30 June How foreign investment changes may impact the mining and energy sector June 30, 2020 By AMPLA Admin Industry, Resources and Energy FIRB, Mining, Energy 0 In early June 2020, the government announced a review of the foreign investment rules, expanding them to apply to all foreign investors in anything deemed a ‘sensitive national security business’. The changes are scheduled to come into effect on 1 January 2021. There are concerns that this will impact foreign investment in the mining and energy sectors, and in particular the critical minerals space. Changes to foreign investment rules Thresholds The Foreign Investment Review Board (FIRB) reviews foreign investment proposals and provides guidance to the Treasurer on whether they are in the national interest. Notification to FIRB has historically been required if the proposed investment exceeds certain thresholds. On 29 March 2020, the government imposed a temporary $0 threshold for all proposed foreign investment as part of its COVID-19 response. The threshold will revert to the pre-March levels on 1 January 2021. However, the planned new rules mean that thresholds for anything deemed a "sensitive national security business” will remain at zero. That could apply to businesses in communications, technology, energy and resources. ‘Call in’ and ‘last resort’ powers The Treasurer may ‘call-in’ an investment after an acquisition even if it was not notified under existing national interest laws. Investments can be reviewed on a case by case basis if they are deemed to be a national security concern. The ‘last resort’ power allows the Treasurer to order a divestment if a national security risk emerges after approval has been granted. Given these expanded powers of review, investors in mining or energy companies are well advised to voluntarily notify FIRB of their intentions. Doing so prior to acquisition avoids the possibility that they will be called in for review after the fact on national security grounds. Special watch on the critical minerals space Foreign investment is particularly important for critical minerals. As critical minerals are used in high-tech applications like mobile phones, battery energy storage, electric cars and aerospace, Australia’s domestic demand for them is very low. Accordingly, the critical minerals industry is heavily reliant on relationships with foreign investors, primarily in China and India. Critical minerals are sold in very small quantities, for specific needs and for very high prices. This means that successful sales depend on having a particular supplier relationship before you mine the minerals. Is the government supportive of foreign investment? Several recent government announcements would seem to indicate that it is. Expert Finance Australia announced in November 2019 that it would finance projects to express and process critical mineral supplies. This includes Alkane Resources’ Dubbo Mine, which extracts zirconium, hafnium and other rare earth elements. In January 2020, the government established the Critical Minerals Facilitation Office, which advocates for Australia’s critical minerals sector. Advocacy efforts have included co-operation agreements between government bodies and private sector interests in the United States and Canada. Together with Geoscience Australia, the Office is developing a web portal to assess and update Australia’s critical minerals potential. Minister for Resources, Water and Northern Australia Keith Pitt has signed a Memorandum of Understanding with India on the potential for investment in Australia. The COAG Critical Minerals Work Plan, endorsed on 16 April 2020, also identifies that investment into Australia’s critical minerals sector is a vital part of our economic recovery from the COVID-19 pandemic. However, despite this clear signalling from the government that it welcomes foreign investment, two recent rejections indicate otherwise. On 20 April, the Treasurer rejected Baogang’s proposed $20 million (11.1%) investment in Northern Minerals. On 24 April, Chinese lithium investor Yin Tianyi withdrew a proposed $14.1 million (12%) subscription in AVZ Minerals after receiving information that the Treasurer intended to reject that as well. Both rejections happened before the tightening of the foreign investment rules, giving rise to fears that attracting foreign investors will only become more difficult. What can mining and energy companies do? For companies intending to attract foreign investment, early engagement with FIRB is critical. The two April rejections each took around five months to decide — well outside the two-month timeframe given. Since the new rules extend the time frame to six months, investors and companies seeking investment can expect it to take at least this long for a decision, if not longer. Early engagement and sensitivity to potential issues will give all parties the best chance possible for a successful business relationship. The Foreign Investment Review Board (FIRB) amendment bill will go out for industry consultation in July 2020 and is expected to take effect on 1 January 2021. Interested parties are encouraged to make a submission. ► Check out the AMPLA On-Demand Webinar on the Temporary Changes to Australia's Foreign Investment Review Framework (MEMBER ACCESS ONLY) Related Articles Digital transformation in mining and energy As the global shift to remote work gathers pace, it is more important than ever that the mining and energy sector embraces technology. But a digital transformation offers more than flexible working arrangements. It has the potential to drastically cut down on industrial accidents, optimise operational processes and slash costs. The states boost the energy and resources sector This year will be remembered for the many challenges that it brought to both individuals and industry. As Australia starts to return to some normality, many states are looking to boost industry, increase jobs and innovate for the future. In this article, we look at various state initiatives designed to boost the energy and resources sector. Changes to the Fair Work Act may benefit the energy and resources sector The energy and resources sector is a significant contributor to the economy, and its impact is estimated to continue to grow over the next decade. The Australian Resources and Energy Group (AMMA) estimates that the sector will add over 24,000 new workers by 2026 to support 98 new and expansion projects worth over $83 billion. The roles available could double depending not the construction and flow-on work required. Western Australia and Queensland are expected to benefit the most from these initiatives. The impact of coronavirus on the energy and resources industry The last few weeks have seen the world face an unprecedented disruption with the novel coronavirus (COVID-19). First reported in China, we’re now seeing many countries shutting down for periods of time to try to contain the spread of the virus. Australia is facing a particularly difficult year given the bushfires that ravaged the country recently. Now with COVID-19 adding to the pain, the energy and resources industry is being impacted in several ways outlined below. How COVID-19 could change mining for the better The mining industry was deemed an essential service by the Government, which has enabled it to continue to operate during the COVID-19 pandemic. However, this hasn’t been without its challenges. New processes and procedures were required to address safety and social distancing and issues of supply and worker mobility have impacted how the industry operates. But with adversity comes opportunity and the mining industry has thrived and realised the potential for new improvements amidst the pandemic. UWA Mining Law Workshop Showing 0 Comment Comments are closed.