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Inside Business -

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(generated from captions) the opposition is doing bit. Let me start, on the boats

everything it can to make Nauru

the solution. I would like to

throw into the debate, Nauru

because it is not a signatory

to the UNHCR mean people who go are there stuck

is the mechanism by way wer

done tries pupt their hands to get into the country. This farce of

launches close to election days

has to stop. Some political

leader at some stage has to

stand up and stay we're not

going rip the taxpayer off any

more. The taxpayer picks up

the bill for the staff and

everything. This has got to

the writs. kick in the stop. Why shouldn't the rules

kick in the moment

the writs. Yes, have an old

fashioned launch and get out

with the mega phones and stop

ripping off the taxpayers.

Imagine when half of Tasmania

were protects those Bosnian as

refugees. One more program to

go and then the election

special. Thanks for This program is not subtitled

On the deal front it's

all about comod ditis, we look

at whether a Graincorp, AWB

merger will create a national champion in the bush or crush competition? We'll talk to Linc

Energy's Peter Bond about his

asset sale to India. We'll catch up with tabcorp chief

fung who has been spending more

on casino renovation and hoping

to paint over the cracks in his

pokie and wagering businesses. This Program Is Captioned Live. For a nation that prides

itself on farms nous and productivity its astounding

productivity its astounding the

listed agri sector is

wasteland. Eld ers, Newform, various

various wine and timber outfits

and AWB. Across a wide range of agricultural endeavours the

corporates have found

extraordinary and varied ways

to destroy wealth. Graincorp

and AWB plan to merge, will it

be a game changer in the bush

or is the deal an act of desperation? With worrying implications for competition in

grape handling. - grain

handling. Local wheat growers are

enjoying some of the best

conditions in years, timely

winder rains have helped

establish lush crops across

south eastern Australia. Russia

is suffering its worst drought

on record forcing it to halt

grain exports until the end of

the year and putting a rocket

under wheat prices. That's a

free market in action. Someone offered me 237 for it

yesterday. We've just signed it

for 254 today. That's a far cry

from the market price of a

round $109 a tonne when Chris

Kelloch harvested his crop back

in December. There must be some

horrible shorts out there. What

do all the - no-one expected

the price to rise. the price to rise. While Australian wheat farmers see

the rare double of strong

prices and a promising season

ahead. The local industry is is

preparing for yet more

upheaval. This week, two of Australia's biggest

agribusinesses, AWB and Graincorp announced plans to merge. I just think it's part

of the rationalisation

happening in the industry

that's been happening for a

long time. I think it's a

progression of that, whether

it's a good progregs time will

tell. The I think it's a merger

have been struggling. The Union between two company that is

would create a company worth 2

billion dollars and the biggest

rural services business in

Australia. It would operate

along all stages of the wheat

production chain from fertiliserers to storage,

freight, marketing and milling. We're competing in an international environment now.

This will create a much larger, stronger organisation

international stage, much that can compete on the

better than we can

today. Graincorp was still very

vulnerable to the size of the

crop in eastern us aanian and

the level of exports so their bottom line goes up and down

depending on the size of the

crop. It still willment then

we've got the same situation

where with AWB, they probably

needed access to infrastructure

and to be able to streamline

their side of the operation.

Grains industry analyst

Malcolm Bartholomaeus says AWB was an odd fit in the deregulated Australian wheat

market with a national presence

one regional market. That but no dominant position in any

really did put them in direct

competition with the big

internationals, they were on

the same foot ing as the big internationals. With nowhere

near the same resources as some of those big international

companies would have. Malcolm

Bartholomaeus says a combined

AWB and Graincorp should able

to compete both here and

abroad. But wheat growers like

Chris Kelloch argue the

proposed union could stifle

competition. Together, AWB and

Graincorp would own all of Australia's eastern sea board

grain terminals, except for a

half share of the Melbourne port facility. That port facility. That facility in Melbourne is very much

sought after by exporters to export their grain. It is

providing competition in the

southern area, and Melbourne is

a prefer ed exit point for a

lot of grain as it stands, I

believe that's because of the

competition that exists now. They may be able to exercise monopoly stsk powers, therefore

ability of growers to achieve reduce the competition and the

the best price. There are some

concerns in terms of freight

from - up-country storage down

to port in terms of access to

port facilities and those sorts

of things are the areas we're

really quite concerned about.

