21/02/2006 - 21:00

Petrochemical pipe dreams a concern

21/02/2006 - 21:00

Bookmark

Save articles for future reference.
Petrochemical pipe dreams a concern

Oh dear. It looks like we’ve inherited a premier who is having big ideas and wants to do things, a very dangerous combination. So far there’s been no talk from Alan Carpenter about the brilliance of building a petrochemical plant somewhere in Western Australia, but Briefcase fears that, with the new boy already reviving the late Rex Connor’s trans-Australian gas pipeline and now talking up a Biotech centre, the dreaded petrochemical plant might not be far away.

For young readers, the petrochemical plant is one of those great ideas that comes around about every 10 years. It first surfaced in the 1970s when it was discovered that if you mix gas with salt, two ingredients WA has in abundance, you get chlorine and caustic soda – the building blocks of a plastics industry, and a raw material for digesting bauxite to make alumina.

Briefcase will not go any further, other than to say that the financial numbers never make sense because the world is generally awash in either chlorine or caustic. As far as can be remembered the only people to make money the last time the petrochemical plant surfaced were the late Laurie Connell, and his best mate, Alan Bond.

Biotech is also a dream that Briefcase has seen float above the head of assorted premiers-past like a balloon caption in a cartoon. Great concept. It never works.

Same with the gas pipeline; it sounds so simple, but will cost WA much more than it will earn – pipelines are like that, just ask Colin Barnett about water pipelines and canals.

To be fair to Mr Carpenter, he’s not alone in wanting to do big things now that he’s in charge. The trouble, as Jonathan Lynn so beautifully put in one of his Yes Minister scripts, is that: “Politicians need activity. It’s their substitute for achievement”.

With that thought, Briefcase set about finding other monumentally stupid ideas from government. The two that jumped out, one Liberal and one Labor, were Peter Costello’s 1997 brainwave to sell most of Australia’s gold, and that gas pipeline of Rex Connor’s that Mr Carpenter wants to revive.

Mr Costello, who doesn’t talk much about gold these days, ought to be hauled before one of his own committees to explain how he cost the country somewhere between $500 million and $1 billion by his rash action in selling 167 tonnes of gold at a price around $US350 an ounce.

He said after the sale was reported in mid-1997 that: “Gold no longer plays a significant role in the international financial system”. He also boasted that a better return could be earned from government bonds such as those issued by the US, Japan and Germany.

Oops. Mega oops. The gold that Mr Costello sold in 1997 for around $US2.1 billion is today worth around $US3.2 billion because the gold price has risen from $US350 an ounce when he sold to around $US540 an ounce.

Even if he did buy interest-bearing bonds, the truth is that the rate on those bonds plummeted. In the case of Japan and the US, to 1 per cent, or less. The loss to Australia has been immense.

Mr Connor’s pipeline, which Mr Carpenter has chosen to champion, is in the same category of activity ahead of achievement. The plan, which is as simple as Mr Barnett’s canal, is to pipe surplus WA gas to energy hungry Sydney and Melbourne.

The question, which everyone seems to ignore, is what on earth does this do for WA?

Mr Connor’s crusade for the pipe is understandable. He wanted cheap gas for the east coast. The premier’s resurrection of the idea is bizarre because a pipeline, once built, employs two men and a dog.

The real value for WA’s gas lies in exporting to the international market because (a) it requires liquefaction, which creates hundreds of high-paid jobs and (b) the gas fetches a price between three and five times that of domestic pipeline gas.

The fear held by Briefcase is that, once Mr Carpenter discovers the truth about pipeline v liquefaction, he will swing his mighty brain to the question of value-adding, and that means finding things to do with the gas; such as mix it with salt and produce petrochemicals.

Which leads to the question of what’s more dangerous, petrochemicals or a politician with ideas?

•••

On the question of gold, it is worth dusting off your old files about who owns the stuff because the boom that has set the world gold market alight over the past few years show no signs of ending.

A good starting point is to re-visit the place where the 1980s boom started in WA – Leonora. It was there that the Lalor brothers, Peter and Chris, started a business to treat tailings left by the once-prolific Sons of Gwalia mine.

A first step in the trip back to Leonora is to ignore the modern history and the problems that destroyed business created by the Lalors. That was more about financial engineering than mining.

In Leonora itself, the game is on (again) because there are still bucket-loads of gold in the ground. Much of it is deep, but with the Australian gold price hovering around an all-time high of $720 an ounce depth is not such a big issue. The other big plus is that the gold in the Gwalia Deeps averages around 10 grams a tonne.

In keeping with its strict policy of never giving investment advice, Briefcase will simply draw readers’ attention to the facts that: (a) re-development of Gwalia Deeps is looking more likely every day; (b) the mine is now owned by the once deeply troubled St Barbara Mines; (c) St Barbara is now run by the very clever Ed Eshuys; (d) Mr Eshuys has brought forward the mining re-start from the end of 2007 to the start of 2007 – in just 10 months; (e) the latest drilling has returned assays as rich as 22 metres of dirt grading 14.7g/t; and finally, (f) a reserve upgrade is on the way on the March quarter report.

For further research, use the ASX website and code SBM – and also note that the stock has already run hard, from a 12-month low of 5.9 cents to a high of 56 cents, with recent trades around 47 cents.

•••

“A successful man is one who makes more money than his wife can spend, and a successful woman is one who can find such a man.” Lana Turner

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options