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Australia rules risk China mining investment

Reuters | Fri, 25 Sep 2009 10:00
[miningmx.com] -- Australia has revealed investment guidelines biased against majority foreign stakes in its mining industry, raising concerns that the policy will worsen strained relations with its major trading partner, China.

"It's got to be seen as being negative -- I can't see there's any positive in it -- and it comes at a rather bad time as the mining sector is looking to recapitalise itself," said economist Jeff Rae, of trade and investment consultancy ITS Global.

He was referring to Thursday's rare public comments a senior official from Australia's Foreign Investment Review Board (FIRB), who said the board preferred not to see foreign majority stakes in new mining projects.

FIRB general manager Patrick Colmer also warned that foreign investors in general should keep their businesses listed in Australia and that foreign investors cap their interest at no more than 15 percent in miners with projects already running.

The guidelines are likely to expose Australia to perceptions of bias in Beijing, where relations with Canberra are already under stress.

It may also raise the regulatory risk for foreign investors in the mining sector and lead to fewer foreign-investment proposals from non-Chinese investors.

Already, up to 10 percent of investment applications are withdrawn before decisions are made.

Beijing's footprint in the Australian outback has become more evident in the past few years as a legion of state-backed firms scour the landscape for investments that will guarantee supplies of industrial raw materials for decades to come.

Australian miners have embraced, and in many cases courted, Chinese funding, happy to partner up with part of the world's fastest growing economy.

Colmer also warned foreign investors to keep their businesses listed in Australia and not allow their lawyers to use complex legal arguments in approval applications.

The FIRB maintains its only criteria is the economic and security well-being of the nation and that each case is regarded on its merits.

But the agency is being singled out for its approach to investments by China, Australia's third largest investment partner after the United States and Britain.

Wang Wei, chairman of China M&A Management Holdings Inc, said at the same investment forum where Colmer made his comments that he sees a "paradox" in the China bashing that is coinciding with deal chasing in Australia.

The FIRB this week knocked back a proposal by China Nonferrous Metal Mining (Group) Co. to buy a 50.6 percent interest in Lynas Corp, which needed the $400 million price tag to develop the world's largest rare earth deposit.

The state-owned Chinese firm balked at the FIRB's recommendation it reduce its stake to below 50 percent and terminated the deal, leaving Lynas under-funded to proceed. Lynas has since asked that its stock stop trading for up to five days while it searches for alternative funding.

"We're more than a little disappointed with the government's position," Lynas Executive Chairman Nicholas Curtis said. "I don't really see the difference between 50.6 percent and 49 percent."

The FIRB can be flexible.

Last year it cleared the way for China's Shenzen Zhongjin Lingnan Nonfemet to take a majority interest in zinc miner Perilya, which was on the verge of bankruptcy at the time, rescuing hundreds of jobs.