There are quite a lot of

alternatives for growers these

days, there's a lot of other

merchant storage compass out out there. There is also quite out

a lot of on-farm storage,

that's been a real feature over

the last few years as the

domestic market has grown,

there's more on-farm storage

available. A Watkins took the

reins at Graincorp just last

week and will remain as chief

executive of the combined group

if the merger grows goes ahead.

The companies are promising 40

million dollars a year in cost

savings largely for cutting

back head office functions.

Watkins says the prospect of

creating a cross-culture in agriculture is exciting. We

don't have a strong

agribusiness. If you look at

the mining industry we have

some really strong global, very compet isk mining businesses

but we don't have that in

agriculture. We are very strong

in agriculture, we are very

competitive and I think it's an exciting rationale for the deal. It's not the driving

rationale. However, the merger announcement overshad he oed

AWB's second profit AWB's second profit downgrade

for the year - overshadowed.

Another sign of the difficulty Australian agricultural businesses are having in

competing on the World stage. I

think growers would be fairly

dismay ed at AWB's fall from

grace. I think it's fallen off

its corporate perch for many

reasons, not only the

oil-for-food scandal. Really

this merger is about survival

for AWB, rather than, um... Any

merger because these companies have been successful. Australia's bheet

wheat industry is now being wheat industry is now being run by a new generation of farmers,

those who've well and truly

left behind the days of AWB's export

export monopoly. That's giving

rise to a more nimble and competitive industry. Those

farmers want as much choice as

possible in who they sell their

wheat to. And fear that a merger between AWB and Graincorp could limit Graincorp could limit their

options. I think the best thing

growers can hope for is we have

Australian or overseas companies with very large

global foot prints exporting

and marketing our grain

overseas, I'm not sure, so sure

that this merged entity we're

talking about, Graincorp and

AWB, give us that global foot

print. It's now up to AWB

shareholders to decide whether

the merger goes ahead. In the

meantime, farmers will be

watching the skies, hoping that

decent spring rain will deliver

a big harvest and let local

growers capitalise on soaring

wheat prices. You can never say

it's in the bag until it's in

the bag. I think it's true to

say season's off to a good

start, particularly southern Queensland, New South Wales,

Victoria. So that's - we had a

good autumn break and we'll hope that

hope that the good conditions continue through to harvest. Generally there are a lot more

buyers, growers are getting

some very good attract ive

options to sell their grain,

the container industry is

continued to grow, there's continued to grow, there's new markets emerging for Australian

wheat. But rationalisation of

Australia's more open wheat

market still has some way to

run. Foreign predators continue

to circle and the remaining

smaller players may quickly

find they need to consider

mergers as well if they're to

compete with their much bigger

overseas rivals. The nation's

biggest gambling business

Tabcorp this week made another

big bet on its casino

operation, anti--ing up an

extra 285 million dollars on

its existing 600 million dollars renovation job at Star

City in Sydney. It's been

another tuf year for Tabcorp,

profits down 10%, revenues


I spoke to Tabcorp chief,

Elmer Funke Kupper about the punt he's taking. Fung,

Elmer Funke Kupper Tabcorp as gradually becoming a casino

company, isn't it. I think it's

a default outcome of the way

our business is structured, in Victoria the licence will fall

away in 2012, gaming will be a smaller part

smaller part of our business,

we're making significant investment s in our casinos

business, we're doing that

because that's where we have the right conditions,

opportunity for growth,

long-term licences. The outcome

is we'll become a casino business. What sort of

proportions will it be in say,

five years' time? That will be

telling you what our results

will be in five years' time, we

prefer not to do that. Broadly

speaking - We're investing

close to a billion dollars in

our New South Wales casino, if

you think about the returns of

14, 15%, that bit bit will

start to grow at - that EBITDA

will start to grow at significant rates at the same

time gaming will fall away,

it's about 22% of the company.

