Prime Minister Stephen Harper has taken Liberal Party Leader Michael Ignatieff’s best shot. According to the latest polling, this new challenger is no more formidable than the last.

As we take a broad view of Canadian politics heading into the final weeks of 2010 and preparing for 2011, there is a possibility that Mr. Harper’s minority Conservative government could face an early election, spurred by the vote on Canada’s next fiscal budget, the first hurdle in the New Year.

If Harper’s budget fails to pass, the government falls and the prime minister will once again campaign for his majority. If he gets the support of just one other party, however, he stays on.

The Conservatives are in talks with Quebec to provide a federal give-back to cover a tax change the province made more than two decades ago. This would pacify provincial authorities and earn the support of the Bloc Quebecois on the budget vote, which is always a de facto confidence motion.

There really is no issue that demands toppling the government. Mr. Harper is only marginally less strong than he’s ever been, having firmed up in Saskatchewan any potential weakness on his right flank; successful negotiations on the tax issue could earn him important ground in Quebec, where every little bit counts for the Tories.

The Bloc Quebecois has kept the Conservatives in power twice before during Harper’s half-decade reign, both times explaining that the package was in Quebec’s best interest. Gilles Duceppe’s party supports Quebec’s separation from Canada, so it’s no surprise that common ground with its Liberal Party and New Democratic Party counterparts in opposition is sparse.

Quebec wants around CAD2.6 billion (USD2.5 billion) from Ottawa to compensate it for harmonizing its sales tax with federal taxes. Federal governments have refused that in the past, arguing that Quebec had not fully harmonized the tax, with Quebec operating an independent tax system. Ottawa has already compensated other provinces for harmonizing their taxes. The federal government gave Ontario CAD4.3 billion and British Columbia CAD1.6 billion to help their transitions to a harmonized sales tax this year.

The Liberals, as was often the case under Stephane Dion’s leadership, are rumored to be angling to take down the government over the budget. The results in elections to fill three empty seats in the House of Commons are said to be crucial to Liberal thinking on the viability of a challenge, though the most recent set of polling data suggest Mr. Ignatieff’s troops, like Dion’s so often before, will stand down.

An EKOS poll reported in the Toronto Globe and Mail last Thursday showed that Mr. Harper’s Conservatives are the choice of 33.3 percent of Canadians. The Liberals are at 27.1 percent, the NDP 16.6 percent and the Bloc 9.5 percent. EKOS’ seat projections indicate Mr. Harper would again fall short of a majority, actually losing 10 seats to 131. The Liberals would likely gain 13 seats, to 89 seats from 76. The NDP would likely win 33 seats, down from 36. The Bloc would win 54 seats, up from 47. One independent would gain a seat, while the Green Party would get nothing.

The bottom line is neither the Liberals nor any other party has a realistic chance of winning power. Mr. Ignatieff has failed to capitalize on the little momentum he generated during a summer bus tour across Canada. The best he could do was to pull the Grits within distance of leaving Mr. Harper with an unstable minority. Now, with a few well-placed budget items, the prime minister could regain the heights he enjoyed a year ago.

In prior years Liberal leaders threatened to oppose Conservative budgets over such matters as the income trust tax. Time and again, Mr. Dion found a way to avoid a showdown with Mr. Harper. Less than two weeks ago Mr. Harper defused what might have been a political powder keg, securing the support of the Liberals to extend Canada’s mission in Afghanistan. The deal reached keep Canadian troops in Central Asia in a non-combat role for three more years. Parliament had originally agreed troops would leave next July.

Now, Liberal MP Bob Rae–not even Mr. Ignatieff–is out to criticize the prime minister not even a full fortnight after opposition might have made for a difference–and maybe for an election. In a sharply-worded speech to the Canadian Club of Toronto Mr. Rae ripped Mr. Harper’s approach to foreign policy, at the same time reminding his audience that the Liberals’ obligation ran not to the Conservatives but to Canada, its role as a founding member of NATO and a six-decade commitment to international diplomacy. Mr. Rae’s and the Liberals’ statesmanship is duly noted; at the same time, Mr. Harper would have found a way to exploit an issue this significant were he and his party similarly situated.

Commenting on the results of his outfit’s most recent trip to the field, EKOS pollster Frank Graves noted that Canadians–who two weeks prior supported the Conservatives over the Liberals by just 29.4 percent to 28.6 percent–have begun to tire of Mr. Ignatieff’s approaches to battle with Mr. Harper. His failure to engage casts him in much the same light as was his predecessor Mr. Dion. In the absence of a compelling reason Canadians will continue to choose Mr. Harper.

