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Minister says use it or lose it on resource l -

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PETER CAVE: The Federal Minister for Resources Martin Ferguson has dismissed as "sabre rattling"
the criticism emanating from China over the link-up of mining giants BHP Billiton and Rio Tinto.

China is still smarting over Rio's abandonment of a deal with China's state owned company Chinalco.

Now with the possibility of BHP and Rio combining their iron ore interests, Chinese authorities are
warning of sanctions against the perceived monopoly but Martin Ferguson predicts the two will
market their ore separately.

At the same time the Resources Minister is raising the prospect of applying a use-by date principle
to oil and gas leases which have traditionally been rolled over every five years without being
developed.

The Minister told Alexandra Kirk the Government is entitled to force the pace of development of
Australia's offshore resources to ensure they're not left stranded and that the community gets a
good return.

MARTIN FERGUSON: Australia is an energy rich country but there has always been a view that there is
no risk to actually holding leases in Australia. You can always return to Australia at some point
in the future.

If we just sit back and allow that approach by some international companies then our assets are
stranded and we don't share in the upturn in the global economy that comes from time to time and
will come in the future.

ALEXANDRA KIRK: And what is the average length of companies hanging onto oil and gas leases?

MARTIN FERGUSON: Historically companies are entitled to keep these leases for five years and they
just then automatically rolled over without real commercial consideration by government. The act
has always been underpinned by a concept of "use it or lose it".

We have got a number of major potential gas developments on the horizon and Gorgon is a prime
example. We hope to see final investment decisions by about late August this year.

That is a potential investment of $30-billion to $50-billion, bigger than the Prime Minister's
economic stimulus package of earlier this year. It is not only important for north-west Western
Australia, that has major economic importance for the whole of Australia.

And our job in returning the Australian economy to you know, a budget surplus is to attract private
investment and I actually consider resources and energy are central to that upturn.

ALEXANDRA KIRK: When companies have been reissued their licenses every five years, what is the
average length then of investors hanging onto these leases without doing anything about them?

MARTIN FERGUSON: I think they've taken the view that Australia is a safe haven. It is in the bag
again for another five years. There is no pressure on us. We will go off elsewhere in the world and
invest and come back to Australia at some point in the future.

Well, you know, the world is changing. The Government is serious about this. We are serious about
developing our natural resources to the benefit of all Australians.

ALEXANDRA KIRK: So how long do you think it's fair enough then to hang onto these leases?

MARTIN FERGUSON: Well it's going to vary from lease to lease. For example one consideration is that
the small to medium sized operators have got their eyes on some fields which are potentially
commercially viable for domestic gas. That goes to our own energy security as a nation.

So it's not just about international export opportunities. It's also about domestic gas
considerations and our own security as a nation.

ALEXANDRA KIRK: So are you concerned more about overseas investors hanging onto these leases rather
than Australian?

MARTIN FERGUSON: Obviously the big investors historically beyond Woodside have been overseas
international oil and gas companies.

ALEXANDRA KIRK: So you could reassign these leases to Australian companies if the Australian
companies decided that they would be willing to develop the oil and gas resources?

MARTIN FERGUSON: The power already exists for governments to actually put retention leases back on
the market, be it for international investors or domestic investors.

The main issue is to make sure that in terms of any field that is commercially viable, we as a
nation have a capacity to actually force the pace of development so that our assets are not
stranded and we do not lose market share to the detriment of Australia.

ALEXANDRA KIRK: In downturns like this with companies doing their best to hang onto their assets
and their workers, do you think you should cut them some slack because it isn't really the best
climate in which to be asking companies to be spending up big?

MARTIN FERGUSON: I actually think it's a good climate. Those who invest on the downturn reap the
benefits on the upturn. In terms of a return to global economy growth, one of the first demands is
going to be for energy and we are well placed. We are an energy rich nation.

We are going to focus on the development of our energy capacity - not only in the LNG sector but
also in uranium because nuclear power is very important to a range of countries.

It is about best placing Australia for the upturn; making sure that on this occasion we don't ride
off the back of commodity price increases but we also regain the market share that we should have
as a nation, a resources and energy rich nation.

Why should we leave it to other nations?

ALEXANDRA KIRK: On the resources question, China's Iron and Steel Association has attacked the BHP
Billiton/Rio Tinto merger saying that it has a strong colour of monopoly. They are obviously
opposed to it. And now the Chinese Government is reportedly warning that it is going to slap trade
sanctions on the two giants if they join up their iron ore enterprises without getting the
imprimatur from the Chinese competition authorities first. Is that a real threat in your view or a
case of "sabre rattling"?

MARTIN FERGUSON: Well clearly there is some disappointment in China about the Chinalco investment
falling over and there is some argy bargy internationally but you also understand the flavour of
what is going on at the moment.

There are price negotiations across a range of commodities. These occur each year and we do get
this "sabre rattling" from those who are involved in negotiations at both ends.

ALEXANDRA KIRK: And it's nothing more than that?

MARTIN FERGUSON: We will get through it because in the end China needs our resources and Australia
needs China because you know as we return to global growth, we are key to actually fuelling China's
growth opportunities and China is also the key to our recovery as are other traditional markets
such as Japan and Korea.

ALEXANDRA KIRK: What rules allow a country like China to interfere in overseas mergers?

MARTIN FERGUSON: Well each country has competitive regulatory considerations. For example the
BHP/Rio proposal not only has to be properly considered in Australia by owner regulators but also
in the European Union. That is the nature of these international companies.

BHP and Rio understand that in putting together their joint venture operation. They also accept
that that represents the commercial outcomes they now have to meet the necessary regulatory
requirements.

But in the end, assume they do meet those regulatory requirements, I actually think the joint
venture has synergies of benefit to Australia in terms of improving productivity which represents a
better return on our natural resources to the Australian community.

And also those productivity outcomes will have an impact on international market considerations.
They will market their ore separately.

ALEXANDRA KIRK: Martin Ferguson, thank you.

MARTIN FERGUSON: Thank you very much.

PETER CAVE: The Federal Resources Minister there with Alexandra Kirk.