02/11/2004 - 21:00

Tim Treadgold: Briefcase - East Timor view on Sunrise worrying

02/11/2004 - 21:00

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Stupidity comes in many shapes and forms. In recent weeks Briefcase has seen five examples of the same human failing, with one of the best being Mark Latham’s "mother-of-all" stupid performances when he told the workers of Australia...

Stupidity comes in many shapes and forms. In recent weeks Briefcase has seen five examples of the same human failing, with one of the best being Mark Latham’s "mother-of-all" stupid performances when he told the workers of Australia that he preferred trees to jobs.

As everyone knows Latham’s dismal showing in the October 9 election can be traced, in large part, to his rejection of timber workers and their families in pursuit of Green preferences. It was a stance which questioned the values at the core of the labour movement and explains why just as many blue collar workers voted for John Howard as they did their own man.

If Latham’s performance was in the running for the stupidity award then East Timor’s Prime Minister, Mari Alkatiri, is not far behind. Last week, in a display which redefines the act of biting off your nose to spite your face Alkatiri demanded compensation for past oil production in the Timor Sea and said the $5 billion dollar Sunrise gas project would not be developed "if it prejudiced his country’s aims".

Alkatiri, for anyone not familiar with the issue, wants to redraw seabed boundaries that Australia had entered into with the former occupier of his country, Indonesia. If successful this would see him claim compensation from past oil production from the Laminaria, Corallina and Buffalo oilfields, an increased share of revenue from Sunrise – not to mention rewriting the rule book on international seabed boundary agreements.

And, if he can’t get his way then he will stall the Sunrise development which could produce up to $4 billion in revenue for East Timor under the current rules. In effect, Alkatiri says he would prefer nothing unless he can get a bigger share of the revenue, and can force the Sunrise project developer, Woodside Petroleum, to build the gas processing facility in Timor rather than Darwin.

Woodside, and the Australian Government, are staggered by these antics. Here is a man who leads the self-proclaimed "world’s poorest nation" saying stick your money unless you rewrite international law and give me what I want, even if I’m not entitled to it.

The outcome of all this is that Sunrise will remain undeveloped and Woodside will simply shift its focus to other, equally attractive gas deposits that it owns inside Australian waters without dealing with the sovereign risk factor.

The third act of stupidity involves a somewhat smaller company, but one which Briefcase has watched with interest for some time, Namakwa Diamonds. Last Tuesday, Namakwa’s chief executive John Firth told a media briefing at the company’s diamond mining project near Vredendal on the west coast of South Africa that business was tonking along, expansion plans were in the air and talks were underway with a couple of big companies that could lead to fresh opportunities.

The media dutifully reported that the other companies were De Beers and BHP Billiton and that Namakwa was keen to lift diamond production from 95,000 carats a year to 240,000 carats. The stupidity in all this lies with the Keystone Kops working down at the stock exchange and in the way they reacted as if all this was new. Firstly, Namakwa has been making it clear for years that it has a target way beyond its stage one start-up, secondly the De Beers and BHP talks are embryonic, thirdly, they were actually reported on an industry web site on the day before the daily press aired them and finally the Namakwa share price had barely moved and turnover was slow.

Act Four in this series goes to the Australian Competition and Consumer Commission which has ordered BMW (Australia) to warn all buyers of the 2002 model of its classy 318 series that their car "does not comply with the safety standard for jacks" because, and this is true, the offending jacks are not marked with a sticker that says: "Warning: do not get under a vehicle that is supported only by a jack – use vehicle support stands". Even Homer Simpson would say "duh" to that one. But, in the ACCC’s view: no sticker, not safe.

But the prize in this crammed competition goes to the Town of Cottesloe. Not because of its battle over the local hotels, or anything happening on the beach. It is because of the council’s dog registration policy. Everything is fine until you get to an edict on licence renewal forms that says the Council must be informed immediately if the dog dies. Change of owner and change of address Briefcase can understand, but is there really someone in local government with a big book of dead dogs.


While on the question of stupidity (dressed up as ego) Briefcase wonders whether it’s watching the beginning of the end of the resources boom as takeover excitement grips the market just as storm clouds gather on the commodity-price horizon.

Last week, within a few hours of the $7.4 billion Xstrata offer for control of WMC the Chinese Government said it was lifting interest rates to dampen demand in its booming economy.

The Xstrata raid, widely seen as the first shots in a big-ticket bidding war for WMC (and the start of more widespread takeover activity), came a few days after an equally ambitious takeover struggle was launched in South Africa where Harmony Gold is trying to acquire Gold Fields. The aim there is to create the world’s biggest gold company – but it is significant to note that Harmony has incurred losses for each of the past four quarters and Gold Fields is a substantially bigger (and profitable) business.

It is the Harmony v Gold Fields battle which introduces the ego factor because it smacks of nothing more than one man, Harmony boss Bernard Swanepoel, wanting to be king of the gold patch – at whatever cost.

The Xstrata move on WMC is less about ego but a lot more about a company hoping to see if lightning can strike twice. Last year, Xstrata successfully raided MIM (at a time when commodity prices were low) and made a killing. This time around, commodity prices are up and showing signs of peaking.

Briefcase may be wrong but there is a feeling about the timing of this Xstrata bid, and any counter bids, which is not right. Uncertainty has entered the commodity game. We’ve enjoyed a good run and prices are sky high and unlikely to go any higher. Now might actually be a better time to be selling rather than buying.


"A spirit of national masochism prevails, encouraged by an effete corps of impudent snobs who characterise themselves as intellectuals." – Spiro Agnew

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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