Australia’s Foreign Investment Regime and Critical Minerals – “major overhaul” to be announced today by the Treasurer

KWM INSIGHT SERIES – CRITICAL MINERALS

Australia is one of the leading developed economies in critical minerals exploration, reserves, investment and production.^[1]

As the global energy transition continues to develop, change is on the horizon. Global critical mineral supply and demand, technological development, and the clean energy transition will continue to drive investment as government and industry stakeholders look for opportunities.

The Treasurer Jim Chalmers spoke to Australian media last night (30 April) and is set to announce a “major overhaul” of Australia’s foreign investment framework later today, 1 May 2024. Crucially, in relation to supply chains and overseas control of certain industries he noted:

"We need to be very careful about that, particularly in our critical industries, whether it's critical minerals, critical data, critical infrastructure."^[2]

In this insight, as context ahead of those announcements, we explore the recent developments in Australian critical minerals policy, legislation, and potential changes to the foreign investment regime.

Recent developments

Critical minerals are considered by the Australian Federal Government as metallic or non-metallic materials that are essential for modern technologies, economies or national security, and have supply chains that are vulnerable to disruption.^[3] Notably, critical minerals are used in the manufacture of electric cars, solar panels, batteries and many other technologies fundamental to the global energy transition and in achieving net zero emissions targets.

Critical minerals continue to be a key focus for governments, investors, and industry stakeholders.

• In June 2023, the Federal Government published its Critical Minerals Strategy 2023-2030,^[4] unveiled a $2 billion expansion in critical minerals financing and updated its Critical Minerals List, signalling renewed focus on Australia’s critical minerals sector. On 17 April 2024, the Federal Government announced investments into Queensland and South Australian projects through the Government’s Critical Minerals Facility,^[5] which follows on from the March announcement in relation to similar investment in a Northern Territory rare earths mine and refinery.^[6]
• On 11 April 2024, the Prime Minister, Anthony Albanese announced an upcoming Future Made in Australia Act which plans to “bring together in a comprehensive and co-ordinated way a whole package of new and existing initiatives”, including a $15 billion National Reconstruction Fund, a new Net Zero Authority, and tax subsidies to build solar panels.^[7] While the exact details of the Future Made in Australia Act are not yet known, the energy transition focus is clear, with Minister for Resources Madeleine King commenting that critical minerals funding would be vital in building the foundation of the Future Made in Australia Act, and is set to be a big part of the 2024 Federal Budget announcement later this month.^[8]
• The Foreign Investment Review Board (FIRB) is yet to publish its annual report for the financial year ended 30 June 2023, however the Government releases quarterly reports that show general foreign investment trends. The most recent quarterly report published on 8 February 2024 shows that, during 1 July 2023 to 30 September 2023, mineral exploration and development was the largest target sector for proposed investment into Australia with a total value of $28.5 billion.^[9]
• Following these announcements, the Treasurer, Jim Chalmers, in an interview with Australian media on Sunday, 14 April 2024, foreshadowed potential reforms to the foreign investment regime in Australia (see interview transcript here). The Treasurer reiterated the increased focus on the opportunities presented by the global energy transition and the need to continue to balance private investment incentives with national and economic security. He mentioned that potential foreign investment reform will consider investment into critical minerals (and other sectors) relative to risk; streamlining the review process for investors where the risk is lower and strengthening the process where the risk is higher. It is possible the strengthening will include making the process more robust where issues of national security arise.

The Treasurer’s announcements today are expected to provide details of substantial changes to the FIRB framework including in respect of critical minerals.^[10]

In light of these developments, we thought it timely to consider FIRB’s current guidance on foreign investment in Australia’s critical minerals sector ahead of the Treasurer’s announcement today.

FIRB’s current guidance on critical minerals  

The Treasurer is empowered to make orders in respect of foreign investment proposals that are considered to be contrary to Australia’s national interest - that is the test against which all proposals are assessed and encompasses national security. There is however no definition of the national interest, and it is assessed on a case-by-case basis.

