At last count, Canada produced more than 60 different metals and minerals and operated more than 180 producing facilities, from peat bogs to quarries and steel mills. The leading producer province: Ontario, with 26.4 percent of output, followed by Saskatchewan, British Columbia, Saskatchewan, Quebec and Atlantic Canada. Energy-rich Alberta is nowhere to be found.

Metals and minerals exports accounted for more than half of Canadian shipping in 2007. And the country is a major player in global markets for uranium, nickel, zinc, gold, copper, potash, gypsum, salt and diamonds, as well as timber resources, to name bet a few key resources.

Starting at the end of the last recession in late 2002, prices for all of these key commodities began a steady uptrend that turned parabolic in mid-2006. Prices then remained at high levels until mid-2008, at which time they crashed in the face of the deepening financial crisis and onset of the global recession.

To a large extent, the prices of metals like copper and forestry resources like lumber were at least initially driven higher by the unprecedented boom in the US housing industry. By mid-2007, the stalling of that sector had created a powerful headwind to their upward momentum, particularly for timber and copper.

Prices of other commodities, however, continued to hold their own and even go higher, all the way up until the markets finally crashed in the second half of 2008. The reason: The US is no longer the only key customer for them, and in some cases, it’s no longer even the largest.

Earlier this decade, for example, US industry accounted for some 25 percent of the world’s annual copper demand. China was a distant second at roughly half that. By 2008, however, those figures were reversed. And in fact, China’s share by some estimates has risen to as much as 27 percent.

To say this great demand switch has had dramatic consequences would be the understatement of the year. Copper demand in the US, for example, has crashed over the past two years and it’s scarcely revived this year as the housing market has remained in ruins.

Copper prices, however, are up more than 64 percent from the lows reached in late December as demand for infrastructure construction in China has begun to revive. That’s a situation that would have been completely impossible just a few short years ago.

Asia’s Gain, Canada’s Gain

The rise in relative importance of Asia has by no means negated the US market for commodity producers. But it has created a new dynamic for Canadian natural resource producers.

All will definitely fare better when the US economy gets back on its feet. But they’re no longer dependent on the economic ups and downs of this market alone.

In fact, they’re tapped into what’s become the most reliable source of growing demand for natural resources: the need for emerging Asia to accommodate a population that’s moving to urban areas at the equivalent rate of an entire city every year.

Meeting this new source of demand requires, for example, a truly unfathomable amount of steel. That in turn means unprecedented demand for iron ore–the essential element for making steel–and metallurgical coal, the high grade variety that works best for uses (steelmaking) that require very high and efficient heat.

Rapidly urbanizing populations need improved nutrition. That’s a huge plus for the world’s key producers of agricultural products and the inputs like fertilizer needed for growing.

The relatively good economic health of the US farm belt compared to the rest of the nation is due to surging Asian demand that’s offset weakness in North America in driving global prices. That’s why Aggressive Holding Ag Growth International (TSX: AFN, OTC: AGGZF) continues to prosper with its business of manufacturing and selling grain handling equipment in the US and Canada.

For a better understanding of the importance of emerging Asia to the world beyond, I recommend a quick read of The Silk Road to Riches, written by my colleagues Yiannis Mostrous and Elliott Gue and Ivan Martchev. It’s truly a region that is going to increasingly drive overall global growth, financial and consumption patterns, with profound implications for all countries.

For the US, Asia’s emergence has both positives and negatives. On the one hand, it’s the realization of the dream of post-World War II planners that the world’s great nations would trade rather than battle.

Arguably, no country has benefited more from the ongoing economic opening of China than the US. China and other Asian nations’ willingness to buy and hold US Treasury debt has given the Obama administration flexibility to combat recession pressures with aggressive fiscal and monetary policy. Asian markets for agricultural products have been a life-saver for US farmers burdened by a weak domestic market. And access to lower-cost Asian goods, such as electronics, has raised living standards markedly among average Americans.

On the other hand, not being the only key market for vital commodities means a drop in US demand alone no longer has the impact on global prices it once did. In the past, for example, the US could count on getting a shot in the arm from much lower resource prices whenever our economy faltered. The rise of Asia means there’s a new floor under global demand, and therefore prices. Consequently, the US gets less of a kick to overall growth.

