249 Note verbale by Mr Torao Wakamatsu, Japanese Consul-General in Sydney

SYDNEY, 8 September 1938

RE EMBARGO ON THE EXPORT OF IRON ORE FROM AUSTRALIA

Since the decision by the Commonwealth Government to impose an embargo on the export of iron ore from Australia, the Japanese Government has been studying this question from a practical point of view, with the sincere desire to find some form of reasonable compromise which will be acceptable to the Governments of both Japan and Australia, although it is unable to deviate from its views on the principles involved, which were set out in the successive correspondence on this question from the Japanese Consul-General at Sydney to the Prime Minister of Australia [1]- particularly the letters of May 24th and June 14th [2]-and which were, in part, as follows:-

That the questions of the conservation by a sovereign State of its own natural resources, or of a monopoly within the country, which are generally matters of domestic concern, are not purely domestic matters but should be recognised as international problems when they affect vested interests of foreign nationals:

That it is most disturbing to Japan that she should be deprived of her interests through a measure taken by the Commonwealth Government without full evidence of absolute national necessity, which should first be established, taking into consideration the probable future development of iron ore supplies in Australia as well as the conditions of demand in the future.

2. Thus, the Japanese Government has arrived at the conclusion that, pending the completion of a thorough and critical survey of the iron ore deposits throughout Australia, there can be no reasonable and practicable way of temporarily settling the question other than by the Commonwealth Government granting permission for the export of a certain quantity of iron ore over a certain period of years from Yampi Sound to Japan, while making subsequent decisions dependent upon the result of the survey; for this purpose, a yearly export of one million tons for the period of fifteen years, if possible (or, at the least, ten years) is suggested by the Japanese Government as the quantity which will be the absolute minimum basis from the economical point of view of the enterprises concerned, and which will yet be harmless from the standpoint of the conservation of Australian iron ore. It will be realised that the Japanese Government is not asking too much of the Federal Government in requesting it to adopt this special measure, in view of the assurance of the Commonwealth Government, contained in the letter of March 29th from the Australian Prime Minister to the Japanese Consul-General at Sydney [3], that, in considering future action, full cognisance would be taken of the situation which already existed and of the special circumstances surrounding the working of the deposits at Yampi Sound. Otherwise, the Japanese Government will be placed in an awkward position with its people, if Japan is forced to abandon her interests relating to investments in connection with the Yampi Sound developmental work and to the export of iron ore therefrom before the establishment of concrete evidence of the absolute national necessity for Australia to enforce the embargo, which evidence should be based on the result of a far-reaching survey such as has now been commenced by the Commonwealth Government.

3. There are also practical reasons which make it imperative for the Japanese interests to obtain from the Commonwealth Government its guarantee, in some form or other, to permit the exportation of the above-mentioned quantity of iron ore from Yampi Sound, viz., (1) Even if the preparatory work for the exploitation of Yampi Sound is suspended pending the above-mentioned survey, the running expenses necessary for the up-keep of the leases, the reservation, and the various equipments at Koolan Island will amount to a large sum, say about A1,000 a month, which must be paid by the Yampi Sound Mining Company after the expiration of the contract recently concluded between the Commonwealth Government and this Company relative to prospecting work that has now been started by the Commonwealth Government. Furthermore, if the preparatory work is thus suspended now, it will be another two years before iron ore can actually be mined, should the embargo be lifted as a result of the thorough survey now being made.

(2) Then, if the preparatory work is to be continued, a monthly expenditure of about A3,000 will be incurred. Under these circumstances, it is not unreasonable that the interests concerned should desire to obtain from the Commonwealth Government a preliminary undertaking, in some form or other, to permit the exportation of such a quantity of iron ore as is deemed to be the absolute minimum in order to cover expenses and yield a reasonable profit. In the absence of this guarantee, all efforts and expenditure relating to the enterprise have to be risked entirely upon the results of the survey by the Commonwealth Government.

