis. “Avalon (AVL) has a market cap of 633 million; it has 4.298 million tons of TREO, which values their rare earth oxide at $147 per tonne,” Filloon writes. “Arafura (ARAFF.PK) had a market cap of $390 million; it has .84 ton of TREO, which values their rare earth oxide at $464 per ton. Quest Rare Minerals (QSURD.PK) has a market cap of 281 million; it has 551 million tons of TREO, which values their rare earth oxide at $511 per ton.” Filloon’s list keeps going all the way up to Molycorp, Inc. (NYSE:MCP), which has a rare earth oxide valuation at $3,025 per ton. Filloon’s quick to point out, though, that Molycorp’s far closer to production than Avalon.

3) Possible takeover target. Avalon’s Nechalacho Rare Earth Element Deposit in Canada’s Northwest Territories is chock full of heavy rare earths – among the rarest elements in the rare earths category. Demand for heavy rare earths is expected to surge in coming years, and it makes sense that a company like Molycorp – which has an abundant source of light rare earth elements at its Mountain Pass, Calif. mine – might be looking to diversify its rare earths portfolio. “Who knows,” writes Wyatt Investment Research, “as Molycorp becomes more cash-rich and in a position to make acquisitions, Avalon might show up on that company’s short list of targets.”

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If you’re considering investing in the rare earths stocks, here are three options that trade on U.S.-based exchanges.

For the first time in China’s history, the country appears poised to become a net importer of rare earths. Expect prices to surge in the U.S and Japan in coming years if suppliers in other countries can’t keep up with demand.

“(There are) early signals that China is moving from sell-side to buy-side. China becomes a new market opportunity for producers outside China,” Chinese Society of Rare Earths director Chen Zhanheng said at a recent presentation in Canada.

China is the world’s biggest producer of rare earths with exports peaking at 60,000 tons and tapering off to 39,000 tons in 2009. That’s a huge drop-off considering that China currently supplies 97 percent or more of the world’s rare earths metal supply.

Chairman Nick Curtis, who heads up Australia’s Lynas Corporation, Ltd. (PINK:LYSCY), told The Australian he believes China will become a net importer of rare earths within five years. That’s good news for Lynas, which mines Mount Weld in Western Australia – the richest known deposit of rare earths in the world (Although we’d be remiss if we didn’t point at that Curtis recently sold 7 million shares worth $13.5 million in his company citing “personal balance sheet management” needs.)

Still, it’s clear that China’s throttling the market for rare earths thanks to a combination of export quotes and rising domestic demand within the country. Rare earths are increasingly used in high-tech goodies including iPhones, Blackberries, electric vehicles and wind turbines. That new demand for rare earths has pushed shares in miners up rapidly. Lynas, for instance, has risen more than 235 percent in the past year.

If you’re considering investing in the rare earths stocks, here are three options – all of which trade on U.S.-based exchanges:

1) Thompson Creek Metals Company, Inc. (NYSE:TC). With interests in nine mines or projects in the U.S. and Canada, Thompson Creek is a molybdenum miner that’s also begun diversifying into copper and gold with its Mt. Milligan mine in British Columbia (which should drive up profits starting in 2013). Shares in Thompson Creek are up 21 percent over the past year, and the company’s still trading at a P/E of 11.

2) Molycorp, Inc. (NYSE:MCP). Molycorp, Inc. has been on an absolute tear since its IPO last July. Shares have scorched up more than 400 percent in just over six months. That makes me extremely nervous to buy in here (as I imagine it should any investor). Molycorp began mining Neodymium and Praseodymium in 2007 and is scheduled to start extracting Bastnasite ore from its Mountain Pass., Calif., mine this year.

3) General Moly, Inc. (AMEX:GMO). Molybdenum-miner General Moly currently holds 80 percent interest in the Mt. Hope project in Nevada. The other 20 percent interest is in the hands of Korea-based steel producer POSCO (NYSE:PKX). General Moly also owns 100 percent of the Nevada-based Liberty project, which (based on a pre-feasibility study) should produce 503 million pounds of molybdenum over a 33-year mine life. The Mt. Hope project could be in production as early as 2013.