Currently casinos is one third.

The larger company. It will

start to creep up to half or

more than half of the smaller companies as a natural consequence of those two

events. What about wagering

given the competition from

online betting? Wagering was

our strong performer, earnings up

up 4%, despite the additional fees and despite a significant increase in uneven competition.

The wagering team have done a

terrific job repositioning that business for the new

environment. In 2010 we saw the

benefits of that. Even though wagering revenues were up, reasonably strongly, about

7.5%, wasn't most of that in

fixed odds which is low fixed odds which is low or margin business? It's it's

lower margin at the customer

level, the translation to earnings is more complex

because of fees and taxes. Our

EBITDA margin was constant,

15.7% of that business. All

that growth has translate the

ed a at bottom line growth at a

constant margin. Is it fair to say the tote has stalled? The

tote had no growth for us, our

market share - Will it ever have growth again, the tote? I

think the tote is an important

part in the landscape here, we

see a lot of growth coming out

of fixed odds, sports betting

and racing, we're driving that

very hard. That's where part of

the future is. The tote

continues to play an important

part. To some degree it depends

on the way governments or

racing industries charge for

these products, to what degree

we can get the product balances

right. The insentive today is

to grow fixed odds. That's

what's happening. On the casino

billion dollars expansion, in

one way, renovations always

turn into a sink hole for

money, is that how we should

look at this, that you have look at this, that you have to spend more and spend more and more money on

the thing? If you look at the

announcement today, it's made

up of 3 components, the base

project, 600 million dollars.

That project hasn't changed in scope,

scope, it's on track. What

we're doing today is we're doing today is announce

twog addition that is fulfil

the total potential of that market. 25 million extra

- About 25 million dollars extra because - that's true. -

the stuff you're already doing? Yeah, we're upgrading

the technology in the new

hotel, 960 million dollars

that's not really the issue.

What we did announce today is 100 million dollars commitment

to build an events centre,

3,000 seats which fulfil as gap

in the New South Wales

market. That will be for major ents at the same times, conferences, exhibitions - Is

that a profitable business? It

is in itself a lower margin

business. What it does is make the most of the infrastructure

thaw build in the entire casino. It's the traffic that

it generates and the brand that

it generates that makes it work

for the entire casino. It will

be OK in its own right but the

profitability of things like

gaming - You mean - It will be

OK in its own right. We're

creating not an event centre,

we're creating an entertainment

destination, if you look at the

size of Sydney relative to any

other market in this country

it's the far biggest market. If

you look at what other casinos

are investing, investment of close to a billion dollars

makes sense is You're spending

160 million on VIP, part of a

large part is on planes. The

VIP part of the business, the

lowest mearge fl margin - it

will drag the overall margins

down? Our EBITDA margins for

the casino will be relatively

stable for this project. In the

high 20s. The VIP investment is

a very high growth market and

large market here in Asia.

Despite the additional capacity

we've seen in Macau and sing

aporg, very strong growth in

Australian market. We haven't really participated in that

because we invested. Our market

share is sitting at 15-20%.

We've held our own in earnings

because the market has grown,

we haven't participated in the growth. With the infrastructure

we're building at Star, we have

the opportunity to offer the

right product to that consumer,

we think the business case for

that is the easiest one out of

all the things we're doing

given the attraction of Sydney,

the property we're building and the size of that

market. Looking at results

overall you can't help get the

sense that Tabcorp is just a

tax collection business or at

least largely a tax collection

business 67% of the gaming goes in

in taxes, and 60% on wagering.

