Gold and copper. Zircon and lithium. Bauxite, oil and gas. Exposure to any can be a sound strategy in the minerals and energy boom that is showing ongoing legs. In fact, despite the recent volatility in commodities prices many believe that strong overseas demand for commodities paints a bright outlook.

John Rawicki, of State One Stockbroking, has chosen a stock associated with each commodity and explains why he believes they offer good prospects. Clearly, his list deliberately offers diversification, enabling potential investors to spread risk in the chase for capital gains. Rawicki focuses on companies potentially within reach of surprising on the upside. However, the risk of a company disappointing should always be factored into any share investment – particularly with junior resources who can drop sharply when they fall out of favour.

Crusader Resources (CAS)

Chart: Share price over the year to 13/05/2011 versus ASX200 (XJO) 

Crusader Resources owns 100 per cent of the Borborema gold project in Brazil, containing what Rawicki describes as an impressive JORC (Joint Ore Reserves Committee) resource of 839,000 ounces at 1.7 grams of gold a tonne. Rawicki expects a significant resource upgrade at Borborema to follow an intensive drilling program planned during the next three months. “It should propel Crusader into the big leagues with a million-ounce deposit,” Rawicki says. Mine construction is set to begin in 2012. Subject to a positive feasibility study, production should start in 2013, with an initial target of 100,000 ounces a year. “Crusader enjoys the advantage of having most of its team based in Brazil,” Rawicki says. “Speaking Portuguese also helps.”

Hot Chili (HCH)

Chart: Share price over the year to 13/05/2011 versus ASX200 (XJO) 

Hot Chili has three big multi-commodity projects in Chile – Productora, Los Mantos and Chile Norte. Productora is Hot Chili’s most advanced and contains a big operating underground copper mine. Rawicki says Productora is currently being drilled to delineate a maiden JORC resource by the middle of 2011, and its latest drill results have uncovered a new wide zone of near-surface copper mineralisation. “We can expect an increase in tonnages and a decrease in the strip ratio of an open pit mine, making it easier and cheaper to produce copper from the deposit,” he says.  “We believe Hot Chili’s share price can rise to a $1 this year.” The stock finished at 71 cents on May 11, 2011.

Diatreme Resources (DRX)

Chart: Share price over the year to 13/05/2011 versus ASX200 (XJO) 

Zircon prices have doubled in the past 18 months on the back of global supply shortages. Rawicki says Diatreme Resources’ Cyclone Project, located in the highly prospective Eucla Basin of Western and South Australia, contains an enviable bounty of high grade zircon and high value titanium minerals. He says the deposit continues to shape up as a major zircon resource by world standards, with potentially heavy mineral targets in areas yet to be drilled. The company has joined with China’s, BaoTi Group to stgelop the Cyclone Project and the two firms aim to finalise an agreement by December 2011. Diatreme recently raised $7.1 million for further exploration and a feasibility study to bring it a step closer to production.

Galaxy Resources (GXY) 

Chart: Share price over the year to 13/05/2011 versus ASX200 (XJO) 

Galaxy Resources is rapidly becoming a fully-integrated lithium company. Operations span raw lithium production to chemical processing and lithium battery manufacturing. Rawicki says the growing popularity of electric cars amid ever-increasing use of electronic stgices will lift market demand for lithium batteries. “It positions Galaxy in a sweet spot to reap the rewards,” Rawicki says. He says Galaxy has already begun shipping spodumene (lithium ore) from its Mt Cattlin project in Western Australia to its production plant in China, placing it firmly in the producer category. “With a fresh $120 million in the coffers from its recent capital raising, Galaxy can confidently ramp up production and start looking at new projects,” he says.

Australian Bauxite (ABZ)

Chart: Share price over the year to 13/05/2011 versus ASX200 (XJO) 

Rawicki says Australian Bauxite’s projects along the east coast may be producing as early as 2013/14. He says company managing director Ian Levy has fast-tracked an intensive exploration program that’s six months ahead of schedule. Rawicki says with a huge exploration target of between 200-to-300 million tonnes of thick, shallow and high-grade bauxite, the company could be “nipping at the heels” of industry giants Rio Tinto, Alcoa and BHP Billiton and emerge as formidable player in the bauxite market. He says a tightly-held share register and plenty of drill results ahead make Australian Bauxite a highly attractive, but speculative buy.

Hawkley Oil and Gas (HOG)

Chart: Share price over the year to 14/05/2011 versus ASX200 (XJO) 

Development company Hawkley Oil and Gas fully owns assets in the Dnieper-Donets Basin – said to be the most prolific gas basin in the Ukraine. Rawicki says the company recently received first revenue from its onshore Sorochynska well, which is currently pumping 7.3 million cubic feet of gas a day. He says Hawkley’s recent $15 million capital raising will go towards constructing a dedicated gas plant at Sorochynska, with an impressive capacity of 30 million cubic feet of gas a day. “With a positive outlook for gas pricing and production, Hawkley is likely to keep investors excited this year with plans to start three more wells at Sorochynska in 2011,” he says.

Crusader Resources (CAS) Gold $1.26
Hot Chili (HCH) Copper 65 cents
Diatreme Resources (DRX) Zircon 9.9 cents
Galaxy Resources (GXY) Lithium $1.055
Australian Bauxite (ABZ) Bauxite 68 cents
Hawkley Oil and Gas (HOG) Oil and gas 33.5 cents

Price current to market close, 13 May 2011

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