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.
The Daily Reckoning Australia