Do you think the governments

that are getting this money from you treat you properly? We

have a good relationship with all the State Governments that

we operate in - - taking away your licences all the time. Do you think you're being treated

well for the amount of money

you give them? We're at the

behest of the licences that we have. What you're starting to

see is we invest in stable...

Long-term licences, the

attraction of the casinos business this Sydney for

example is it is a licence that

has some 80 years to go

still. So it's a very long-term

licence, we have 1 years... 12

years and we have an

arrangement where we're able to

grow. That's where we can have

confidence on the returns, so

that's where investment goes. what we'd like to see is investment conditions that are

attractive for us, because if

the conditions are attractive

we'll put our money into it.

That's why the money goes into

casinos now in Sydney because

that's where the conditions

are. In gaming you're moving

towards the servicing of the

clubs that are going to end up

with your licence really. Are

you ever gonna come near replacing the revenue you're

gonna lose by servicing those clubs? The business we have in

gaming in Victoria is extraordinarily attractive. It

has an EBITDA of more than 200 million dollars, more than 20% of the company. That's falling away,

away, that's down a couple of

years ago. We've announced

today we've signed 6,000

machines and more than 120

venus to our new business, that

will make 30 million dollars if

we get more machines. We have

to remember Alan, is that if we

had renewed our licence on the

old structure, which is now

irrelevant we would've had to

pay for that licence. Which

would also reduce the net earnings available to shareholders. That business has been been extraordinarily attractive

for 15 years. That licence structure

structure has changed. That

attractiveness to the

profitability was always going to

to go at some point because a

new licence would've been a

more expensive licence. What

about wagering, are you

confident you'll retain the

licence in Vic wa? I'm not in a

position to make any comment

about the Victorian licence

process, so I can't You gonna bid? Ah... It's public information we've been invited to bid, that was announced last

week. I make no further

comment. Thanks for joining us. You're us. You're welcome, thank you.

Now with the latest business

and market news, here's Jane he

Edwards. Thanks, Alan. Fairly

dire job starter on Friday caused a sharp fall on Wall

Street early in the day, the

Dow dropping by 160 points.

Investors showed resilience -

buy upg in the afternoon,

leaving the indices slightly in

the red at the close. Official

job figures for July revealed

employment fell by 130,000,

more than double the expected amount. The unemployment rate

remained at 9.5%, confirming on

the other hand for workers is

sluggish and the recovery may be stalling. It contrasts

sharply with the results of the

US earnings season in which 75%

of companies in the S&P 500 have beaten expectations.

Across in Europe, the IMF and

EU praised Greece for its gro pro-gress in recovering from

the debt crisis that threatened economic collapse earlier this

year. A round the world, share markets had a good week, the

season of strong corporate

profits helped the tous gain

2%, and the same was true of

our local market.

The average rise in the stock

market in August is 2.3%, we've

done most of that in the first

week. The RBA left interest

rates unchanged, has left some

brokers telling us interest

rates won't go up again until

next year, the Morgan Stanley

equities strategist told us

equities will be substantially

higher by the end of 2011. The

big story in comod outs, wheat

futures, jumping 85% from their

nine month low in June, that's

done wonders for our grains

stocks. All of them up this

week, that was helped by a

no-premium merger between AWB

and Graincorp, the AWB also announced a small profits

warning. The results season has

started. A headline this week

said Rio profits roar, the

share price was up on the week.

We saw the CEO tell us as well that the global economy was unpredictable. Here's a list of

the other stock that is had

results. Bit of a mixed bag results. Bit of a mixed bag of

reactions. We also saw a profits warning from profits warning from Kathmandu,

we saw some bid speculation

that White Haven Cole was going

to be bid for, that sigma pharmaceuticalhouse found

another bidder and that Nexus

would be bid for despite the company denying they'd had a

bid approach N capital raisings, Gloucester coal raised 455 million dollars

bought an asset of MacArthur

Cole. We saw the much

anticipated 500 million dollars

asset sale by Linc Energy. That

bounced their share price.

