If you have got Esperance sand, you have probably got salt. You need to wash it off and end up with very slightly oily surfaces, even where it's painted.
The blades do not touch, but the clearance between them should be less than 0.001", so you can't expect to see or measure a clearance. It is usually done by sound or feel. First, set the fixed blade so it is so close to touching that you can't detect a difference. Then put a sheet of paper between the blades and turn the reel by hand. It should cut the paper cleanly all the way across - and do this at every point across the width of the blade. When you get it to do this, and to turn by hand smoothly without any sound or feel of contact, you drive the reel with the engine and listen. It should generate a sort of hum or hiss as the helical blades on the cylinder pass the fixed blade. If you listen closely you should hear any contact sound, which would mean you have to increase the clearance.
If you have not done so you will need to touch up the front edge of the fixed blade: it needs to be flat, and square to the top surface. Watch for small nicks in the cutting edge (front corner of the fixed blade) - I bet there are some. If there are any marks running across the fixed blade, it needs to be reground.
