Chinese investment a national security risk

The decision by the Department of Defence to reject a joint venture proposal involving a Chinese state-owned company on national security grounds has raised questions about the future of Chinese investment in minerals tenements near key Australian Defence sites.

The decision by the Department of Defence to reject a joint venture proposal involving a Chinese state-owned company on national security grounds has raised questions about the future of Chinese investment in minerals tenements near key Australian Defence sites.

The Department has refused to support a joint venture proposal between Western Plains Resources (WPG) and Wuhan Iron and Steel (WISCO) to carry out a feasibility study on the Hawks Nest magnetite deposit, located within the Woomera Prohibited Area (WPA).

The situation has similarities to the proposed 100% takeover of OZ Minerals’ Prominent Hill mine, also in the WPA, by Chinese state-owned Minmetals earlier this year.

The Prominent Hill deal was blocked by Treasurer Wayne Swan upon advice from the Foreign Investment Review Board (FIRB).

According to WPG, the decision not to support the proposal had been reached despite constructive discussions between all parties and atypical concessions written into the joint venture agreement at the recommendation of the Department.

The company yesterday released a letter received from Defence’s Property Services assistant secretary Michael Healy, dated 18 September.

“The proposed joint venture operations at Hawks Nest would not be compatible with Defence’s activities at the WPA on safety, operational and national security grounds,” the letter said.

“Defence is unable to support the investment proposal in the event that it is submitted formally to the FIRB.”

WPG executive director Heath Roberts told MINING DAILY the company had been caught unawares by the letter.

“Major concessions have been made and can continue to be made if we understand their concerns,” Roberts said.

According to a statement from WPG, tough restrictions were written into the joint venture agreement to mitigate Defence’s concerns about national security.

“WPG could never lose control of the project, WISCO could never gain control of it and no foreign persons would live or work within the WPA,” the company said.

“Further measures included provisions that the operating company would be 100% WPG owned and that Defence would have the right to nominate a director to the board of the joint venture’s operating company.”

The Department would also have the right to locate security and intelligence agents on site at the joint venture’s expenses.

The company believes that the nature of WISCO’s ownership was causing a perception in the Department that Australia’s national security would be compromised if the investment proceeded.

“WISCO has had a joint venture interest in a major iron ore mining project in the Pilbara for more than five years and has offices in Perth and Melbourne,” the company said.

“In WPG’s view, Australian security agencies have had ample time to check whether WISCO is a bona fide iron ore user.”

“WPG senses that national security may be used increasingly by Defence as a mechanism to deter all foreign investment in exploration, mining and other projects located within the WPA.”

In a statement provided to MINING DAILY, Defence Minister Senator John Faulkner said WPG had at no stage been given any undertaking that permission to access Hawks Nest for the purposes of carrying out this project would be granted.

“Indeed, there have been numerous indications given to the company that access would be highly unlikely given the location of the Hawks Nest tenement is on the centre-line of the test range,” he said.

“In some cases it will be possible to resolve any concerns highlighted by these processes to the mutual satisfaction of Defence and the companies involved.

“However, companies should not assume that access to the WPA will always be granted.”

Roberts believes this case is quite different to the proposed Minmetals Prominent Hill takeover.

“Prominent Hill is not similar in many respects, because that deal would have seen the mine become 100% Chinese-owned,” he said.

“Our deal is a 50-50 joint venture in which WPG will control the day-to-day operations.

“This is just a feasibility study project with checks and balances written into the agreement.”

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