Moreover, after a burst of early year optimism, those commodities themselves ran smack into headwinds that pushed them back—including concern Chinese economic growth was about to come screeching to a halt.

Early on, we made the decision to get conservative in the Metals and Mining Portfolio. As a result, the world’s biggest and strongest producers now dominate its ranks, the kind of companies that use sector low points to emerge stronger than ever when conditions turn up.

That hasn’t prevented us from being underwater in many of the positions. But it has kept us in the game for what we forecast will be a return to favor for natural resources in general, and mining stocks in particular. In fact, the longer the current slump lasts, the better the best of the biggest should eventually do.

As we’ve pointed out before, the mining business is blessed with extremely favorable long-term fundamentals. Mainly, the rapid growth of developing world economies has created an unprecedented global call on natural resources.

The intensity of demand growth will wax and wane with the global economy in the near term. Last year’s sluggish pace of growth held back demand, and prices for resources from copper to rare earths generally went sideways. Even gold slipped back after a hot start, despite rapid monetary expansion.

This week, the International Monetary Fund forecast reduced its already generally dour forecast for 2013 to 3.5 percent for the global economy. That move was primarily driven by greater pessimism on the euro zone, as well as Britain.

US austerity in the form of tax increases and government spending cuts are also certain to take a bite, though not nearly as great as if the country had gone off the fiscal cliff.

That raises the possibility of another year of generally lackluster demand for natural resources, along with flat to lower prices. The key questions are (1) How well prepared are our Metals and Mining Portfolio companies if this is indeed the case, (2) Are these low expectations already reflected in prices of these stocks and (3) Are these companies still on target for long-term growth?

The mining industry’s imperative as long-term demand grows is to go ever-further, ever-deeper and ever-more dangerous to obtain supply. The companies that succeed are headed for long-run prosperity, and their stocks are going a lot higher than what we see now.

Our goal is to own those companies and generally avoid the rest. It’s a task that will take patience. But so long as our recommendations stack up on the business fundamentals, success is assured. Here’s how we stand. Note that Freeport-McMoRan Copper & Gold (NYSE: FCX) is our spotlighted stock.

Best of the Big

BHP Billiton (ASX: BHP, NYSE: BHP), Rio Tinto Plc (London: RIO, NYSE: RIO) and Vale SA (Brazil: VALE5, NYSE: VALE) are the world’s dominant three mining companies, with market capitalization of USD195.6 billion, USD108.9 billion and USD105.8 billion, respectively.

All are multi-product companies with operations spanning the globe. Their balance sheets are strong and their horizons very long-term, essential in an industry where spending billions long before actual production is the rule rather than the exception.

These companies don’t always get it right. That much was made clear this week, as Rio Tinto replaced CEO Tom Albanese and its head of energy development Doug Ritchie. Albanese’s resignation was the result of USD14 billion in writedowns, primarily of coal and aluminum assets acquired before both markets weakened the past few years.

Rio also ran into a particularly nasty piece of resource nationalism, as it failed to secure government permits in Mozambique to ship coal down the Zambesi River. That forced the company to rely on rail, at a much higher cost.

Albanese was not directly responsible for the USD38 billion acquisition of Canadian aluminum company Alcan in 2007. But the failure of those assets to measure up to expectations so far have left earnings very dependent on iron ore, a healthy market now but historically a volatile one.

Ironically, Rio’s current woes make the best case for why it pays to buy and hold super miners. Mainly, no matter what missteps are made and how badly the markets turn against them, they always make it. In this case, Rio’s stock bottomed in late May and has surged 30 percent since. In fact, we’re basically flat on the position since entry August 30, 2011.

BHP has had no comparable boondoggle to Rio’s to date. The company has, however, notably encountered headwinds in several sectors it’s tried to enter in recent years, such as energy. And like Rio, it’s up about 30 percent from a mid-2012 low and basically flat with our entry in November 2010.

Brazil’s Vale has been the worst performer of the big three, slipping by more than a third since our late 2010 recommendation. The company’s USD5.9 billion potash project in Argentina has been suspended, in large part due to weaker global market conditions but also revived concerns about resource nationalism in that country.