In the pre-Great Recession days of January 2006 the Conservatives won 40.3 percent of the seats available in Parliament, as Mr. Harper led them to a 25-seat gain. On Feb. 6, 2006, he was sworn in to lead Canada’s smallest minority government by proportion ever. It became the longest-standing non-Liberal minority government and the third-longest overall. In October 2008 the Tories boosted their total seats to 143, as Mr. Harper led them to a 19-seat pickup.

He has survived because he had the sense to bend his principles to reality, most obviously by guiding a sensible stimulus package through to passage and articulating a realistic path back to budget balance. Although many will never forgive his government’s handling of the income trust file, in the bigger picture Prime Minister Harper has helmed the ship during one of the most turbulent periods for the global economy in decades.

As of Nov. 15 (the date of the most recent data published on the official Party Standings of the House of Commons website) the Conservative Party of Canada holds 141 seats out of 308. The Liberals have 76, the Bloc Quebecois 47 and the New Democrats 36. There are two independents and six vacant seats. As for the three by-elections will be held in coming weeks, the word on the street is that Mr. Ignatieff’s Grits need to win two (one seat to be filled, in Manitoba, is pretty much out of reach) for the current leader to survive for a full federal contest with Mr. Harper.

Obviously, an election performance along the lines of January 2006 or October 2008 would give Mr. Harper his coveted majority. It’s unlikely, however, that the coming budget negotiations will result in a federal election.

The Roundup

The Canadian government’s rejection of BHP Billiton’s (NYSE: BHP) CAD39 billion bid for Potash Corp of Saskatchewan (TSX: POT, NYSE: POT) is still being sorted out in the Great White North, with much attention focused on a revamp of the Investment Canada Act. The Investment Canada Act provides the authority under which Prime Minister Stephen Harper, through Industry Minister Tony Clement, turned Australia-based BHP away.

Criticism of the process centers on the fact that the act includes little in the way of specific objective criteria for establishing whether a potential foreign investment is in the “best interests” of Canada, the overriding standard for approval. However it’s clear that politicians like the ambiguity; it allows for stuff like reading the political winds. Mr. Harper, for example, had time to realize that Saskatchewan Premier Brad Wall had stolen the political high ground with his brilliant “people’s potash” pose mere hours into the BHP-Potash Corp show. Now the prime minster has shored up support in his base and can now focus on the dirty work of putting together the final pieces of a majority.

This means copping deals such as the tax-adjustment plan with Quebec. There are likely opportunities out there to pick off swing ridings in Ontario, perhaps, or in Atlantic Canada. But this could be it for Mr. Harper. And being the longest-serving minority prime minister may give him time and just enough leverage to navigate Canada to a new renaissance in its role in the global pecking order.

The talk of revamping the way Canada looks at foreign investment would stay merely that, talk, if Mr. Harper had his druthers. He’d prefer this issue simply fade away. At any rate, setting aside the petty fact that Mr. Harper took too long from a purely political perspective to round around, what would opposition parties argue, that the prime minister was wrong to offend corporate interests at the expense of defending a domestic champion?

Mr. Clement ostensibly found that the BHP-Potash deal didn’t provide a “net benefit” to Canada. Agriculture Minister Gerry Ritz later suggested that some Canadian companies or resources are too “strategic” to let go. Mr. Harper followed up by wondering whether other developed countries would have done anything differently. Mr. Clement cut to the chase, finally, noting that strategic “is not a concept that has a home in the nomenclature” of the Investment Canada Act.

This ambiguity will allow Mr. Harper and his successors to defend Canada’s resources where necessary in a changing world where these types of advantages are of critical importance.

Meanwhile, nearly lost amid the drama of its near-takeout, Potash Corp’s third-quarter results and forecast blew away Street expectations. Net income was USD402.7 million (USD1.32 per share), up from USD247.9 million (USD0.82 per share) a year ago. Revenue for the quarter rose 43 percent to USD1.58 billion. Analysts were expecting USD1.16 per share on USD1.31 billion in revenue. Management expects demand for its namesake crop nutrient to rise by 20 percent.

The problem for the stock price–quite apart from the dazzling operational results and the rosy future, given rising appetites around the world and the need to maximize crop yields–is that the Canadian government may have chased away any bidders capable of cashing out shareholders at a premium. The stock is still trading, however, well above where we initially recommended buying in, around USD100. If you haven’t locked in your profit yet, now is a good time to sell Potash Corp of Saskatchewan.

