197 Mr J. A. Lyons, Prime Minister, to Mr Torao Wakamatsu, Japanese Consul-General in Sydney
Letter  17 May 1938,
With further reference to your letter of 11th April, 1938 , and to previous correspondence on the subject of iron ore, I have the honour to inform you that this matter has now received the fullest and most sympathetic consideration of the Government. The closest attention was given to the particular points raised in your letter of 5th April  and in that now under reply.
The best expert advice available has been obtained, and in the light of this advice the Government is satisfied that the accessible iron ore deposits of Australia which are capable of economical development are so limited as to compel their conservation for Australian industrial requirements. You will recall that I gave expression to our concern in this regard in my letter to you of 29th March. 
Copy of a report by the Commonwealth Geological Adviser on the subject of iron ore is attached. 
Careful consideration has been given to the proposal that licences should be granted to export limited quantities of iron ore, but the Commonwealth Government has come to the conclusion that such action would be inconsistent with the necessity to conserve Australia's limited iron ore resources.
For these reasons I am very reluctantly obliged to inform you that it is intended completely to prohibit the export of iron ore from Australia, and a proclamation to this effect will be issued to take effect as from 1st July, 1938.
During the early stages of Messrs Brasserts' activities at Koolan Island no doubt existed as to the adequacy of our iron ore resources, and, in consequence, the Government made no demur to the proposed enterprise. It has been only as a result of investigations which have recently taken place, and which I may say were initiated owing to apprehension expressed by experts, that the necessity for our intended action has become apparent.
I note from your letter of 5th April, that expenditure and commitments in connection with Koolan Island are already substantial. The Government will be prepared to consider the provision of a reasonable sum to meet equitable claims for reimbursement of any expenditure which has up to this date actually taken place in connection with development operations of the Yampi leases.
We sincerely trust that your Government will appreciate that the Commonwealth Government is acting only with the gravest sense of responsibility and will accept the assurance that it regrets exceedingly that the decision may affect important Japanese interests. We hope, however, that the action which our duty compels us to take will not impair the cordial and friendly relations which have so long and so happily existed between our respective countries.
J. A. LYONS