What you need to know

6 min read


The Federal Government has announced that it will shortly release a new Critical Minerals Strategy, following its December 2022 critical minerals discussion paper. It is possible that the new Strategy will include changes to how foreign investment in the Australian critical minerals sector is regulated by the Foreign Investment Review Board (FIRB).

In this Insight, we outline the extent to which the FIRB regime currently regulates foreign investment in critical minerals and consider the potential future direction of the regulatory framework.

Key takeaways

  • Currently, there is no stand-alone ‘critical minerals’ category constituting a mandatory FIRB approval trigger.
  • Foreign investors in the Australian critical minerals sector may nevertheless find themselves subject to a mandatory FIRB approval requirement on other grounds.
  • Following recent Government comments, and the forthcoming release of the Critical Minerals Strategy, it is possible that the FIRB approval rules relating to critical minerals will be tightened.

Background 

In December 2022 the Government released a critical minerals discussion paper1 outlining its priorities for the development of the critical minerals sector, including the proposed policy settings to advance the sector’s growth. On 18 May 2023 the Government announced that its new Critical Minerals Strategy would be released shortly.2

The December 2022 discussion paper flagged the development of a new Critical Minerals Strategy to capitalise on an opportunity for Australia to ‘cement itself as a global supplier of choice for processed critical minerals to meet rapidly growing global markets’ and ‘help Australia move up the global value chain’. Importantly, the new Strategy is also intended to help ‘support decarbonisation’.

The Government, through various publications, has defined ‘critical minerals’ as follows:

  • they are metallic or non-metallic elements with two characteristics: one, they are essential for the functioning of our modern technologies, economies or national security; and, two, there is a risk that their supply chains could be disrupted;3
  • they are essential inputs for a range of clean energy technologies, such as wind turbines, electric vehicles and solar photovoltaic;4 and
  • they include rare earth elements: lithium, graphite, cobalt, vanadium, copper, nickel, silicon and high-purity alumina.5

There has been a noticeable increase in mergers and acquisitions activity in the critical minerals space. The past few months alone have seen the following:

  • the announcement in May 2023 of a proposed merger of Livent and the ASX-listed Allkem to form an A$15.7 billion global lithium chemicals producer (media release);
  • the announcement in May 2023 of Rio Tinto’s acquisition of the Platina Scandium Project, a high-grade scandium (rare earth) resource in New South Wales (media release); and
  • takeover proposals made in March 2023 by Albermarle Corporation for the ASX-listed Liontown Resources, which controls two major lithium deposits in Western Australia (media release).

Current FIRB regime

Under the current FIRB regime (as set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the FATA) and accompanying regulations), there is no stand-alone ‘critical minerals’ category in terms of the mandatory FIRB approval triggers. Notably, a company is not considered to be carrying on a national security business merely because it operates in the critical minerals space.

Rather, foreign investors seeking to invest in the Australian critical minerals sector often find themselves subject to a mandatory FIRB approval requirement on one or more of the following grounds:

  • the foreign investor proposes to acquire a 10% or greater interest in an entity that is an ‘Australian land entity’ (ie more than 50% of its assets, by value, comprise interests in Australian land, including mining leases) and, where at least 10% of total asset value is attributable to mining leases, a nil monetary FIRB approval threshold automatically applies;
  • the foreign investor proposes to acquire a 20% or greater interest in an Australian entity where the applicable monetary threshold (usually A$310 million) is exceeded;
  • the foreign investor proposes to acquire a new or existing mining lease (though note that, in many cases, the grant of a new mining lease will come within the ‘acquisition from government exemption’ in the FATA regulations);
  • the foreign investor is also a foreign government investor and proposes to acquire a 10% or greater interest in an Australian entity or Australian business, such that a nil monetary FIRB approval threshold automatically applies; and
  • the foreign investor is also a foreign government investor, and proposes to acquire a new or existing exploration tenement or mining lease (noting that the ‘acquisition from government exemption’ is not available to foreign government investors).

