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 [1], 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 [2] 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 [3] 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 [4] 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. [5]

J. A. LYONS