181 Mr J. A. Lyons, Prime Minister, to Mr S. M. Bruce, High Commissioner in London, and to Sir Earle Page, Minister for Commerce (at Sea [1])

Cablegram unnumbered 7 April 1938,

We have again been giving consideration to the situation arising out of the lease granted by Western Australian Government to Brasserts at Yampi Sound. [2]

We think it advisable to remind you of the course of events over the last two years. Brasserts which is reputedly an English company acquired option from Western Australian Government on certain iron ore deposits at Yampi and subsequently formed company to exploit them. It is admitted by Brasserts that Nippon Mining Company was to put up debenture capital which it is believed represents the greater part of the working capital of the enterprise and in addition to or possibly in part or whole substitution for interest on this debenture money Nippon Mining Company was to have sole right of purchase of the iron ore together with right of repayment of debenture money on annual basis. It appears clear that Brasserts is in effect a dummying company for Japanese interests. It further appears that Nippon Mining Company is very closely identified with Japanese Government and that there is a series of similar and related Japanese companies looking after the shipping and smelting of the ore.

Commonwealth Government until August 1937 did not make any statement designed to discourage this enterprise. In fact on two occasions before August 1937 Commonwealth Ministers made statements to effect that Commonwealth saw no reason to interfere (see Hansard Senate 23/4/36 and Representatives 10/9/36). However since then on several occasions Prime Minister has made statements indicating anxiety as to whether the available iron ore resources of Australia were sufficient to warrant our permitting the export of the tonnages of iron ore contemplated by Brasserts, i.e. one to two million tons of ore for a period of 25 years. Commonwealth Government on 18th March 1938, released significant portion of a report by Dr Woolnough, Commonwealth Government Geological Adviser, expressing alarm at Yampi Sound enterprise being proceeded with. [3]

On 26th March, 1938, Japanese Consul-General in Sydney wrote Prime Minister asking to be informed of the Commonwealth Government's intentions and stressing the expenditure and commitments that Japanese interests had entered into totalling he said about 500,000. [4] In reply 29th March Prime Minister repeated the fears of the Government as to the adequacy of our available and economically exploitable iron ore resources [5], but gave no positive indication of our intentions.

The possibility of Commonwealth Government putting an embargo on export of iron ore has been well ventilated unofficially in Australian Press.

There is good reason to doubt the adequacy of our iron ore resources that can be economically mined. We are getting increasing evidence of this supposed inadequacy although admittedly there is some doubt on this point. However the point on which there is no doubt is that we do not wish to undergo the embarrassment that would probably become cumulative as years go on of having what was in effect a Japanese Government enterprise well installed in Northwestern Australia, close to Broome where there are already large numbers of Japanese engaged in pearl shell industry.

On the other hand we clearly have to walk warily in notifying Brasserts (which is in effect notifying Japan) of our decision to place complete and immediate embargo on export of iron ore.

We have to have good reasons for so doing, particularly in view of fact that for nearly two years we have raised no difficulties and may well be taken as having tacitly acquiesced in enterprise developing. We could of course say with truth that it is only recently that we have become aware of inadequacy of our iron ore resources, but this will not be very convincing.

After considerable discussion we think that best line for us to take is as follows:-

That at an early date we notify Brasserts and Western Australian Government and Japanese Consul-General that the progress of our investigations into the probable tonnage of iron ore that can be economically exploited in Australia gives us increasing concern and anxiety. We have to regard ourselves as the trustees for the future of the iron and steel industry in Australia and that every interim report that comes to hand reduces the previous estimated tonnage of the known accessible deposits and throws increasing doubt on the adequacy of our resources of the essential and irreplaceable raw material for this great and fundamental and rapidly growing industry.

We are pressing on with our investigations on an Australian wide basis and will lose no time in reaching a decision as to what our available resources are. But in the meantime we are obliged in the interests of all concerned to suggest that the progress of the development at Yampi be halted until such time as the Commonwealth Government is able to determine its general position with regard to the export of iron ore. We recognise with sincere regret the disturbance to the plans of Messrs Brasserts that this decision entails. It will be recognised that Commonwealth Government has not reached such a decision lightly. During the early stages of Messrs Brasserts activities no doubt had arisen as to the adequacy of our iron ore resources and in consequence we made no demur to the proposed enterprise. It has been only as a result of investigations that have taken place since early 1937 that doubt increasing into anxiety has arisen and which has resulted in our present action. It may well be asked what are likely to be the results of this further investigation into our iron ore resources? We clearly cannot answer this question at this stage other than to say that, if our present fears prove to be not as serious as we now anticipate, it may well be that we will be able to allow the export of reasonable tonnages under licence-but that in the event of our present doubts being confirmed we would be obliged in Australian national interests to place an embargo on the export of iron ore to any country. In this event we would be ready to discuss with the interested parties the question of some suitable measure of compensation for expenditure and commitments already entered into as at this date.

For your information we would point out that no ore has yet been exported from Yampi nor will the enterprise be in a position to export ore for probably six months.

However substantial tonnages of iron ore have been exported for several years from Iron Knob in South Australia to Japan. In 1934/35 out of a total export of iron ore from Australia of 400,000 tons 250,000 went to Japan. In 1935/36 out of 430,000 tons 290,000 went to Japan. In 1936/37 out of 270,000 tons 194,000 went to Japan. Balance largely to America in each of these years. It is understood that declining tonnage will be exported from South Australia in years ahead.

[To Bruce only]

Desire you understand we are not only concerned with preservation of adequate ore resources but also expressly wish to avoid the establishment of this Japanese enterprise in North West Australia.

We would be grateful for your views and comments on the position.

This telegram is being repeated to Sir Earle Page and the Ministers en route to England to reach them at Aden on 13th April and I am asking them for urgent reply.

Glad if you will communicate foregoing to and consider it with British Government and advise me as to outcome of discussions by the 13th April.

You will observe that this message has been communicated to you by cablegram service. Glad if you will reply to this and other relative communications by the same route.

[To Page only]

We would be grateful for your views and comments on the position.

This telegram is being repeated to the High Commissioner in London for communication to and discussion with British Government and advice.

You will observe that this message has been communicated to you by cablegram service. Glad if you will reply immediately by the same route.

LYONS

1 Page (Minister for Commerce) was on his way by ship to London with R. G. Menzies (Attorney-General) and T. W. White (Minister for Trade and Customs) to take part in negotiations for the revision of the 1932 Ottawa Agreement on tariffs. The ministers were kept informed by cable of Cabinet discussions while they were en route to London.

2 The Yampi Sound question was discussed in Cabinet at some length on 6 April and again on 7 April 1938. On the latter day the statement incorporated in this Document was drafted by the Treasurer, R. G. Casey, and approved (PM&C: A2694, 6 and 7 April 1938, unnumbered minutes).

3 See attachment to Document 203.

4 Document 170.

5 Document 171.

[AA : A981, AUSTRALIA 90]