Why Brazil? Why Not Australia?

[Source: Lang Hancock, “Why Brazil? Why Not Australia? Here’s Why,” Sunday Independent, August 20, 1972, p. 24.]

I have often said Governments do not create wealth, they consume it. Now, it seems they have diverted wealth from Australia to our competitors.

This tragedy is not directly attributable to the present State Government (though part of it is correctable by them). The problem lies mainly with the Commonwealth Government, despite the fact that it had its genesis in the sabotaging of security of tenure in March, 1970, by our then State Government of the temporary reserve system on which Hamersley Iron, Mt Newman, Goldsworthy and the Robe River projects were financed.

The then Government’s threat to use bushranging tactics in WA, a State which was formerly noted for honouring the sanctity of contracts, had world wide repercussions.

Coupled with this lowering of the standard of integrity was an increase in the greed of the Commonwealth, which increased its take of 45 per cent of the profits of risk capital ventures to 47.5 per cent simultaneously with the cancelling of the industry investment allowance.

Added to these burdens was the Government-stimulated inflation caused by the rise of the internal cost structure through taxation and tariffs, leading to exorbitant union demands which accelerated the damaging inflationary spiral.

Hand in hand with these added burdens was the interference by the Commonwealth with export and pricing arrangements, while all the time steadfastly refusing to make any contribution towards the development of Australia’s natural resources.

Let me quote the instance of a mining company, which having abided by the Commonwealth’s guidelines (difficult as they may be, impractical as they undoubtedly are) in the face of world competition, concluded a 15-year contract with the Japanese giving it a nice, lengthy security over a long period for the sale of its mineral, only to have its sale aborted by the Government with the explanation that it would not approve a 15-year contract because the Government’s policy extended only 10 years.

Recession
We hear much of the Japanese recession, where in fact Japan’s GNP is still increasing at a rate which is the envy of the world.

Admittedly, it is not as high as it was before the US imposed its 10 per cent surcharge on Japanese imports. But the Japanese economy is still expanding, and the Japanese are making investments in the production of minerals throughout the world and developing those minerals in direct competition with Australia. For instance, in Brazil, Japanese investment is heavy in more than 50 different industries.

Sales contracts follow capital, and the development arising from the investment of capital and loans. In the eyes of the world’s bankers, who finance these multi-national companies in their development projects, Brazil seems to be the “lucky country.”

When one asks leading bankers why their choice leads to Brazil instead of Australia, one is shocked to receive the answer that:

  1. The dictatorship Government of Brazil offers them security of tenure.
  2. That the men running the Government are more practical than the people with whom they have had to deal in Australia.
  3. The provision of infrastructure by the Brazilian Government in the form of railways, ports, etc. is in violent contrast to the Australian Government, which takes virtually half the profits and contributes nothing.

With places such as Malaysia, South Africa and South America offering “tax holidays,” pioneer status and providing infrastructure, is it any wonder we have come to a dead stop in Australia as far as the development of our giant iron resources are concerned.

On the other hand, Brazil is forcing ahead. Let me quote from the London Mining Journal of July 7, 1972:

As far as the present pattern of Brazilian mineral-metal production is concerned, iron ore dominates and will probably continue to do so. CVRD is a leading company in this context, with a number of very big, well equipped operations.

A concentration plant for itabirite (a taconite type) ore is approaching completion and it is estimated that by 1975, CVRD will be producing some 25 million tones a year of high grade itabirite concentrates. The company’s total output of direct shipping ore and concentrates should be be at least 50 million tons a year.

To gear up for this expansion, considerable work has been done at the Caue, Conceicao and Dois Corregos mines. Elsewhere on the Brazilian iron ore scene, the Samitri concern is pressing ahead with the expansion of the Alegria mine, and a pilot plant produced some 1.5 million tons a year of —3in ore is expected by 1975.

The mining companies in the Paraopeba Valley area were more affected by the Western world steel recession than CVRD because of the spot sales system they adopt, but here, too, new projects are under way. The biggest is the Agua Clares project, managed by a Brazilian subsidiary of the Bechtel Corporation, of San Francisco, which aims at an annual output of some 10 million tons of high grade iron ore.

This project involves the construction of an iron ore loading terminal at Mangarauba, on Sepetiba Bay, capable of berthing 250,000-ton ships. It is expected the first shipments will be made late in 1973 or early in 1974. Most of the ore will be shipped to Japan.

It is noteworthy that the famous Iron Quadrilateral in Minas Gerais has only two rail outlets. That of CVRD to Tubarao will be fully occupied by this company’s own projected railings, together with those of Samitri (Morro Agudo and the new Algeris mine) and Ferteco’s Fabrica mine. It is hard to imagine any railway handling 100 million tons of iron ore annually, but this appears to be envisaged for the end of this decade.

With regard to the other outlet by rail, Central do Brasil must handle 11 million tons a year for MBR, plus existing railings to the port of Rio, as well as any further traffic resulting from expansion programmes such as that arising from Fertico’s Corrego do Feijao mine.

It seems by no means inconceivable, therefore, that 100 million tons a year of iron ore could be railed from the Iron Quadrilateral in the not too distant future.

The main market for CVRD ore are Japan, West Germany and France. Two important contracts have recently been announced.

