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We have previously discussed the Federal Government of Australia’s critical minerals strategy. The government has commented that well-designed support can de-risk investment, crowd in private sector funding, attract foreign investment and mature the sector. Further, that foreign investment has always been critical to Australia’s prosperity. The consideration of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) and whether to seek Foreign Investment Review Board (FIRB) Approval, is therefore paramount. 

The Australian Government, in their critical mineral strategy has set out the following critical minerals: 

Australia's Critical Mineral list

Interestingly, FIRB (despite falling within the jurisdiction of the Federal Treasury) does not define critical minerals but encourages FIRB approval for businesses or entities involved in the extraction, processing or sale of the following minerals: 

• Rare earth elements; 
• Lithium;
• Graphite;
• Cobalt;
• Vanadium;
• Copper;
• Nickel;
• Silicon;
• High purity alumina. 

FIRB does not provide any clarification on what constitutes rare earth elements. However, the notable difference between the two lists is that FIRB considers Copper and Nickel to be critical minerals. 

What are the ramifications of having an entity that is involved in the extraction, processing or sale of a critical mineral?

FIRB Guidance Note 8 (National Security) provides the following with regards to Critical Minerals:

Critical Minerals

Technological change has been driving global demand for critical minerals which due to their unique catalytic, metallurgical, nuclear, electrical, magnetic, and luminescent properties, are increasingly used in the manufacture of mobile phones and computers, wind turbines, electric cars, solar panels, batteries, defence industry products and technologies, and many other high-tech applications. The scarcity and geographical concentration of some critical minerals leaves them potentially vulnerable to supply chain manipulation and disruptions for strategic gain that could cause long-term harm to national security.

The national interest, and what would be contrary to it, is not defined in the Act. Instead, the Act confers upon the Treasurer the power to decide in each case whether a particular investment would be contrary to the national interest.

FIRB Guidance often refers to ‘national interest, particularly national security’. It is clear from the guidance that national security is of national interest. 

As set out above in FIRB Guidance, FIRB encourages foreign persons to notify FIRB of the transaction. Therefore, if the acquisition is considered a national security concern, it will not pass the national interest test. 

Where a transaction is not otherwise caught by the Act (a notifiable action, significant action or a notifiable national security action), it is still a reviewable national security action. 

An action is a reviewable national security action if:

1. the action is taken, or proposed to be taken, by a person and the action is to acquire an interest of any percentage in an entity; 
2. the action is taken, or proposed to be taken, by a foreign person and the action is to acquire an interest in Australian land; or
3. to issue securities in an entity; or
4. to enter an agreement relating to the affairs of an entity and under which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions or wishes of a foreign person who holds a direct interest in the entity; or
5. to alter a constituent document of an entity as a result of which one or more senior officers of the entity will be under an obligation to act in accordance with the directions, instructions or wishes of a foreign person who holds a direct interest in the entity; and
6. as a result of the action or proposed action (for acquisitions in entities, not land):
   (1)  a foreign person acquires, or will acquire, a direct interest (10%) in the entity and that acquisition, or proposed acquisition, is not a significant action, notifiable action or notifiable national security action; or
   (2)  a foreign person will be in a position, or more of a position, to influence or participate in the central management and control of the entity; or
   (3)  a foreign person will be in a position, or more of a position, to influence, participate in or determine the policy of the entity; and
7. the action is or was not otherwise a significant action, a notifiable action or a notifiable national security action.

This has a very broad application and gives the Treasurer the ‘call in’ power. The call-in power can be used if the Treasurer considers that the action may pose national security concerns. The review can occur when the action is still proposed or up to ten years after the action has been taken.

Once called in, an investment will be reviewed to determine if it raises national security concerns. For investments ‘called in’, the Treasurer may issue a no objection notification, including with conditions, or prohibit the action, or require divestment.

The Treasurer cannot call-in an action that has been notified to the Treasurer or for which a no objection notification or exemption certificate exists. A foreign person can therefore choose to extinguish the Treasurer’s ability to use the ‘call-in’ power by voluntarily notifying a reviewable national security action. Voluntary notification will not, however, extinguish the Treasurer’s ability to use the ‘last resort’ power. The fact that an investment is not subject to mandatory notification and is not encouraged to be voluntarily notified does not limit the use of the Treasurer’s call-in or other powers.

Find out more about our FIRB expertise and reach out to Partner Michael Hansel or Senior Associate Christina Hooper in our Corporate Advisory and Governance team for more information.