Securing Australia's minerals future: navigating national security and foreign investment

Damien Clarke, Joint Managing Partner, Meg Morgan, Partner - McCullough Robertson

In today’s global economy, critical minerals are the foundation for advanced technologies, renewable energy solutions, and national security.

As the world embraces decarbonisation and digital transformation, minerals like lithium, cobalt, and rare earth elements have become strategic assets. Australia, with its vast reserves, is central to the global supply chain, but balancing foreign investment with national security is a growing challenge.

The Foreign Investment Review Board (FIRB) plays a key role in navigating this delicate balance, reshaping Australia's critical minerals sector.

Critical minerals as the new frontier of national security

In recent years, the importance of critical minerals has risen to the forefront of national security discussions globally. As other nations, particularly China, dominate global processing and control of these resources, Australia finds itself in a unique position: a resource-rich nation seeking to attract and secure foreign investment opportunities while balancing national security imperatives.

Australia’s Critical Minerals Strategy 2023-2030 outlines a vision to build a robust domestic supply chain. However, achieving this vision depends heavily on foreign capital to fund exploration, extraction, and processing infrastructure. FIRB plays a vital role in ensuring that foreign investments align with Australia’s national interests while supporting the country’s economic and geopolitical ambitions.

The Foreign Investment Review Board’s expanding scope and heightened scrutiny

In recent years, FIRB’s mandate has expanded significantly, particularly with respect to investments in Australia’s critical minerals sector.

Foreign investment into Australia’s critical mineral sector will generally require FIRB approval to:

1. acquire an interest of 10% or more in an Australian land entity (i.e. an entity where 50% of the value of its assets are interests in Australian land including mining leases). If 10% or more of the entity’s asset value is mining tenements, the relevant threshold for FIRB approval is nil;

2. acquire a substantial interest (i.e. an interest of 20% or more) in an Australian entity where the relevant monetary threshold is met, currently $330 million; and

3. acquire an existing mining lease where a relevant exemption does not exist.

Foreign Government Investors (FGIs) face even stricter requirements and generally need FIRB approval for any investment in the mining or the processing stages of critical minerals.

The national security reforms introduced in Australia in 2021 granted FIRB greater powers to scrutinise and block investments that could pose risks. FIRB’s call-in powers, allowing it to review any foreign investment within 10 years, now add an additional layer of oversight.

Changes to FIRB’s treatment of critical minerals has followed the increased global demand for critical minerals used to produce essential modern technologies. China currently dominates the global critical mineral processing sector - processing roughly 85% of the world’s cobalt and 75% of the world’s lithium.

FIRB’s attitude to curb this dominance was reflected in the Treasurer’s recent exercise of FIRB’s divestment powers. In June 2024, the Treasurer ordered the Yuxiao Fund, a Chinese-linked investment fund (and its associates) to divest a combined interest of 10.4% in Northern Minerals Limited on “national interest” grounds.

This divestment order follows recent FIRB rejections in 2023, including:

1. In February, the Treasurer blocked the same Yuxiao Fund from increasing its stake in Northern Minerals Limited from 9.98% to 19.9%; and

2. In July, the Treasurer blocked China-linked mining company, Austroid Corporation, from acquiring an additional 90.10% of lithium miner Alita Resources Limited. This acquisition would have brought its stake in Alinta Resources to 100%. The Australian subsidiary of Austroid Corporation, Austroid Australia Pty Ltd, was also barred from wholly acquiring Alita Resources Limited.

While FIRB’s role is crucial, it also raises important questions: How can Australia ensure the secure development of its critical minerals sector without discouraging foreign investors? And how will FIRB’s policies shape the competitive landscape for Australian companies in the global market?

Enter: The Minerals Security Partnership Finance Network

In September 2024, Australia, the U.S., Japan, Canada, and 11 other nations announced the creation of the Minerals Security Partnership Finance Network, coined as the 'NATO of critical minerals.'

The Network aims to enhance global cooperation, information exchange, and co-financing to secure sustainable supply chains for critical minerals essential for the energy transition. The partnership highlights the need for joint action to meet global energy goals and supplements existing funding commitments for the Australian critical minerals industry.

The Network is also advancing projects like the Australian Strategic Materials rare earth initiative, which is set to receive up to US$600 million from the U.S. Export-Import Bank. The Network is a welcome addition to the host of investment commitments from Australian State and Federal governments, and participation in the Network can only be a good thing for Australia's critical minerals sector.

However, Australia still faces regulatory and policy challenges in attracting continuous foreign investment – notably FIRB – but also other regulators such as competition, property and environmental authorities. To date, and until the Network and other initiatives are embedded as part of the investment landscape, proponents have been managing existing financial and regulatory hurdles through bespoke structuring arrangements, such as strategic partnerships and offtake prepayment arrangements.

Looking ahead

FIRB’s role will continue to shape the mining sector in Australia, particularly for critical minerals. As global competition for these resources intensifies and national security concerns remain high, understanding FIRB’s evolving framework will be crucial for the sector. Mining companies and investors must adapt to these changes to ensure that their projects not only meet the demand for critical minerals but also align with Australia's strategic and regulatory priorities.

Here are some key recommendations for participants in Australia’s mining sector:

1. Proactive engagement with FIRB and government stakeholders

Companies should engage with FIRB and government stakeholders early in the investment process. Providing transparent information about foreign partners, supply chain security, and the intended uses of the minerals can increase the likelihood of investment approval and reduce risks of delays. Aligning projects with Australia's national interests and demonstrating their contribution to critical minerals supply chain resilience will be key to attracting FIRB’s support.

2. Building strategic partnerships with trusted investors

FIRB takes a cautious approach to investments from high-risk jurisdictions, with typically less scrutiny on partnerships that align with Australia's strategic interests. Companies can reduce regulatory risks by forming joint ventures with trusted investors from nations with strong ties to Australia, such as the U.S., Japan, and South Korea.

3. Adapting to FIRB’s long-term focus on national security

FIRB’s evolving role reflects broader concerns about Australia’s long-term economic and security interests. Companies should prepare for increased regulatory scrutiny at the approval stage and throughout the lifecycle of high-risk projects, particularly in sectors like rare earths and battery minerals. Strong internal governance and adherence to ESG (environmental, social, and governance) standards will help companies secure FIRB approvals and attract high-quality investors.

4. Positioning for policy and market shifts

Companies should stay updated on FIRB and government policy changes and adapt compliance practices to reflect evolving investment rules. Global decoupling from Chinese mineral processing offers Australian mining companies opportunities to strengthen their position in international markets by securing valuable partnerships and exports.

5. Seizing opportunities in critical mineral processing

FIRB’s role goes beyond regulating foreign investment; it also influences the broader strategy to ensure Australia captures more value from its resources through domestic processing. Companies should consider investing in downstream processing in Australia to align with the government’s goals of reducing reliance on foreign processing.

Summary

As Australia works towards solidifying its role as a global leader in critical minerals, FIRB will continue to be a key player in shaping the future of the industry. Mining companies must be prepared to navigate this evolving landscape, ensuring their projects meet both FIRB’s stringent requirements and Australia’s broader national security objectives. New players seeking to enter the manufacturing and processing of these minerals will also need to be alive to these same issues.

By taking a strategic, long-term view and engaging proactively with FIRB and government stakeholders, participants in the sector can ensure their operations contribute to a secure and sustainable future for Australia's critical minerals industry. This approach will not only safeguard national interests but also unlock new opportunities in the rapidly evolving global market for critical minerals.

Mining companies must be prepared to navigate this evolving landscape, ensuring their projects meet both FIRB’s stringent requirements and Australia’s broader national security objectives.