The answer is – maybe……Before you stop reading, let us explain.
The Australian Government (and accordingly, the Foreign Investment Review Board (FIRB) considers the resources industry to be a sensitive sector and so will engage in a heightened level of assessment of resources transactions with the spectrum of Australian Government agencies. (The new Australian Government has not yet made changes to the regime.) Even greater scrutiny will be placed on transactions which may raise a ‘national security concern’. However, that should not be interpreted as meaning that a resources acquisition is likely to be objected to on the basis that it is contrary to Australia’s national security. On the contrary, historically most proposed acquisitions have been approved.
What constitutes a ‘national security concern’ is not defined in Australia’s foreign investment legislation. However, FIRB Guidance gives rise to an expectation that national security concerns may arise for:
- acquisitions of significant mining projects, or substantial interests in large mining companies, or
- any acquisitions relating to critical minerals.
FIRB has indicated that the extraction, processing and sale of critical minerals –is a key area of concern, whether operations are located in Australia or overseas. For FIRB purposes, critical minerals are: rare Earth elements, lithium, graphite, cobalt, vanadium, copper, nickel, silicon and high-purity alumina (with silicon and high purity alumina being recent additions to the list).
The scarcity, geographical concentration and use of these minerals in critical technologies, such as batteries, defence industry products and medical equipment, makes them particularly valuable. As such, the Australian Government is highly sensitive to any risks to the critical minerals supply chain – including manipulation, disruption and aggregation in certain countries – as this could impact Australia’s ability to source these minerals.
The likelihood that a proposed acquisition involving critical minerals will receive FIRB approval largely depends on the sensitivity towards the foreign investor, its proposed level of ownership and post-acquisition plans, including any proposed offtake agreement for critical minerals with foreign customers.
Investors from “five-eyes nations”, the US, Canada, the UK and NZ, along with investors with Australian investment partners, will be looked at more favourably when investing in sensitive resources projects such as those that involve critical minerals. In contrast, the likelihood of FIRB approval decreases if FIRB identifies any character concerns with the investor, such as non-compliance with regulations, tax avoidance or unacceptable business practices, or if the proposed acquisition would raise competition issues.
The level of foreign ownership acceptable to FIRB is assessed on a case by case basis. A lower level of foreign ownership, solely from private investors such as financial sponsors (as opposed to active foreign government investors), is more likely to receive FIRB approval. Broadly, FIRB considers an interest of 20% or more is sufficient for a foreign investor to exert control over an entity.
Any FIRB approval for transactions involving critical minerals will likely be issued subject to conditions, which will likely include:
- requirements that the Australian target company’s board of directors be at least 50% comprised of Australian citizens,
- a minimum number of independent directors on the Australian target company’s board of directors,
- restrictions on the persons who can access the mining operations, such as requiring on-the-ground workers to be Australian citizens or restricting access by directors of the new foreign owners, and
- reporting requirements regarding the sale of critical minerals.
FIRB typically does not impose country-specific conditions, other than in relation to Australia or to require compliance with other legislation – eg Safeguards legislation. It is unlikely there would be a condition specifically prohibiting the export of critical minerals to specific jurisdictions.
Non-critical mineral proposals, such as gold, iron ore or coal are relatively straightforward in comparison.
