This is a story about a lode of guano. And fossilised sea shells. There's still debate about whether it was the former, latter or a combination of both which gave the islands of Nauru and Banaba (better known as Ocean Island) some of the finest phosphate of lime ever found in a natural state.

The cry 'Phosphate!' went up over the islands early this century, and by 1910 both islands were being heavily mined. Nauruans and Banabans stood by bemused with no idea that their homelands were being carted away for spreading over the fields of the west. It was all happening in the cause of making the 'desert blossom like a rose' in the words of Albert Ellis, a New Zealander, who discovered Nauru's mineral wealth.

Nauru, he wrote, 'would enable innumerable hard-working farmers to make a living' and would produce 'wheat, butter and meat for hungry millions for the next hundred years to come.'

Already battered by a century of white contact - with whalers, traders, missionaries, beachcombers, colonialists - Nauruans and Banabans could not possibly have imagined what their two islands would be looking like by the time Japanese invaders took over in the early forties.

The new colonialists gave the two communities hell. Most Banabans were scattered around the islands of Micronesia while the 150 kept on Banaba were machine-gunned (with only one survivor) just before Japan's collapse. Of 1200 Nauruans deported to Truk in the Caroline Islands more than a third died. Every Nauruan lost at least one relative.

So badly mauled were the 19.5 square kilometres of Banaba by the time the Japanese were defeated that Britain was conveniently able to argue that the island was no longer inhabitable. With the British Empire substantially intact in 1946 and the Banabans' resistance low, it was not hard to persuade them to move to an island in north eastern Fiji. The Banabans faded from the world scene for nearly two decades. On Nauru, things hadn't got so bad that the people had to leave.

British Phosphate Commission (BPC) machinery continued to chew through the vegetation on the phosphate-rich central plateaus of both islands, leaving soil less craggy 'lunarscapes' behind it.

Meanwhile down on Nauru's still livable coastal strip, some island leaders got to thinking about the raw deal their people had had over the years. (Nauru had been a German possession till 1914 and from then on subject to Australian control. Banaba, 350 kilometres to the east, had been grouped with the British run Gilbert Islands ever since 1900.)

Surely, agreed Chief Hammer De Roburt and friends, there had to be some way Nauruans could gain control of their own affairs? And by the early sixties Nauruan leaders were discussing 'independence' with Australia.

It was in the middle sixties that the Banabans decided that there had to be justice for them too. They asked for $46 million in back royalties and for replanting of mined areas. With the help of sympathetic publicity in the Pacific Islands Monthly their cause became world headlines.

The Banaban campaign, spurred by Nauru's independence in 1968, pressed on in the seventies. By 1970 Nauru was running its own phosphate operations and an international airline and was planning to build Melbourne's biggest office block.

In 1975, proceedings began in the British High Court to hear the Banabans' grievances. At the end of 1976 the presiding judge, Sir Robert Megarry, pronounced that morally the Banabans were right and that Britain ought to be ashamed of itself. But British law had no provision for Britain to pay for its sins of empire.

The Banabans' claim against BPC (a British-Australian-New Zealand government consortium) was upheld and the company paid $1.4 million for having failed to replace destroyed coconut trees.

Shamed by Megarry's remarks, the British Government later offered an $11.3 million 'final payment'. The Banabans kept that offer on ice. Their immediate concern at the time was the determination of both the British government and the Gilbert Islands administration to incorporate Banaba in the new state of Kiribati (pronounced kiri-bas, a corruption of the word Gilberts) and to use phosphate revenues as a post-independence prop for a nation which had very little else worth selling.

This was another battle that the Banabans were destined to lose. In 1979, just before the Gilberts became independent, the Banabans sailed to their homeland and, in a last, symbolic act of frustrated protest, made petrol bomb attacks on BPC machinery.

Over the colonial years, both Banabans and Nauruans received royalties which were deemed adequate for 'simple island folk'. Since Nauru gained its independence wealth has flowed from phosphate sales. On the surface it seems the Nauruans have had a better deal than the Banabans. They control their homeland and they have millions of dollars to invest against a future when the phosphate runs out. The Banabans live in exile and have only a pittance in financial comparison.

The Banabans' bitterness is easy to understand. It is barely softened by Britain's cheque for $11.3m (with $5m back interest to come) handed over in April in exchange for a signed declaration that the islanders would sue Britain for nothing more.

But that doesn't stop the Banabans from pressing their claims for more control of their homeland. Early this year they came up with a proposed constitution for a 'Compact of Free Association' between Kiribati and 'the Government of Banaba'. It asks for far more autonomy than the Kiribati government is willing to concede. Banaban leaders and Kiribati officials met in March in Nauru (neutral ground). Kiribati rejected the proposals. (The Kiribati constitution offers Banabans a parliamentary seat; guarantees Banabans land rights on Banaba; gives Banabans inalienable right to land and live on their own island; and guarantees a review of these arrangements three years after independence.)

'It looks like we are still a colony.' said David Christopher, the Banabans organiser, on his return from Nauru. His people, he said, were resisting a Kiribati suggestion that a Banaban Council should be formed because it would look as if the Banabans were accepting the Kiribati system.

A recent British survey of resources on Banaba has come up with three options for future use of the tattered island on which mining operations ceased at the end of 1979.

The first is for a continuation of the present subsistence living which would allow a permanent population of around 250; the second for agricultural and fisheries development which would support about 500; and the third for a revival of mining to exploit left over phosphate. Initially, this would need a population of around 2500, later reverting to 500.

Kiribati, said David Christopher, was pushing for the third option to be taken up. 'This we will not do until we know our status,' he said. 'We will resist any move by the Kiribati Government to restart mining. We are afraid we would be exploited again.'

There are about 400 Banabans living on Banaba today. They are reverting to traditional subsistence methods but continue to rely on supplies and funds from their people on Rabi Island. This spotlights another area of friction between the Banabans and Kiribati: Banabans have to pay duty on cargo they send from their base in Fiji to Banaba.

The Banabans are supposed to have a special place in the Kiribati constitution, says David Christopher, 'but we are being treated like any other of their outer islands and we are not like other outer islands'.

The Banaban spotlight is now on the review after three years' clause in the Kiribati constitution. That moment comes in mid-1982. Today, after nearly 80 years of painful colonial experience the Banabans are no nearer to regaining control of their homeland. But, in the long run they may find themselves better off than their now affluent neighbours to the west. By the time the phosphate is gone it is imperative that the Nauruan investment portfolio is watertight. Otherwise it could find itself the victim of ill-advised speculation. Evidence suggests that at least the Banabans have retained enough of their traditional lifestyle to exist on a modest income. A Nauruan nation on a barren homeland without money or knowledge of yesterday's ways would be frighteningly vulnerable.