320 Mr J. A. Lyons, Prime Minister, to Mr Torao Wakamatsu, Japanese Consul-General in Sydney
Letter 23 November 1938,
I desire to refer to your Note Verbale of 8th September, together with a report by the Chief Geologist, Nippon Mining Company, dated 20th August , on the subject of the prohibition of the exportation of iron ore from Australia, and to inform you that I have delayed replying in order that I might be in possession of the fullest possible information concerning the results of the survey of the iron ore resources of Australia which has now been in progress for some months.
You have based your request for what amounts to a quota of 10,000,000 or 15,000,000 tons upon the view that the accessible quantities of ore have been seriously under-estimated. I can assure you, however, that this is not the case. The Commonwealth Geological Adviser  has just completed intensive preliminary reconnaissances which indicate quite definitely that the advice which was previously tendered to the Government, far from being unduly alarmist in character, actually fell short of the true state of affairs.
It has now been established beyond reasonable doubt that there do not exist in any portions of the States of Queensland, New South Wales and Victoria, within economical transport range of the coast, any major iron ore deposits of reasonable grade. Further information is being obtained in regard to Tasmania but the evidence already available suggests that the deposits of that State will come within the same category.
It is apparent, therefore, that Australia must rely upon known and potential resources in South Australia and Western Australia for the supply of its growing needs. This means the Iron Knob Group in South Australia and the Yampi Sound Group in Western Australia. In connection with these deposits there is strong reason for believing that detailed survey and sampling will substantially reduce existing estimates of quantities. A progressive decrease in the estimated reserves has unfortunately been revealed as the investigation has proceeded.
There appears to be a general lack of appreciation of the wide difference in cost between mining the ore and obtaining it by open-cut methods. Some idea of this may be gathered from estimates which show that the former costs between 12/- and 15/- per ton as compared with about 3/- per ton for the latter. These figures would of course be subject to minor variations under differing circumstances.
To ensure that Australia is in a position to meet the competition of other countries, the Commonwealth Government has an obligation to preserve for Australian industry the limited quantity of ore which will respond to open-cut methods. There are now strong grounds for believing that this class of ore is even more limited than the Government was led to understand when the prohibition was imposed.
The application of a quota of 10,000,000 tons to Koolan Island has, on analysis, much greater significance than the figure would, at first glance, signify. It appears that the Yampi Sound Mining Company would take this ore from the southern ore body. This southern ore body is distinctly divisible on a structural basis into three well defined sectors -the central one where the body is thick and the ore of high grade, the western sector or wing where the ore is much thinner and apparently of lower grade and the eastern sector where the ore is thin and highly siliceous. The central sector may contain half the total bulk of die southern ore body or, accepting Montgomery's  estimate, about 35,000,000 tons. You say that, even above sea level at Koolan Island three- quarters of this deposit cannot be exploited by open-cut methods.
Taking this circumstance into account the extraction of 10,000,000 tons of the best of the most conveniently situated ore would completely exhaust the ore so obtainable from the central sector of the main southern ore body. In effect, the accessible ore would be removed and Australian industry would have to resort to costly mining operations to obtain any ore that is required from this deposit. Your reference to 10,000,000 tons as representing only one-sixth of the total deposit above sea level was made apparently without a full appreciation of these facts.
You refer again to the fact that the prohibition does not apply to pig iron. As the quantities of this commodity which are exported from Australia are comparatively small viewed in relation to exports of iron ore which were contemplated, the Government has not considered it necessary to restrict their export. The position is however being watched closely.
The Chief Geologist of the Nippon Mining Company  deals almost exclusively with the question of quantities of ore. hi view of what I have said in the foregoing it is not necessary to traverse in detail the points which he has raised, except to refer to Australia's consumption of ore. In reply to his contention that Australia is using less than 2,000,000 tons of ore per annum, I desire to state that at the present time a blast furnace with a capacity of 800 tons of pig iron per day is under construction and that during the present year a new unit with a capacity of 1,000 tons of pig iron per day, one of the largest individual units in the world, has been put into operation at Port Kembla and, as a result, the total annual consumption is now over 2,000,000 tons.
Further, the Geological Adviser is of opinion that this figure might very well be increased to 5,000,000 tons within a measurable time.
The Commonwealth Government is much concerned to learn that 'the Japanese Government will be placed in an awkward position with its people as a result of the action which has been taken.' It is felt, however, that if the whole position is placed clearly before the people of Japan they will realise that any feelings of dissatisfaction which they may have are not well founded.
I cannot too strongly emphasise the seriousness of the position which has been revealed, and I sincerely trust that the Government and the people of Japan, with their traditional friendliness, will sympathetically view the difficulties with which the Commonwealth is faced. 
J. A. LYONS