As discussed in our recent Emerging Issues Publication, the Federal Government’s drive to develop Australia’s critical minerals sector continues to see an increase in regulatory scrutiny, particularly Foreign Investment Review Board (FIRB) compliance. This has been demonstrated most recently following the Treasurer’s decision to order the divestment of Yuxiao Fund’s (and its associates) shareholding in Northern Minerals – which is currently in the throes of developing its strategically important critical minerals Brown Range Project in Western Australia.
The decision was made in light of the Government’s increased scrutiny over investment in critical minerals projects and was justified as protecting “national interest” and ensuring robust compliance with the broader foreign investment framework.
The Treasurer’s decision is one of particular significance – being the rare issue of a divestment order outside the residential housing space, and further signals the Federal Government’s intentions to use FIRB to advance policy goals in the critical minerals sector.
The Northern Minerals decision
Northern Minerals Limited (Northern Minerals) is an ASX listed company developing Australia’s first dysprosium and terbium (two heavy rare earths necessary for the manufacture of magnets used in, among other things, electric vehicles and wind turbines). Northern Minerals has also been the recipient of significant Federal Government support including a low cost $1.25 billion loan to support the development of this critical project.
But it has been the recent FIRB spotlight that has drawn Northern Minerals somewhat unwillingly into the public forum. Last year, Yuxiao Fund’s application to FIRB to increase its interest from 9.81% to 19.9% was rejected on national security grounds. Yuxiao Fund is the Singapore registered private investment vehicle of Chinese national Wu Yuxiao. A rare public rejection by FIRB was in line with the now well published policy that FIRB will treat investment into critical minerals as a national security issue, and seek to ensure only investors from “friendly” countries can proceed with proposed investments.
On 3 June, in another rare public move by FIRB, Treasurer Jim Chalmers ordered Yuxiao Fund and its associates to divest a combined interest of 10.4% in Northern Minerals on “national interest” grounds.
Although the exact details of FIRB’s concerns resulting in the order have not been made public, as the order appears to be made under “national interest” grounds as opposed to “national security” grounds, it is likely that Yuxiao Fund and its associates didn’t obtain the necessary prior FIRB approvals for their interests in Northern Minerals.
What does this mean?
Historically, actions triggering only voluntary FIRB notification requirements were often not applied for by prospective applicants due to the FIRB process incurring unnecessary fees and delays. However, this most recent action by FIRB demonstrates that FIRB is willing to use its broad powers to regulate investments in sectors (and for investors) they deem a priority. This should be of particular note to investors from the Peoples Republic of China, whose dominance in the critical minerals space has been the target for numerous agreements and announcements by Australia and allied governments as being a national security threat.
Whilst FIRB operates a “non-discriminatory foreign investment framework” and associated merits process, applicants should remain aware of FIRB’s position and heightened scrutiny in relation to Chinese investment in critical minerals.
In light of these developments and FIRB’s public limits and willingness to exercise divestment powers in relation to certain investment in the critical minerals sector, we encourage potential investors to consider the merits of voluntary applications and, to ensure that FIRB is front of mind in any proposed transaction process.