The federal treasurer has quietly blocked a Chinese-linked investment fund from increasing its stake in a strategically crucial Australian rare earths producer, in another sign the government remains intent on building up trusted critical minerals supply chains.
Last year, Yuxiao Fund applied to the Foreign Investment Review Board to increase its stake in Northern Minerals Limited from just under 10 per cent to 19.9 per cent.
But Treasurer Jim Chalmers signed an order blocking the move on February 15 after the Foreign Investment Review Board recommended the application be turned down.
Mr Chalmers would not detail the reasons behind his decision.
"I made that decision based on the advice of the Foreign Investment Review Board and consistent with other decisions taken by other governments in the past," he said.
"Beyond that, I don't intend to comment."
The ABC has been unable to reach Yuxiao Fund, and Northern Minerals did not respond to the ABC's request for comment.
But Northern Minerals executive chairman Nick Curtis told Reuters that the Singapore-registered fund is an investment vehicle for Chinese national Yuxiao Wu.
Reuters reported that Yuxiao Wu owns miners in Mozambique which supply lower-grade rare earths to China.
The decision once again highlights the sensitivities surrounding critical mineral supply chains, which are crucial to the renewable energy transition and remain dominated by China.
Rare earths are also a critical part of modern military technology and are used in communication equipment, stealth technology and precision-guided weapons.
Northern Minerals operates the Browns Range mine in Western Australia's east Kimberley and aims to become the first substantial producer of dysprosium — a key component used in electric vehicles — outside China.
Both the Albanese government and the Biden administration have been encouraging Australian companies to exploit local reserves of critical minerals.
The United States remains nervous that China could leverage its effective monopoly on rare earths if its ties with Washington further deteriorate, potentially starving Western companies or the US military of a crucial resource.
In 2019, then-defence minister Linda Reynolds said that the fact a "single nation" dominated the rare earths market was a "critical vulnerability."
And last month, Resources Minister Madeline King declared that Australia had "an opportunity to seize the moment to leverage its critical minerals endowment to fuel the global clean energy transition."
The federal government has already lent more than $1 billion to Iluka Resources to develop a rare earth oxide refinery and has encouraged Lynas Rare Earths to develop its new processing facility in Kalgoorlie.
Meanwhile, Northern Minerals has been pushing to develop a commercial-scale beneficiation plant that would provide a reliable alternative source of both dysprosium and another critical mineral called terbium.
Later this year, the company is expected to release the findings of a feasibility study showing the cost of building a processing plant is likely to be up to $300 million.
But the ABC has been told that the company has struggled to draw the investment it needs from Western companies, despite persistent interest from Chinese investors.
Resources 'critical to our national security'
It is not the first time the Australian government has stopped a Chinese entity from investing in Northern Minerals.
In 2020, then-treasurer Josh Frydenberg banned Baogang Group Investments from taking an 11.1 per cent stake in the company.
China's government has repeatedly criticised Australia in the past for blocking Chinese investment on national security grounds, accusing Canberra of discrimination.
The Treasurer's decision to block the application from Yuxiao Fund comes after he approved an application from China Baowu Steel Group to invest in the $2 billion Western Range iron ore project with Rio Tinto.
Justin Bassi, the executive director of the Australian Strategic Policy Institute, told the ABC that the two decisions "should provide reassurance that the foreign investment review system is working" including by ensuring that "economic drivers do not override national security and sovereignty priorities".
Mr Bassi said while iron ore investments may pose no security concerns, "the acquisition by a foreign company of a significant share in a rare earth metals company could have significant strategic implications because the supply of these resources is critical to our national security".
"Rare earths are key inputs to many forms of critical technologies, including those central to defence. The treasurer was therefore right to block the acquisition," he said.
But he also said the government needed to provide a public explanation laying out why it had made the decision.
"Consistency in relation to messaging is vital. Transparency and accountability for such decisions is the best way to maintain trust and integrity in the system and to enable reform where necessary," he said.
"A silent approach generally only serves to increase distrust in both the system and the decision-making."
Shadow Foreign Minister Simon Birmingham backed the decision, saying it was "unambiguously in Australia's interest for us to play a leading role in diversifying global supply chains of critical minerals".
"The appropriate use of foreign investment rules, such as these decisions, is essential to ensure that true diversification of critical minerals supply chains is achieved," he told the ABC.
But Senator Birmingham warned that the government also had to ensure rare earths companies like Northern Minerals weren't starved of investment.
"Simply saying no to investors who are not in the national interest doesn't guarantee that alternative investors will step forward," he said.
"The government also needs to set out clear strategies on how it will attract the alternative investment needed for these projects to succeed."