4. Even the results of practical studies so far made by a number of experts are sufficiently convincing that in Australia there are enormous known quantities of iron ore economically accessible, and, besides, almost inexhaustible unknown quantities, and that the exportation of such a small quantity as 10,000,000-15,000,000 tons from Western Australia will have only a negligible effect on the conservation of iron ore resources in Australia. Taking into consideration the deposits of the Yampi Sound group alone, the quantity of 10,000,000 tons above-mentioned is less than one-sixth of the total deposits above the sea-level, even according to Dr Woolnough's minimum estimation [4], and less than one-ninth of the total deposits according to other estimations generally accepted.

Furthermore, apart from the report made by Mr Montgomery (late State Mining Engineer in Western Australia) in 1920, from Dr Woolnough's remarks to members of the staff of the Yampi Sound Mining Company, after his first visit to Koolan Island, viz., 'I discovered some interesting features of the deposits at Koolan:

they are deep-seated, and of a large scale', it can be safely judged that there are almost inexhaustible deposits of iron ore below the sea-level. It is recognised by experts that, with the highly advanced technique of modem times, underground mining below sea-levcl differs very little in method and expenditure from that above sea-level; even above sea-level at Koolan Island about three-quarters of the deposits cannot be exploited by open-cut methods, and underground work has to be carried out as in the case of deposits below sea-level. Admitting that the exploitation work at Koolan is no easy task, Dr Woolnough stated, during his conversation abovementioned, 'I can now fully appreciate the strenuous efforts of those concerned in this difficult work.' Dr Woolnough stated in his report of April 14, 1938, that workable deposits must be so situated as to be within economical transportation radius of adequate supplies of coal of just the right quality, and that, in existing conditions, only deposits favourably situated for water transportation are economically possible of exploitation. But, from the point of view of transportation expenses, the distance by sea-route (about 3,000 miles) from Koolan Island to either Newcastle or Japan can be compared to a distance of 300 miles overland. Nevertheless, the work is looked upon by the Japanese interests as an economical enterprise, and Dr Woolnough's above-mentioned report also admits that the Yampi Sound deposits are economically accessible resources. If so, then it will reasonably be admitted that not a few large deposits in other areas are also capable of being developed economically, and the authoritative view held by most experts that Australian iron ore resources are abundant -or almost inexhaustible-may not be too optimistic.

Under these circumstances, the exportation of 10,000,000- 15,000,000 tons will become an even more negligible matter for Australia.

5. If only this licence for the exportation of the limited quantity of iron ore as mentioned above is pledged, in some form or other, by the Commonwealth Government, the Japanese Government is prepared to consider the matters relating to the disposal, by some means, of the Japanese investments at Yampi Sound after the exportation of that quantity, should the results of the thorough survey be undoubtedly disturbing to the Commonwealth Government from the point of view of meeting the demands of the iron industries.

6. With regard to the view that, should the licence as abovementioned be granted to Western Australia, similar treatment would have to be extended to other States for constitutional reasons and on the principle of equity, and the consequences would be contrary to the policy of the conservation of iron ore resources, the following points should be mentioned:

For the present, only South Australia should be taken into consideration in connection with the question of equitable treatment as regards export licences for iron ore, in view of the fact that it is the only State other than Western Australia likely to export iron ore when the embargo is possibly lifted in the immediate future. Since, however, even under the present embargo, pig iron or steel can be exported freely from that State, the special granting to Yampi Sound of an export licence will have little effect upon the principle of equity, or, the extension to Iron Knob of the export licence system will make little difference from the point of view of the conservation of iron ore resources.

7. The sole interest which the Japanese investors originally intended to have in connection with the development work at Koolan Island was the obtaining of iron ore supplies for Japan, and the acquiring of reasonable profit from its sale in Japan. Except so far as the safeguarding of their investments in the form of loans, and the necessary arrangements as regards quality, size and quantities of iron ore to be exported to Japan, are concerned, they have nothing to do with the actual management of the enterprise, which is entirely in the hands of the Yampi Sound Mining Company, an Australian corporation. Thus, Japan's interest in the development work being purely economic, there need be no fear that political issues will arise in this connection in future between Japan and Australia, and particularly if, in consequence of the result of the survey now being made, Japan has to be satisfied with the exportation of only a limited quantity for a limited period, instead of the almost unlimited exportation in the original plan, which was approved, either tacitly or explicitly, by the Australian Governments concerned.

