CANBERRA—Australia is set to reject a Chinese investment in an outback mining venture after defence officials on Thursday said the project threatened national security, potentially upsetting testy ties with Beijing.
The proposed project is a joint venture between Wugang Australia Resources, a wholly owned subsidiary of Chinese state-owned Wuhan Iron and Steel, and Australia's Western Plains Resources.
Australia's Defence Department said it would not support the Chinese magnetite resource investment inside the vast outback Woomera missile range, used as a weapons testing ground by the military and key Australian allies.
China's regulators have approved the joint venture, Western Plains Resources said in a statement to Australia's stock exchange, adding the project still needed Australian foreign investment approval.
But the military's lack of support means there is virtually no chance that approval will be given.
The decision comes at a time of strained diplomatic ties between Canberra and Beijing after an Australian executive working for Anglo-Australian miner Rio Tinto was arrested in China and accused of commercial spying.
China's government, anxious to secure access to Australian resources, was also upset at the failure earlier this year of a $19.5 billion tie-up between state-owned metals firm Chinalco and Rio Tinto after Rio walked away from the deal.
The proposed Wugang joint venture would "not be compatible with defence's activities at the Woomera Prohibited Area on safety, operational and national security grounds", the Defence Department said. There was no immediate comment from the Chinese side.
An Australian government rejection would be the second application by China to operate within the Woomera military zone, an area the size of England, to be blocked this year.
In April, Swan rejected Chinese state-owned firm Minmetals' $2.26 billion bid to acquire debt-stressed OZ Minerals on national security grounds, saying the local firm's main mine lay too close to Woomera. Australia finally approved a revised deal whereby Minmetals would buy OZ Minerals' other mines.
Location is the problem
Defence Minister John Faulkner said the latest decision was not because the joint-venture was Chinese in origin but because the proposal concerned the most sensitive and dangerous part of the Woomera area.
"The difficulty here in relation to this proposal is its location," Faulkner told state radio.
Under the planned project, Wuhan would get 12.1 million Western Plains shares and a 50 percent stake in the project for a A$45 million ($39 million) investment and feasibility study on developing Western Plains' magnetite deposits, located 180 km (112 miles) from the Woomera testing range.
Wugang has asked the military to support an application to Australia's secretive Foreign Investment Review Board, or FIRB, to approve an application clearing involvement in Western Plains Resources' magnetite project at Hawks Nest.
Faulkner, wary of provoking Australia's second-largest trading partner after Japan, said mining in the Woomera area was not prohibited, but Wugan's proposal concerned a particularly sensitive and dangerous area on the "centreline", or heart, of weapons test trajectories.
"Defence looks at these issues. Its assessment considers issues such as safety concerns, its likelihood to interfere with defence's weapon testing activities," he said.
"The Woomera test range is a significant contributer to Australia's defence capability, and that of our allies, and that's the focus that defence brings to bear on these issues."
