Canada's Resource Boom: Five Great Plays

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"Cash flows are putting all small and midcap companies in play," Vail says. Producers are well aware of the quality of their competitors' ore deposits and in many cases are buying up adjacent properties whose mineralization they believe they know. "So they're able to move very quickly to make a decision."

If copper stays above $3 per pound through 2011, as one economist has predicted, "then every one of these companies is of value," Vail concludes.

Toronto Stock Exchange-listed Frontera Copper is a startup copper producer, with corporate offices in Canada but all its properties in Mexico. Vail calls Frontera a good buy, with strong potential to generate cash flow quickly as its production begins to come to market. Its production is expected to increase dramatically over the next couple of years.

3. Oil Sands

As profitable as base metals are, Canada's unconventional energy resources will prove a much more valuable asset down the road, predicts Jeff Rubin, chief economist at CIBC World Markets in Toronto. The convergence of rising oil prices, which makes oil-sands production more economically viable, and the loss of more than a million barrels a day of oil supply from the U.S.'s No. 2, 3, and 4 suppliers—Mexico, Venezuela, and Nigeria—signal that the day of oil sands may have arrived.

Rubin estimates that nearly 60% of the world's investable energy reserves reside in Canada, which still welcomes foreign investment, unlike countries such as Mexico and Norway, which maintain that energy resources should be owned and controlled by the government.

And where Canadian producers don't yet have the capacity to process the bitumen from oil sands into refined products such as gasoline, international oil companies such as ConocoPhillips (COP) are striking deals to refine the heavier crude oil from the north at U.S. facilities.

Heading the oil-sands pack is Suncor Energy (SU), with the largest land holdings and potential to double production from the current 250,000 barrels a day over the next 5 to 10 years, according to Evan Smith, co-manager of the U.S. Global Investors Global Resources Fund (PSPFX).

Toronto-listed OPTI Canada controls the next commercial project in the oil-sands group. It's slated for first production later this year, using steam injection to loosen sticky bitumen from the earth and bring it to the surface instead of mining. The company is developing technology that will enable it to gasify some of the heavy crude into steam to put back into ground, replacing much of the need to rely on costly natural gas or other fuels to produce steam. Its share of production in northern Alberta is expected to reach 36,000 barrels a day by the end of 2008, Smith says.

4. Uranium

CIBC's Rubin says that Canada may turn out to be the world's leading producer of uranium, something akin to the role that Saudi Arabia has played in global oil supply. The northwest region of Saskatchewan alone holds huge deposits.

However, the flooding of the Cigar Lake mine, still under construction, could delay what's thought to represent a 10th of world uranium supply from coming to market for the foreseeable future. That disruption has pushed up uranium prices to $120 per pound, from around $60, over the past several months.

Moreover, uranium could play an even more important role due to concerns about global warming and the amount of carbon dioxide emitted by coal-fired plants.

"In a country like the U.S. that still gets 50% of its power from coal, there's enormous potential for substitution to nuclear because of carbon wars being waged" across the most economically advanced countries, Rubin says.

He points to Texas utility TXU's (TXU) decision to scrap eight new coal-fired power plants it had planned to build as a bellwether event that doesn't bode well for the future of carbon-intensive resources like coal.

Beyond NYSE-listed Cameco (CCJ), the world's biggest uranium producer, some smaller companies are worth a look. As the leading consolidator of uranium assets, SXR Uranium One is an attractive pick. Earlier this year, the Toronto-listed company bought Kazakhstan-based Urasia Energy, and it's now about to acquire Energy Metals.

5. Diamonds

This last category is the most speculative. While Africa is still the world's diamond capital, a company in Canada's Saskatchewan, Shore Gold, has one of the most promising diamond deposits in the world. Toronto-listed Shore Gold hasn't yet started to produce rough diamonds, but its exploration results look good thus far, says Vail of ING Global Natural Resources.

Vail notes that given the shortage of stones larger than two carats, if the company can produce stones of that size, it will have better opportunities to make diamonds for retail jewelry than some smaller producers.

Bogoslaw is a reporter for BusinessWeek's Investing channel.