02/05/2006 - 22:00

Shovelanna decision in whose interest?

02/05/2006 - 22:00


Upgrade your subscription to use this feature.

The Shovelanna dispute between exploration minnow Cazaly Resources Ltd and mining whale Rio Tinto Ltd will go down in history as a defining moment in Western Australia’s corporate history.

Shovelanna decision in whose interest?

The Shovelanna dispute between exploration minnow Cazaly Resources Ltd and mining whale Rio Tinto Ltd will go down in history as a defining moment in Western Australia’s corporate history.

It was back to the future for iron ore, which has long been the boring, though enriching, fiefdom of a global duopoly.

In the past year or so, the sector has been ignited with a plethora of new players, from the audacious Fortescue Metals Group to minor acts such as Cazaly, which suddenly got the speculators excited.

It’s like the gold industry was until very recently, and has almost as much colour as iron ore did in those early days, when characters such as Lang Hancock reigned on the Pilbara stage.

Until Andrew Forrest pulls off his FMG coup and gets a mine up and running, Cazaly’s 10 months in the sun will be recalled often by resources buffs.

And that’s assuming it’s all over. Which Cazaly says it isn’t.

I have to say that I feel a little bit for the Cazaly investors. It’s not just the underdog thing, a strong theme in this case, but the general feeling that what has occurred is not necessarily in the best interests of Western Australia.

Don’t get me wrong; I’m a big fan of Rio Tinto and what it has done for minerals development in the Pilbara. But for all the fawning over the iron ore giants’ (I include BHP Billiton Ltd here) contributions to developing the north-west, the fact remains there still isn’t a decent transport system up there that can deliver a courier package on time.

That is the irony in this story; that Rio Tinto has blamed its failure to lodge a renewal on the Shovelanna leases on a wayward courier delivery to the Marble Bar general store, where its vital package was left waiting for almost a week.

It sounds so plausible until you think of how businesses operate in this field.

I doubt, for instance, such a delay would have occurred if that package was a vital piece of equipment needed to keep the company’s wealth-creating mining hardware on the road.

Therein lies the issue. The big companies claim to have opened up the infrastructure of the north, but the truth is it’s largely to their benefit. If you want to move parts, people or equipment to the mines of the Pilbara or freight iron ore out of them, then generally its all set up to support that in a way unimaginable just a few decades ago.

The system falls down a bit when it’s not part of the huge mining machine – the “process” as the big miners call it.

That is understandable, but it does undermine their arguments about their contributions.

A little competition might hone their skills somewhat, in this respect.

Furthermore, those leases, which I doubt are the only ones Rio Tinto has a footprint on, have lain dormant for decades.

It’s difficult to see why any government would not want to see them developed, even if the end user was to be Rio Tinto’s giant rival BHP.

I sympathise with Rio Tinto’s view that the way mining leases are administered is archaic, but in the end that is how the system works.

If a huge bureaucracy like Rio Tinto finds that hard to manage, imagine how hard it is for the lads in West Perth?

In the end, Rio Tinto made an error and the state government has simply returned to it the right to keep competition at bay.

John Bowler has overturned accepted practice and introduced an element of doubt into the process of claiming mining leases.

There were big downsides in both alternatives, but my gut feeling is that this choice was wrong.

Looking for answers on iiNet’s woes

Michael Malone faces a tough time in the weeks ahead as he seeks to reassure the market about the management of his Perth-based ISP iiNet and regain credibility.

I have a lot of sympathy for Mr Malone, our 2006 40under40 1st Amongst Equals winner, as he tries to extricate himself from this predicament.

Sources within iiNet have helped explain the rather vague announcement this week, which indicated several errors had masked weaker performance. I am told that, not only were forecast models wrong (with some in the market suggesting a double counting issue was to blame), but there were also other errors in transferring liabilities, which meant the true state of affairs remained undetected.

Mr Malone will have a hard job explaining this scenario, which appears implausible in the first instance.

With such a long trading halt and an edgy market, it’s a tough position to be in.

The irony is that impatient investors issuing hasty demands may well play into the hands of market leader and key iiNet supplier Telstra.

For the sake of competition in this important communication sector it is important that decisions are not made based on poor information.

Right now, iiNet is in a trading halt because the company is having some difficulty finding the actual cause of its dramas.

From a Western Australian point of view I hope the picture becomes clearer very soon and the company can credibly explain what has happened.


Subscription Options