178 Mr Torao Wakamatsu, Japanese Consul-General in Sydney, to Mr J. A. Lyons, Prime Minister

Letter SYDNEY, 5 April 1938

I have the honour to acknowledge the receipt of your letter of March 29th [1], in reply to my letter of March 26th [2], regarding the matter of iron ore.

Having noted, with appreciation, your assurance that, in considering future action by the Commonwealth Government in regard to this question, full cognizance will be taken of the situation which already exists, and of the special circumstances surrounding the working of the deposits at Yampi Sound, I deem it opportune to bring under your notice the results of my inquiries relative to the circumstances in which the preparatory work for the development of the Koolan Island iron ore deposits was inaugurated and is now being carried on.

I have studied the original Memorandum of Proposals, setting out in detail the proposals which were submitted early in 1936 by the leaseholders, Messrs H. A. Brassert & Co. Ltd, London, to the Western Australian Government, and understand that the terms of these proposals have in no way been departed from, and were, in due course, approved.

The submission of the Proposals was a matter of the greatest importance for many reasons, and had they not received the approval of the Government referred to, any attempt to develop Koolan Island iron ore deposits would have been immediately abandoned.

May I draw your attention to the fact that the leases were to be developed by an Operating Company formed by Messrs H. A. Brassert & Co. Ltd, and that loan capital to the extent mentioned in the Proposals was to be furnished by the Nippon Mining Co. Ltd, which loan capital (furnished for the reasons set out in the Proposals) became repayable to Nippon Mining Co. Ltd with interest, over a period of years.

It is proper to mention here, that the development in question is an undertaking of considerable magnitude, capable of being handled economically only in enormous tonnages; this point was well known to all parties from the outset.

Armed with the assurances so promptly given (and on many occasions since repeated), the Nippon Mining Co. Ltd felt itself at liberty to proceed with the utmost confidence, and to expend very large sums of money on the development of the deposits.

Messrs H. A. Brassert & Co. Ltd paid 35,000 for the leases, and also paid certain other preliminary expenses in the neighbourhood of 50,000-in all 85,000.

The Nippon Mining Co. Ltd has spent about 260,000, and also undertaken inescapable commitments amounting approximately to 300,000.

In addition, the Nippon Mining Co. Ltd not only proceeded with the construction of blast furnaces (now nearing completion) at Osaka, in co-operation with another company, but also induced the Yawata Iron Works to make elaborate preparations in their blast furnaces to receive ore from Koolan Island in large quantities (based on the tonnages set out in the Memorandum of Proposals): further, additional furnaces are now in course of construction at Yawata for the receipt of Koolan ore.

Apart from the smelting programme, the Nippon Mining Co. Ltd has entered into a contract with its sister Company, the Nippon Industrial Shipping Co. Ltd to make all necessary preparations for the transport of Koolan iron ore to Japan. In pursuance of this contract considerable expenditure has been incurred, which must be borne by the Nippon Mining Co. Ltd should the leaseholders be rendered incapable of providing the ore for shipment from Koolan.

I feel it my duty to point out here that the strictest control had been exercised by the Japanese Government from the beginning of the year 1936 over the export of Japanese currency to foreign countries, but, in view of the fact that the Yampi negotiations had been under discussion at great length prior to that date, and, relying with the greatest confidence on the assurances of the Commonwealth Government and those of the Western Australian Government, that the programme detailed in the Memorandum of Proposals submitted would in no way be interfered with, the Japanese Government, granting special consideration to the Koolan Island project, permitted the export of currency from Japan to the above-mentioned amount, and are also ready, in future, to give similar permission to whatever extent necessity may further demand.

The need for iron ore was not the only motive for the Japanese Government to take this action. As you are no doubt aware, there are great iron ore deposits in other parts of the world which could have been made available to the Nippon Mining Co. Ltd.

Considerable lack of understanding of Japan by the Australian people was a matter of great regret to the Japanese Government and people, who were, and are, most anxious to foster cordial relations between the two nations. Bearing this in mind, and as the time and opportunity appeared ripe to promote such relationship the Japanese Government granted the necessary permission to export the currency in question for foreign investment, realizing that mutual intercourse in trading could not fail to bring the two peoples to a more friendly understanding.

As you may be aware, substantial development has been proceeding at Koolan, and the Operating Company now employs about 80 men, a figure to be greatly increased in the near future.

Necessary machinery and equipment, which cannot be manufactured in Australia, have already been purchased in England, and some from the U.S.A., most of which machinery is now stored at Singapore awaiting shipment. In addition, a huge quantity of heavy machinery is to be manufactured in Australia.

In the development of Koolan, I am informed, the West Australian Government have rendered the Operating Company the fullest assistance, and have had a survey party in Yampi Sound selecting a site for a township.

I think it proper to advise you that, in addition to the expenditure, commitments and contractual liabilities which I have already referred to, the Nippon Mining Co. Ltd, at the request of the leaseholders, have paid very substantial sums by way of fees and expenses to Mr John A. Savage of Duluth, Minn., and his staff of Engineers visiting Koolan Island to inspect and report on the Island from an engineer's point of view.

Should an embargo, by way of reduction of output, now be placed on the Koolan enterprise, the loss would be a huge one-not only to the leaseholders, but to the Nippon Mining Co. Ltd, which would be forced to abandon all the costly and elaborate plans they had made in view of the assurances given to them. The machinery referred to will be useless to the Nippon Mining Co. Ltd except for the purpose for which it has been purchased.

At the present time Japan purchases a very considerable portion of its rapidly increasing meat supply from South America. It is the intention of the Nippon Mining Co. Ltd (through a sister Company) to use ships going from Yampi with iron ore for the purpose of shipping Kimberley cattle to Japan-the distance from South America being so much greater, the export of Kimberley cattle should prove beneficial to both Kimberley cattle growers and to the Japanese people. Iron ore takes up such a small space that there will be ample room for cattle.

With regard to Dr Woolnough's rcport [3], I have been informed that, at least in that State, no survey or detailed examination has been made on which Dr Woolnough's estimate could be based, and, further, that many large deposits exist in that State in addition to Koolan.

In view, therefore, of the huge vested interests, and vital issues involved, it is sincerely hoped that the Commonwealth Government will make a careful survey of the present position, and will come to a fair and reasonable decision, to the mutual benefit of both countries.

TORAO WAKAMATSU

1 Document 171.

2 Document 170.

3 See attachment to Document 203.

[AA : A981, AUSTRALIA 90]