Don’t want to pick an individual company? The Market Vectors Rare Earth/Strategic Metals ETF (Public, NYSE:REMX) currently holds positions in more than 20 companies including rare earths and strategic metals producers. Shares in REMX are up 28 percent over the past year.

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Top 5 reasons to invest in silver bullion

New industrial uses for silver including use in solar panels and iPads has grown by 18 percent in the last year.

With commentators predicting the demise of fiat currencies in favor of asset-backed regional currencies, here are 5 reasons to invest in silver bullion over gold:

1) The current silver to gold price ratio doesn’t align with historical trends. “Throughout human monetary history the Silver to Gold ratio hovered in the 10-1 range until the invention of futures and options trading in metals,” writes silver bull Bix Weir at RoadtoRoota.com. “After the massive manipulation maneuvers by the Banking Cabal the silver-gold ratio now stands at over 62-1.”

2) Thanks to its relatively cheap price point compared to gold, silver’s much more accessible to everyday investors. Lower priced assets are typically subject to more volatility than higher priced assets. A mania in precious metals would likely press silver up higher and faster than gold.

3) Unlike gold, a large percentage of the silver that’s mined is used in unrecoverable industrial products, which prevents the worldwide silver bullion supply from continually accumulating. Industrial demand for silver has expanded in recent years from flat screen TVs to iPads and solar panels. “We’ve seen in the last year the growth in that type of use increase about 18%,” Phillips Baker, CEO of Hecla Mining, tells TheStreet.com.

4) Silver, gold and other precious metals will serve as hedges against inflation if investor confidence in the Dollar or Euro erodes further. Other geo-political problems can also push investors toward safety trades in gold or silver as evidenced by a surge in prices during the Egyptian riots.

5) In dollar amounts, the relatively small size of the silver bullion market makes its price sensitive to institutional investments. If hedge funds and mutual funds begin taking long positions in the silver bullion market, prices would spike significantly.

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Analysts like Noah Holdings Limited stock (AMEX:NOAH)

Currently trading at a P/E ratio of 89, Noah’s shares sound expensive, but the company’s growth just might justify the premium.

A month and a half after Noah Holdings Limited’s IPO (AMEX:NOAH), analysts have started weighing in on the Chinese wealth management company, and they seem to like what they see – even at what appears to be an extremely high price for shares in a young company.

Here’s the first batch of analyst ratings that started rolling in earlier this month: JPMorgan Chase & Co. (NYSE:JPM) gives NOAH an “overweight” rating, and Roth Capital Partners joins Bank of America Corporation (NYSE:BAC) in listing it as a “buy.” Both Wells Fargo & Company (NYSE:WFC) and Oppenheimer (NYSE:OPY) started the stock at “perform.”

Noah targets wealth management products to high net worth individuals in China, and that’s a decent niche to fill. The ranks of China’s wealthy are swelling as high net worth individuals in the PRC controlled some $5.6 trillion in 2009, according to Reuters. That was good enough to rank them No. 4 in the world in terms of high net worth individuals in 2009.

Currently trading at a P/E ratio of 89, Noah’s shares sound expensive, but the company’s growth just might justify the premium. During the first half of 2010, Noah’s net revenue more than doubled to $13.7 million over the same period in 2009. Even better: Noah’s profits grew fivefold during that time span to $4.04 million.

“As investors, we like to see companies that can grow,” Benjamin Kirby, a Santa Fe, New Mexico-based analyst at Thornburg Investment Management, told Businessweek. Noah definitely meets that qualification, and that’s made me a believer in the stock.

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Quantifying the total worldwide silver supply is difficult as silver has been used throughout history for coinage, silverware, jewelry and in industrial applications. That said, the supply of silver as a bullion-grade investment can more easily be calculated. Market estimates from ArabianMoney.net suggest the total worldwide supply of investor-grade silver bullion is roughly 1 billion ounces. That’s less than half the supply of investment-grade gold bullion, as gold is more frequently saved as a hedge against currency devaluation.

Based on today’s prices, the total supply of investment-grade gold bullion is worth $4.3 trillion. The total supply of investment-grade silver bullion is worth $28.8 billion. During inflationary periods, owners of scrap precious metals such as jewelry will likely sell their gold scrap, not their silver scrap, as gold commands higher prices. This fact can lead to investment-grade silver demand out-pacing the demand for investment-grade gold bullion.

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