What is “Black Rock Fuel?”

I’ve had a couple folks ask me about iron ore and “black rock fuel” (which was a phrase invented by copywriters selling Benjamin Shepherd’s Global Investment Strategist newsletter), so I thought that on this Memorial Day, when no one is strolling the halls here at glorious Gumshoe Headquarters, I’d take that teaser solution I shared with the Irregulars about six weeks ago and let the whole gang check it out.

The stocks teased by Shepherd, by the way, are little changed in those six weeks — they’re down one or two percent, while the S&P 500 has been up by 3 or 4%. So if the tease was brilliant, well, you haven’t missed anything yet. What follows is an excerpt from the Friday File of April 11 and has not been updated.

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Benjamin Shepherd is touting a way to effectively buy China’s growth (yes, even slowing growth is still growth) without investing in a worrisome Chinese company, here’s how he puts it:

“What’s So Special About This Rock?

“Known simply as Black Rock Fuel, this seemingly ordinary stone will propel China’s growth for decades to come.

“Here’s the story behind why Asia is racing to snatch up every last bit of this fuel… and how YOU can profit (without touching a Chinese stock) when they do.”

That “Black Rock” is, as he eventually admits a bit later on, iron ore — which means he’s sticking his neck out a little bit, talking up the major ingredient of steel at a time when many pundits are terrified that China’s massive infrastructure-building push (infrastructure, from bridges to skyscrapers, requires massive amounts of steel).

So that’s interesting — as you’ve probably noticed, the press is quick to talk about the oversupply if iron ore (the first line of the last article I read on this yesterday was, “The world is mining more iron ore than steelmakers need.”) And prices remain historically quite high if your time frame goes back a while — iron ore has vacillated from about $100-180/tonne over the last five years, mostly on fluctuating demand (and demand expectations) from China, but ten years ago it was under $20.

Iron ore is the most valuable export from Australia, which also happens to be the closest major exporter to China (Brazil and Canada are also major iron ore exporters, but they’re a bit further away … and shipping the stuff is expensive because it’s heavy, that price is only about six cents a pound for iron ore so shipping is a bigger consideration than it is for, say, copper at $3 a pound or zinc at 90 cents a pound), so it’s probably no surprise that Shepherd decides to talk up some Aussie iron ore exporters. Which ones?

Well, this ain’t exactly a small cap newsletter — Shepherd’s previous newsletter was about ETFs, I think, and he seems much more focused on playing the big trend than on finding the undiscovered gem of a stock. That’s probably pretty rational, even as it’s not terribly sexy or exciting.

So with that caveat, which stocks do you reckon he’s touting? You’re right — it’s Rio Tinto (RIO) and BHP Billiton (BHP). The two largest mining companies in the world (yes, I hear you whining, Vale, but your weakness at home in Brazil means you’re now firmly down at number three).

Here’s his full pitch on each of them:

Black Rock Fuel Profit-Maker #1

“Your first opportunity to profit from China’s explosive growth is a world-class miner founded in 1873 and headquartered in London.

“This company is an essential partner to China because it plans to expand Black Rock Fuel production over 20% in the next three years, from 290 million tons to 350 million tons.

“That will help feed China’s voracious appetite for the fuel.

“As a result of its expansion plans, its share price has shot up 37% since July.

“Best of all, I think this company’s share price has plenty of room to run.

“Here’s why…

“In addition to being one of the oldest publicly traded mining operations in the world, it’s also one of the most diversified.

“With mines all over the world ranging from copper to gold and from alumina to Black Rock Fuel, it’s uniquely positioned to take advantage of demand for virtually any natural resource needed around the world.

“That includes its coal business, which it expects will grow in lockstep with China’s steel demand because of the heavy amounts of coal burnt to make steel.</