Northern Minerals may be a small fish in the big pond of Australian mining companies, but it has recently become ensnared in a corporate tussle that has forced the country’s government to risk its relations with China.
Earlier this month, Australia’s Treasurer Jim Chalmers ordered a group of investors linked to a Chinese mining company to reduce their collective holdings in Northern Minerals, citing the ‘national interest’. The stakes are high, because Northern Minerals is part of Western countries’ efforts to reduce their reliance on China for critical minerals.
That’s because the Perth-headquartered company produces the so-called ‘heavy’ rare earth element dysprosium at its Browns Range project in Western Australia. Dysprosium is a key ingredient in the magnets used in electric vehicle motors, wind turbines and other technologies expected to be in high demand as the world strives for zero emissions.
“This particular project is critical to a broader effort by U.S. allies and partners to essentially create supply chains for critical minerals that don’t run through China,” says Benjamin Herscovitch, research fellow at the School of Regulation and Global Governance at Australian National University (ANU).
Despite their name, rare earths are found in abundance throughout the world, although their availability depends on different countries’ mining restrictions. Today, China dominates almost all steps of the rare earth supply chain, from mining raw materials to processing them into compounds. The U.S., Australia and other Western countries have sought to establish alternative sources of rare earths due to the risk China could use this dominance as a form of coercive economic leverage.
“Critical mineral resources have become the next battlefield between the U.S. and China,” says Marina Zhang, associate professor at the Australia-China Relations Institute at the University of Technology Sydney. “China’s advantage in this area is actually not its [mineral] deposits, it is its ownership in mines and its technologies.”
A group of Chinese investors, led by Shandong businessman Wu Tao, have been seeking to expand their influence over Northern Minerals. Before the Australian government’s action this month, a Singapore-registered company named Yuxiao Fund had built up a 9.8 percent stake in Northern Minerals. The below graphic shows Wu Tao’s connection with Yuxiao Fund and its associated companies in China.
In February 2023 Chalmers, the Australian Treasurer, prohibited Yuxiao Fund from owning more than 9.98 percent of Northern Minerals. The Treasurer’s order this month came after Northern Minerals suspected that four other investors who were buying its shares last year may have links to Yuxiao Fund, and that their combined stake may violate the February 2023 order. Northern Minerals then contacted Australia’s Foreign Investment Review Board (FIRB), which monitors foreign investment in the country, similarly to the Committee on Foreign Investment in the United States (CFIUS).
What China seems to want to do is ensure that, when it comes to certain critical minerals, there aren’t good, reliable, alternative suppliers and China is therefore able to maintain its market dominance.
Benjamin Herscovitch, research fellow at the School of Regulation and Global Governance at Australian National University
The government’s divestment order will force Yuxiao Fund to reduce its stake in Northern Minerals from 9.8 percent to 8.5 percent, but does not require Yuxiao to sell the entirety of its stake.
The graphic below shows the timeline of events as the Chinese investors sought different ways to gain influence over Northern Minerals:
ANU’s Herscovitch says that the government order’s limited scope suggests its immediate purpose was to ensure that the February 2023 order is followed.
“One interpretation of this is it’s a simple regulatory, legal issue and not really about China specifically,” he says.
But he adds that “the deeper story here is that Australia would not be in the business of securitizing critical minerals miners if not for the China element. Canberra thinks that it is a dangerous proposition for Australia to have additional Chinese capital in Australian critical minerals miners.”
Herscovitch also speculates the corporate drama around Northern Minerals could have been engineered by Chinese interests to distract a potential competitor.
“The way this unfolded — it was so commercially dubious that the net result is that there’s a divestment order and a lot of uncertainty for Northern Minerals and a lot of negative media scrutiny,” he says. “What China seems to want to do is ensure that, when it comes to certain critical minerals, there aren’t good, reliable, alternative suppliers and China is therefore able to maintain its market dominance.”
Aaron Mc Nicholas is a staff writer at The Wire based in Washington DC. He was previously based in Hong Kong, where he worked at Bloomberg and at Storyful, a news agency dedicated to verifying newsworthy social media content. He earned a Master of Arts in Asian Studies at Georgetown University and a Bachelor of Arts in Journalism from Dublin City University in Ireland.