Two hundred ninety dollars a barrel: That’s the price point for crude oil that one study is calling China’s line in the sand–the point to which the country can continue to subsidize oil use without jeopardizing its paramount goal of robust economic growth.

Such numbers are meant to be bent. But they’re also a stark reminder of how emerging Asia is rapidly supplanting the West in vital resources consumption. And, as long as that trend continues, US economic health will play a less important role in setting global prices.

Over the past week or so, we’ve seen further signs of US weakness, notably the sharp deterioration in measures of employment and unemployment. But unless that weakness does finally spread to Asia, producers can count on demand for resources to keep growing. That’s the reality keeping prices robust for everything from metals to agricultural commodities.

In contrast to the prices of what they produce, vital resource stocks are highly sensitive to market perceptions for US growth. The VRI Portfolio selections are up more than 25 percent year-to-date. Relative to the strength in resource prices, however, they remain undervalued.

The good news: This is a great buying opportunity, particularly for the best of the biggest companies in this industry. In other words, if you’re light on the likes of Anglo American (UK: AAL, NSDQ: AAUK), Freeport-McMoRan Copper & Gold (NYSE: FCX), Rio Tinto (NYSE: RTC), Companhia Vale do Rio Doce (NYSE: RIO, CVRD) or Xstrata (OTC: XSRAF), now’s the time to build your positions.

All else equal, strength in vital resource prices equals salad days for producer stocks. In this industry, however, that’s rarely the case.

Producers face increasing challenges, spurred mainly by the growing need to go ever further and deeper to secure economic supplies to feed demand. And the companies best able to handle them are the giants with the scale, reach and access to capital to overcome challenges: the bigger, the better.

One of the biggest challenges is simple logistics and costs. The more off-the-beaten-path a developing mine is, the more infrastructure construction it will require to get the output to market.

That adds up to increased costs for shipping equipment and personnel for initial development. Then there are the raw materials needed to build a mine, including plenty of steel. Adequate transportation networks are just as critical, with remote places requiring construction of intricate systems of roads, rails and maritime facilities. And it all requires huge outlays of capital, long before the developing company sees any income from the project.

Surging energy costs are another major challenge, particularly when it comes to electricity needed to run mines. Some mines, such as the copper reserves in Chile, are in areas of abundant hydroelectric power. But other facilities may require large amounts of oil and natural gas to run, which is increasingly expensive. Several plans to dramatically expand aluminum smelters in the Middle East have been shelved in favor of northern, hydro-rich climes such as Canada and Russia.

Going further and deeper also means leaving the friendly confines of countries such as Canada and Australia and spending hefty sums of money in countries with sketchier track records. See VRI, 5 June 2008, Safe Sources. That means dealing with resource nationalism that can flare up at the drop of a hat.

After the recent coup in Guinea, VRI Portfolio member Rio Tinto is forced to deal with the new government’s claim that its Simandou iron ore mining concession is invalid. The deal was negotiated in 2002 and is the basis for the company’s investment in the West African nation.

Rio management officially maintains it will be able to resolve the dispute and keep its facilities running. However, even if it’s wrong, it also has another ace in the hole: size and scale.

To simplify, one country’s bait-and-switch tactics may crimp a quarter’s earnings. But no matter what Guinea’s government does, it won’t bring down Rio Tinto. In fact, draconian resource nationalism will hurt that country a lot more in the long run.

The same is true elsewhere in the world where Rio operates. Check out the pie chart below. Rio is one of the world’s largest mining companies with interests in iron ore, coal, aluminum, copper, diamonds and gold. Its also has industrial mineral interests, principally borates and titanium dioxide feedstock.

Source: Rio Tinto

If one of the company’s mines is shuttered for political reasons, it will hurt output. But it will also push global prices higher for the vital resource in question. And that will mean higher prices and profits for Rio’s production elsewhere in the world.

The hostile host country, meanwhile, will see its own revenue plummet, even if it’s able to somehow keep operations going. The bottom line: Guinea and other nations have an interest in negotiating with Rio, rather than outright expropriating its investment. That’s a lot of revenue security for the company.

