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.

Source: Saudi Arabia Pours Oil Investment into Australia

Why the mainstream media are utter fools

Oil’s new record high has a lot to do with the strike. Not the one up in Scotland that is getting our media hacks so excited. I’m talking about the one that’s going on in Nigeria and isn’t getting a mention in the mainstream media.

Nigeria is the biggest oil producer in all of Africa; it normally pumps out some 1.96 million barrels of oil per day.

And a lot of that ends-up going to the United States.

In fact, the Americans get about 10%-15% of the oil they need from Nigeria. So any serious disruption to that supply is has a major impact on the price of oil.

Right now, Washington insiders are probably ripping their hair out because Nigeria’s oil production has plunged by nearly 50%… they know the implications for the oil price.

It started with a strike at Exxon’s refinery in the country last Thursday. They’re demanding higher pay. You can’t blame them. With oil prices at a record high and oil companies making record profits, they probably believe that they are entitled to record pay… maybe they are…I haven’t a clue. But their strike wiped about 850,000 barrels off Nigeria’s output instantly.

Strikes are the smallest problem…

That’s on top of the at least 169,000 barrels per day of oil output that Shell is already losing from attacks on its pipelines by the militant group MEND – that’s the Movement for the Emancipation of the Niger Delta.

The group from local tribes is fighting against what they see as a raw deal as the bulk of the oil-wealth being generated in the Niger Delta gets diverted to corrupt officials, the central government and the oil companies.

They’ve been bombing pipelines since 2006 and things may soon get a lot worse. It said:

“Our candid advice to the oil majors is that they should not waste their time repairing any lines as we will continue to sabotage them. We have time on our side and there is so much to be destroyed.”

The OPEC oil exporters’ cartel isn’t helping to calm things down either. Its President Chakib Khelil says that there is more than enough oil around at the moment and they won’t consider increasing crude output before September.

As far as I can see, they’re doing just about everything they can to keep the price of oil high right now and you can almost imagine him rubbing his hands at the thought.

There’s no doubt about it – high oil prices are here to stay

High oil prices are excellent news for the Gulf merchant bank we are invested in. They speed up the transfer of money to the oil-exporting Persian Gulf countries. Then our bank comes along and hoovers them up to invest in undervalued Western assets. But the big winner in our portfolio from Nigeria’s oil woes is a certain pan-African conglomerate we’re currently invested in.

We aren’t invested in Nigeria, but I keep a very close eye on what goes on there because we’re seeing some remarkable developments on their business front (More about that some other time.) But instability in that country is pushing the global energy giants towards the other two other major oil producers in West Africa are also going to be big winners from this.

Our pan-African conglomerate isn’t in Nigeria – but it has major operations in Angola and Equatorial Guinea. Those countries are sub-Saharan Africa’s second and third biggest oil exporters and they haven’t aren’t facing the sort of armed insurgency and unrest that Nigeria does. So, they’re prime candidates for more investment as the global energy giants scour Africa for oil.

It already owns the major port in Equatorial Guinea that is emerging as the main oil shipping hub in the Gulf of Guinea. But it’s also sitting on another virtual goldmine…in Angola.

It’s growing nearly twelve times faster than the UK

With the price of oil hitting new records and international investors pouring money into Angola like there’s no tomorrow, the country is in middle of a massive economic boom.

Its economy zoomed ahead by 23.1% last year and by 18.6% the year before. There’s no end in sight to boom either. The IMF is predicting that it’s going to grow by a whopping 27.2% this year. That’s nearly 12 times as fast as the UK economy.

All that growth is creating massive infrastructure bottlenecks in the country though. In the capital, Luanda, ships can sit in the harbour for three months before they get a chance to clear their cargoes. And that’s where our African conglomerate has spotted another brilliant opportunity.

They’ve come up with a solution to this white hot economy’s congested ports. It’s building a “dry port” in the capital. You see, they’re working with local partners to set up a massive logistics centre, close to the airport and the major road network.

