By Sonali Paul
MELBOURNE, Sept 8 (Reuters) - Australia has delayed until October a decision on a Chinese firm's $400 million deal to fund Lynas Corp, owner of the world's largest undeveloped deposit of rare earths, even as resource-hungry China expands its footprint in Australian mining.
The review, extended for a second time, raises the prospect that Australia might approve the plan for China Non-Ferrous Metal Mining (Group) Co (CNMC) to take a majority stake in Lynas.
China's focus on Australian miners has raised concerns about ceding control of natural assets to state-owned foreign firms. China also dominates the world supply of rare earths, used for high-tech devices and green products such as hybrid cars.
For a factbox on rare earths, click.
Under the Lynas deal, CNMC has agreed to pay A$252 million ($215 million) for a 51.6 percent stake and has agreed to guarantee a loan from a Chinese bank of up to $184 million.
Following are potential outcomes on the decision:
AUSTRALIA APPROVES DEAL
Australian Treasurer Wayne Swan, who has the final say on whether the deal threatens national interests, would be hard pressed to reject it outright.
In May he allowed Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co Ltd (JEC) to boost its stake in smaller rare earths explorer Arafura Resources to 25 percent.
While the deal involves a Chinese firm gaining a majority stake, the Australian firm has tried to head off concern about Chinese control by giving Lynas's executive chairman the casting vote on the eight-member board, including four appointed by CNMC.
Swan has said foreign investment regulators would give close scrutiny to deals from state-owned enterprises but that has not stopped a range of Chinese investments.
He has never blocked a deal that would furnish capital that is essential for a new project to proceed.
Lynas needs the money to develop its Mount Weld mine in Western Australia state and build a plant in Malaysia to produce rare earths oxides, used in such products as energy-efficient light bulbs. The project was put on hold in February when it ran into trouble with its bondholders.
DEAL APPROVED, BUT CNMC GETS LESS THAN 50 PCT
This would be the most likely outcome if the government is nervous about Chinese control.
Swan could approve the deal on condition that CNMC gets less than a 50 percent stake, as he did last year on a deal involving Chinese metals trader Sinosteel when it sought full control of iron ore prospector Murchison Metals.
He limited Sinosteel's stake in Murchison to 49.9 percent after Sinosteel took over Murchison's rival, Midwest Corp, to ensure the Chinese firm would not dominate Western Australia's new iron ore mining region.
Forcing CNMC to limit its equity stake in Lynas to 49.9 percent would not hurt Lynas much as it would only cut CNMC's cash injection by about 3 percent.
AUSTRALIA BLOCKS DEAL
This is unlikely because Swan has not blocked similar deals.
The key factor that could make him stand in the way of this one is that China produces 97 percent of the world's supply of rare earths, increasingly coveted by manufacturers around the world to meet demand for environmentally friendly products.
Another factor that could sway Swan is growing political opposition to Chinese investment in Australian resource companies, with conservative lawmakers and the Greens expressing concerns about China buying into local miners.
Treasury officials have said a key test for foreign investment proposals in the mining industry was to make sure revenue streams to Australia were safeguarded.
Swan risks undermining Australia's reputation as a country that generally welcomes foreign investment, and further upsetting China, if the deal is rejected.
However a rejection by Swan is unlikely to dent relations with China as much as the failed Chinalco deal. Global miner Rio Tinto in June dumped plans for a $19.5 billion tie-up with Chinalco in the face of a shareholder revolt. CNMC does not have Chinalco's stature and public profile.
China itself does not allow foreign investment in its own rare earths deposits and restricts exports in order to prevent the strategic metals from being sold abroad too cheaply.
If the deal is rejected, Lynas will have to go back to the drawing board to line up funding for its Mount Weld project.
(Additional reporting by James Grubel in CANBERRA and Lucy Hornby in BEIJING; Editing by Michael Perry)
((sonali.paul@thomsonreuters.com; +61 3 9286 1419; Reuters Messaging: sonali.paul.reuters.com@reuters.net)) ($1=1.175 Australian Dollar) Keywords: AUSTRALIA CHINA/LYNAS (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
MELBOURNE, Sept 8 (Reuters) - Australia has delayed until October a decision on a Chinese firm's $400 million deal to fund Lynas Corp, owner of the world's largest undeveloped deposit of rare earths, even as resource-hungry China expands its footprint in Australian mining.