8. It is the most earnest desire of the Japanese Government that, in the interests of the long-standing friendly relations between Japan and Australia, the Commonwealth Government, appreciating the sincere intention and conciliatory attitude of the Japanese Government, will give full and favourable consideration to the compromising proposal as above set forth, in order that the issue may be amicably settled.

1 J. A. Lyons.

2 Documents 208, 216.

3 Document 171.

4 See attachment to Document 203.

Attachment

Note by Mr K. Fujimura, Chief Geologist of Nippon Mining Company, Tokyo [1]

20 August 1938

A study of the question of the reserves of iron ore in Australia gives cause for optimism, according to the Official Report of March 1918, issued by the Dominion Royal Commission, the main object of which was to enquire into the mineral reserves of the British Empire. In that Report, it was stated that iron ores, many of them of very excellent quality, were found in all the States of the Commonwealth, the most noteworthy of which were the Iron Knob and Iron Monarch in South Australia, and the Blythe River in Tasmania. In the case of the firstnamed, the ore was of excellent quality, and much of it appeared on analysis to be suitable for the manufacture of the highest class of steel, while the ore contents of the two mountains were so enormous that even if the Broken Hill Company were thereafter to supply therefrom the whole of the requirements of Australia they would not be exhausted in many generations. If the Company were disposed to sell any of the ore in the United Kingdom, it would find a ready market if reasonable terms of freight could be arranged.

The above conclusion was reached by the Royal Commission after it visited South Australia in 1918 and examined the conditions in that part of the Commonwealth.

Even Dr Woolnough stated in his report [2] submitted to the Commonwealth Government that the reserves of the Iron Knob group total between 150 million and 200 million tons. These deposits constitute the backbone of the Australian iron industry, and must unquestionably do so for a long time to come.

The Imperial Mineral Resources Bureau issued in 1922 a special Report on the Iron Ore position of Australia, from which an extract is as follows:-

Commonwealth Summary Data Actual iron ore reserves 344,929,000 tons Probable iron ore reserves 503,449,000 tons It should be noted that the above data are quoted as authentic by the National Federation of Iron and Steel Manufacturers, Great Britain, in a publication called 'Ferrous Metals', issued under the title of 'The reserves of Empire Series' and dated March 1924.

Official statistics supplied by the Commonwealth Government reveal the fact that the production of iron ore in Australia has only very recently reached an annual output of two million (2,000,000) tons, with a pig iron production of 783,283 tons for the year 1935/36. of the iron ore output, 267,129 tons was exported to various countries (mostly to Japan), which shows that the statement made on page 3 of Dr Woolnough's Report, reading 'at, present we are using over two million tons of iron ore a year' is misleading, being unsupported by the facts.

As even the maximum output of iron ore has never yet exceeded 2,000,000 tons per annum, and that of pig iron has never exceeded 783,283 tons per annum, South Australia alone has enough reserves to last 82, years to start with.

Taking the Government's conservative estimate of 344,929,000 tons for the whole of Australia, there are reserves for 172 years.

Although it may be said that in future greater supplies will be needed, on account of the present competition in armaments, and the instability of the international situation, it is hardly likely that the demand will be much increased as far as Australia is concerned, owing to her small population.

Quite recently an expert of repute spent some weeks examining the iron ore deposits of the Middleback range of South Australia. He says that fifteen miles further south of the Iron Knob are two quarries, known as Iron Prince and Iron Baron, which also have millions of tons of ore in sight.

From the Iron Prince to the Iron Duke, a distance of about 23 miles, there are numerous bodies of iron ore exposed, and apparently of great magnitude, and, from assays taken from various outcrops on the hills, many deposits are of great purity; there are also ores of varied composition that can be used to economic advantage.