In other news - David Jones

was down after a 37 million

dollars sexual harassment suit,

we also saw the Macquarie Atlas

Group jump after being included

in the ASX 200. The regulation

of the stock market has passed

from the ASX to ASIC, there is

a rumour they're going to set

up a subcommittee to stamp out

Warren Buffet quotes, the

scourge of our industry. Winner

of the week - retirement

village operator AVOM after a

bid from the Stockland group.

Loser of the week - Kathmandu,

down 20% on a profits warning. The big deal of the week was the sale of

the sale of a Queensland coal

field by Linc Energy, to Indian

interests for 500 million

dollars in cash, plus a royalty

stream that could be worth another 2.5 billion dollars

over 20 years. The coal was

surplus to Linc's needs as its only interested in deep seams

to turn into diesel and jet

fuel using technology it's been

testing for ten years. I spoke

to Lincoln ji chief Peter Bond

about his plans - Linc Energy

chief. Rising costs in Australia might mean this country might not be included

in them. You've sold one coal

mine this week, you still have

a whole lot of coal left,

leases, mines and oil and gas

leases, I guess I'm having

trouble figuring out whether

you're a coal miner, and oil

and gas producer or technology

company? The main thing you do is the UCG, the underground coal gasification coal gasification technology,

which is it? How does it

work? We are an energy company

first and fore most. The corner

stone of being that company is

only the resources and the

acreage and having a

significant position, not just

in Australia and not just

across several states in

Australia, but across the

world. With the underground coal gasification there's a

certain ah... Quality coal that

suits that best in terms of

depth of coal and generally it

sort of puts it out of most

other mining companies or most

- their economic range they're

looking for. It's a big focus

of tours ensure we have large

acreages of resources, because

it's a corner stone of where where we're going to launch

from. It means you're going to apply your technology to your

own coal rather than sell it as technology to other Kyle Cole miners, is that correct? Absolutely. We are

value-ed aing our product. Our

cost of coal in froind Ground

is usually a cent a tonne or

less, we can take that and turn

into a barrel of diesel for $28

a barrel, subsequently we're

taking 1 cent coal, fore

seeably gonna stay that way for

a generation and turn it into

$28 oil, diesel, which is even

better. And obviously even with

oil at $80 and $95 diesel, it's

a great business model. The UCG, underground coal gasification has been operating

in Chinchilla for more than ten

years now. You added the gas to liquids component a couple of

years ago. How close are you to

selling some jet fuel? We're

probably still a couple of

years away from going fully commercial. It takes about 20 months to build a commercial

plant. We're a few months from

getting to the the position we

can launch to do that. Not for

any other reason than the right

location and the right contract

in terms of getting our CAPEX

pricing right. The model is

fine. The cost of producing a

barrel is fine. The cost of

gasification is fine. Our

ability to commercialise gas

fikation is assured. You've got

to crack the CAPEX nut in

Australia, unfortunately it's a

very expensive place.? Do you

mean get some money together to

build the thing? No, it's

literally the cost of building

large plant is driving up so

fast, so hard, that it is

reducing return on capital too

much and the risk profile's

going up too high. What's

causing it to go up so quick ly? Accommodation of - a

combination of things, the rebounding of Australian

economy, but in general mining

and oil and gas are rebounding reasonably firmly, which is

making the cost of making the cost of engineering and construction higher and

High higher and particular ni

Australia, you've got more

people competing for fewer

resources. The last report we

did has the cost of construction in Australia 40%

higher than most parts of North

America which is astounding. Do

you feel as if the process, the

CAPEX, the plant, is get aig

way from you as time goes on?

Cts I feel you just have to be

smart about it and what we mean

by that is we're aiming to

build in smaller modules,

constructed out of Asia, sausage factory-type mentality

and putting them on a ship and

delivering them to our outcome.

