Among the many critical new influences defining the global economy are the rapidly changing supply-demand dynamics for any number of commodities, catalyzed by the reemergence of China and the stirring of new appetites in the Middle Kingdom and in other markets long neglected by the developed world.

And the developed world, too, has its existing needs that still must be fed.

At the crossroads of many significant trends sit a couple uniquely gifted countries–Canada and its Commonwealth cousin Australia–that have managed their ample resources well over the years and in recent decades undertook the kind of retrenchment that their developed-world peers are painfully enduring or uncomfortably contemplating.

Canada and Australia are set to deliver what the world needs, enrich their domestic populations and build wealth for investors as this long cycle of global economic and political adjustment plays out.

Australians, by at least some measures, are the wealthiest people in the world. Nevertheless Australia’s federal government has seen fit to attempt a redistribution of profits earned by mining companies, this after it imposed a price on carbon for its major businesses that could hamper some Australian businesses vis a vis their international competitors.

What’s becoming clear, though, is that except for a couple loud, albeit entertaining, and eccentric mining company executives, business for the most part is on board, wants certainty and appreciates the potential to benefit from new demand and from maintenance demand from the developed world.

As I noted in AE Weekly, the turbulence and urgency stirred up by interest groups on all sides of the carbon, mining and petroleum tax issues has obscured for the moment the long-term reality that demand from emerging economies like China as well as from transitioning developed ones such as Japan will dictate the pace and extent of resource extraction in the Land Down Under.

Numbers compiled by Deloitte Access Investment Monitor define what the salient story: A record 935 investment projects worth AUD 20 million or more are planned or are already underway in Australia. The total value of these projects exceeds AUD894 billion, an increase of 7.5 percent over the past three months and 16.1 percent over the past year–during which time planners had full knowledge of the potential changes to the way Australia taxes its resources.

The value of the “definite” projects–under construction or committed to start soon–rose to AUD406.8 billion, a 13.8 percent increase on the value recorded in the June quarter, and a 51.3 percent increase over the past year. Growth in the value of definite mining projects led other sectors, with mining accounting for 34 percent of all investment projects currently under construction. Mining accounts for almost all of the AUD487.3 billion in planning stages.

Fourteen projects are worth more than AUD10 billion, and five of those worth more than AUD30 billion. Western Australia and Queensland account for half of the investments, led by Chevron’s (NYSE: CVX) AUD29 billion Wheatstone liquefied natural gas (LNG) project off the Pilbara coast and Origin Energy Ltd’s (ASX: ORG, OTC: OGFGF, ADR: OGFGY) and ConocoPhillips’ (NYSE: COP) AUD20 billion Australia Pacific LNG project. Both projects will be subject to the expanded 40 percent petroleum resource rent tax.

Deloitte’s conclusion to its report for the September quarter is instructive and encouraging at the same time: “Large projects are longer-term investments. They take longer to construct and need to be in operation for longer for investors to see a return on capital. The rise in their number in Australia’s investment pipeline reflects the level of confidence that investors have in the longer-term prospects of the global and Australian economics.”

Focus on the longer term is the perfect antidote to extreme market volatility.

In Focus

China’s and the world’s reliance on Australia for hard commodities such as coal and iron ore are well known. But the Land Down Under is rapidly evolving into something of a breadbasket for Asia, as its ample supply of wheat relative to population, for example, primes it for exports that help its neighbors and raise the standard of living for people at home, too.

We focus on three companies with significant agriculture exposure in The Cream of the Wheat Crop, including two Portfolio Holdings, BHP Billiton Ltd (ASX: BHP, NYSE: BHP) and GrainCorp Ltd (ASX: GNC, OTC: GRCLF), and a new addition to How They Rate coverage, Ridley Corp Ltd (ASX: RIC, OTC: RIDYF), Australia’s biggest animal feed and salt producer.

Sector Spotlight

Utilities

It’s as much an Oil & Gas exploration and production outfit, but Origin Energy Ltd (ASX: ORG, OTC: OGFGF, ADR: OGFGY) also generates electricity and sells it to retail and wholesale customers, which puts it under Utilities coverage in How They Rate. We’re adding it to the AE Portfolio as an Aggressive Holding, however, because of its commodity exposure.

Industrials

One of its units is in the news for uncomfortable reasons, but you know what they say about there being no such thing as bad publicity. And, better, the controversy actually serves to highlight the very unique nature of the discrete services Cardno Ltd (ASX: CDD, OTC: COLDF) and its various operating units are able to offer a wide range of clients all over the world. Cardno is a new Conservative Holding.

Portfolio Update

Conservative and Aggressive Holdings in the Australian Edge Portfolio continued to wend their way higher over the past month. The two picks added in October–CSL Ltd (ASX: CSL, OT: CMXHF, ADR: CMXHY) and Newcrest Mining Ltd (ASX: NCM, OTC: NCMGF, ADR: NCMGY)–are both down around a percentage point since.

The original “Great Eight,” however, are up an average of 14.4 percent. That bests the 6.4 percent gain in the Australian FTSE All-Share Index, or 9.6 percent adding in the 3.2 percent appreciation in the Australian dollar versus the US dollar.

News & Notes

The Price of Extraction: Australia has enacted one and is considering another new tax, both of which have stirred up plenty of controversy of late. As we emphasize at the top, the primary driver of Australia’s economic trajectory will be demand.

We take a look at the mining tax proposal and revisit the carbon tax.

The Dividend Watch List: The Watch List is not necessarily a rogue’s gallery but rather a roster of companies susceptible to variations in their payouts. Some are there for operating reasons, some because of excessive debt and vulnerability to refinancing needs. Others, however, vary their payout according to business conditions as a matter of policy.

Subtleties of Australia’s “franking” system–which provides for markups in reported gross dividend amounts and can vary from period to period at each company–mean that some changes will show up as “cuts.”

The Dividend Watch List is where we track all these variations.

The ADR List: Many Australia-based companies that list on the home Australian Securities Exchange (ASX) are also listed on the New York Stock Exchange (NYSE) or over-the-counter markets as “sponsored” or “unsponsored” American Depositary Receipts (ADR). Here’s a list of those companies, along with an explanation of what these ADRs represent.

And note that we’ve added Grange Resources Ltd (ASX: GRR, OTC: GRLLF) to How They Rate coverage under Basic Materials.

Grange owns and operates Australia’s largest integrated iron ore mining and pellet production business. Its Savage River magnetite iron ore mine is a long-life mining asset set to continue operation to 2023 with current reserves estimated to extend the mine life to 2028. Grange ships its pellets to major steel producers in Australia and Asia under long term supply contracts.

The company reported gross profit from mining operations of AUD92.5 million for the six months ended Jun. 30, 2011, a 45 percent year-over-year increase.  Revenues from mining operations of AUD209 million were 8 percent higher. Grange recently declared its first dividend–AUD0.02 per share payable Oct. 13 to shareholders of record Sept. 27.

In Closing

Thank you for subscribing to Australian Edge. We hope you find the information we provide both informative and profitable. And we look forward to hearing feedback about how we can improve the service.

David Dittman and Roger S. Conrad

Editors, Australian Edge