FIRB places a heightened level of scrutiny on transactions that raise a ‘national security concern’ and provides sectoral guidance on when certain critical mineral related transactions will pose a national security risk, noting in its guidance that:

“[t]he 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.” ^[11]

Mandatory Notification

Generally, the acquisition of minerals as part of an offtake agreement will not require mandatory notification and prior FIRB approval.

For any transaction, foreign investors need to consider whether the transaction involves the acquisition of any interests in land, businesses or entities, and tenements for mining, production or exploration (for a foreign government investor) that meet the relevant monetary and percentage thresholds.

If a prior FIRB approval is required, investors should be mindful that proposals involving critical minerals will generally attract greater scrutiny and are likely to take longer to go through FIRB’s assessment process. The level of risk posed by a transaction involving critical minerals depends on several factors, including: whether or not the acquirer is a foreign government investor, the nature of the proposed transaction, the target, the critical mineral being acquired, and its abundance and supply chain.

Voluntary Notification

Foreign investors proposing to undertake a reviewable national security action by investing in a business or entity involved in the extraction, processing or sale of the following minerals are encouraged to voluntarily seek FIRB approval:

1. rare earth minerals;
2. lithium;
3. graphite;
4. cobalt;
5. vanadium;
6. copper;
7. nickel;
8. silicon; and
9. high-purity alumina.^[12]

Importantly, the Federal Government’s Critical Minerals List (published by the Department of Industry, Science and Resources) currently contains the following 31 resource commodities, two of which are groupings of minerals encapsulated in the ‘platinum-group elements’ and ‘rare-earth elements’ categories:^[13]

In December 2023, the Federal Government also created a new Strategic Materials List. These minerals are important for the global energy transition, however their supply chains are not currently vulnerable enough to meet the criteria for the Critical Minerals List. The Strategic Materials List currently consists of the following commodities:

1. aluminium;
2. copper;
3. phosphorous;
4. tin; and
5. zinc.

The Commonwealth Resource Minister has the discretion to review the Critical Minerals List at any time, and to make interim amendments if there are significant changes to technology, trade, domestic capacity or geopolitical developments.^[15] For example, on 16 February 2024, in accordance with the Minister for Resources’ decision, nickel was elevated to the Critical Minerals List (previously it was on the Strategic Materials List) in an effort to encourage financing and the road to net zero. This allowed relevant companies to have access to financing under the $4 billion Critical Minerals Facility and critical minerals related grant programs such as the International Partnerships Program ($40 million).^[16]

Indeed, the Critical Minerals and Strategic Materials Lists are the subject of continued adaptation. On 10 October 2023, Minister for Resources Madeleine King noted that the Government was considering adding coking coal, bauxite and iron ore to the Critical Minerals List. However, no changes have since been made in respect of any of those commodities.^[17]

What does this mean for you?

Foreign investors should be mindful of the foreign investment regime when considering investment into Australia.

The resource commodities listed in the FIRB guidance, whilst noted as voluntarily notifiable, are a source of deeper scrutiny should an acquisition otherwise meet a threshold for the operation of the regime. FIRB’s list of critical minerals is not only significantly shorter than the Government’s Critical Minerals List, but also includes copper (which the Department of Industry, Science and Resources currently classifies as a strategic material, rather than a critical mineral). Given that the FIRB application process and assessment is considered on a whole-of-Government basis (involving consultation with key government agencies), foreign investors and relevant industry stakeholders should consider the more extensive Critical Minerals List and Strategic Materials List when determining whether a notification and prior FIRB approval is required.

What happens next – “major overhaul” to be announced later today

Clearly the Treasurer’s speech later today is another step in the Federal Government’s increased focus on Australia’s critical minerals sector. The KWM FIRB team will be publishing a further alert of that speech and the proposed changes to Australia’s foreign investment regime, including in respect of critical minerals.