The expert above quoted has no hesitation in saying that not less than one thousand million (1,000,000,000) tons of high grade ore can be mined on the Middleback range, from the Iron Knob to the Iron Duke inclusive; and it is more than possible that an even greater tonnage will be exposed when the numerous known deposits are opened up. His view is supported by many experts.

He also states that, if enough time were devoted to surveying the whole of the resources in Australia, especially in Western Australia, it would be found that ore was present on an enormous scale, a supply sufficient for many hundreds of years, and probably greater than the resources in England, which are also inferior in quality, the highest grade in England, of which there is only a limited quantity, assaying, as quoted below, much lower than in Australia, where it assays 65%.

With regard to the quality of the ore, in Great Britain the highest grade ore, which assays only 49%, constitutes only 20% of the total reserves, 80% being between 36% and 25.4%. Smelting is now being very successfully carried on (7 shillings cheaper than Belgian pig iron) at Corby, 130 miles north of London, using low grade ore, containing only 32% on the average, though this grade of ore was formerly entirely disregarded.

Regarding manganese percentages, Dr Woolnough stated in his report that the largest deposits of the group show an increasing percentage of manganese to more than an admissible limit upon exploitation; even if so, I think there are adequate sources of supply of ore of low manganese content within Middleback Range, Tasmania and Queensland far nearer and better conditioned than Yampi Sound.

Finally, regarding the deposits of Koolan Island, Yampi Sound, though I hold a different opinion from that of Dr Woolnough about their origin, it is practically sure, apart from the genesis of the deposits, that they are on a very large scale and extend to a great depth under the sea level, on which not only Dr Woolnough and myself, but many other geologists, are agreed.

Yampi Sound deposits have been variously estimated to contain from 63 million to about go million tons of ore, as Dr Woolnough stated in his report, and these estimates apply to the quantity above sea level, which of course is at a depth to be profitably mined.

From the above point of view, I believe that, if the Commonwealth Government granted permission for the export of 15,000,000 tons of iron ore from Koolan Island, it will correspond to less than one fourth of even the smallest estimated quantity, namely, 63 million tons. In effect such a quantity will constitute merely a scratching of the surface of the deposits of Koolan Island, and will be entirely negligible so far as the reserves for the whole of Australia are concerned.

As a result of the goodwill mission to Japan headed by Sir John Latham [3] in 1934, the Japanese people were led to think that the Commonwealth would further encourage goodwill instead of placing obstacles in the way, and soon after, in the same year, we started to contract with the leaseholder for the development of the Yampi deposits.

Considering the tremendous consequences of the embargo and the sacrifices involved, one would have thought there must have been some good and profound reason for it. But the only reason advanced by the Commonwealth was that the resources of iron ore in Australia were so small that the position was alarming. As a matter of fact there was much more iron ore in Western Australia and other States than had been reported. Nobody had set out to find it because there had been no market for it. I believe that if there were a substantial development of the market, there would be an immense number of new discoveries made, or rediscoveries of ore deposits that have never been reported. In making probable estimates of the iron resources, the Federal authorities have not made provision for further discoveries of high grade ore, and if we take into consideration the low grade ore, to be utilised by improved mining methods and by new smelting processes, the discoveries would amount to an enormous quantity.

As already mentioned, at present in Britain smelting is being very economically carried on by a new process using low grade ore, and now Germany is constructing a new smelting plant at a place near Brownshweig. Furthermore, by reason of new processes foreshadowed as highly probable in the near future, the economic utilisation of low grade ore is so very promising that there is not the slightest fear of the supplies being exhausted. Rather, a far more important question is that of securing a substantial market for it.

Yampi Sound, on account of its distance, its inconvenience, and the fact that it is in a tropical region, remained undeveloped until 1935, by reason of the fact that no market could be found for its output, the only market for it being Japan.

K. FUJIMURA

[AA : A981, AUSTRALIA 90B, i]

1 Although not mentioned in Document 249, this is presumably an attachment to it. The two documents appear together in both the Cabinet Office papers and the Department of External Affairs file.

2 Enclosure to Document 203.

3 Minister for External Affairs.

[AA : A981, AUSTRALIA 90B, i]