commodity

The Canadian dollar is now trading at over $0.93 U.S., its highest level since September 1977. Its strength owes a lot to the rise in commodity prices, particularly metals and oil. Unlike many advanced countries, Canada is a major exporter of these and other commodities. When commodity prices rise, we get more foreign revenue for commodities we export. Buyers of our exports have to buy Canadian dollars to pay for them. This buying pushes the value of our dollar up, relative to other currencies....

The Bank of Canada held interest rates steady at 4.25% at its April meeting. The rate has remained stable since May, 2006. The Bank did note that core inflation has increased faster than expected, and will likely rise above its target rate of 2% in coming months. Core inflation excludes eight volatile components identified by the Bank of Canada, including gasoline, fuel oil and fruits and vegetables....

FINNING INTERNATIONAL INC. $54 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 89.5 million; Market cap: $4.8 billion; SI Rating: Above average) is one of the world’s largest dealers of heavy equipment made by Caterpillar Inc., such as tractors, bulldozers, pavers and trucks. Major customers include the mining, forest products and construction industries. Revenue grew at a compound annual rate of 11.8%, from $3.2 billion in 2002 to $5.0 billion in 2006. Most of that growth is due to higher commodity prices, which have spurred strong demand for heavy equipment from mining and oil exploration firms. Profits from continuing operations were $1.68 a share (total $132.3 million) in 2002 and $1.68 a share ($132.0 million) in 2003, but rose to $2.27 a share ($240.7 million) in 2006. (These per-share figures do not reflect a 2-for-1 stock split planned for May 2007.) Cash flow per share rose from $5.99 in 2002 to $6.55 in 2003. It fell to $6.37 in 2004, and to $5.95 in 2005, but grew to $6.71 in 2006....

Finning supplies equipment and services to the mining and oil exploration industries. Thanks to the huge rise in cyclical resource prices, Finning’s stock has doubled in the past five years. The stock could suffer if resource prices fall. But we feel this boom has several years of life ahead, due to spreading industrialization in Asia. The company should also continue to gain from its exposure to the construction industry, particularly as governments increase spending on infrastructure. Despite Finning’s big rise, we feel it still has great long-term appeal. The stock is still attractive in relation to earnings, cash flow and sales. FINNING INTERNATIONAL INC. $54 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 89.5 million; Market cap: $4.8 billion; SI Rating: Above average) is one of the world’s largest dealers of heavy equipment made by Caterpillar Inc., such as tractors, bulldozers, pavers and trucks. Major customers include the mining, forest products and construction industries....

IMPERIAL OIL LTD. $41 (Toronto symbol IMO; Conservative Growth Portfolio, Resources sector; Shares outstanding: 953.0 million; Market cap: $39.1 billion; SI Rating: Average) had to cut production by 50% at its Nanticoke refinery in Ontario due to a fire. This plant accounts for about 25% of Imperial’s refining capacity, and the slowdown led to shortages at many of its Ontario gas stations. It will probably take a few more weeks for the plant to return to full capacity, but it’s unlikely the fire will have a material impact on Imperial’s 2007 profits. Imperial Oil is a buy. DUNDEE CORP. $52 (Toronto symbol DC.A; Aggressive Growth Portfolio, Finance sector; Shares outstanding: 25.1 million; Market cap: $1.3 billion; SI Rating: Average) has increased its stake in Breakwater Resources Ltd., from 18.4% to 21.55%. (Breakwater operates zinc mines in British Columbia, Honduras and Chile.) The extra shares cost Dundee $3.1 million, which is slightly less than the $0.13 a share (total $3.5 million) it earned in the third quarter of 2006....

NEWMONT MINING CORP. $47 (New York symbol NEM; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 422.5 million; Market cap: $19.9 billion; WSSF Rating: Average) is one of the world’s largest gold mining companies, with major operations in the United States, Canada, Peru, Australia, Indonesia and Ghana. It also produces other metals, including copper, silver and zinc. Gold prices got as high as $725 an ounce in May 2006, but moved down to about $570 a month later. Gold will probably average $650 this year. Newmont prefers to sell its gold at the spot price instead of through hedging contracts. While that increases its price risk, the company offsets this by expanding or cutting production....

CHILE FUND $17.25 (New York symbol CH) (CWA Rating: Aggressive) has net assets of $175.9 million U.S. It’s managed by Credit Suisse. Prices for copper, a key commodity for Chile, are down from their highs, but still remain strong. Chile is a major exporter of copper, particularly to Asia. It’s the world’s biggest supplier of copper. Other important non-mineral exports are forestry and wood products, fresh fruit and processed food, fishmeal and seafood, and wine. The Chilean economy grew 6.3% in 2005 and likely grew 4.2% in 2006. Steady interest rate increases since 2004 have kept inflation at under 3%, but the rate increases, plus higher energy prices, slowed the economy in 2006. Even so, growth this year will still likely exceed 5.5%....

SUPERIOR PLUS INCOME FUND $11.07 (Toronto symbol SPF.UN) faces gradual shrinkage in its core propane distribution market. Its diversification into new areas such as pulp and paper chemicals and construction materials does not inspire our confidence. We don’t recommend Superior Plus. WESTSHORE TERMINAL INCOME FUND $11.49 (Toronto symbol WTE.UN) receives 90% of the revenue at its coal storage and loading terminal at Roberts Bank, B.C. from mines owned by the Elk Valley Coal Partnership. That concentration in a single facility, moving just one commodity and serving one customer almost exclusively, are major risk factors. Westshore is a sell. YELLOW PAGES INCOME FUND $12.81 (Toronto symbol YLO.UN) is Canada’s largest telephone directories publisher. The company already has around a 93% share in its markets in Ontario and Quebec, so there’s not a lot of room for growth. Yellow Pages’ assets consist mainly of intangibles and goodwill. These assets only have full value if the fund can maintain its market share and public recognition and loyalty as the leading brand. We don’t recommend units of Yellow Pages Income Fund....

TECK COMINCO LTD. $90 (Toronto symbol TCK.B; Conservative Growth Portfolio; Resources sector; SI Rating: Average) has agreed to acquire a 16% interest in Tahera Diamond Corp., which operates a diamond mine in Nunavut. Teck also received warrants, which, if exercised, would increase its stake to 24.9%. Teck paid $30 million for this investment, which is just 6% of the $504 million or $2.32 a share it earned in the three months ended September 30, 2006. Diamond mining is much riskier than Teck’s core zinc and copper businesses, but its mining expertise should help Tahera expand production and cut costs....

FINNING INTERNATIONAL INC. $45 (Toronto symbol FTT; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Above average) sells and leases Caterpillar brand heavy equipment to oil exploration, mining and forestry firms. The company’s operations in Western Canada supply 40% of its revenue. It also operates in South America (Argentina, Bolivia, Chile, and Uruguay) and the UK. In September 2006, Finning sold the materials handling operations of its UK division for $175 million. This business supplies forklifts and related machinery to warehouses and factories, and has struggled in the past few years. The company recorded a $32.7 million loss on the sale, but it should improve the long-term prospects of the remaining UK operations. Finning used the cash from the sale to pay down debt. Although the company had to pay a special charge on the early retirement of certain bonds ($0.07 a share), the move will cut its future interest expenses. Finning’s long-term debt now stands at 0.5 times equity, down from 0.6 times at the start of 2006....