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SCENARIOS-Will Australia let China control Lynas' rare earths?
Tue Sep 8, 2009 2:31am EDT
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 (MMX.AX).
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 (RIO.AX) (RIO.L) 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)