Here are more highlights from the increasingly critical–read: strategic–Natural Resources section of our How They Rate coverage universe of Canadian stocks.

Acadian Timber Corp (TSX: ADN, OTC: ATBUF) reported third-quarter net sales of CAD17.9 million on volume of 345.8 thousand cubic meters, a 24 percent improvement in net sales volume over year-earlier totals. The increase was driven primarily by higher prices for all of Acadian’s major products, greater sales of higher-margin softwood sawlogs and a bigger contribution from a land service agreement.

Nine-month sales totaled CAD50.5 million on volume of 1,016.8 thousand cubic meters, an increase from CAD46.7 million in net sales for the same period of 2009. Earnings before interest, taxation, depreciation and amortization (EBITDA) were up 22 percent to CAD11.6 million.

The company successfully negotiated a new five-year, USD72.5 million loan at a favorable rate to replace term debt maturing in Feb. 2011. Management anticipates the effective interest rate for the new loan to be approximately 3.4 percent, which will result in incremental free cash flow of CAD1.3 million per year due to reduced borrowing costs. Acadian Timber Corp is a buy up to USD7.

Barrick Gold Corp (TSX: ABX, NYSE: ABX) enjoyed a record third-quarter profit on better-than-expected gold production and lower cash costs. The price of gold has soared nearly 30 percent in the past year, recently touching USD1,400 an ounce. But the price, in management’s view, is well supported. Demand for gold in China and India remains strong, central banks continue to be net buyers of gold, and exchange-traded gold holdings are at record levels. And Barrick CFO Jamie Sokalsky said during a conference call to discuss results that Barrick sees supply from gold mines contracting.

Barrick reported third-quarter cash flow of USD1.3 billion, the third quarter in a row cash flow has exceed USD1 billion. The company earned USD837 million (USD0.85 per share) on sales of USD2.8 billion. Adjusted earnings were USD829 million (USD0.84 per share), up from USD473 million (USD0.54 per share) a year ago. Production ran ahead of management plans, as Barrick pulled 2.06 million ounces of gold at lower-than-expected total cash costs of USD454 an ounce. Barrick Gold is a buy up to USD50.

Cameco Corp’s (TSX: CCO, NYSE: CCJ) third quarter was consistent with management’s forecast from earlier in the year, when it indicated that second-half uranium orders were back-loaded to the fourth quarter of 2010. Cameco now expects uranium production to be 22 million pounds for fiscal 2010, compared to its previous estimate of 21.5 million pounds, with increased production at Rabbit Lake and Inkai.

Management also announced, subsequent to its third-quarter earnings release, that it has signed an agreement with China Guangdong Nuclear Power Holding Company Ltd (CGNPC) to supply 29 million pounds of uranium concentrate under a long-term agreement through 2025. This is just one manifestation of the realistic hope Cameco has of doubling its annual production to 40 million pounds by 2018 driven by Chinese demand. The Middle Kingdom’s nuclear power expansion plans are certainly ambitious, but there is little evidence to indicate authorities will fall short of their goals.

Cameco earned CAD98 million (CAD0.25 per share) on CAD419 million in revenue in the third quarter, down from CAD172 million (CAD0.44 per share) on CAD518 million in sales a year earlier. Adjusted earnings were CAD0.20 per share. Uranium sales in the third quarter were lower compared to a year ago, but gross profit in Cameco’s core business actually increased due to higher realized prices and lower product costs. Cameco’s Fuel Services business saw improved margins during the quarter. Cameco Corp is a buy up to USD30.

First Quantum Minerals (TSX: FM, OTC: FQVLF), hurt by political turmoil in the Democratic Republic of the Congo, posted a net loss of USD136.7 million (USD1.70 per share) in the third quarter, reversing a profit of USD123.8 million (USD1.59) a year ago. Excluding one-time items the miner earned USD129.7 million (USD1.62 per share). Net sales were up 10 percent to USD602.6 million.

The reported loss was driven mainly by the shutdown of First Quantum’s Frontier copper mine in the DRC and by rising mining costs. Closing the Frontier mine led to a USD249.8 million impairment charge. Because of continuing licensing issues in the DRC First Quantum is shifting its attention to Latin America; in October the company announced it will buy Antares Minerals (TSX: ANM, OTC: ANMFF), whose major properties include the 100 percent owned Haquira copper-molybdenum-gold project in Peru and the 50-50 joint venture (with Pachamama Resources Ltd) Rio Grande copper-gold project in Argentina.