This new terminal should dramatically slash the congestion at the country’s ports by allowing designated containers and cargoes to be rapidly offloaded at the port and then delivered and cleared by customs based at ELT for delivery to customers across the country.

Of course, our pan-African play already owns a full-service passenger and cargo airline in Angola, so the move makes brilliant sense.

Angola is about as far away from the mainstream news as you can get, but fortunes are being made out there. Our investment gives us a chance to play that. We aren’t directly invested in Africa’s oil story right now. Instead we’re taking the route of “selling the shovels to the gold miners.” We’re investing in the infrastructure that is going to allow them to bring that oil to the market.

RegardsManraaj Singh
Profit Hunter
Editor

I focus on the main UK stories, and while obviously there was news, nothing had set my pulse racing. Both the Government and the Bank of England had let me down for once by failing to do something spectacularly foolish…

But while my beat was relatively quiet, it was all going off on Planet Manraaj.

“Nothing happening?!” he said. “Oil’s just hit a new record. And forget the strike at Grangemouth — what about the one in Nigeria?”

Workers at the Exxon refinery in Nigeria are striking over pay. Nigeria is Africa’s biggest oil producer. But its production has plunged 50% since Friday. The strike instantly wiped out 850,000 barrels of output.

It is this strike, not the one in Scotland, that lies behind the record oil price, whatever British papers might say.

But as Manraaj explains in today’s Profit Hunter, instability in Nigeria is opening up intriguing investment opportunities elsewhere in Africa…

Barclays rating cut makes rights issue more likely

On Friday we reported on the possibility of a Barclays rights issue. Barclays themselves were being vague about it, but now it looks like their hand may be forced.

Ratings agency Fitch has downgraded Barclays from AA+ to AA. Fitch cites Barclays Capital’s exposure to sub-prime and other volatile mortgage-backed assets as the reason for the downgrading:

“Strategically, Fitch understands Barclays Capital’s motivation to seize the opportunity created by problems at other investment banks and to look to expand its product and geographical franchise, for example in the US,” said the ratings agency. “However, Fitch believes its investment banking operations and ambitions expose Barclays to risks and volatility that are not in keeping with a AA+ rating”.

Another bank currently mulling over a rights issue is HBOS. At 5.7%, though, HBOS has a strong capital ratio. So while Barclays could ask for as much as £8 billion, HBOS is rumoured to be considering a rights issue of £2-4 billion. In fact, it may simply opt to ride out the storm rather than bother its shareholders by asking if they’ve got any spare change.

Fund manager Barry Norris of Argonaut Capital has an interesting take on the sector – don’t buy banking shares, get the bonds instead.

“Over the last six months we have seen that central banks are not prepared to let a bank go down so you have the risk profile of gilts,” he says.

Our research director, Theo Casey, thinks he might be onto something. Though Theo remains wary of buying banking stocks, he concedes there could be some merit in holding the debt.

“Some of the banks are strapped for cash right now,” he says. “So they’re looking for ways to bring in capital. That includes issuing bonds at very attractive interest rates.”

OFT swoops on supermarkets

Away from the banking sector, and the Office of Fair Trading (OFT) has kicked down the doors of such retailers as Tesco, Sainsbury’s, Asda and Morrisons, shovelled a load of suspect documents into a bag, and wandered off to continue its investigation into price collusion.

The wonderfully named economist Heinrich von Stackelberg came up with a theory to explain why firms in an oligopoly (a market, like the supermarket industry, which has only a few players) often raise there prices at the same time. He called it the leader-follower model, and used a lot of complex equations to prove his point that it wasn’t just down to price fixing.

But some economists scoff at this idea. They say leader-follower is nothing but a sham behind which wrongdoers hide — and it seems the OFT agrees. Sainsbury’s and Asda have already been fined after admitting collusion over dairy prices. The current enquiry, believed to be the biggest in the OFT’s history, focuses on prices for groceries and health and beauty products.

