Hyperinflation's  Instablog

 After a strong rally in the resource sector, a fast but furious wave of consilidation has struck many industries, but this is just a precursor to what lies ahead over the next several quarters. Just to name a couple off the top of my head.....

- Suncor (SU) Buying Petro-Canada (PCZ) This will create an oil sands behemoth as the newly combined company will have their foot in many projects including Synacrude. The future synergies of this deal are not reflected in the market place as your average investor knows little if anything about the sands. Oil will likely reach $100/ barrel next year and rise for the foreseeable future as the supply-demand disconnect grows. Sure there are alternatives in the pipeline but nothing will replace oil altoghether as it is extremely versatile. That being said the sands provide an absolutely enormous reserve base for these companies. Sure the margins will be marginally lower in say 3-5 yrs relative to other oil service firms, but this will be more than made up for on volume. Critisizing the sands is like saying wal-mart is not as good as whole foods because their margins are smaller. This sounds crazy at first, but that is the main argument I hear. This all being said Oil and the oil sands have a long way to go in the consolidation phase. My pick for this is Oil Sands Quest (BQI) , which is in the exploration stage but has some very attractive assets that will only become more desirable as time passes. 

- You don;t hear much clamor about potash anymore, but this fertilizer is best in class as seen through the superior yield and durability crops treated with this substance have shown. There are numerous bargains right now such as Potash (POT) along with many others. (KCLOF.PK) is a front runner to get bought by the likes of a Potash or the new Gorilla in the room (BHP). Potash one has what looks like a substancial discovery of a new potash mine, which hasn't been done in many years. For those who aren;t familiar with Potash, it is mainly only found in Canada and Russia, the latter being an obvious problem. With a growing middle class in China, India, Brazil among others, Potash will play an important role in ensuring the quality and quantity of various crops are able to meet these demands. There are several other candiates to fit this role but to avoid boring you to death, I am just throwing my favorite picks out there.

Aura Minerals (ARMZF.PK) and African Minerals (AMLZF.PK) for the base metals (although they may be the last sector I will mention to consolidate) as well as Taseko Mining (TGB) , although the latter is a good buy either way. This industry has so many players I feel I need to at least mention Ivanho mines (IVN) in this brief paragraph.

Obviously the Gold miners will have considerable consolidation taking place as the top tier companies seek to replace lost reserves at a time when this industry have greater than 50% operating margins which will likely creep high to somewhere between 60-80% as inflation rears its ugly head. We have seen Sino (SIOGF.PK) get eatin up by El Dorado (EGO). I have three canidates that I will mention (though there are many more) and they are Kirkland Lake Gold (KGILF.PK) as management has won me over with their sucessful diamond drilling results on their various connected mining properties in Canada. These properties wer previously deemed worthless decades ago and thought to have run dry. Kirkland will not only have unparralled production growth over the next 4 year, but will ramp up to nearly mid tier level. Next is Jaguar (JAG) as they have very compentent management and have a great track record of executing their production goals. Others include B2Gold (BTO), which Kinross (KGC) has slowly been accumulating and Seabridge Gold (SA) which has there world class KSM project. This will likely be taking on as a join partnership but a full buyout will be irresistable to shareholders is the likes of Barrick make a full out bid.

Silver also has many prospects, but I will cut to the chase a bit faster with these ones. Mag silver (MVG) , First Majestic (FRMSF.PK) & ECU Silver (ECUXF.PK) are all ripe for the pickin.

Disclosure: Long BQI , TGB , JAG & FRMSF.PK