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