The US was once a major exporter of commodities. It could be again, with enough construction of infrastructure for liquefied natural gas exports. For now, however, higher commodity prices mean a bigger trade deficit and, all things equal, a weaker dollar. A weak dollar in turn drives more inflation, which in turn lifts prices of hard assets (like commodities) further still.

In contrast, Asia’s emergence is almost all positives for Canada. The industrial sector of the eastern provinces is hurt when the Canadian dollar rises, or when price of commodity inputs rises.

But having another huge and growing market for the far more important commodity export sector is manna from heaven for every business tapping the country’s natural resource bounty. And that’s going to be ever-more the case going forward.

Not all Winners

Ironically, at the same time the long-term picture looks so bright for the best Canadian resource companies, the near-term picture is cloudy for many. Prices of scores of resources, as well as producers’ share prices, remain very depressed in the wake of the worst financial meltdown since the 1930s.

Some of the stronger players tracked in How They Rate’s Natural Resources section have seen their share prices recover some of their lost ground. But even the very strongest sell for only a fraction of their highs of barely a year ago. Many trade at sharp discounts to book value and sales.

As for weaker fare, the result has been an out and out disaster. Dividend cuts have been rife as cash flows have plunged. Some, like Tree Island Wire Income Fund (TSX: TIL-U, OTC: TWIRF), look increasingly like candidates for bankruptcy protection. Tree Island, in fact, received a notice of default from lender General Electric (NYSE: GE) last month, as it attempted to negotiate new credit terms.

The subsequent sale of “surplus lands” for CAD10.5 million will likely buy some more breathing room for the producer of bright and stainless steel wire, galvanized wire, fasteners, nails, mesh, stucco reinforcers and other fabricated wire products. But with its key markets weak–particularly North American housing–the future looks shaky at best.

I’ve rated Tree Island Wire Income Fund a sell for some time. Its weaknesses in this economy have gotten the better of it. And there are more than a few other How They Rate entries that could well wind up sharing its fate. TimberWest Forest Corp (TSX: TWF-U, OTC: TMWEF) has gone virtually straight down since I sold it from the Portfolio some months ago.

The company–whose units trade as part equity and part bond–was forced to eliminate its quarterly distribution in November 2008, and things have improved little since. The key problem has been an extremely weak market for its timber, which has induced management to drastically curtail harvests. But even real estate sales, which had been counted on to provide cash flow until the US housing market recovers, have fallen off a cliff.

The result is a company that continues to experience cash shortfalls with scant hope of a turnaround any time soon. To be sure, the underlying assets are still strong, mainly prime lands and timber strands on Vancouver Island. But market conditions are a constant threat to survival, evidenced by TimberWest’s constant struggle to retain its Toronto Stock Exchange listing. TimberWest Forest Corp remains a sell.

I intend to remain a seller of TimberWest, Tree Island and several other natural resource producers on my list until the numbers improve. Noranda Income Fund (TSX: NIF-U, OTC; NNDIF), for example, faces bleak prospects for its sales of refined zinc and related products until Xstrata (London: XTA, OTC: XSRAF), the operator of the facility that’s its sole provider of cash flow, can find a global market for it. Sell Noranda Income Fund.

The pulp business has been beaten senseless by a combination of reduced raw materials–due to the timber industry collapse–and weaker markets for pulp and paper. That’s already triggered several dividend cuts at Canfor Pulp Income Fund (TSX: CFX-U, OTC: CFPUF) and the elimination of the payout at bankruptcy candidate SFK Pulp Fund (TSX: SFK-U, OTC: SFKUF).

SFK has found supplies for its key Saint Felicien mill, possibly postponing its demise. But its fate is tenuous at best. Sell SFK Pulp Fund. Ditto for Canfor, despite the backing of Canfor Corp (TSX: CFP, OTC: CFPZF). Canfor Pulp Income Fund is also a sell.

Russell Metals (TSX: RUS, OTC: RUSMF) is tied to the uncertain fate of the North American automobile industry. Russell Metals is a sell.

