2024 will see the Australian critical minerals strategy increasingly shape investment opportunities into mining of these 30 minerals. Australia's policy follows the introduction of the United States’ Inflation Reduction Act, the European Union’s Critical Raw Materials Act and Japan’s Economic Security Act, and is heavily focused on supporting the seemingly insatiable need for increased mining, with recent analysis predicting that global demand will require 50 new lithium mines, 60 new nickel mines and 17 new cobalt mines just to meet the current carbon emission goals by 2030.
Unlike the US, EU and Japanese legislation the Australian approach is focused on supporting foreign investment rather than funding it. For example, while the US approach saw the introduction of new investment, tax credits and easing of regulation to facilitate projects, Australia's approach is focused on leveraging international partnerships and foreign investment while at the same time diversifying the critical minerals markets.
The strategy states that "concentrated critical minerals markets lead to volatile and fragile supply chains which work against the public interest and hamper growth of the global industry". That statement, which appears to reference China's reported dominance in the critical minerals processing sector and on the global market for rare earths, combined with the listing of existing "International Partnerships" in Appendix A of the strategy, indicates a focus on investment from US, UK, India, Korea, Japan, France, Germany and the EU.
With the strategy identifying a focus on a cross-government approach to critical mineral investment, foreign entities looking to invest in Australian critical mineral mining operations should expect closer scrutiny from regulatory bodies and the Foreign Investment Review Board (FIRB) which advises the Treasurer of Australia.
While the strategy did not make changes to the function of FIRB or introduce legislative amendments to the Foreign Acquisitions and Takeovers Act 1975 (Cth), FIRB approval remains an important tool wielded by the Australian Government to control foreign investment. This has been most recently demonstrated by the reports of FIRB investigating share trading in Australian listed mining company, Northern Minerals, for alleged covert shareholdings by a foreign entity for the benefit of China Northern and Shenghe Resources.
This investigation joins the list of announced transactions which have previously failed to obtain FIRB approval including the previously proposed $20 million investment of Baogang Group in Northern Minerals and Yibin Tianyi Lithium's $14 million dollar investment in AVZ Minerals (where AVZ held no real property in Australia and the primary asset was in the Democratic Republic of Congo).
There are likely to be other (unannounced) transactions which were put forward for FIRB approval, but ultimately withdrawn based on an indication from FIRB that approval was unlikely to be given. Examples include China Mengniu Dairy (in which at the relevant time, the Chinese Government had a 16% shareholding) which was apparently advised that its proposed $600 million acquisition of Lion Diary and Drinks was unlikely to be approved, and China State Construction Engineering Corporation which withdrew its ~$300 million proposed acquisition of Probuild after receiving an indication that the Treasurer would reject its FIRB application.
Australian companies seeking to take advantage of the US' Inflation Reduction Act will also need to consider the recently issued draft guidance from the US Government indicating that companies with more than 25% ownership by a "foreign entity of concern" will be exempted from the lucrative scheme. This means that even where FIRB approval is granted, mining companies with significant foreign ownership interests may be kept out of subsidies which have already resulted in an estimated US$13 billion in benefit to Australian companies, including Liontown, Ablemarle and BHP Nickel West.
A company which has accepted funding from bodies such as the Northern Australia Infrastructure Fund or the International Finance Corporation may face restrictions on the sources of other debt financing or the shareholders of the company which may remain in place after those entities trade out of their position. Where such restrictions are allegedly breached, we have seen litigation arise from intra-lender disputes.
Understanding how the Critical Minerals Strategy can be leveraged, and the FIRB process is undertaken, will allow foreign investors to unlock value in 2024 and beyond as Australia undertakes a rapid period of processing capacity development and exploitation of its critical mineral resources. Australian boards and shareholders with significant holdings in Australian critical mineral companies should remain vigilant when considering the impact proposed foreign investment (by debt or equity) may have on the company's access to the benefits of schemes such as the US' Inflation Reduction Act or potential issues arising due to an adverse FIRB recommendation.