Now, here’s something a little different. The high oil price is driving up the price of shares mineral sands companies.
Curious. How could that be?
It’s an interesting story. Glad you asked.
Saudi Arabia runs its oil operations like a family Italian restaurant. In theory, everyone owns a bit of the business. There aren’t private interests like Santos (ASX:STO) or Woodside (ASX:WPL). Aramco is Arabia’s oil producer. The profits from oil then go to the government.
Of course the last link in the chain, where the government transfers money to its people, is usually missing.
But Saudi Arabia is a lot richer than it used to be. As we said in a previous Money Morning, at US$130 it pulls in revenues of well over a billion dollars a day. And that means it has spare liquidity to pour into investments. Those investments will, of course, be the source of its income when oil eventually runs out.
One of them is Australian. Bemax Resources (ASX:BMX) recently received a takeover offer from Arabian National Titanium Dioxide Company. Bemax burrows around in Australia’s vast mineral sand resource. Among other things, it produces minerals containing titanium and zircon.
As Dan Denning notes in a recent Australian Small-Cap Investigator, these metals are getting a lot of demand from ceramics industries. He’s put a magnifying glass to the whole sector. It doesn’t seem like anyone else has heard of the potential here. We’d thought you’d be interested. Foresight here could be very profitable indeed.
So Arabian National Titanium put up a AU$300 million takeover offer. Bemax is already up 35% this week. It’s one way Saudi Arabia is expanding and diversifying its economy to prepare for post oil-boom times.
Sinosteel Regroups for Another Billion-Dollar Iron Bid
It’s often how a person acts, not what they say, that shapes your opinion of them.
The politician who promises to lower taxes? He’s too busy splurging on an electoral campaign. The fellow in the pub who tells you he’s “sober as a judge”? A judicial authority is rarely found sprawled upside-down under a bar stool, attempting to woo a disgusted member of the opposite sex.
Actions talk. Talking doesn’t always mean action.
As you saw yesterday, Murchison and Midwest look set to wed in corporate matrimony. But let’s consider the actions involved. How did China’s Sinosteel respond?
It went straight to the Foreign Investment Review Board.
Why?
To argue that it wouldn’t have to re-apply for approval, now that its target will probably become a new entity. There’s only one reason it would keep that option open. It plans to make another bid.
This time, the stakes have risen. Murchison just announced five-fold growth in its iron mineral resource. Add in Midwest’s resource. The company now controls over 600 million tonnes of iron, in various forms. It’s all quite close to important shipping ports.
To China, this means more iron under one roof. So it has popped down to the realty to see if this new house is for sale.
We’re surprised it found the time. Sinosteel has been very busy working on a stake in Fortescue (ASX:FMG) lately. The iron-hungry steel maker has been soliciting Harbinger Capital for its 8% stake in FMG. Fortescue leapt 7% yesterday. It’s now a AU$27 billion company.
We don’t need to spell this out. Sinosteel wants to own an Australian iron exporter, one way or another. We have a feeling it’ll get its way.
ABB Grain Adds 80% to Profits
ABB Grain (ASX:ABB) just unleashed some déjà vu upon us. A week ago AWB (ASX:AWB) announced a 90% boom in profit growth. Yesterday ABB did a good impersonation, revealing an 80% boom in earnings. The company’s share price added 8%.
Wasn’t the market expecting something along these lines? Grain prices soared earlier in the year. It’s been a good growing season. Maybe people are only just starting to wake up to the agricultural boom.
If that’s the case, you might be interested to know that Graincorp (ASX:GNC) is yet to announce any new profit guidance for this year. Maybe it’s next in line. The company expanded its grain marketing operations in 2006-07. And as you can see below, its share price hasn’t curved up in the recent past.
That’s probably because the stock is bidding for Ridley Corporation (ASX:RIC). The market may have overlooked this one.
If you’re not exposed to rising agricultural earnings yet, it might be time. And if none of the companies above suit you, we have two even better suggestions.
We know you might prefer to sample something before committing to it. Fair enough; we’re the same way. So we’ve twisted our boss’s arm a little. Diggers and Drillers is now offering a 3-month trial subscription. Take a look at the link for our top two picks in the Ag sector, plus all our currents “buys” in metals, coal, iron, oil and gas. If you don’t like what you see, no problems. It’s only a trial. The next issue comes out later today.
We’ll be looking at others soon. Until then...
Al Robinson
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- The Saudi Arabia of Coal
- Titanium Metals (NYSE:TIE): Investing in Aviation Growth
- The War for Oil Reserves
- Topsoil Crisis: The Race to Secure Fertile Farmland
- A Global Grain Powerhouse
About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Ken Murray on 28 May 2008:
Hello Dan,
Interesting comments you have made about BMX - Bemax.
Interesting too ...that IMP Imperial Corporation, that i told you about, a month ago (when its shares were 1.5 cents), has close on 5% ownership of BMX shares.
That is about a $12+ million windfall for IMP.
Not that IMP needs it. It is nicely cashed up, with also a Macquarie Bank $100 million line of credit to its Balance Sheets.
Its 2nd of 18 natural gas wells was reported successful today (28 May - Carrolltown, Pennsylvania).
The shares are running at around 2 cents and likely to go higher, during the next 16 successful Natural Gas Wells ...over the next couple of USA Spring months.
Warm regards,
Ken Murray
Ph 0427 330061
or 07-4983 1911