China Non-Ferrous Barred From Taking Control of Lynas

By Jason Scott

Sept. 24 (Bloomberg) -- China Non-Ferrous Metal Mining Co. was blocked by Australia from buying a majority stake in rare-earth producer Lynas Corp. as the government seeks to preserve local control of the nation’s resources.

Australia’s Foreign Investment Review Board ordered China Non-Ferrous to limit its stake in Lynas to less than 50 percent, the Sydney-based company said today in a statement. China accounts for more than 90 percent of global output of rare earths, used in iPod music players, liquid crystal displays, hybrid cars and wind turbines.

Investments by Chinese companies have faced scrutiny from Australia as the biggest metals consumer accelerates takeovers. Australia blocked a A$2.6 billion ($2.3 billion) bid by state- owned China Minmetals Corp. for OZ Minerals Ltd. in March on national-security concern and review board director Patrick Colmer said today overseas investors should limit proposed stakes in major mining companies to no more than 15 percent.

“What FIRB doesn’t want to see is something as significant as a rare-earths project, where China controls so much of the world’s production, fall under the control of one country,” said Peter Strachan, a Perth-based analyst for independent company StockAnalysis.

Lynas, which says it owns the world’s richest deposit of rare earths, has risen more than threefold since China Non- Ferrous agreed May 1 to pay A$252 million for a 51.6 percent stake. It advanced 3.5 percent today in Sydney trading to 90 cents.

Board Directors

The Chinese company terminated the entire purchase. It was also ordered to cut the number of directors it planned to appoint to Lynas’s board to less than half, Lynas said.

“These were in addition to already agreed undertakings between Lynas and CNMC aimed at ensuring independent director control of all marketing of rare earths products,” Lynas said.

Lynas planned to use the money from the sale to resume work on the Mount Weld project, near Laverton in Western Australia. The company suspended work in February while it sought development funding.

The company said it’s well advanced in getting interim funding to ensure it has sufficient working capital.

‘Without Difficulty’

The review board has processed about 90 proposed Chinese investments in Australia valued at about A$34 billion in the past 18 months, Colmer said. China is now probably the third- biggest foreign investor in Australia after the U.S. and the U.K., he said, adding it may climb further up the rankings in coming years.

After initially blocking China Minmetal’s offer for OZ Minerals it allowed the sale of most of its other assets to the Chinese company.

The “vast majority” of Chinese investments are in Australian resources and most of them are cleared without difficulty, Colmer said.

“It’s very dangerous and counter-productive to see something like this as anti-Chinese as Australia also needs to protect its interests,” StockAnalysis’s Strachan said.

China’s Ministry of Industry and Information Technology said Sept. 3 supplies of dysprosium and terbium, minerals needed to make hybrid cars and televisions, may be inadequate for its needs, amid concerns that exports from the largest rare-earths producer may decline.

Export Curbs

China has about half of the world’s rare-earths reserves. The government started to curb output and exports in 2006 as prices dropped.

Chinese exports of rare earths fell 35 percent to 34,600 metric tons in 2008 from 53,300 tons in 2006, according to Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., which owns the largest rare-earths mine.

Demand for rare earths may grow more than 40 percent by 2014, Arafura Resources Ltd. Managing Director Alistair Stephens said Sept 10, citing BCC Research. Arafura is planning a A$600 million rare earths mine in Australia.

China may spend more than $500 billion on overseas resources investments over the next eight years, according to Deloitte Touche Tohmatsu.

To contact the reporter on this story: Jason Scott in Perth at Jscott14@bloomberg.net