Foreign Investment in Australia’s Mining Industry

Foreign Investment in Australia’s Mining Industry

How China’s Investment into Australia’s Mining Industry Has Continued to Attract Foreign Investors

Foreign investment in the mining industry of Australia has been happening for well over a century and is common practice.  Despite a long and successful history, community sentiment is often impacted by the ‘selling the farm’ ideology emphasised by the increasing involvement of China in our recent mining boom.

Australia’s history of foreign investment in our mining industry has its origins in the 1880’s with investments coming from New York and London after discovering the gold fields in Western Australia and Victoria.

It was the second wave of investors in the 1960s after the first mining boom that attracted Asia and Japan.

Japanese steel mills back in the 1960’s made sure that they had a direct stake in the supply of raw materials, ensuring them security with contracts being bought for the long term.   The benefits of this relationship also flowed to the Australian mining companies, stabilising the market for long term growth.

In recent years, it has been China leading foreign investment in our mining industry.

With employment and housing of China’s rising middle class, Australia’s raw material has become an imperative source in recent times.  Chinese buyers last year imported record volumes of iron ore causing the price to rise 15 per cent, which in turn boosted miner’s earnings with China buying 60 per cent of seaborne iron ore on a global scale.

When it comes to the Foreign Investment Review Board in Australia, rejected applications are few, with the FIRB reviewing every application for investment from companies that are state-owned enterprises,  to decide as to whether they are in the interest of the nation or not.

The FIRB states its role is to:

  • “examine proposed investments in Australia that are subject to the Policy, the Foreign Acquisitions and Takeovers Act 1975 (the Act) and supporting legislation, and to make recommendations to the Treasurer and other Treasury portfolio ministers on these proposals;
  • advise the Treasurer on the operation of the Policy and the Act;
  • foster an awareness and understanding, both in Australia and abroad, of the Policy and the Act;
  • provide guidance to foreign persons and their representatives or agents on the Policy and the Act;
  • monitor and ensure compliance with the Policy and the Act; and
  • provide advice to the Treasurer on the Policy and related matters.”

Foreign Investment Review BoardAlthough they may be happy to approve the investment, the FIRB will impose conditions, e.g. the output of the company marketed at an arm’s length basis, selling ore to China by a company that is Chinese and has invested in iron ore that has to sell at the international market price, rather than the transfer price.

Keeping in mind that the FIRB’s role is to advise and make recommendations to the Treasurer on these proposals, the Treasurer is not bound by them.  A recent example is Treasurer Joe Hockey lifting conditions placed on Chinese mining company, Yanzhou.  Many in the industry are calling for clearer and more transparent guidelines in the Foreign Direct Investment process to ensure as Prime Minister Tony Abbott has claimed, “absolutely crystal clear that we are open for business, we are open for foreign investment”.

Sources:

http://www.firb.gov.au/content/who.asp?NavID=48

http://www.clmr.unsw.edu.au/article/accountability/regulatory-design/whither-transparency-tale-two-cases-foreign-investment

http://www.abc.net.au/news/2014-01-14/foreign-investment-grows-in-mining/5199614