The AFR has burst into song on the forced divestment....

The AFR has burst into song on the forced divestment. Excerpts:

Chalmers sell-down order adds to crazy tale of rare earths intrigue

Once upon a time, a small Australian company, which one day hopes to mine two little known minerals – dysprosium and terbium, which are crucial to the production of high-performance magnets, batteries and defence equipment – was targeted by a mysterious Chinese businessman, Wu Tao.

He’s a big wheel in the Chinese rare earths sector, which has used its dominant position in the global rare earths market to control price, supply and trade flows in an industry that has become central to tensions between China and the West.

Tao took a 9.8 per cent stake of Northern Minerals via his Singapore-registered company, Yuxiao Fund, but wanted a bigger slice, outlining a plan in 2022 to increase his stake to 19.9 per cent. But when this bid was thwarted in February last year by federal Treasurer Jim Chalmers, on the advice Foreign Investment Review Board (FIRB), Tao is accused of taking matters into his own hands by orchestrating the buying of shares in the company via a series of related entities and parties, including Black Stone Resources and Indian Ocean International Shipping and Service Company, plus Ms Ximei Liu and Mr Xi Wang.

In October 2023, then Northern Minerals chief executive Nick Curtis referred the share buying to FIRB – and subsequently found himself the subject of an attempt by Tao to remove him as a director of the company at an extraordinary general meeting showdown on June 6. On May 27, Curtis fell on his sword, resigning as a director and moving to a position as a special adviser.

But a week later, on Monday, Chalmers strikes again, ordering Yuxiao to reduce its stake from 9.8 per to 8.5 per cent within 60 days, and Black Stone, Ocean International, Liu and Wang to dispose of shares equivalent to about 9 per cent of Northern Minerals.

Such disposal orders are extremely rare in commercial matters, and so the implication seems clear: Chalmers has used his power to prevent a surreptitious attempt by Chinese interests to grab control of a promising Australian miner, whose precious products may help insulate Australia’s high-end electrification and defence supply chains from Chinese control of the rare earths market.

One of Australia’s top FIRB experts argues that the disposal orders issued by Treasury on Monday were widely predicted and welcome: this was an attempt to use the backdoor to get around an earlier FIRB order, and couldn’t be allowed to go ahead. But our FIRB expert says this shouldn’t necessarily be read as a sudden hardening of Treasury’s stance against Chinese investment in critical minerals – rather, it’s a simple case of dealing with something FIRB already addressed.

Nevertheless, the timing of the announcement is fascinating, and not just because it seems poor old Nick Curtis resigned a week too early. As the government goes through the design process for the critical minerals production tax credit regime announced in last month’s federal budget, the question of whether projects with Chinese investment will be treated differently is high on the minds of those in the Australian critical minerals sector.

Just as the birth of Australia’s iron ore sector in the 1960s was financed with Japanese, Korean and Chinese capital, China has emerged as a powerful force in the creation of Australia’s critical minerals industry, as financier, customer and provider of key infrastructure, particularly processing capacity. Some US government money has found its way into key Australian projects, but not nearly as much as Chinese interests have provided.

At the same time, key figures in the Australian critical minerals sector are growing more vocal in the warnings about Chinese control of markets such as that for rare earths. Last month, Iluka Resources chief executive Tom O’Leary repeated his warnings that China is using its power to manipulate rare earth pricing, increasing production to drive prices down to a point where, according to Iluka, every producer in the sector (both inside and outside China) is unprofitable.

Iluka is both a shareholder in Northern Minerals and, if all goes to plan, will process Northern Minerals’ production at its new $1.8 billion refinery at Eneabba in Western Australia. Perhaps it might even be in the market for the 10 per cent of Northern Minerals that will now be on the market.

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ILU would have to bid for all NTU if it buys the Chinese holding. ILU is the natural owner of Wolverine, yet diving deep into this tangle would be ... courageous.

I haven't seen this much corporate fun for a long time.

Ash