It always struck me that price checking, by which supermarkets aim to ensure their prices are no higher than their competitors, could also work the other way. As long as they’re no higher, why make them any lower either.

In theory, of course, price checking should result in us being charged the lowest price that still renders a profit for the retailer. But the theory only works if the supermarkets don’t break the rules.

The OFT will soon determine if they have.

“Peak Ship”

“China is sucking up commodities so quickly that global infrastructure can’t cope,” says Garry White. “Ships at ports around the world are having to queue before they can dock.”

On one day last week there were forty-one ships in a big long line waiting to get into Newcastle, Australia.

You see, China needs an awful lot of steel. And to make that steel, it needs coal. It gets most of its coal from Australia. But the bottleneck in Newcastle is slowing things down, and pushing up the coal price all around the world.

“It’s Peak Ship!” says Garry, coining the phrase that will surely make him famous.

Garry keeps his ’beady eye’ (that’s a clue) on one commodities indicator that most analysts overlook. Last year it collapsed, and many commentators predicted doom and gloom…

But, as Garry explains, they were all dead wrong — and if you don’t get into this market now, you’ll be kicking yourself later…

All hail Frank Hemsley!

Last week I promised to have another crack at Robin Tracey. Robin, you’ll remember, is a millionaire trader who works from home. Two months ago he started sharing his trades with a select few individuals.

A couple of weeks ago they closed their first trade — for a very tidy profit. My colleague Frank Hemsley had managed to get some people into that trade, so he was very happy.

“Any chance you could get Robin to share his moves with some of my readers?” I asked him last week.

“I can try,” he said.

And Frank was as good as his word. Over the weekend he spoke to Robin, and it looks like it’s on! I don’t have any details yet, but I should be able to tell you more tomorrow…

Until then,

Ben Traynor

— The Great Greenspan Reputation Rehab tour is officially under way.

“I was praised for things I didn’t do,” Greenspan said this morning in The Wall Street Journal. “I am now being blamed for things that I didn’t do.” Not that he spoke up when Bob Woodward hailed him as the “Maestro” …or when Time magazine featured him on its cover as the head of the “Committee to Save the World,” of course.

— Yesterday, we noted fiery comments Greenspan directed at critics in the Financial Times. Today, The Wall Street Journal trots out the results of not one, not two but three recent interviews.

The Maestro’s Last Defense: Look deep into his eyes. When his hand closes into a fist, 18 years of easy money policies will vanish from your memory. Poof!

“Omniscience is not given to us,” Greenspan told the WSJ, dodging one bullet. “There is no way to predict how innovative markets will develop. All you can do is set a general strategy. The choice is between a lightly or tightly regulated economy. The former is highly competitive, innovative and dynamic — but periodically visited by wrenching crises. The latter is more stable, but slower growing.”

“Monetary policy is process based on probabilities,” he continued, dodging another, “I don’t remember a case when the process by which the decision making at the Federal Reserve failed. Events often did not proceed as we anticipated, but that resulted from a lack of foresight, not from a flawed decision making process.”

Nearly 300 years ago, John Law, a Scottish gambler and womanizer, conducted the first modern experiment with paper money in early 18th-century France. While the party raged, Law became the richest man in the world and was hailed a hero by king and court. Before it was all over, Law barely escaped France with his life after having his carriage smashed by an angry mob. We recounted the story in Financial Reckoning Day in 2002, at the height of Greenspan’s Maestro-ness.

The fabulous destiny of Alan Greenspan awaits…we’ll keep you posted.

— Likewise, the sunny optimism breaking over Wall Street — thanks to the Washington Mutual rescue plan — turned cloudy yesterday. Traders are getting jittery about first-quarter earnings announcements.

Perhaps, rightfully so.

Alcoa, the first Dow component to report, did so yesterday after the close. It came in at 44 cents per share… analysts were expecting 48. But we don’t expect the aluminum producer will have much of an effect. Most of the financials begin reporting next week. That’s when the fireworks will begin.

