Federal Government bans second Chinese mining investment after AVZ confirms lithium project to generate $6bn

AVZ Minerals (ASX: AVZ) is the second miner in a week to be hit by the Federal government’s unannounced but clear new tough scrutiny of Chinese investment in the country’s minerals sector.

This time, though, Canberra’s reach has extended to a planned mine in central Africa and demonstrates that the ownership, not necessarily the location, of any critical minerals project is what matters.

Yibin Tianyi Lithium Industry, a lithium chemical producer, has withdrawn its Foreign Investment Review Board application to invest $14.1 million in AVZ after it was advised by the Federal government that the investment would be “contrary to the national interest”.

AVZ has a lithium project, with associated tin and tantalum, in the Democratic Republic of Congo (DRC).

That funding would have given the Chinese company a 12% stake in AVZ.

The announcement made after the market closed on Friday came just one day after Small Caps reported that Treasurer Josh Frydenberg had banned Baogang Group Investments — which is associated with China’s largest rare earth miner — taking a $20m stake in Northern Minerals (ASX: NTU) and its advanced Browns Range rare earth operation in Western Australia.

Earlier in the week, AVZ had released its much-awaited definitive feasibility study (DFS) showing the Manono project would generate almost US$3.8 billion (A$5.95b) in after tax profit over its life.

Government move widens critical minerals surveillance

What differentiates the AVZ case from the Northern Minerals’ one is that the former’s project is outside Australia — and this sends a strong signal to all companies that Canberra is watching the entire critical minerals sector.

In both cases, though, the banned investor has powerful connections at home.

With Northern Minerals, the prospective investor was part of a large state-owned operation with a vast rare earths mine in Inner Mongolia as well as steel interests.

Yibin Tianyi is backed by China’s largest electric vehicle battery maker, CATL, and Suzhou TA&A Ultra Clean Technology.

The latter company manufactures human body protection, environmental protection, and medical products including syringes. It is listed on the Shenzhen Stock Exchange with a market capitalisation of 5.480bn yuan (A$1.21b)

Chinese partner still wants AVZ’s lithium

AVZ said in its announcement that it understood that the Federal government believed AVZ’s forecast production of 87,500 tonnes per annum of lithium carbonate equivalent from operations planned to begin producing in 2022 was “contrary to the national interest of ‘growing Australia’s critical minerals sector’”.

Yibin Tianyi, however, is not walking away from Manono.

AVZ said the Chinese company was talking to it “to negotiate alternative methods of investment”

Yibin Tianyi is also willing to press on with current negotiations over an offtake agreement for lithium products from Manono.

AVZ managing director Nigel Ferguson said the DFS had generated significant interest from a wide range of investors and potential investors.

“I am confident that we will secure the necessary short term funding as well as longer term debt and equity finance on highly competitive terms,” he added.

Lithium strike length of 13km

AVZ holds a 60% stake in the Manono project which covers 188 sq km in southern DRC with rights to increase that interest.

The project hosts lithium pegmatites over a strike length of more than 13km centred on a historic tin mining area.

The old Manono mine was a tin producer between 1919 and 1982, opened in what was then the Belgian Congo and closed due to a collapse in the world tin price in the 1980s.

The DRC attained its independence from Belgium in 1960.

AVZ also owns 100% of the surrounding Manono Extension project, prospective for lithium, tin, tantalum and associated minerals.