Australia has revealed investment guidelines biased against majority foreign stakes in its mining industry, raising concerns that the policy will worsen already-strained relations with China. “It’s got to be seen as being negative - I can’t see there’s any positive in it - and it comes at a rather bad time as the mining sector is looking to recapitalise itself,” said economist Jeff Rae, of trade and investment consultancy ITS Global. He was referring to recent public comments by a senior official from Australia’s Foreign Investment Review Board (FIRB), who said the board preferred not to see foreign majority stakes in new mining projects. The FIRB examines proposals made by foreign interests for direct investment in Australia and makes recommendations to the government on whether those proposals are suitable for approval on the basis of Australia’s national interest, be it economic or security. It does so behind closed doors due to the market-sensitive nature of some of the details it examines. The FIRB’s functions are advisory only. The treasurer has responsibility for the government’s foreign investment policy and for making decisions on proposals.

Australia was also set to reject a Chinese investment in an outback mining venture inside the vast Woomera missile testing range area, after defence officials ruled the project threatened national security. The move comes as Australia-Sino relations are strained over resources links, with resource-hungry China keen to extend its footprint in Australia’s mining sector. FIRB general manager Patrick Colmer also warned that foreign investors in general should keep their businesses listed in Australia and that foreign investors cap their interest at no more than 15 percent in miners with projects already running. It may also raise the regulatory risk for foreign investors in the mining sector and lead to fewer foreign-investment proposals from non-Chinese investors. Already, up to 10 percent of investment applications are withdrawn before decisions are made. But a spokesman for Australia’s Treasury department said it was business as usual in the way overseas investments were being assessed. “There has been no change to the FIRB rules or regulations,” the spokesman said. China analyst Mark Thirwell of Australia’s Lowy Institute said Beijing would read Colmer’s speech as signaling tighter criteria for mining investments. “It’s clear this is about Chinese investment,” Thirwell said. “The message that is probably going to be heard the loudest is the one that here are more hoops to jump through.”

Growing footprint
Beijing’s footprint in the Australian outback has become more evident in the past few years as a legion of state-backed firms scour the landscape for investments that will guarantee supplies of industrial raw materials for decades to come. Australian miners have embraced, and in many cases courted, Chinese funding, happy to partner up with part of the world’s fastest growing economy. Colmer also warned foreign investors to keep their businesses listed in Australia and not allow their lawyers to use complex legal arguments in approval applications. The FIRB maintains its only criteria is the economic and security well-being of the nation and that each case is regarded on its merits. But the agency is being singled out for its approach to investments by China, Australia’s third largest investment partner after the United States and Britain. Wang Wei, chairman of China M&A Management Holdings Inc, said at the same investment forum where Colmer made his comments that he sees a “paradox” in the China bashing that is coinciding with deal chasing in Australia. The FIRB this week knocked back a proposal by China Nonferrous Metal Mining (Group) Co. to buy a 50.6 percent interest in Lynas Corp, which needed the $400m price tag to develop the world’s largest rare earth deposit. The state-owned Chinese firm balked at the FIRB’s recommendation it reduce its stake to below 50 percent and terminated the deal, leaving Lynas under-funded to proceed. Lynas has since asked that its stock stop trading for up to five days while it searches for alternative funding. “We’re more than a little disappointed with the government’s position,” Lynas Executive Chairman Nicholas Curtis said. “I don’t really see the difference between 50.6 percent and 49 percent.”

Chinese investments in Australian resources
A timeline of proposed, successful and failed major Chinese investments in Australia in 2009:

Sept 24, 2009 
Australia rejects a $400m proposal for Chinese state-owned China Non-Ferrous Metal Mining (Group) Co to acquire a 50.6 percent interest in miner Lynas Corp Ltd, owner of the world’s richest deposit of rare earths minerals.

Sept 24, 2009
Australia’s defence department opposes a proposed joint venture between Wugang Australia Resources, a wholly-owned subsidiary of state-owned Wuhan Iron and Steel, and Australia’s Western Plains Resources. Defence officials said the project, inside a vast weapons testing area, would not be compatible with operational and national security.

Sept 8, 2009
Chinese state-owned power producer China Guangdong Nuclear Power Holding Co. Ltd agrees to a takeover bid for Australian uranium explorer Energy Metals.

Sept 8, 2009
China Railways Materials Corp agrees to take 12 percent stake in FerrAus for A$12.6m and help building rail infrastructure for iron ore exports.

Aug 28, 2009
China’s biggest steelmaker, Baosteel, agrees to invest $240m for a 15 percent stake in Australian iron ore explorer Aquila Resources.

Aug 27, 2009
Australian takeover target Nufarm Ltd says it is still holding talks with Sinochem Corp on the Chinese state firm’s takeover approach.

Aug 13, 2009
Yanzhou Coal Mining Co agrees to buy Australian coal miner Felix Resources Ltd for $2.9bn.

June 17, 2009
China’s Minmetals takes over most of the assets of Oz Minerals Ltd for about $1.4bn.

June 5, 2009
Global miner Rio Tinto dumps plans for a $19.5bn tie-up with China’s Chinalco, in the face of a shareholder revolt.

May 8, 2009
The Australian government allows Chinese steel maker Anshan Iron and Steel Group to triple its stake in iron ore miner Gindalbie Metals to 36.28 percent.

May 1, 2009
Chinese state-owned China Nonferrous Metal Mining Group (CNMC) agrees to take a majority stake in Australian rare earths miner Lynas Corp for A$252m ($186m), subject to government approval.

March 31, 2009
China’s Hunan Valin Iron and Steel Group lifts stake in Fortescue Metals Group to 17.3 percent for total AUS$645m.

Feb. 5, 2009
Shenzhen Zhongjin Lingnan Nonfemet, China’s third-largest zinc producer, wins Australian government approval to acquire a controlling stake in zinc miner Perilya.

Sept 22, 2008
Australia allows state-owned trading firm Sinosteel to buy up to a 49.9 percent stake in iron ore prospector Murchison Metals Ltd.

Sept 16, 2008
Sinosteel takes over Australian iron ore prospector Midwest Corp.