Our outcome is net just

Australia, our sights are

Wyoming, Alaska, parts of

Europe and Australia and parts

of Asia. Does that cost differential mean you're more

Alaska before Australia? It likely to build in Wyoming and

depends - that's the reason we're trying to get the cost

cob structed out of Asia at a

known fixed cost so it doesn't

build cost? What sort of CAPEX matter o so much. What's the

are you looking at? Our aim is to

to keep it around a billion

dollars per to #20,000 barrel

plant. Can you do that

yourself? Have you got more

mines to sell or do you need a

partner? Oh no, we can do it ourselves. There's a good chance we will partner because

(a) it drops the risk profile,

(b) it will add to the business. We don't want to

partner just bring money, the

whole idea of cashing up having

our own billion dollars allows

us choices and choices is

power, of course. The idea is

we have a joint venture partner

that adds a lot to us. The coal

seam gas people in Queensland

have been partnering with

billing oil. Absolutely. That

the sort of thing you'd want to

do? Probably along those lines

can add to the technology and where you're working with who

the distribution of your product. I take it your

technology is not just getting

gas to the seams like the CSG, it's actually turning coal into gas? Absolutely. It's like a

third avenue of mining, you

have open cut mining,

underground mining then

underground coal gasification,

for the deeper seams the less

economic UCG is perfect for

that. By the fact you've that. By the fact

brought the lick wif ication

technology into it in 2008 means you don't think gasification on its own is

viable, thaw have to turn into

a liquid diesel or jet

fuel? Couple of reasons we did that, the gasification,... that,

Produced needs a compative

market, to either chemical

market or fertiliser market or knas to liquids market or

something like that, if you're

natural gas market is high

enough, your domestic market is

high enough like America's was

a couple of years ago, then you

could turn it back into

synthetic natural gas and sell

it into the pipe. We don't have that infrastructure in

Australia If you're going to

build a large captive gas producer, you have to producer, you have to do

something with it, which is why

the CSG guys did what they did,

there's nowhere to put it on

the east coast of Australia,

which is why they had to LNG

it. Similar us to it makes

sense to value-add it. Thanks

for joining us. Thank you,

Alan. Friday's monetary policy statement from the Reserve Bank

painted a pleasant picture of a

normal economic recovery in Australia. The specific

forecasts are unchanged, 3.25%

this year, 3.75 next year, 4%

in 2012. With inflation back

above the target range, about

then. The clear implication is

rates are heading higher if not

this year then next year.. All

that looks pretty unremarkable

and hard to argue with - except

there are two big risks to the

RBA's outlook, one recent

enough to be barely mentioned

in Friday's statement. While

this might be a normal cycle in

Australia, it is far from

normal in the United States and

Europe. Secondly, the wheat

prices taken off like a tram,

rising - like a brondi tram. A

normal upturn happens when

rates come down am a recession,

businesses respond by investing

which cuts unemployment which

leads to higher consumer

demand, higher prices then

higher interest rates again.

That's what's going on in Australia right now, all

perfect ly normal. In Europe

and America there is an overlay

of structural debt reduction,

plus a huge amounts of spare capacity, that means monetary

polls is has been pushing on a

strange, businesses aren't

investing aing unemployment is stuck. The rest of the

developed worlds is teetering

on ght brink of another

recession, even if that doesn't

happen, the recovery is far

from normal. On Friday, Russia

banned wheat exports, which

were just a trickle anyway

because of the drought. It's

unless the 80% spike in the great for our farmers but

wheat price is very temporary inflation could be pushing back

to 3% earlier than the RBA's

best laid plans would suggest.

That's it for the program.

Transcripts, video and vodcast

of all today's Stories and

our interviews will be available on

Welcome to often siders.

shift in the AFL last night Collingwood caused a seismic

beating Geelong in a

comprehensive mant ter to premiership. Making believes

of more than just the magpie

army. Works his way to the

front. Nice ball. This will

be for Collingwood. The

sealer. He draws the player.

Pops it over the top. It's a

Collingwood win at the MCG.