Michael Pascoe writes:

There’s a little matter of sovereign risk that
investors need to consider before putting money in strange places. You need to look for government consistency,
rule-of-law and a general lack of dodginess.

They were real concerns in Western Australia during the
old WA Inc days – I know one of Australia’s
largest institutions severely curtailed investing there because of it. And a very
strange decision on Friday by the WA Government might have some folks wondering
if the bad old days are coming back.

Basically, it looks like certain big
players once again have the ear and signature of the government. This time though
it’s not Bond or Connell – it’s Rio.

Even by Wild West mining industry standards,
WA Resources Minister John Bowler delivered a shock on Friday by taking an iron
ore deposit away from Cazaly Resources and giving it back to Rio. Cazaly is promising to sue
as well they might, as the silence from Bowler is devastating. Cazaly’s
share price plummeted this morning – trading at 67c at 1pm (down

Cazaly is all set to develop the deposit – the delightfully named Shovelanna in the
Pilbara – while Rio had been sitting on it, doing nothing, for decades.

As long as there have been prospectors
eating dust and going thirsty in the West, there has been a time-honoured game
of picking up leases that lapse, accidentally or otherwise. Rio didn’t renew
its Shovelanna rights, so Cazaly pounced, pegged the ground, arranged finance
and did a deal to sell the ore to BHP. Along the way, Cazaly’s share price took

And then the funny business began. Rio claimed a dog ate its
Shovelanna homework and started applying all the lobbying pressure it could on
the West Australian government.

Actually, it wasn’t a dog. Even more
lamely, Rio says a courier was late, so could it please be excused, sir. This
is the world’s biggest pure mining company and it can’t get organised to renew
contracts well ahead of time.

And it looks like Cazaly was going to be
cut off at the pass well before Friday. The Smagereported two weeks ago that the WA Premier had been
making strange noises. In February the West Australian
premier, Alan Carpenter, told ABC Radio in Perth that investors must exercise caution when
dealing in Cazaly shares.

“When I saw the speculation
that was going on in early December …, I thought I have to say something here
to just warn people that they really should wait”, he said. “Before
they start speculating on the outcome, they should wait for the outcome because
I don’t want to see people lose their money if the outcome goes against them.”

Looks like the fix was already in.