Vale too is heavily dependent on global iron ore markets, profits from which have been crimped by shipping costs. And it’s also recently run afoul of regulators in its home country, with Brazil pursuing a USD2 billion tax claim against it.

Nonetheless, Vale’s shares too are up roughly 30 percent since hitting an early September 2012 low. More important, despite lowered assessment of some asset values, it’s long-run potential is undiminished and resource wealth nearly unmatched.

It’s almost surely going to take a revived global economy to get these stocks back to levels they held a few years ago. But it’s clear that even though we were early with these positions, they’re eventually going to be very profitable. All that’s required is patience.

Meanwhile, BHP’s American Depositary Receipts (ADRs)—worth two ordinary shares—are buys up to USD80 for those who don’t already own them. Rio is a buy under the same terms up to USD60 and Vale is a buy up to USD25.

Small But Substantial

Smaller are Freeport-McMoRan Copper & Gold at USD33.3 billion, Glencore International (London: GLEN, OTC: GLNCY) with USD43 billion, Goldcorp (TSX: G, NYSE: GG) at USD30.8 billion, Newcrest Mining (ASX: NCM, OTC: NCMGF) at USD20 billion and Teck Resources at USD22 billion.

Glencore is on the verge of roughly doubling in size with the acquisition of former Portfolio holding Xstrata Plc (London: XTA, OTC: XSRAY). The deal won the approval of shareholders after Glencore raised its bid. It’s now on the verge getting thumbs up from Chinese regulators, after winning the approval of the European Union and South Africa.

Close is now expected in February, creating the world’s fourth largest mining company combining Glencore’s expertise in global marketing with Xstrata’s mineral wealth. Glencore also recently closed the purchase of Canadian agribusiness company Viterra, giving the company a very broad product and geographic reach.

We’re currently down about 10 percent in Glencore, which we entered initially as a swap with Xstrata back in April 2012. With this deal nearly done, the rally in the stock that began in mid-November should pick up steam. Glencore is a buy up to USD14.50 using its five-letter ADR symbol “GLNCY”.

Teck Resources’ focus on metallurgical coal is a huge long-term plus for earnings, as developing Asia demands more of this key element of steel production. Pricing has been soft in recent months but the company now expects fourth quarter output to exceed previous expectations, even after the impact of a shipping accident at the company’s primary British Columbia outlet.

As with most of the rest of our major mining stock portfolio, Teck sells for less than when we entered the position in late 2010. But with output and reserve development on track for all of its major products—ranging from zinc and copper to molybdenum and gold—we’re expecting strong returns. And the company has rewarded us for waiting with a 50 percent dividend increase in the past two years. Buy Teck Resources up to USD40 if you haven’t yet.

The other three holdings are all gold miners: Goldcorp, Newcrest and New Gold (NYSE: NGD). Of the three, New Gold is the only non-giant, with a market capitalization of around USD5 billion.

All three of these stocks underperformed the price of gold in 2012, a trend that goes back into 2011. All three, however, have continued to progress with mine development. That includes Newcrest, which has to date failed to realize the promise of its acquisition of the Lihir mine in Indonesia.

Newcrest has rewarded investors with dividend increases over the past year, as has Goldcorp. Neither, however, has received much credit in the marketplace for its achievement. In fact, New Gold has outperformed both of them, despite not paying a dividend.

One big reason is just the performance of gold itself. After a robust showing in 2009, 2010 and 2011, the yellow metal basically took a break after February and now trades well below its high of USD1,859 an ounce. That’s perfectly normal for a long-term bull market, and gold still managed an 8 percent gain for the year.

Over the next 12 to 18 months, however, it should be long-suffering gold stocks’ chance to shine. And we strongly advise sticking with our trio. All three have shown their ability to weather a problematic market and are ready to take the next step higher. New buyers should pick up Goldcorp up to USD45, New Gold below USD12.50 and Newcrest Mining up to USD30.