For the day yesterday, the Dow and S&P each lost a skosh. The Nasdaq dropped about a quarter percent…down 0.26% Otherwise, trading was quiet.

— We’re detecting a theme in much of the day’s news. Something you might call “Peak Everything.” Oil, food, water — you name it — supplies are falling and prices and tensions are rising. The world appears to be entering one of those phases in history that will take generations of library-sequestered historians inventing new theories to explain.

— But let’s dive in, starting with oil. It’s approaching record levels again. Light, sweet crude closed up nearly $3 yesterday, at $109.09. One reason for the rise: a decline in production from Russia — the world’s second biggest oil exporter.

“Production has been flat the last three months,” explains our Byron King, citing an obscure report from oil analyst Aram Mäkivierikko, “and it’s still below the maximum of under 10 million barrels per day set last October. That’s putting a strain on global supply, despite what OPEC ministers say.”

In a worst-case scenario, the study says, Russian production has already peaked. And even in the best-case scenario, production can’t increase by more than 5-10%. Should this report bear scrutiny, the implication of “Peak Oil” in Russia will be dramatic.

On the home front, Byron’s keeping his eye on a company that claims it can transform used tires into fuel…and it’s going into commercial service no later than May 31. Down the road, the same technology could be used to breathe new life into American oil wells that have been abandoned for decades.

And it has a one-of-a-kind leg up on all competing technologies when it comes to extracting oil shale — the hard-to-extract stuff in the Rocky Mountains that’s estimated to total three times Saudi Arabia’s proven reserves. We’ve reserved details for paying members of Byron’s Energy and Scarcity Investor — on sale this week. If you’re interested in learning more, you can do so here for a limited time.

— Just days after Robert Zoellick, president of the World Bank, warned 33 countries are at risk of riots because of food prices — the risk is already becoming a reality in several of them.

Four people have been killed in Haiti, where the prices of rice, beans and fruit have risen 50% in the past year.

Food riots were reported in four West African nations yesterday, and a nationwide strike was called for today in a fifth. Plans for a general strike in Egypt to protest rising food prices have been squelched, but only because police arrested more than 200 people.

“I think what we are facing is a perfect storm,” comments Bettina Leuscher from the World Food Program. “More and more people are going hungry and need food aid. At the same time, we’ve got the lowest food reserves in some 30 years on the markets. And prices have gone up tremendously, sometimes doubled in the last few months and you’ve got climate change with less harvest, droughts, floods.”

No riots in New York — not yet, anyway — but food pantries report major shortages because donations are way down.

– “We need to be concerned,” U.N. Secretary-General Ban Ki-moon commented yesterday, “about the possibility of taking land or replacing arable land because of these biofuels.” This, two years after the United Nations Food and Agriculture Organization forecast that biofuels would wipe out hunger and poverty for up to 2 billion people.

“I’ve heard from at least a dozen farmers,” counters Kevin Kerr, who has been on the biofuel beat for years, “in Illinois, Minnesota, Iowa, Wisconsin and Indiana. They’re all telling me the same stories of either ethanol plants under construction that have ceased operations or plants that are declaring Chapter 11. Looks like the ‘dream’ of the new gold rush in corn-based ethanol is starting to unravel, and fast.”

— How about the outlook for U.S. crops this spring? Says Kevin: “Not great.”

“The wet, muddy conditions and continued rain make it next to impossible to get equipment in the fields,” Kerr writes. “Also, farmers run the risk of putting seeds in too early and, basically, losing the crop. The situation is pretty grave this year, as demand for all the grains is very high, as are the costs to plant them. The hope seems to be that we will have another year like last year and Mother Nature will be kind. It may not end up that way.”

Kevin heads out next week for his annual trip to the upper Midwest. “I knew corn would be going to $6 three years ago largely because of what I found out by visiting farms and seeing what was going on long before the ethanol boom landed on the front page of Barron’s.” We’ll keep you posted on Kevin’s travels.

Oh…some angry farmers respond to our coverage of the ethanol boom, too, below.