Foreign Investment Laws ‘Gamed’ as Blocked Chinese Firm Buys Into Mining Business

May 18, 2020 Updated: May 20, 2020

A Chinese lithium miner has completed its purchase of a stake in Perth-based rare earth miner AVZ Minerals, this is despite an earlier attempt by the federal government to block the sale.

In an announcement on May 14, AVZ confirmed Yibin Tianyi Lithium Industry Co finalised its $10.7 million (US$6.89 million) placement, after clearing the final hurdle, which was to receive approval from Chinese authorities.

Yibin will acquire a 9 percent stake in the Australian rare earth mining firm and begin operations.

Defence expert Michael Shoebridge said the deal highlighted a weakness in Australia’s foreign investment laws that risked being “gamed.”

Chinese Firm Maneuvers and Succeeds on Second Tilt at Rare Earth

AVZ has been courting Yibin since 2019 to assist with the development of the Manono Project, a project located in the Democratic Republic of Congo—set to be a major producer of lithium.

Yibin’s initial tilt at AVZ was withdrawn on April 24 when it was advised by the Foreign Investment Review Board (FIRB) that it would be blocked on the grounds the investment was “contrary to the national interest” and contrary to the growth of “Australia’s critical minerals sector.”

On May 4, AVZ Minerals revealed a revamped agreement where Yibin would buy 9 percent of the company and would have no seat on the board. This arrangement fell outside the gambit of the FIRB and would not need its approval.

The FIRB is only notified when a foreign entity acquires a minimum of 10 percent interest of a mining company.

Managing Director of AVZ, Nigel Ferguson said on May 14, “I am delighted to finally welcome Yibin Tianyi as a shareholder of AVZ.”

“Yibin Tianyi has always wanted to work with AVZ to progress the development of our Manono Project and I now look forward to finalise a formal offtake agreement with them for our lithium products.”

Another shareholder in AVZ is the subsidiary of Chinese cobalt miner Huayou Cobalt Group, one of the world’s largest manufacturers of cobalt chemicals for use in batteries.

Lack of Clarity a Weakness in Current Foreign Investment Laws

Michael Shoebridge from the Australian Strategic Policy Institute told The Epoch Times on May 18 that the sealed purchase exposed a weakness in the federal government’s policy around advancing the rare earth industry.

He said the government needs to be more explicit and declare it does not want “Chinese sourced investment” in rare earth processing. A lack of clarity could see Australian businesses inadvertently work against government policy.

“The problem with the current policy is it not being declaratory, the government isn’t giving clear guidance either to companies, or even the FIRB,” he said.

“They’re pretending everything is “country agnostic” when in fact, the sheer business risk to Australia from Chinese government coercion, is a factor we must consider explicitly, and in its own right.”

According to Shoebridge, having an explicit policy towards China would not only be more effective, but it could also influence global dialogue.

“You can see the power of that declaratory policy, both around 5G and the international inquiry into the pandemic,” he said.

“In both cases the Australian government caused a shift in the international environment and in other government’s policies and approaches. That’s what Beijing doesn’t want to see more of,” Shoebridge said.

Global Economic Model Shifts From ‘Cost’ to ‘Trust’

The Australian government has an ongoing partnership with the United States to develop rare earth supply chains independent from Chinese control.

Rare earth are minerals critical for the manufacture of sophisticated tech products including lithium batteries, smartphones, and fiber-optic cables.

(arcoss/iStock)
Fiber optic cables (arcoss/iStock)

China has dominated the production and processing of rare earth mining for decades, motivating nations to develop their own supply chains. Especially as China has in recent times used rare earth supply chains as leverage in geopolitical disputes.

Shoebridge said the move to diversify from China is part of a greater shift in global economic models. Previously, businesses and governments, driven primarily to lower costs, happily outsourced production to other countries.

However, with the current global economic climate, suffering supply chains, and the Chinese regime’s economic coercion, countries now place a priority on working with trusted partners.

“Trust is now a rising new valuable commodity in economic relationships and supply chains. So, trust is about whether your partner is reliable, and not just from a business partner sense, but also from the jurisdiction they are operating in,” he said.

“So, for rare earths, the problem with not factoring in trust … is people discount the Chinese [regime] will intervene and restrict and control supply of processed rare earth,” he said.

Yibin Tianyi is backed by Contemporary Amperex Technology (CATL), China’s largest lithium-ion battery manufacturer.

CATL is a major supplier of batteries for BMW and its electric vehicle division in China.

This year CATL began supplying batteries to Tesla Motors.

Tesla Model S charging in Shanghai
Tesla Model S being charged at a car dealership in Shanghai on March 17, 2015. (Johannes Eisele/AFP/Getty Images)