TSX top exchange for investors seeking exposure to record commodities prices

The record prices of copper and food items such as beef, record fuel prices in the UK and Europe, with new record prices in gold and silver right around the corner, investors are wondering how they can participate in the commodities super bull market now emerging. The prices of platinum and palladium are performing well too, with palladium having just delivered its best returns in more than 10 years. Oil prices will certainly be driven higher unless the simmering cauldron of the Middle East can be brought under some semblance of control.

So while trading in the physical form of these commodities is no easy task (especially if you envision taking actual delivery of them), there is a way to tap into the profits being generated by the commodities. In fact, a little known secret that is rather well known in Canada is this: the best way to gain leverage to commodities prices is through the companies listed on the TSX and TSX Venture Exchanges.

From Rare Earth Elements to Uranium to fertilizer and oil, almost 80% of the world’s commodity financing in the natural resource sector is raised by Canadian investment banks, primarily in Toronto and Vancouver. The TSX Venture Exchange listed companies have a total combined market cap as of January 2011 of over $72 billion on the TSX, that’s over $2.2 trillion.

A recent book authored by Robert Haber, formerly a Fidelity fund manager, suggests that the TSX stock exchange could hit 30,000 driven by emerging markets’ appetite for oil, gold and food.

The TSX and TSX Venture companies are a fertile corporate incubator in the metals sector especially, with most replacement gold and silver ounces in the major mining companies coming from Canadian juniors. The lion’s share of copper discoveries are made by Canadian juniors, and the fertilizer sector is firmly in the sights of the world’s largest mining companies as evidenced recently by the failed takeover of Potash Corporation (TSX: POT, NYSE:POT) by BHP Billiton.(BHP.L)

In 2009, precious metals deals dominated domestic M&A activity in terms of both volume and value. Strong commodity prices are expected to continue to drive activity going forward.

The two largest domestic deals of 2009 included Pan American Silver Corp.’s US$469-million acquisition of Aquiline Resources Inc. and its Navidad property — one of the largest undeveloped silver deposits in the world — and New Gold Inc.’s takeover of Western Goldfields for US$277 million. These were both share-for- share transactions.

Among the world’s largest investment bankers, the global commitment to the enrichment of agricultural lands with fertilizers such as potash have put Canadian companies in the crosshairs for the world’s largest banks. J.P. Morgan, Merrill Lynch, Deutsche Bank, Morgan Stanley and many others have established offices in Canada to gain access to the large institutional financings that are announced on a daily basis by Canadian heavyweights such as Sprott Securities, GMP Securities, and RBC.

James West, CEO of Canadian investment firm Midas Letter Portfolio Advisors, said in a telephone interview last week that he thought Canadian junior miners and energy stocks were going to outshine 2006 and 2007, which were both record years.

“With the U.S. going broke, a regional war about to explode in the Middle East, deteriorating sovereign debt in the G7, and resource scarcity becoming front page news, the Canadian resource sector is going to outperform every other asset class on Earth,” he said. “Both the TSX and the TSX Venture exchanges will be the most profitable places investors can safely access these red hot commodities markets.”

When asked which particular commodity would perform the best, he was enthusiastic.

“All of them are going to perform exceptionally well in 2011,” he said. “Uranium is making a comeback, and right now we’re covering some of the most undervalued opportunities in gold, silver, rare earths, oil and gas and fertilizers that the rest of the investment world hasn’t even heard of yet.”

“There are two ways to double your money in 2011,” he quipped. “One is to take a hundred dollar bill out of your pocket, fold it in half, and then put it back. The other way is to invest in Canadian resource deals.”

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