The Foreign Investment Review Board (FIRB) has blocked a Chinese investor from lifting its shareholding in small but key listed Australian rare earths producer Northern Minerals (ASX: NTU).
Northern Minerals says the FIRB had prevented its largest shareholder, China’s Yuxiao Fund, from raising its stake in the company on national interest grounds.
Yuxiao Fund sought Foreign Investment Review Board approval in August to raise its ownership to 19.9% from 9.92%. A federal government register showed Treasurer Jim Chalmers signed a prevention order on February 15.
The Singapore-registered fund is an investment vehicle of Chinese national Yuxiao Wu, who also owns mines in Mozambique supplying lower-grade rare earths to China, according to Northern Minerals Executive Chair Nick Curtis.
“There is a special category of assets for any government to protect its national interest,” Curtis said.
He said in a Reuters story that Wu invested in Northern Minerals for financial reasons, not to supply China, and voted in favour of an exclusive supply deal with Australia’s Iluka Resources Ltd last year.
That Iluka deal is the key to Northern Minerals’ future.
Iluka has agreed to purchase all available concentrate from Northern Minerals’ Browns Range project, until the delivery of contained rare earth oxide (REO) has reached 30,500 tonnes.
This covers the initial 8 years plus mine life based on the current known mineral resource. “The supply agreement with Iluka de-risks and accelerates the development of the Browns Range Project, significantly reducing our likely capex,” Northern says.
Iluka has initially invested $20 million in Northern Minerals via a $15 million convertible note and a $5 million share placement. This will provide the company with the funding required to complete a definitive feasibility study (DFS), promoting delivery of a final investment decision (FID) on Browns Range over the next year.
In addition to its initial investment, Iluka has committed to provide additional equity funding towards Browns Range post FID through a further placement, subject to certain conditions.
It would seem the Chinese company was trying to balance the Iluka 19.9% stake with a similar sized holding of its own. That will now not happen and is another message to China that like it, Australia has sectors of our economy that are of great strategic importance.
Mr Curtis was a former CEO of Lynas Rare Earths back in 2009 when FIRB then blocked China Non-Ferrous Metal Mining from lifting its stake in Lynas above 50%.
Lynas then was an aspiring rare earths group with what looked like an interesting deposit at Mount Weld, near Kalgoorlie. That is now the base on which Lynas, under very different management and support, has become the largest rare earths producer outside China.
China Nonferrous Metal Mining Co (CNMC) terminated the deal after concluding that extra conditions sought by the Foreign Investment Review Board were too onerous.
Lynas announced in May 2009 that CNMC would spend about $500 million to take a 51.6% stake in the company. The deal was to comprise 700 million shares issued at 36 cents for $252 million and a guaranteed loan for the balance.
In examining the proposed deal, FIRB required CNMC to reduce its proposed ownership of Lynas to less than 50% and to ensure its directors did not take more than half the board positions in the company.
Those conditions were on top of agreed undertakings to provide independent marketing of rare earths products. The latter condition was the toughest, from subsequent reports, as it would have allowed Lynas into the global rare earths market and to gain experience in marketing the key products up against Chinese companies.
Now, 14 years later, Lynas shares are around $8 and the company is making a lot of money from selling its rare earths from Mount Weld and has financial support from the US and Australian governments. The former would not have been possible if the company had been controlled by Chinese interests.
For Iluka, the Browns Range concentrate will be an additional source of quality differentiated feedstock for the integrated rare earths refinery it is building at Eneabba near Perth and will be a significant contributor to establishing the Eneabba refinery as a long-term producer of highly valued heavy, as well as light, permanent magnet REOs.
Having the concentrate processed at Eneabba will be the first time that the value addition will occur in Australia and demonstrates the refinery’s strategic importance in fostering a new critical minerals supply chain.
In the Browns Range deposit, Northern owns an orebody rich in the strategic heavy rare earth elements dysprosium and terbium. It says it has “an aspiration – together with Iluka – to create an Australian-based supply chain for prized rare earth metals critical in the production of the permanent magnets used in high performance electric vehicles and wind turbines.” And that will be Australian controlled.
Northern Minerals shares rose 4.7% to 4.4 cents on Wednesday.
