Australia’s critical minerals sector is open for foreign investment but early and constructive engagement with FIRB is essential

In the past six months the Commonwealth Government has made it clear that the development of the critical minerals sector[1] in Australia, including through foreign investment, is a priority. 

Despite this, over the past few weeks it has been reported that two proposed direct investments by foreign companies into ASX-listed miners with business operations focused on critical minerals[2] have been unsuccessful in obtaining approval under Australia’s foreign investment law. 

Some commentators have suggested that this indicates the Government’s attitude to foreign investment in this sector is inconsistent with its previous public announcements. Whether this is true or not is difficult to assess as reasons for decisions and details of interactions with the Government on foreign investment matters are not published. However, we note that the Treasurer and the Foreign Investment Review Board (FIRB) when dealing with foreign investment and Australia’s ‘national interest’, must take into account broader considerations, including the specific details of each of the proposed transactions and the sensitive nature of the critical minerals sector amid global concern (that existed well before the emergence of COVID-19) that critical mineral supply chains must be diversified both in terms of location and control.  

Given those broader considerations, it is clear that as with all sensitive sectors, and particularly since COVID-19, early and constructive engagement with FIRB by foreign investors seeking to acquire interests in the Australian critical minerals sector will be essential to identify any likely national interest concerns, and to explore whether any such concerns can be adequately dealt with through the imposition of conditions to any approval or structuring a transaction in a different way.

Commonwealth Government’s position on critical minerals

The Commonwealth Government has made three key announcements in the last six months that indicate it wants to encourage and support new critical minerals investment in existing or future mines. 

1. Export Finance Australia to fund critical minerals projects.

In November 2019, the Commonwealth Government announced that Export Finance Australia (EFA), formerly the Export Finance Insurance Commission, and its Defence Export Facility would focus on financing and supporting projects to extract and process Australia’s rare earths and critical mineral supplies. EFA jumped out of the starting blocks and has since February 2020 been engaged in discussions with Alkane Resources Limited to assist in the financing of its Dubbo Mine, which will have a mine life of 75 years and extract critical minerals such as zirconium, hafnium, niobium, tantalum, yttrium and rare earth elements. 

2. Establishment of the Critical Minerals Facilitation Office.

In January 2020, the Commonwealth Government established the Critical Minerals Facilitation Office (CMFO). The CMFO’s purpose is to act as an advocate for Australia’s critical minerals sector and drive its future development by assisting project sponsors to obtain finance and source offtake agreements. To this effect it got off to a roaring start, before COVID-19 travel restrictions were introduced, having led several trade missions to the United States and Canada where a number of co-operation agreements have been signed between government bodies as well as the private sector. 

3. COAG Critical Minerals Work Plan

On 16 April 2020, the Commonwealth Government facilitated the second Resources Ministers Roundtable Meeting (Roundtable Meeting). At that meeting the Resources Ministers of each State and Territory and the Commonwealth identified that investment into Australia’s critical minerals sector would be vital to the economic recovery of Australia as the world emerges from its COVID-19 enforced hibernation, and unanimously endorsed the COAG Critical Minerals Work Plan (Work Plan). 

The CMFO has been tasked with overseeing the implementation of the Work Plan, the initial priorities of which are:

1. The development of a national ethical certification scheme (with an associated Australian critical mineral brand) to:
   
   
   1. showcase Australia’s robust regulatory standards to prospective investors and trading partners; and
      
      
   2. position Australia as the provider of choice as an ethical and responsible global supplier.
      
      
2. The identification of opportunities for a range of critical minerals precincts and hubs to:
   
   
   1. develop new supply potential, and accelerate project approvals and development;
      
      
   2. support downstream opportunities, including by establishing pre-assessed mining precincts, industrial hubs for processing, precincts for tailings reclamation and infrastructure corridors.

Early engagement with FIRB will be important going forward 

It is clear that the potential opportunities for growth and investment in the critical minerals sector in Australia are significant. In seeking to invest in or partner with existing owners in the sector, foreign investors will need to be mindful that:

• the current increase in the ‘default’ timeframe for FIRB’s processing of applications may give rise to issues for parties seeking to transact and secure a first mover advantage, although FIRB has been clear that it will prioritise applications for investments which will benefit Australian jobs and businesses; and
  
  
• as is the case for all sensitive sectors, review of a proposed transaction by FIRB may add an additional overlay of uncertainty to investment in an emerging growth sector within the broader Australian resources industry, as it is not yet clear what conditions FIRB will require for foreign investment into critical minerals assets (these are not publicly disclosed, and will vary to reflect the individual characteristics of each transaction and investor).  

As noted above, early engagement with FIRB by foreign investors seeking to invest in the Australian critical minerals sector is recommended so that potential investors can factor in any issues arising from that engagement into transaction negotiations and timeframes.