The review, extended for a second time, raises the prospect that Australia might approve the plan for China Non-Ferrous Metal Mining (Group) Co (CNMC) to take a majority stake in Lynas.
China's focus on Australian miners has raised concerns about ceding control of natural assets to state-owned foreign firms. China also dominates the world supply of rare earths, used for high-tech devices and green products such as hybrid cars.
For a factbox on rare earths, click.
Under the Lynas deal, CNMC has agreed to pay A$252 million ($215 million) for a 51.6 percent stake and has agreed to guarantee a loan from a Chinese bank of up to $184 million.
Following are potential outcomes on the decision:
AUSTRALIA APPROVES DEAL
Australian Treasurer Wayne Swan, who has the final say on whether the deal threatens national interests, would be hard pressed to reject it outright.
In May he allowed Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co Ltd (JEC) to boost its stake in smaller rare earths explorer Arafura Resources to 25 percent.
While the deal involves a Chinese firm gaining a majority stake, the Australian firm has tried to head off concern about Chinese control by giving Lynas's executive chairman the casting vote on the eight-member board, including four appointed by CNMC.
Swan has said foreign investment regulators would give close scrutiny to deals from state-owned enterprises but that has not stopped a range of Chinese investments.
He has never blocked a deal that would furnish capital that is essential for a new project to proceed.
Lynas needs the money to develop its Mount Weld mine in Western Australia state and build a plant in Malaysia to produce rare earths oxides, used in such products as energy-efficient light bulbs. The project was put on hold in February when it ran into trouble with its bondholders.
DEAL APPROVED, BUT CNMC GETS LESS THAN 50 PCT
This would be the most likely outcome if the government is nervous about Chinese control.
Swan could approve the deal on condition that CNMC gets less than a 50 percent stake, as he did last year on a deal involving Chinese metals trader Sinosteel when it sought full control of iron ore prospector Murchison Metals.
He limited Sinosteel's stake in Murchison to 49.9 percent after Sinosteel took over Murchison's rival, Midwest Corp, to ensure the Chinese firm would not dominate Western Australia's new iron ore mining region.
Forcing CNMC to limit its equity stake in Lynas to 49.9 percent would not hurt Lynas much as it would only cut CNMC's cash injection by about 3 percent.
AUSTRALIA BLOCKS DEAL
This is unlikely because Swan has not blocked similar deals.
The key factor that could make him stand in the way of this one is that China produces 97 percent of the world's supply of rare earths, increasingly coveted by manufacturers around the world to meet demand for environmentally friendly products.
Another factor that could sway Swan is growing political opposition to Chinese investment in Australian resource companies, with conservative lawmakers and the Greens expressing concerns about China buying into local miners.
Treasury officials have said a key test for foreign investment proposals in the mining industry was to make sure revenue streams to Australia were safeguarded.
Swan risks undermining Australia's reputation as a country that generally welcomes foreign investment, and further upsetting China, if the deal is rejected.
However a rejection by Swan is unlikely to dent relations with China as much as the failed Chinalco deal. Global miner Rio Tinto in June dumped plans for a $19.5 billion tie-up with Chinalco in the face of a shareholder revolt. CNMC does not have Chinalco's stature and public profile.
China itself does not allow foreign investment in its own rare earths deposits and restricts exports in order to prevent the strategic metals from being sold abroad too cheaply.
If the deal is rejected, Lynas will have to go back to the drawing board to line up funding for its Mount Weld project.
(Additional reporting by James Grubel in CANBERRA and Lucy Hornby in BEIJING; Editing by Michael Perry)
((sonali.paul@thomsonreuters.com; +61 3 9286 1419; Reuters Messaging: sonali.paul.reuters.com@reuters.net)) ($1=1.175 Australian Dollar) Keywords: AUSTRALIA CHINA/LYNAS (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.