Fifty-five years ago, the Hammersley Basin of Western Australia was a scenic but sleepy 127,000 square kilometre area of rust-red gorges and mesas, cut by the occasional river or creek. At the time, no one in Australia had any idea that the banded iron formations found in the Pilbara would, in less than fifty years, become the iron bones of the third great industrial revolution in the history of the world.
China was still a communist country in 1952. Chairman Mao had only recently embarked on the first of many five-year economic development plans. One of China’s goals was to become the world’s largest steel producer… by encouraging each villager to have his own foundry.
In 1952 the United States was at the apex of its economic, industrial, and military power. It’s not a coincidence that 1952 marked the year that the high-grade iron ore at the Mesabi Range played out. That ore had been discovered in the Lake Superior area of Minnesota by Leonidas Merritt in 1887. And there was something special about it.
Mother Nature deposits her riches where she wishes. This seemingly random distribution of natural bounty is arguably the source of nearly all geopolitical conflict. For example, underneath the desert sands of Arabia lie two-thirds of the world’s premium oil reserves. Prior to 1989, gold companies based in South Africa had produced over 40% of all the gold that had ever been mined in the world.
Compared to oil, gold, or gems, high-grade iron ore might seem like a miserly geographic birthright. After all, the world still spends more money looking for gold than any other single mineral resource. But in Australia, iron ore comes in a solid second. Why? And from an investment perspective, who is spending all that money? And how much do they hope to make on their investment? We’ll get to all that in a moment. But first, why is the red soil iron ore comes from so important to today’s world?
The simple answer is that without iron ore there is no modern civilisation. Without iron ore there’s no China boom, no housing boom, and no global boom at all. The world’s economic growth is increasingly built directly on the millions of tonnes of iron ore that Australia exports to steel producing countries like China, Japan, and South Korea.
These days we focus a lot on the importance of energy to our comfortable way of life. But the industrial skeleton on which the infrastructure of a modern economy rests is made of iron and steel. Nations that have it become great. Nations that don’t have it will do just about anything to get it.
Take World War II, for example. The Japan of the late 1930s was a rapidly industrialising rocky island nation and aspiring global power. But it was not blessed with much oil or high-grade ore from which it could produce steel to build blue water Navy. In July of 1940, U.S. President Franklin Roosevelt signed the Export Control Act.
This act allowed the President to ban the export of natural resources that were considered “essential defence materials.” Roosevelt banned the export of steel to Japan. Australia followed Roosevelt’s lead. The Japanese couldn’t even buy scrap steel from America.
America, for its part, had no such problems. That’s because of the aforementioned Mesabi iron range. Mesabi is a Native American Ojibwa word for “giant,” a fair description of the iron ore found by Merritt in 1887.
Not only was the ore body there geographically large (the deposit was a belt 180km long and 1-5km wide, with seams of ore up to 150 metres thick), it was incredibly rich. The ore was over 70% iron, requiring virtually no costly upgrades before being smelted into iron. Chemically speaking (Fe2O3) it WAS iron. Technically, you’d call it hematite, distinguished from lower grade ores like magnetite or taconite.
On the back of such a rich natural blessing, the United States built an impressive industrial boom. It didn’t hurt that the anthracite coal of Pennsylvania was nearby. High in heat content and low in sulphur, Pennsylvania’s black coal and the Mesabi Range’s rich ore gave the United States economy, and its military, a considerable natural advantage in competing with the rest of the world. But by 1952, at the peak of American power, the high-grade hematite ore near the surface in the Mesabi Range was played out.
In 1952, West Australian Lang Hancock discovered the vast iron ore riches of the Pilbara. Hancock would spend the next twenty years trying to unlock those riches and make Australia a global player not just in iron ore production but steel too. He would fail with steel. And with iron ore, he faced a long struggle.
Iron ore was thought to be scarce in Australia in 1952. So scarce, in fact, that for the few ore producers in business, exporting was not allowed. The government estimated that the country had less than 350 million tonnes of the stuff—hardly enough to build a world-class industry on.
Like Paddy Hannon, the man who discovered the Golden Mile 370km north-west of Kalgoorlie, Hancock would be the man who unlocked a boom for those that followed. He spent the next twenty years trying to get a piece of the action himself. Though he received royalties on ore bodies he had discovered, his ultimate ambition was to own a producing mine.
Time after time, he and a handful of his business partners found some of the richest, biggest iron ore deposits the world had ever seen. And time after time, the West Australian government would thwart Hancock’s attempt to join the “Big Four” miners of the Pilbara at the time (Mt. Newman, Mt. Goldsworthy, Hammersley Iron, and Robber River.) By hook or by crook, the WA government parcelled out tenements discovered by Hancock to other groups.
The state government was not without its reasons. No one really knew how extensive the resources of the Pilbara were. And fearing a boom/ bust cycle that would create dozens of future ghost towns on the next downturn in commodity prices, the government favoured a development strategy of a few long-term producers rather than disorderly free for all in the Pilbara to see who could produce the most ore the fastest.
Hancock’s master plan was to centralise the rail and ports of the Pilbara, and to build a rail line to a new deep water port at Ronsard Island. The rail line would run mostly downhill along the bed of the Sherlock river. The fact that it went downhill would be a big cost saving.
The plan never materialised. Just as Hancock found the right combination of partners, financial backing, and government support, the global market for iron and steel fell apart with the Arab oil embargo. His master plan to become a major new iron ore player—and put Australian iron ore on the global map—was left to gather dust.
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