I’ll remain only a tepid holder of two trusts that appear to have found a formula for surviving the near term but have lackluster prospects until the North American economy is fully recovered. Rogers Sugar Income Fund (TSX: RSI-U, OTC: RSGUF) is one of these, facing a tough economy, US protectionism and the risk of a strengthening Canadian dollar.

PRT Forest Regeneration Fund (TSX: PRT-U, OTC: PFSRF) is another, given that its fate depends on a recovery in timberlands and by extension US housing. To its credit, the trust has been able to keep its eye on long-term expansion goals and should do well long-term. For now, however, it pays no dividend, leaving little appeal for holding it beyond the low price of just 35 percent of book value.

Hold Rogers Sugar Income Fund and PRT Forest Regeneration Fund.

Nine Picks for Profits

Fortunately, not every Canadian natural resource producers is on the ropes. In fact, several are still making money and are likely keep doing so as long as this recession lasts.

At the same time, all are well-positioned to ride an explosive price recovery for a full range of commodity prices, as an eventual US recovery joins with the already emerging on in Asia to send demand back to pre-crash levels. Best of all they’re cheap, and several pay generous distributions to boot.

Two of these trusts are already Portfolio members, Ag Growth International and Chemtrade Logistics Income Fund (TSX: CHE-U, OTC: CGIFF). This month, I’m adding three more industry stars to How They Rate coverage: Barrick Gold (TSX: ABX, NYSE: ABX), Cameco Corp (TSX: CCO, NYSE: CCJ) and Teck Resources (TSX: TCK/B, NYSE: TCK).

To be sure, Natural Resources is easily the most aggressive and even speculative sector subgroup in How They Rate. Even buy-rated companies and trusts aren’t spared ups and downs in the marketplace, which basically occur whenever there’s a change in investor sentiment on the economy.

The buys on the list do, however, represent a solid group of survivors. Results have been far from spectacular in the past year, as falling resource prices have hit cash flow hard for most. But by virtue of solid market niches, conservative financial policies and a focus on the future, all are still managing to weather the storm.

More important, they’re in good position for patient investors to take stakes and ride what should be a profitable recovery.

Again, the timing of that recovery depends heavily on what happens to the global economy, and particularly investor sentiment about where things are headed. But if you’re patient enough to wait for them to blossom, taking a position in a basket of these securities could be one of the most profitable things you’ll do this year.

Here are my nine top sector recommendations for the Canadian Natural Resources outside of energy, in alphabetical order. Be sure to buy in balance and preferably as part of a diversified portfolio that includes plenty of higher percentage bets.

That’s particularly important advice for those seeking to invest for yield. Note these are all very solid inflation hedges, making them a perfect complement to any other income investments you might own that entail less credit risk but are exposed to inflation. But they do have elevated credit risk, and will for the duration of this recession.

Acadian Timber Income Fund (TSX: AND-U, OTC: ATBUF), 45 percent owned by investment firm Brookfield Asset Management (TSX: BAM/A, NYSE: BAM), is the second-largest timber company in Maine and New Brunswick. That’s been a tough business to be in over the past year, given the slump in the US home building market. But the trust has kept cash flow solid on cost controls and solid harvests.

In New Brunswick, softwood harvest earnings were up almost 20 percent in the first quarter of 2009 over year earlier levels, while biomass net was up 50 percent. That offset a 30 percent decline in hardwood sales.

Maine operations reflected the same pattern, as the company was able to substitute softwood for hardwood harvesting. Such diversification is a major plus in the highly uncertain market going forward. So is its relatively low reliance on debt, cut in half since Dec. 31, 2008, a major difference with leveraged TimberWest.

To be sure, timber market conditions aren’t going to really improve until the global economy picks up and North America’s housing market slump has hurt. But selling for barely book value and still covering its distribution with cash flow, Acadian Timber Income Fund is a solid bet on a weak market and a buy up to USD9.

Ag Growth International has now completed its conversion to a corporation. As promised by management, the monthly distribution has remained the same, a testament to the underlying strength of the company’s primary business of selling corn handling equipment (65 to 75 percent of annual sales).

Demand for corn has remained strong despite the sharp global slowdown, in part due to required amounts of ethanol in gasoline but also due to growing demand in emerging Asia. After completing a major expansion of production facilities last year, Ag Growth is uniquely positioned to meet surging demand.

