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Tags: Australia | Block | China | Rare | Earth | Deal | Supply

Australia Blocked China Rare Earth Deal on Supply Concerns

Monday, 14 February 2011 02:07 PM EST

China’s bid to gain control of the world’s richest rare earth deposit in 2009 was blocked by Australia’s Foreign Investment Review Board on concern it would threaten supply to non-Chinese buyers.

State-owned China Non-Ferrous Metal Mining (Group) Co. in May 2009 offered A$252 million for a 51.6 percent stake in Lynas Corp., which needed cash to resume development of the Mount Weld rare earth mine in Western Australia.

Minutes of a meeting by the review board on Sept. 23, 2009, obtained by Bloomberg News through an Australia Freedom of Information Act request, show a concern the deal could undermine Australia as a reliable trading partner.

“We have concluded that they would not be able to exclude the possibility that Lynas’ production could be controlled to the detriment of non-Chinese end users,” the minutes show. That would have been “inconsistent with the government’s policy of maintaining Australia’s position as a reliable supplier to all our trading partners and hence potentially contrary to national interest.”

Even without Lynas, China controls more than 95 percent of the world’s supply of rare earths, used in Research in Motion Ltd.’s BlackBerrys, Apple Inc.’s iPods and General Dynamics Corp. tanks. In 2010, China said it would slash exports of the metals, souring ties with major users including the U.S. and Japan and causing prices to surge.

Rare earths are 17 chemically similar elements, including neodymium and dysprosium. Prices of neodymium oxide, which is used in mini hard drives in laptops and headphones in iPods, have doubled since the start of the December quarter, according to information on Lynas’ website.

China Owned

The review board, known as the FIRB, ordered China Non- Ferrous to limit its Lynas stake to less than 50 percent even after both companies agreed independent directors would control all marketing of rare earths products, the Australian company said in a Sept. 24, 2009 statement.

The review board said it was aware of international concern regarding access to rare earths and that there were limited new suppliers. Concerns also were raised by rare earth users outside of China, it said. The reasons for those concerns were redacted in the minutes.

Wang Changming, a spokesman for Beijing-based China Non- Ferrous, declined to comment. Lynas’ Executive Vice President of Strategy and Corporate Communications Matthew James declined to comment as he hadn’t seen the minutes.

Welcome Investment

After the China Non-Ferrous deal was scrapped, Lynas raised A$450 million in a share sale to fund its A$550 million ($553 million) Mount Weld mine, which the company says has the richest grades of ore for rare earth metals in the world.

Australia “will continue to welcome equity investment in Australia’s rare earth producers by foreign investors, including Chinese enterprises,” the board minutes show. Bloomberg News applied for the information on Nov. 23 to the nation’s Treasury, which advised by FIRB.

China invested $26.6 billion in Australia in 2008-09, according to the review board’s annual report, the most recent available. That put China second only to the U.S. as the largest source of foreign investment in Australia.

Shares in Sydney-based Lynas have gained more than threefold in the past year, compared with an 8.2 percent gain in Australia’s benchmark index. The stock last traded at A$1.955 at the 4:10 p.m. Sydney close on the Australian stock exchange yesterday.

Slash Exports

The Bloomberg Rare Earth Mineral Resources Index of 14 companies that have rare-earth deposits more than doubled in the past 12 months, and has risen 2.6 percent this year.

China, the biggest buyer of Australia’s mineral exports, introduced its export quota system for rare earths in 1999 and first reduced them in 2001. It cut exports by 8.1 percent in 2009 to 119,500 metric tons.

Last July, the country said it would slash exports 72 percent to meet domestic demand and preserve reserves. That was followed in December by a 35 percent cut in quotas to 14,446 tons for the first half of 2011.

Consumers have been struggling to secure alternate supply. Lynas and U.S.-based Molycorp Inc., owner of the world’s largest non-Chinese deposits of rare-earth metals, are the only “genuine companies coming on-stream that can offer a meaningful level of production,” Investec Bank Australia Ltd. said Oct. 21.

U.S. Lawmakers

Lynas will start output from the first stage of its mine in the September quarter at a capacity of 11,000 tons a year, it said this month in a statement to the Australian stock exchange.

Japanese trading house Sojitz Corp. and Lynas agreed in November to seek as much as $250 million to double the capacity of the Mount Weld mine, Lynas said. Sojitz will request financing from the Japan Oil, Gas and Metals National Corp., a government agency.

Lynas will allocate at least 8,500 tons a year to the Japanese market for 10 years, once the funding is secured. Japan is the world’s biggest consumer of rare earths and the second- biggest buyer of Australia’s commodity exports.

U.S. officials and lawmakers began calling for development of domestic rare-earth supplies after China’s July announcement.

Supplies are “at risk” of being disrupted, the U.S. Energy Department said in a report last year. The price for rare earth carbonate has gained almost threefold from a low in January 2009, according to Steelhome prices on Bloomberg, which began compiling data in January 2008.

© Copyright 2023 Bloomberg News. All rights reserved.

China s bid to gain control of the world s richest rare earth deposit in 2009 was blocked by Australia s Foreign Investment Review Board on concern it would threaten supply to non-Chinese buyers.State-owned China Non-Ferrous Metal Mining (Group) Co. in May 2009 offered...
Monday, 14 February 2011 02:07 PM
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