Local Chinese favouritism row over made-to-measure contracts EXCLUSIVE ANDREW BURRELL, SID MAHER 636 words 19 January

2012 The Australian AUSTLN 1 - All-round Country 1 English 2012 News Limited. All rights reserved. MINING companies have been accused of excluding Australian manufacturers from bidding for work on massive resources projects by using Chinese design specifications in tender documents for key steel contracts. Confidential tender documents obtained by The Australian show that Gindalbie Metals offered Chinese companies the chance to work on its $2.6 billion Karara iron ore project in Western Australia using Chinese standards for steel. The contract for 4000 tonnes of steel was eventually won by Chinese steel giant Ansteel, which is also Gindalbie's biggest shareholder. The company denied that Ansteel was given preferential treatment or that Australian companies were excluded from bidding for work on Karara. A tender document for Rio Tinto's massive iron ore expansion in the Pilbara also stipulates that some contracts -- including manufacturing of steel plates, floor plates and welded sections -- must comply wit h Chinese standards. Julia Gillard yesterday called on West Australian Premier Colin Barnett to aid a federal investigation into a report in The Australian that Australian companies were being locked out of the $6bn Oakajee Port & Rail project, near Geraldton. The Prime Minister's letter followed her threat to pursue international legal action against China, through the World Trade Organisation, if any hard evidence emerged of Australian mining companies being pressured to buy Chinese equipment as a condition of minerals export contracts. The Australian Industry Group had told the government the practice was occurring, but had only anecdotal evidence. Australian Manufacturing Workers Union West Australian president Steve McCartney said yesterday that companies including Gindalbie and Rio were ignoring local manufacturers, and federal and state governments were doing little to improve local content. Industry groups and unions say there is a growing trend for major projects to be designed and engineered overseas to foreign standards, effectively shutting out local companies and potentially lowering the quality of the work. The Australian Steel Institute has claimed that manufacturers and fabricators are running their Continued on Page 2 Continued from Page 1 companies at substantially lower production and employment levels compared with recent years, but there has been little hard evidence that resources companies are deliberately precluding Australian manufacturers. Foreign standards for steel often differ from Australian standards in terms of shape, strength and chemical properties. One mining executive said it was well known within the industry that miners backed by Chinese equity and debt were usually required to source steel and other equipment from China as a condition of financial support from Beijing. Page 1 of 2 2012 Factiva, Inc. All rights reserved.

According to an Ansteel spokesman, local firms were offered the chance to bid for the same work on the Karara iron ore project using Australian standards, but Ansteel was the most competitive ``by a wide margin''. The spokesman said more than 90 per cent of spending on the Karara project had been on local content. A Rio spokesman said the miner always sought to source locally. ``That's why our local spend, which we measure monthly, is generally around 90 per cent of the total expenditure,'' he said. In her letter, Ms Gillard said the commonwealth had committed $339 million for the Oakajee Port common use facilities. ``I am particularly concerned about allegations that companies that receive commonwealth and state government funding support are reportedly being pressed to purchase foreign equipment as a condition of minerals exports contracts,'' Ms Gillard said. She said these allegations raised concerns about foregone job opportunities within the supply sector, both in Western Australia and nationally. She urged Mr Barnett to co-operate with an investigation by Industry Minister Greg Combet into the allegations. ``The Australian government is committed to promoting local content in large projects, particularly mining projects, in order to ensure the wider economy directly shares in the advantages of the mining boom,'' Ms Gillard said. Document AUSTLN0020120118e81j0002y

Page 2 of 2

2012 Factiva, Inc. All rights reserved.