US farmers, for example, are planting the third-largest amount of corn acreage on record, according to the US Dept of Agriculture. That means robust demand for Ag Growth’s portable equipment, which is a relatively minor expenditure for farmers but a critical one. First quarter sales and earnings before tax rose 57 percent and 231 percent, respectively. That means more growth in the 8 percent yield.

Ag shares have surged this year. But with its growth potential, Ag Growth International ranks a buy up to USD30.

Barrick Gold, a new addition to How They Rate, is one of the few precious metals miners that pay a modest dividend. That of itself is a testament to its size, scale, financial strength and ability to weather ups and downs of one of the world’s most volatile commodities.

Mining operations are on four continents, with the largest focus on North America. Gold is the company’s most important product but it also mines copper (15.5 percent of revenue in 2008). While copper has been up and down with global economic prospects, gold has been in a general uptrend since the early 2000s. We’ve already seen a couple of major assaults on the USD1,000 an ounce mark, followed by swift retreats. But with the unprecedented fiscal stimulus, odds are heavy we’ll see another that will finally break through.

Adjusted for inflation, the USD800 an ounce mark set back in 1980 is actually pretty close to USD3,000, giving the yellow metal a lot of upside. Barrick represents a conservative way to pay that rise. We’re initiating coverage of Barrick Gold as a buy up to USD35.

Cameco Corp is one of the world’s leading uranium exploration and development mining companies, as well as a major refiner, converter and fabricator of the fuel (52 percent of 2008 revenue). It also operates the Bruce nuclear reactors in Ontario and mines gold.

Uranium prices have been all over the map in recent years, as excitement about a new generation of nuclear power plants worldwide has waxed and waned. In the past month, the Obama administration has emerged as a major champion of nuclear power, with Energy Secretary Dr. Steven Chu offering an unprecedented USD18.5 billion in loan guarantees to four companies building pilot reactors.

But the real action in nuclear construction remains overseas, particularly in developing Asia. From Cameco’s point of view, it doesn’t matter where the reactors are. Any startups will increase the use of nuclear fuel, hence uranium. With an A credit rating, Cameco is by far the financially strongest uranium producer in Canada. That also makes it a potential takeover target, as nuclear builders like China try to lock in long-term supplies at good prices.

Trading for half its mid 2007 high and paying a modest yield of about 0.9 percent, Cameco Corp is a solid buy up to USD30.

Chemtrade Logistics Income Fund, as reported in the June Canadian Edge, barely managed to cover distributions with cash flow in the first quarter of 2009. The producer of sulphur products, performance chemicals and pulp chemicals was hit by continued problems at a key facility in Texas, as well as weak demand and falling prices of its products.

As management pointed out at the time, dividend coverage would have been far better has operational problems been worked out at the time, and they have now been resolved. And while admitting it didn’t anticipate how bad the current market would get, management also asserts its long-term planning has enabled it to maintain adequate dividend coverage.

Happily, despite the asset intensive nature of the business, debt leverage is relatively low at just 28 percent of assets and there are no immediate credit pressures. Chemtrade will face challenges as long as the long as the global economy is weak. But with a yield of more than 16 percent and selling at barely book value, it’s pricing in that risk and a lot more. Accordingly, aggressive investors can still buy Chemtrade Logistics Income Fund up to USD7.

First Quantum Minerals (TSX: FM, OTC: FQVLF) frequently appears on analysts’ lists of potential takeover targets. That’s because its copper, gold and sulphuric acid output is not only rich, it’s also in a distinct rising trend.

China, for example, is expected to spend more than USD500 billion on natural resource investments overseas by the end of the next decade. And a buyout of First Quantum would greatly increase its storehouse, particularly in copper, a metal China continues to consume at an accelerating rate.

As expected, plunging copper prices hit the company’s bottom line hard in the first quarter of 2009. Copper production, however, rose 18.2 percent, as the company saw three mines generate markedly higher output: Frontier (up 43 percent), Guelb Moghrein (up 22 percent) and Kansanshi (up 16 percent).