First Quantum’s fiscal 2010 production guidance is for 322,000 tonnes of copper and 195,000 ounces of gold. In 2011 the company expects to produce 305,000 tonnes of copper and 210,000 ounces of gold. Hold First Quantum Minerals.

Labrador Iron Ore Royalty Income Fund (TSX: LIF-U, OTC: LIFZF) reported royalty income for the third quarter of CAD40.6 million, up from CAD15.5 a year ago. Adjusted cash flow for the quarter was CAD85.9 million (CAD2.68 per unit), up from CAD18.8 million (CAD0.59 per unit) in 2009.  Net income was CAD64.4 million (CAD2.01 per unit), up from CAD13.6 million (CAD0.43 per unit).

Results were helped by “substantial increases in prices” for concentrate and pellets above levels recorded in the third quarter of 2009. Sales volume was lower than expected because of the timing of shipments; this should correct in the fourth quarter.

Equity earnings from Iron Ore Company of Canada (IOC) were CAD38.1 million (CAD1.19 per unit) as compared to CAD3.3 million (CAD0.10 per unit) in 2009. The increase resulted mainly from the substantial price increase from last year’s level.

Management noted that although volatility remains, “the general tone remains positive.” IOC expects to sell all the iron ore it can produce over the balance of 2010, though the strength of the Canadian dollar against the US dollar will be somewhat of a drag. Demand from Asia remains strong, and the rest of the world–save North America, which remains relatively weak–is gradually ramping up economic activity. Spot iron ore prices, though still below the peak reached in the second quarter of 2010, remain about double 2009 levels. Labrador Iron Ore Royalty Income Fund is a buy up to USD60.

Russel Metals (TSX: RUS, OTC: RUSMF) reported a 30 percent increase in third-quarter earnings, as higher margins pushed profit to USD17 million, or USD0.28 per share. The company earned USD0.31 per share in the second quarter. A year ago, as the global economy was just showing signs of recovery, Russel earned CAD0.21 per share.

Consolidated revenue was USD582 million, a 15 percent sequential increase, while volumes were up both sequentially and from year-ago levels. Net earnings for the nine months ended Sept. 30 were USD52 million (USD0.87 per share) on revenue of USD1.6 billion.

Metals service centers tons shipped increased 16 percent from the comparable quarter in 2009 and 1 percent from the second quarter of 2010. Energy tubular products revenues were USD187 million in the third quarter of 2010, an increase from the second quarter of 2010 due to improved seasonal activity and from the third quarter of 2009. Operating profit was USD15 million for the third quarter of 2010 compared to USD11 million in the second quarter of 2010. Russel’s energy-related operations are enjoying the strength of drilling activity in Canada and the US, much of which is driven by exploitation of shale deposits, though conventional drilling has also recovered in the wake of the Great Recession. Management expects energy activity to be at least as strong over the next two quarters as it’s been during the trailing 12 months.

Revenue for Russel’s steel distributors operations increased to USD76 million, the highest level for any quarter in the past year. Operating profit for the third quarter was USD5 million, down sequentially from USD7 million.

Overall cash generated from operating activities in the quarter was USD57 million. The board has approved a USD0.25 per share quarterly dividend to be paid Dec. 15 to shareholders of record as of Nov. 23. Russel Metals is a hold.

Teck Resources (TSX: TCK/B, NYSE: TCK) reported adjusted earnings of USD467 million (USD0.79 per share), up from CAD337 million (USD0.59 per share) a year ago. The increase was driven by higher prices for coal and base metals.

Earnings attributable to shareholders of the company were USD331 million (USD0.56 per share) in the third quarter, down from USD609 million (USD1.07 per share) a year ago. Third-quarter 2010 earnings included a USD340 million charge related to refinancing of a portion of company debt. In 2009 third-quarter earnings included a USD311 million foreign exchange gain on Teck’s US dollar denominated debt compared with USD26 million this year.

Revenue from operations was a record USD2.5 billion in the third quarter, up from USD2.1 billion a year ago. Stronger copper prices offset an 18 percent reduction in sales, resulting in similar revenue to a year ago. Coal revenue increased by USD281 million on higher coal prices. Zinc revenue increased by USD111 million, primarily on higher zinc and lead prices and higher volumes. A weaker US dollar partly offset higher commodity prices in each business unit. Teck Resources, which has gotten expensive, is a hold.