Significant
Surely this last fact is significant? Australian ore is suffering cutbacks on existing contracts, yet Brazil is currently writing fresh ones.

Who are the people who seem to prefer the Brazilian Governmental climate to ours? The names most familiar to Australian readers will be the US Steel Corporation, D. K. Ludwig, International Nickel, Krupp and Thyssen, to mention just a few.

I do not mean to imply that foreign capital is not still flowing into Australia in big chunks. It certainly is, but for the purpose of gambling on the stock exchange and taking advantage of a favourable rate of exchange on our currency. This type of money can leave as quickly as it came.

What I think we should be concerned about is the big development money; not necessarily in the form of equity but in the form of loans i.e. we don’t have to sell our rights to mine to overseas companies, but we would certainly have to borrow big sums not readily available n Australia against those rights; rights which must be above any threat of confiscation by misguided politicians or their friends — rights which must be absolutely sacrosanct.

This leads us to the question of the new WA Mining Act. Here, the local Parliament (the Bill is non-Party) has a golden opportunity to write the world’s most advanced Mining Act giving absolute security of tenure right from the prospecting to the production stage.

Paramount in this Act must be the removal of the power of the Minister to distribute as largesse what have been mistakenly called in the Bill now before the House “mining privileges.”

These must be distributed not at the whim of the Minister to his friends, or subject to distribution according to the amount of pressure that can be exerted on the Minister. They must be distributed as ordinary mining tenements in an open Warden’s Court presided over by a proper Judge set apart to deal with such matters.

There must be a realisation on everybody’s part that the Mining Act is not to be formed for the benefit of the bureaucracy. The Government and all members of Parliament will be failing in their duty of they do not take guidance from the mining industry, from the custom of the country and from overseas experience to ensure first rights to the discoverer and continuity of security of tenure right throughout, while at the same time making certain the Act and its regulations are administered by law, and not by any “off the cuff” decisions by any one person irrespective of whether he claims to have “a Pilbara plan.”

It is essential the Government of the day pays no heed to the political clap-trap with which we are all familiar, such as “integration of ores,” “Pilbara plans,” and “regional development.” These are words.

What we need is action to turn the unlimited supplies of ore into an ever-increasing stream of jobs and opportunities for the next generation and generations to come.

This brings us to the philosophy of those who say we should not export our raw minerals except in the manufactured state employing the highest degree of technical skills. To carry this theory to its ultimate conclusion would mean limiting the export of our iron to the amount that we could make into articles like Swiss watches, and freezing the rest.

This is an absurdity, but part of the way along the track in a more rational concept was the missed opportunity to set up a second steel complex in Australia.

But for better or worse — according to one’s point of view — BHP seems to have satisfactorily fought off any competition in this field. In explanation of this statement, one must remember that to set up a steel industry of the type being bandied about in the Press (for instance Mr Rowe, BHP’s general manager of international business, said the plant would cost about $1500 million) makes it very plain that such an unlikely event can come about only by the formation of giant consortium including at least three of the world’s “big four.”

We know of the giants that neither US Steel nor BSC, who are involved in Brazil, nor Nippon Steel, who have a pact with BHP not to compete with them in Australia, will enter such a consortium to make steel in Australia.

Certainly, they have turned down all such approaches to date to make this newspaper steel mill nothing more than a sop to catch the eye of the various political parties sparring for electioneering propaganda.

The Armco-Thyssen-Bethlehem project at Jervis Bay has come to a full stop because:

  1. The strongest of them — Bethlehem — has withdrawn.
  2. They could get none of the “big four” to enter into partnership with them.
  3. The most likely of them — Nippon Steel — had entered into a pact with BHP not to compete with them in Australia.
  4. Feasibility studies based on Jervis Bay have shown the project to be a failure.

The Jervis Bay project, or second steel complex in Australia, has not failed as has often been claimed for the lack of low phosphorous ore. Hanwright have never closed the door on anybody genuinely interested in the manufacture of steel in Australia. We have always offered to make suitable ore bodies available.

Superior
The ore which the Hanwright stable discovered in the East Angelas is quite capable of making steel. It is superior to the ore from which steel is at present being made at Kwinana, for instance. What it will not do, because of its phosphorous content, is enable the present temporary reserve occupants to enter the Japanese buyers’ market on a crude ore basis.

On the assumption that one must walk before one can run, the only hope now for a second steel industry in Australia is to establish a small mill in the Pilbara and expand according to economic needs. This, I believe, could be done rapidly by the Commonwealth undertaking to provide power at a commercial price — nuclear or otherwise.

With the forthcoming election in November, there is a tremendous plus awaiting any political party which has the guts and foresight to reverse the present Government trend to take all and give nothing, while at the same time instituting a tax holiday coupled with the provision of cheap power and Government provision of some of the infrastructure.

Surely this is not asking much of a Government which without effort on its part will receive $5000 million in direct tax by the time Paraburdoo and Tom Price have been mined to their present indicated tonnages?

It would seem to be only prudent for any Government to act to ensure that we must have many more Tom Prices, rather than continue with their present attitude, which if persisted in, will ensure there will be no more Tom Prices to generate industry and wealth for Australia.

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