by Joyce V Harrison

Created on: May 31, 2009   Last Updated: June 04, 2009

The recent news (May, 2009) that Rio Tinto has settled the 2009 contract with Nippon Steel Corporation, agreeing to cut the cost of iron ore by an overall 37%, has analysts expecting other producers to follow suit. Japan happens to be Rio Tinto's second biggest market at about half the tonnage the company supplied last year to China. Some analysts believe China will drive an even harder bargain after paying a premium price in 2007 when the commodities market was hot.

Is it time to invest in mining companies? The answer could lie in the current stock prices for three of the industry leaders: Rio Tinto (NYSE: RTP), Freeport McMoran (NYSE: FCX). and BHP Billiton (NYSE: BHP).

Rio Tinto, founded in 1885 and headquartered in London, has operations around the world including North America and other Asian countries along with Japan and China. The 52-week range for Rio Tinto stock is $59.20 to $497.60 with shares currently trading below $200.

Freeport McMoran Copper & Gold, founded in 1987 and therefore a relative newcomer, has headquarters in Phoenix. The company is self-described as an international mining industry leader with assets in copper, gold and molybdenum. The 52-week range for Freeport McMoran stock is $15.70 to $126.64 with shares currently priced in the mid $50s.

BHP Billiton, founded in 1885 with headquarters in Melbourne, is a diversified natural resources company with worldwide operations. The 52-week range for BHP Billiton stock is $24.53 to $87.90. Shares currently trade in the mid $50's.

Another indicator for this sector is the price of silver. Silver went up 26.6% in May of 2009, its biggest jump in any month since April 1987. That may be a sign of a positive outlook on the economy, although it might be viewed as a way for investors to escape from the declining dollar. Gold also rose but not as dramatically since silver has more industrial uses.

On the bullish side, as long as demand exists (and China is a major player these days), investors can expect long-term gains with mining in their portfolio. On the bearish side, supply outstripped demand in the early part of the recession and mining companies had to adjust production down for the global cut-backs. Now with Rio Tinto cutting iron ore prices, you will likely see those price charts in mining stock continue to fluctuate in the immediate future.

If you want to find a "diamond in the rough" that will give you growth, look for what's called a junior mining company. You'll want to research any junior company to see if it is ready to start production and if operations are located in politically stable regions of the world. Because adequate cash flow and working capital are so important in this category, check the company's balance sheet. Also, insider-owned shares will tell you the level of confidence management has in the company's future. And you do want the principals to be experts so check out the mining-specific qualifications of those in charge.

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