The company’s improved scale brought down its average cash cost of production by 23 percent year-over-year. Gold production more than tripled. There are challenges, such as capacity problems with a smelter at certain facilities. But rising production means the company is in good position to take advantage as the global economy gains strength.

This quarter’s recovery in copper prices should bring a boost. Meanwhile, First Quantum Minerals is a buy for aggressive investors who don’t care about yield up to USD45.

Labrador Iron Ore Royalty Income Fund (TSX: LIF-U, OTC: LBRYF) is the world’s highest-yielding bet on iron ore, the essential element for making steel. All of the company’s cash flow comes from a royalty equivalent to a 7 percent share of sales at an iron ore facility known as the Iron Ore Company of Canada (IOC).

IOC is operated by global mining giant Rio Tinto Plc (NYSE: RTP). The amount of the royalty depends on the output of IOC and the price of the iron ore products that are delivered and sold. That, in turn, depends on global demand for steel.

Last year, with iron ore prices pushed out to new highs by surging Chinese demand for steel, Rio Tinto contemplated a major expansion at IOC. Those plans, however, quickly fell through as the global economy seized up and steel demand cratered, sending iron ore prices plunging. Thus far, Labrador’s quarterly distribution has remains stable at CAD0.50. It hasn’t been covered in recent quarters, however, raising the risk that it could be cut later this year, particularly with the retreat in the US dollar depressing the value of US dollar revenue.

The good news is this year’s negotiations over the price of iron ore haven’t gone nearly as badly for producers as expected. Also, the fund has basically no outstanding debt under its CAD50 million credit agreement, and overall interest expense was cut 34.4 percent over the past year, giving Labrador a great deal of financial flexibility. That increases the odds substantially that the fund may be able to hold the distribution in coming months.

But the real attraction of Labrador is as a long-term bet on a well-run facility in a critical market. Buy Labrador Iron Ore Royalty Income Fund, which also paid a special annual distribution of CAD2.50 per share last October, up to USD25.

Potash Corp (TSX: POT, NYSE: POT) is one of the world’s leading producers of potash and other minerals used for fertilizer, mainly phosphate and nitrogen. The company’s key asset is in Saskatchewan, but it also has operations in Chile, Brazil, the US and Trinidad.

Potash has been the target of immense speculation the past several years as global agricultural markets heated up around the world and takeover talk became rampant. That positive mood vanished abruptly in the face of the global credit crunch and recession, and the stock crashed from a late June 2008 high of USD234 a share to less than USD50 in early December. This year, the shares have rallied as high as USD121, before tumbling back to current levels in the 90s on concerns potash consumption would continue to fall as farmers sought cheaper alternatives.

With 17 analysts covering the stock and large institutions owning 75 percent of the outstanding shares, such volatility should come as no surprise to anyone. But given the company’s unique assets and prospects for powerful growth under normal economic conditions, the current price seems unrealistically cheap. Consequently, while it may take a while to bring this one back, Potash Corp is certainly a buy for aggressive investors up to USD120.

Teck Resources is a major integrated mining company producing, smelting and refining zinc, copper, molybdenum, gold and metallurgical coal in four countries.

Last year, the company launched an aggressive takeover bid to buy out unitholders of Fording Canadian Coal–a company whose main assets was a royalty interest in one of the world’s richest reserves of met coal used in steel making. As the operator of the reserve, Teck had strong knowledge of the geology, i.e. what the resource is worth.

What it didn’t have a grip on is what it would cost to borrow enough money to complete the takeover in the midst of an almost unprecedented credit crunch. As a result, management was forced to take dramatic steps–including suspending the distribution–in order to shore up finances and avoid a default.

The good news is it’s now largely accomplished those steps, evidenced by its removal from Standard & Poor’s CreditWatch list. The bad news is the market is still a lot weaker than last year for met coal, as well as copper and zinc, Teck’s other two primary products. The company also has some work ahead on asset sales, which will likely hit otherwise solid output.

The upshot is no one should consider this to be a safe, conservative play, but rather an aggressive bet on management’s ability to turn the ship around and for a global recovery to unfold. If that’s what you’re after, Teck Resources is a buy up to USD20. If not, you’re far better off steering clear.