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Tuesday, 7 December 2004
Page: 154

Senator MARK BISHOP (11:00 PM) —I rise this evening to speak to the matter of the proposed takeover of WMC Resources Ltd by the Swiss based Xstrata plc. Senator Lightfoot has made some remarks in this place about Xstrata's proposed investment in Australia. Whilst I do not seek to pre-empt the Foreign Investment Review Board's review, there are aspects about Xstrata's conduct at Windimurra in Western Australia and its general operation which should worry policy makers in Australia. There is a worldwide consolidation of resource companies under way and this trend is being replicated in Australia. Such consolidation increases the ability of large global resources companies to control global resources supply and therefore prices. Such control makes these companies extremely powerful.

Xstrata has been accused of involvement in activities to consolidate resources and control prices at a global level. The Windimurra mine saga lends considerable weight to that allegation. The Economics and Industry Standing Committee of the Western Australian parliament noted in their report on the mine that Xstrata claimed there were difficulties at Windimurra from the outset. Leaving aside Xstrata's motives for buying into Windimurra, the company's actions when it moved the mine from care and maintenance to closure are of great concern. Xstrata set out to make sure Windimurra could never again be used for the production of vanadium. Xstrata misled the Western Australian government, and therefore the public, about the cost of reopening Windimurra, and it imposed a financial penalty on its shareholders that was substantially higher than it needed to be.

In February 2003, Xstrata placed the mine on a care and maintenance basis yet publicly denied it had any intention of closure, until the shock announcement in May 2004. Yet on 24 March the Australian Pipeline Trust told the Australian Stock Exchange that it had been informed by Xstrata that it was closing Windimurra, and Xstrata sold the Windimurra plant to Fabcon Ltd in the first week of April. In addition to ensuring Fabcon did not sell the Windimurra plant to anyone wishing to use it to produce vanadium, the method of selling the plant by first removing the crushing and grinding equipment minimised its value. Specifically, the contract between Xstrata and Fabcon explicitly precluded the sale of any equipment to an existing or potential vanadium producer. Such a proviso would, of course, render the plant and machinery most valuable as scrap metal and ensure it can never pose a competitive threat to Xstrata.

The committee also heard that some of the equipment used in the Windimurra operation was sent to Xstrata's Rhovan operation in South Africa whilst the plant was on care and maintenance. So the evidence is that, once problems with the mine became apparent, instead of keeping the mine in care and maintenance until the price of vanadium improved—which it has done—Xstrata moved early to decommission the project. This was formally announced on 10 May 2004. It appears that, after decommissioning the plant and moving some of the plant and machinery to South Africa, Xstrata were not serious about divesting themselves of the mine through sale.

The committee heard that Xstrata wrote to four proponents and stipulated in their letter that offers would not be entertained unless they approached the capital cost of the major items at the site, nominated by Xstrata at around $80 million. It is interesting to note that the Western Australian committee found the asking price of $80 million was `inconsistent with the comparatively small return obtained through disposal of the project's infrastructure assets and the $11 million cost to Xstrata for site rehabilitation'. It has been alleged but denied by Xstrata that their letter demanded full payment for the mine in an unreasonably short period of five days.

So what are we left with? We are left with a quick move by Xstrata to decommission the Windimurra project; the removal of plant and equipment from the site, apparently during care and maintenance; and, apparently, no serious attempt at achieving a sale to allow some other company to attempt to make a go of the project. Indeed in this context it is useful to refer to correspondence made public by the aforementioned committee of the Western Australian parliament. The report of that committee reveals the Leader of the Opposition in Western Australia and former Minister for Regional Development in the Court government, the Hon. Colin Barnett, wrote to Xstrata in May 2004 and said:

In February 2003, Xstrata announced that the operations at the mine would be suspended due to the collapse in world vanadium prices.

You advised me at the time that there was the very real prospect of the mine returning to full production once the price of vanadium had recovered.

Given the price of vanadium is now approximately five times higher than it was when the decision to suspend operations was made, I am concerned at reports that Xstrata believes the mine is `sub-economic'. In particular I am alarmed that the company may not be treating the mine on its true economic merit.

The people of Western Australia own the vanadium resources and Xstrata has been granted the right to develop this resource by the Government on behalf of the people of Western Australia.

WMC is a major Australian icon and employer. It is a major contributor to our economic wellbeing. Besides this, it operates the Olympic Dam site, the largest uranium ore body in the world. Australian uranium may be exported only for use in electricity generation and is subject to Australian and international safeguards for the prevention of nuclear proliferation. It is vital that the entity which controls the Olympic Dam uranium resource is a responsible, capable and ethical company. WMC has proven itself to be such a company. I am not sure, based on the Windimurra saga, that we can be certain Xstrata is such a company. In light of the Windimurra saga, it is vital that the Howard government allows the Foreign Investment Review Board to thoroughly and independently review the bid from Xstrata for WMC.

Finally, after having some discussions with the government whip, I seek leave to table some correspondence from Mallesons Stephen Jaques on behalf of Xstrata plc and Xstrata Windimurra Pty Ltd to Mr John Bowler, a member of the Legislative Assembly of the Western Australian parliament.

Leave granted.

Senator MARK BISHOP —I will just make some brief points about that correspondence, which is now on the record. Firstly, I refer to members of parliament. In particular Mr Bowler, a member of the Western Australian parliament, has a duty when matters requiring attention are brought to his attention to disclose them publicly. It is entirely proper for such matters, when raised with him, to be raised within the Western Australian parliament and its committees. Secondly, when such matters are raised, they should not result in a heavy-handed response by companies that might choose to be offended by what has been raised, which are at best ambiguous responses or comments by a member of parliament—in this case, a member of the opposition in the Western Australian parliament and a member of the committee, Mr Day. In passing I say that it would be much more helpful in a situation like this if Xstrata responded positively, as opposed to engaging in behaviour that might properly be interpreted in an adverse fashion.