Glencore bid puts sector in spotlight


The ASX 200 recouped last week's losses, recovering from a major support line of 4150 to bounce back towards 4300, the upper end of the trading range mentioned last week.

Eventually this could break, given the improved news flow of late with positive developments in Greece and the stellar performance of United States markets.

In fact, the American exchanges have risen so sharply that they are now trading near pre-global financial crisis levels, with the 'tech'-dominated NASDAQ breaking through the 3000 level for the first time since 2000.

There was plenty of interest in the agricultural sector last week, with Swiss commodities company Glencore making a $5.2 billion approach to Canadian grain handler Viterra.

As Viterra was being flagged as one of the most likely companies to target Australian company GrainCorp, GrainCorp's shares surged to a high of $8.89, up 13 per cent, for the week.

So why the interest in GrainCorp? As many of you would know, it is one of the largest agricultural businesses in Australia that has its own infrastructure and gives direct access to a 'soft' commodities play.

What is of interest on the Viterra play is that a commodities-based company is moving into the grains market.

However, because Viterra owns a large stake in the local grains industry and Glencore has a 13 per cent stake in agricultural company AACL, the proposed acquisition may attract the attention of the Australian Competition and Consumer Commission.

In further corporate activity, Fortescue Metals (FMG) secured $2 billion of funding for the expansion of its iron ore mining operations - twice the amount the group set out to raise.

FMG's chief financial officer stated it was oversubscribed by five times what was on offer and that FMG planned to keep cash on hand as buffer.

In the same statement, he said there was a "significant floor under the iron ore price" and FMG did not expect to return to the US capital markets for further funding.

Interesting to hold so much cash as buffer? Approximately half of the bonds were five year at an annual interest rate of 6 per cent and the remaining half were 10 year at a rate of 6.875 per cent.

Significantly cheaper than when FMG last sold bonds in October 2011 issuing $1.5 billion of 8.25 per cent eight-year senior unsecured notes.

After mentioning the shale oil and gas sector in the last issue I have had a number of people ask about shale and the difference in relation to traditional oil and gas exploration. Shale gas is referring to gas trapped in a deeply buried fine-grained sedimentary rock.

The US experience has shown that sophisticated modern technologies are required to recover commercial volumes of this gas.

This involves horizontal drilling and fracture stimulation, a process where sand and water are pumped into the shale at high pressure to fracture it and create a pathway for hydrocarbons to flow to the surface and be produced.

In Australia, exploration and appraisal of our most prospective shale gas/oil areas are in their early stages. Activity is currently focused on the Cooper Basin in SA/QLD together with the Perth and Canning Basins in WA.

·If you would like to subscribe to Adam Farrall's weekly market update, please feel free to contact him at Sentinel Stockbroking on 9225 0020 or email

_Information contained in this article does not consider your personal circumstances. You should consult a stockbroking professional before making any investment decisions. Sentinel may hold positions in stocks discussed from time to time. _

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