Lease Western Australia to China – Everyone Would Get $250k

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Why not just lease all of Western Australia to China for about AU$500 billion plus future royalties?

The idea came to us like a bolt of lightning when we read in the Herald Sun yesterday that China’s new State Investment Company might covet the crown- jewel of Australia’s resource sector, BHP. Bell Potter’s Peter Quinton says, “If you were the Chinese government, what would you do? If they get BHP they’ve got a diversified resource company, they’ve got oil, they’re got iron ore, they’ve got base metals.”

Before you dismiss it out of hand, let’s put a deal like that in perspective, and run the numbers. First, we’re not saying Australia should sell WA to the Chinese. That would be stupid. The French sold the Louisiana territories to Thomas Jefferson for a mere US$15 million. That turned out to be about a US$1 million for each state that was eventually incorporated in the territory.

Back then, US$15 million was a lot of money, not just half the salary of a major corporate bank bosses (we know, in real terms it was a bigger number.) With interest, America ended up paying around US$21 million for French territory in the New World. But oh what a world it was.

America suddenly owned some of the richest, most fertile farmland in the world. All together it came to about 2.1 million square kilometres of land teeming with the resources that would be the engine of America’s economic emergence onto the global stage. The treaty was signed in 1803, and the rest, as they say, is histoire.

At 2.5 million square kilometres, WA is slightly bigger than the Louisiana territory. And its quality as a resource base is markedly different. But to the Chinese…there’s gold in them thar hills…and iron ore…and zinc…and nickel.

So here’s our proposal. The government of WA should sell the Chinese a 50 year exclusive license to develop WA minerals and resources. BHP, Rio, Fortescue, and other minerals and mining firms would continue to do the work, but as contractors for the Chinese.

The upfront cost of the lease should could be based on either the market cap of the Aussie resource sector (currently around AU$354 billion total) or on the net current assets of BHP and Rio Tinto (around AU$53 billion, combined), or on some multiple of current sales for the two firms (about AU$50 billion in the last twelve months) discounted at a rate agreed upon by both parties.

Let’s settle on a generous multiple of ten times combined sales and say the upfront cash cost of the lease is AU$500 billion. Annual royalties will be paid as well, at a rate determined by both parties.

Does this sound like a good deal to you? Let’s put it this way: would you sell the rights to develop iron ore in WA for an upfront cash payment of AU$250,000, in small bills if you prefer?

There are about two million people in WA. So AU$500 billion distributed evenly between each man, woman, and child, comes out to about AU$250,000 per person. The government, of course, would like to get its greedy hands on the money and invest in something ridiculous like US government bonds. But we would do this deal only for the people and by the people of WA. And think of it this way; instead of having to give some bogus tax incentive of AU$4k to encourage people to have children, you’d get AU$250k a pop for every new child. Now there’s an incentive people could learn to enjoy.

Of course this proposal will probably fall on deaf ears. But mark these words; some kind of deal will go down in the next year. It will favour the firms, which indirectly favours the workers, and shareholders. But if the whole world seems to moving to a Putin-Chavez-China style model of state investment/ownership of resources, why not direct more of the profit from natural resources directly to the people, instead of foreign corporations or the government? Free market zealots…discuss.

Dan Denning
The Daily Reckoning Australia

Should WA be leased to China, with a cash payment for all residents? Leave a comment below.

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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3 Comments on "Lease Western Australia to China – Everyone Would Get $250k"

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Sean
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Hi Dan, what we need to is build nuclear driven desalination plants around the country. Create a continental size grid net work of water& irrigation pipes for agriculture. Use the excess to replenish the aquifers. Let the rain replenish the river systems. Be the regional bread basket. At the same time we need to develop geothermal and deep ocean current generators for low cost energy. Any country that can have secure, relatively cheap, food, water and energy has hit the trifecta. Everything else can come after this. A horn of plenty for the little Aussie bleeder.Dream, dream, dream. Na, let’s… Read more »
Tong, Luren
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Where do we sign? I had earlier suggested on the China Daily website that each Mongolian man, woman and child be given the equivalent of US$10,000 to have Mongolia reunite with China. A lot cheaper than WA, and probably easier to integrate. Perhaps not as rich as WA, but a lot more economical and less political wrangling required. Just have to convince Putin it would be a good thing. Why have you not pitched this idea to the Japanese? I’m sure they want some too. Perhaps China and Japan can go in 50/50. It would make it easier to sell… Read more »
Tong, Luren
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Now why would China wanna spend that kind of money? If mineral resources is the issue, it would be a lot cheaper to buy Mongolia, or even Burma. Mongolia has a population of only 3 million, and a GDP of only US$1.55 billion. Burma is larger, with a population of 47.3 million, and a GDP of about US$10 billion. Both have serious natural resources. It would take much less than $500 billion, and it’d be permanent, and through Burma China would get new access to the Indian Ocean.

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