article on lyc and chinese control of ree

Security fears in proposed Lynas buy
Jamie Freed
July 16, 2009 .

CHINA'S stranglehold on the world's rare earths market — essential ingredients in advanced weaponry, fighter jets and radar — has raised concerns about national security implications of China Non-Ferrous Metal Mining's proposed $500 million purchase of a majority stake in Lynas Corporation.

China controls about 97 per cent of the world's production of rare earths, and Lynas' Mount Weld deposit in Western Australia is one of two significant projects outside China. The other one is in California.

The US last month filed a World Trade Organisation case against China for imposing export quotas on the materials. A bill before the US Congress requires a report on the strategic nature of the minerals to the US Department of Defence is completed by next year.

"(Rare earths) is certainly a strategic market from a materials point of view," said Professor Carlo Kopp, a defence technology expert at Monash University. "From a national security point of view, I think you can make a broad case that you never want to hand control of any strategic resource to a foreign nation. That would be generally true. Even if it were someone other than China, I would still say it was not a good idea."

The Foreign Investment Review Board this month asked China Non-Ferrous to resubmit its application, starting a new 30-day review.

This year FIRB allowed another Chinese company to buy a 25 per cent stake in a less-advanced rare earths explorer, Arafura Resources, but Treasurer Wayne Swan blocked China Minmetals' proposed purchase of OZ Minerals' Prominent Hill mine on the grounds of national security.

Lynas had long marketed itself as an alternative supplier to China before the financial crisis and had to turn to a Chinese state-owned company for funding to complete construction of its project.

Lynas executive chairman Nicholas Curtis said the deal with China Non-Ferrous would have no effect on its existing contracts with customers in the US, Europe and Japan.

He said Lynas would continue to market its products to customers outside China, and the investment by China Non-Ferrous would lead to an increase in the world supply of the minerals.

The executive director of rare earths consultancy Industrial Minerals Company of Australia, Dudley Kingsnorth, said Chinese control of Lynas could lead to a change in its strategy.

"The Chinese haven't denied anybody (rare earths) supply directly (to date)," he said. "But there is the potential for it to be denied at some stage in the future."