Naturally, not all transaction types are caught by the mandatory FIRB approval rules. For instance, the acquisition by a private foreign investor of equity interests in an Australian entity that has predominantly

exploration tenements, rather than mining leases, will often not be caught. This is because such an entity is not considered an Australian land corporation, as exploration tenements are not considered interests in Australian land under the FATA, and the usual A$310 million monetary threshold might not be exceeded.

However, such an acquisition may still be considered a ‘reviewable national security action’ under the FATA. This means the acquisition can at any time before, and within 10 years after, completion be called-in and unwound by the Treasurer on national security grounds. FIRB’s Guidance Note 8 on national security provides that ‘Foreign persons 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 seek foreign investment approval: rare earth elements, lithium, graphite, cobalt, vanadium, copper, nickel, silicon and high-purity alumina.’ Companies involved only in exploration, and are yet to reach the ‘extraction’ of minerals stage, appear not to be subject to the guidance.

The road ahead

It is possible that the Government’s forthcoming Critical Minerals Strategy will be accompanied by a tightening of the FIRB approval rules relating to critical minerals. This would be consistent with comments the Government has made over the past several months about the need ‘to be more assertive about encouraging investment that clearly aligns with our national interest in the longer term’6 and that ‘like-minded’ investors will be welcome to invest in Australian critical minerals projects.7 This was illustrated when, in February 2023, the Treasurer blocked Yuxiao Fund’s proposal to increase its stake in the ASX-listed Northern Minerals from just below 10% to 19.9%.

Regarding ‘like-minded’ investors, on 20 May 2023 the Australia – United States Climate, Critical Minerals and Clean Energy Transformation Compact (the Australia/US Compact) was announced.8 Under this, both countries stated their intention:

  • to accelerate the expansion and diversification of clean energy supply;
  • to promote the responsible, sustainable and stable supply of critical minerals;
  • to drive the development of emerging battery technologies;
  • to support the development of emerging markets for clean hydrogen and its derivatives; and
  • to identify concrete actions toward these objectives within 12 months.

An obvious means of tightening the rules would be to simply expand the definition of ‘national security business’ in the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) to include ‘a business or entity involved in the extraction, processing or sale of the following minerals: rare earth elements, lithium, graphite, cobalt, vanadium, copper, nickel, silicon and high-purity alumina’. In other words, the Government could replicate the wording in FIRB’s Guidance Note 8 regarding reviewable national security actions. As this change would be effected via an amendment to regulations rather than an Act, it could be done fairly quickly, without needing to pass amending legislation.

Additional ways in which the Government could tighten the rules include:

  • reducing monetary thresholds so that more transactions are caught, subject to any exemptions flowing from the Australia/US Compact;
  • formalising the guidance on the assessment of applications, including more extensive inquiries in relation to future plans for target businesses and possible conditions around the destinations for the sale of the target’s critical minerals production; and
  • more regard being had to the concept of ‘like-minded investor’, with formal guidance as to what would constitute one.

The Federal Government’s approach is broadly in line with reforms of other countries’ foreign investment regimes. For instance, in October 2022, the Canadian Government released updated guidelines for foreign investments from state-owned enterprises in critical minerals sectors and, at the time, stated that Canada ‘must build strategic resilience in the North American critical minerals supply chain with like-minded partners at home’, and that ‘Canada will act decisively when investments threaten our national security’.9 The Chilean Government has gone further, announcing, in April 2023, a policy whereby the development of the country’s lithium industry is led by the Government, predominantly via a new national lithium company that will coordinate future public-private actions in the industry.10

Whichever approach the Government proposes regarding critical minerals and the FIRB regime, it will need to carefully balance the protection of Australia’s national interest with the desire to attract investment in critical minerals.

If you wish to discuss how these possible future changes could affect you, please contact any of the people below.