Russian bombers are sparring with British fighter jets in the North Atlantic in re-enactment of the bad old days of the Cold War. But here on the other side of the world, Russian steel makers are queuing up for their share of the Pilbara’s iron ore. Welcome to the world of resource nationalism.
Russia’s new military muscle is financed by its energy wealth. Britain’s subdued reaction to the high-profile stunt shows you just how much the UK needs Russian gas. Gazprom, the state-run natural gas producer (Russia owns the world’s largest natural gas reserves) supplies Western Europe with nearly 30% of its gas. The UK has its North Sea production, but that is tailing off. And the country finds itself last in line for Russian gas, geographically speaking.
He who has the gas (and oil) makes the rules, or so it would seem. It used to be he who has the world’s reserve currency and 14 aircraft carrier groups makes the rules. We’re not so sure anymore. When it’s not clear who’s making the rules, or what they are, we recommend cash and precious metals.
The West Australian Business News reports that, “Russian steelmaker Magnitorsk Iron & Steel Works (MMK) has increased its stake in iron ore developer Fortescue Metals Group Ltd (ASX:FMG). MMK, which is the largest enterprise in the Russian steel industry and accounts for 20 per cent of all steel products in the country's domestic market, has upped its stake in Fortescue to 5.37 per cent.”
Victor Rashnikov is the billionaire businessman who runs Magnintorsk, and he sees something he likes in Fortescue’s Pilbara project, which is set to ship its first ore to China in 2008. Are the Russians and the Chinese playing a new “Great Game” for Australia’s mineral resources?
The Business News reminds us that, “Steel baron Alisher Usmanov played a key role in Mt Gibson Iron Ltd's (ASX:MGX) 2006 takeover of fellow iron ore miner Aztec Resources Ltd by purchasing shares in both bidder and target,” and that “In January, fellow oligarch Vladimir Iorich secured a 13 per cent stake in gold hopeful Avoca Resources Ltd by paying $26 million.”
In Outstanding Investments we’ve already detailed China and Japan’s long-term business interests in WA. Yesterday we mentioned that BHP (ASX:BHP) likes the look of things going forward. But it may be the junior iron-ore and mineral producers who have the most to gain (in share price terms) from the international interest in Australian resource assets. Hmmn.
Here’s a question though, where is all the labour going to come from to keep the boom on track? WA’s State Training Board reckons the state will need nearly 18,000 workers a year for the next ten years, just to keep growing. That doesn’t sound very likely to us. It means wages will have to go up, eating into profits and fuelling inflation (and housing costs). Or it means labour will have to be brought in on temporary visas (much the way Dubai imports guest workers on 2-year only visas to do the construction on its vast oil-funded projects).
The credit cycle has topped out with the bursting of the American mortgage bubble. What about the resource cycle? Longer and stronger?
What do John Moule of Toll Holdings (ASX:TOL), Chip Goodyear of BHP, Leigh Clifford of Rio Tinto (ASX:RIO), David Morgan of Westpac (ASX:WBC), Andrew Mohl of AMP (ASX:AMP) and Geoff Dixon of Qantas (ASX:QAN) have in common? All of them lead major Australian companies. And all of them announced their retirement for this year or next. Hmmn.
Dan Denning
The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by dubious pete in melbourne on 24 August 2007:
So Dan, how are you getting time to post this stuff??
Anyway, the brother of a good mate in the funds management game here is GM of a Qld mining/ energy company. he's been telling me for years the stories of these russian billionares muscling into our mining industry. its nly just now getting a bit of play in the Fin Review and other places. What's most alarming is that these guys are young (30's) and DO NOT play by conventional rules. "What, you don't want to sell to me? You suuuuuure about that?"
The ONLY thing that can keep Australia going over the next century is the stuff we own in the ground. And thank the lord for being born in a country with it in the ground, including that yellow glow in the dark stuff.
What has to be disturbing is that we are selling this stuff off to china (and others)for rock bottom prices. the chinese call it "little rabbit". yes they have lots of resources of their own , but a smart rabbit eats the grass in his neighbors patch first, then he eats his own. in 50 years when the resources are scarce guess who has it all and up goes the price if you want to pay for it. "Nee-how hello, a nice slice of the Gulf of Carpentaria thank you Prime Minister Abbott".
What we should be asking is Who has the Caspian gas and oil? thats the real story, forget sub-prime Dan. Watch whether the japs get it through vladivostok, the chinese get it through the 'stans (where the US now has bases in the 3 'stans...human rights abuses anyone?), whether the yanks get it through southern lines, or the europeans get it. thats the real game, sub-prime might just wipe out a few wealth middle class white fat cats, thats all.
As for the dump and runners, yeah, I'm reading the obit's on Mohl righ tnow. The phone hasn't rung yet so I havent been shortlisted. Glad to. Any blind twit could have run a company over the past 4 years in Australia. in fact many of them have. Let me see, if you expanded or contracted 4 years ago, if you hired or fired, borrowed or lent, geared, leveraged or sold off, you won. This is still only a small % of guys dropping out tho. You've heard of the term baby boomer no? These guys will retire in greater numbers now. And who gets to inherit their jobs and fat salaries Dan? thats right mate, we do. Scarcity has its advantages.
Comment by Geoff in Dubai on 24 August 2007:
About Dubai's "oil-funded projects" - I'd like to point out that Dubai's oil and natural gas sector is about 3% of the GDP (http://en.wikipedia.org/wiki/Economy_of_Dubai). In other words, their reliance on natural resources is in the same ball park as Australia's. This begs the question - How come they're able to do all these amazing projects, as well as provide the lifestyle and facilities you'd find in any western country, including generous welfare schemes, without the benefit of income or corporation taxes?
As for the hordes of sub-continental labourers, they're not here for the generous wages or the benign climate or the social safety nets - they're here because they're welcomed here, and they're a whole lot better off than they would be at home. I'm sure they'd love to go work in Australia.
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