Banned Chinese executive Wu Tao ‘secretly buying shares in rare earth miner’

Foreign investment regulators probe a suspected ­covert attempt by a prohibited Chinese fund allegedly seeking to take control of a key critical minerals operation.

Northern Minerals Browns Range pilot plant project.

Foreign investment regulators have launched an ­investigation into a suspected ­covert attempt by a prohibited Chinese fund allegedly seeking to take control of a key critical minerals operation in Australia.

Northern Minerals holds some of the world’s largest reserves essential for military, defence and electric vehicles.

The probe comes ahead of Anthony Albanese’s visit to Beijing next week. Critical minerals are emerging as a key strategic issue, following a deal struck by the US and Australia last week to bolster supply chains in response to China’s dominance of the sector.

Northern Minerals referred to the Foreign Investment Review Board, what it suspects was an ­attempt by a China-based ­individual Wu Tao, previously banned by Jim Chalmers from acquiring ­further shares in the company, to secretly seize control of the ­company through associated Chinese ­entities. The potential takeover would have had implications for the ­federal government’s ambition to underwrite processing of critical minerals in competition with China.

The company’s key project – in partnership with critical minerals giant Iluka Resources, and which contains the world’s largest known inventory of dysprosium and terbium used in the manufacture of high-performance magnets, batteries and defence technologies, is positioned to become the first significant world producer outside China and set to provide potentially 20 per cent of the world’s supply.

On Monday night, the company filed notice with the Australian Stock Exchange for a three-month delay to its annual general meeting following a referral to FIRB about suspicious investment activity from Chinese interests.

Dr Chalmers blocked an initial investment by Mr Wu earlier this year following concerns about foreign ownership of critical mineral resources. This appears to have been ignored.

Mr Wu’s company, Yuxiao Fund Pte Ltd (Yuxiao), was banned under a prohibition order issued by Dr Chalmers on February 15 that limited its further acquisition of shares in Northern Minerals to 9.98 per cent.

Since then, Northern Minerals had become aware of investment activity that it believed was linked to Mr Wu and Yuxiao, as part of a suspected covert and co-ordinated attempt to gain control of the company’s board of directors.

The company was scheduled to hold its 2023 annual general meeting on November 30, at which time Yuxiao was seeking to have Mr Wu appointed as a director of the company.

The company became aware that two other individuals nominated for appointment as directors by shareholders were potentially connected with Yuxiao and Mr Wu.

Northern Minerals was concerned that the appointment of Mr Wu as director would place Yuxiao in a position to influence or participate in the central management and control of the company.

Northern Minerals owns Australia’s only heavy rare earth mine.

Iluka Resources managing director Tom O’Leary. Picture: David Broadway

The operation is considered a globally strategic operation and there would be significant risk to national security should the Northern Minerals board effectively become Chinese-controlled.

Iluka managing director Tom O’Leary said last night the company’s contracts with Northern Minerals were set in stone and would not be legally affected by any potential takeover of Northern Minerals.

“In strategic partnership with the Australian government, Iluka is catalysing the development of Australia’s rare earths industry by facilitating other emerging Australian mining companies into production, with Iluka as their customer, and with value addition taking place domestically,” Mr O’Leary said.

“In October last year, Iluka concluded an agreement with Northern Minerals – just such an emerging rare earths company – for the future supply of concentrate from its planned rare earths mine at Browns Range in the eastern Kimberley.

“Browns Range is a deposit of global strategic importance in that it has an uncommon assemblage, elevated in dysprosium and terbium.

“Importantly, Northern’s supply obligations to Iluka under our partnership are secured by a mining mortgage and general security agreement over the Browns Range project, and Iluka has step-in rights in certain default situations.

“This means that irrespective of Northern’s ownership or corporate structure, Northern’s supply obligations to Iluka will remain in effect and rare earths extracted from Browns Range will be supplied to Iluka for processing at Iluka’s refinery in Australia in accordance with the supply agreement.”

In a statement to the ASX on Monday night, Northern Minerals said it had referred to FIRB the activities of Mr Wu and nominations for three candidates to be elected to the board.

“One of the Candidates is Mr Wu Tao. Mr Wu’s nomination was proposed by a nominated representative of Yuxiao Fund Pte Ltd (Yuxiao Fund) (a 9.81 per cent shareholder in the company) and seconded by Mr Sun Bo (a 0.3 per cent shareholder in the company),” Northern Minerals said.

“The board understands that Mr Wu is effectively the ultimate controller of Yuxiao Fund.

“The board notes that, on 15 February 2023, the Treasurer of the commonwealth of Australia (the Treasurer) prohibited the acquisition by Yuxiao Fund of an additional 9.92 per cent interest in the company which, on the basis of the information provided to the Treasurer, would have increased Yuxiao Fund’s interest in the company to 19.9 per cent (the prohibition order). The prohibition order also included a direction to Yuxiao Fund to not increase the proportion of its interests in the company beyond 9.98 per cent.

“As the appointment of Mr Wu as a director would place Yuxiao Fund in a position to exert a direct influence on the central management and control of the company, the board considered whether Mr Wu’s appointment as a director would require, or should be subject to, the approval of the Treasurer under the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) before the appointment takes effect.

“The board concluded that, in the circumstances, it would be appropriate for Yuxiao Fund to apply to the Foreign Investment Review Board to seek approval for Mr Wu’s appointment.

“As at the date of this announcement, the company has not received any confirmation from Mr Wu that Yuxiao Fund intends to seek such approval.

“The company also noted that the other two individuals who were proposed to be appointed to the board (and/or their nominating shareholders) may have links to Mr Wu and/or Yuxiao Fund.

“The company has also been examining recent share buying activities by certain other persons who may have links to Mr Wu and/or Yuxiao Fund.”