But the same isn’t necessarily true of a smaller company or one that’s more focused on a particular country or resource. In fact, sudden upsurges of resource nationalism–or even garden variety lawsuits or environmental enforcement actions–are a constant threat to undermine the health of relative fry.

The result is larger vital resource companies are imminently more secured against resource nationalism than smaller ones. And that’s in addition to being able to handle an environment of rising costs for everything from personnel to steel and electricity.

Because scale in vital resources is so important, even the industry’s biggest companies are continually growing. BHP Billiton’s (NYSE: BHP) ongoing hostile offer for Rio Tinto is the biggest potential deal on the table, but it’s hardly the only one on the table.

As we’ve pointed out, these takeovers benefit investors two ways. First, the target always earns a hefty premium to its pre-deal market price, resulting in a windfall gain for investors. Second, the acquirer wins control of valuable reserves and–more important–gains scale, which adds up to richer profits and a higher share price over the longer haul.

As a result, the VRI Portfolio holds both likely targets and acquirers. In fact, most companies such as Rio Tinto fit both categories.

The world’s biggest iron ore mining company is Brazil’s CVRD, and it’s also hellbent on growing much larger. The company has announced it’s looking to issue new equity to the tune of USD15 billion. That adds a great deal of credibility to continuing reports that management is getting ready to push for another big acquisition.

The company failed to snare Xstrata earlier this year. But it’s still likely to be seeking a company that can further diversify its output. As the pie chart below shows, CVRD is the world’s largest iron ore producer and 2nd largest nickel producer. Both of these are great businesses making unprecedented returns.

The company also has a growing aluminum, copper and coal businesses. And that’s where its targets are likely to be as it works to increase its dominance as a major producer of a multitude of vital resources.

Source: CVRD

When it comes to that kind of growth, acquisitions are a far easier road for CVRD to reach its goal than going further and deeper to seek out new sources. And it has the scale to literally acquisition any deal it wants.

Two companies frequently mentioned as potential CVRD targets are VRI Portfolio holdings Anglo American and Freeport-McMoRan Copper & Gold. Anglo is one of the world’s largest diversified mining companies and, as the pie chart shows, is a prolific producer of a wide range of resources. Its key attraction is platinum.

Source: Anglo American

Freeport, meanwhile, would give CVRD exposure to some of the largest copper and gold mines in the world. The Grasberg mine in Indonesia is still its most important facility. But last year’s acquisition of Phelps Dodge has dramatically diversified operations geographically. The company is also pushing up production of molybdenum, an increasingly important element for the harder varieties of steel that will be needed to plumb the oceans’ depths for energy.

Source: Freeport-McMoRan Copper & Gold

We’re also not ruling out a new bid for portfolio denizen Xstrata. As an independent company, it’s continued to expand since the collapse of the CVRD deal. Based in Switzerland, the company has operations in six copper, coking coal, thermal coal, ferrochrome and platinum, vanadium and zinc mines. Equally important, it’s expanding its current portfolio organically–i.e., by working its existing properties rather than making acquisitions–especially in coal, platinum and copper.

It’s this ability to grow without making major acquisitions that will ultimately command a premium price for Xstrata in a takeover, whether by CVRD or another giant. And, in the meantime, the company continues to thrive.

Source: Xstrata

Of course, this isn’t a complete list of candidates that would theoretically fit CVRD’s profile. The difference between these three companies and others is they already have the scale to thrive on their own.

That’s the key criterion for investing in any takeover target, and it’s the only way to ensure you won’t get burned should takeover fever cool. Xstrata’s share price did retreat a bit when CVRD walked away. But the damage quickly reversed, and the company continues to progress.

As for CVRD itself, strategically any of these potential combinations will be a big positive, turning it from an iron ore play into a legitimate, diversified miner with a global presence.

Our case for CVRD has always been its commanding position in the iron ore market and our assessment that iron ore prices will remain elevated next year, too. We still believe this will be the case, and short-term weakness notwithstanding, you should buy the stock in every dip. We continue to view it as a long-term winner, whether or not the company does or doesn’t acquire another mining player.

Buy CVRD at current prices. Buy Anglo American up to 40, Freeport-McMoRan Copper & Gold up to 125, Rio Tinto up to 500 and Xstrata under 85.