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Chinese directors depart Northern Minerals amid rising rare earths geopolitics

Northern Minerals Ltd. shed two Chinese directors in the past two months amid revelations that China has increased rare earth oxide exports, while western countries scramble to secure their own supply chains.

CEO George Bauk said at the New World Metals Conference on Dec. 11 in Perth, Australia, that his company had been criticized for having so many Chinese directors on its board, as well as too much Chinese investment.

Investment banker Xiaohua Liu left Northern Minerals' board in October after only being appointed in May. Congyan Xue, whose experience is in Chinese fundraising, corporate advisory and M&A, also left in November after being appointed to the board in April. Both are Beijing-based.

Meanwhile, Ming Lu, appointed in October 2018 as the nominee for one of Northern Minerals' largest shareholders, Huatai Mining Pty. Ltd., remains on Northern Minerals' board. So does Yanchung Wang, a strategic investor for a number of China-based companies who was appointed to the board in 2013.

The others are Australians — Nonexecutive Chairman Colin McCavana, Bauk and nonexecutive director Adrian Griffin.

Bauk said that while Northern Minerals' ambition is to "get back to a diversified board," the presence of directors from China, which dominates the rare earths market, shows their endorsement and provides in-country connections.

On the other hand, "it doesn't matter what business you're in, if you're dominated by Chinese faces, it makes broader countries more cautious about investing, as they start thinking you're a Chinese company. We're not," he said in an interview.

Collaboration

Those director exits followed the U.S. State Department's declaration in June that the country would collaborate with Canada and Australia to help other countries develop their mineral reserves.

Then in November, Bauk was present in Washington when Australian Minister for Resources and Northern Australia Matt Canavan announced that the respective export finance agencies of the U.S. and Australia would collaborate to finance potential critical minerals and rare earths projects.

Bauk said on the conference sidelines that the U.S. government's move spoke to how "serious" they are to secure rare earths supply chains that are in "crisis," while Australia's government has also established a new critical minerals office.

While much has been made of Chinese publication Global Times reporting May 28 a statement by China's state planning agency that was seen as a veiled threat that the country could restrict the export of its rare earth minerals, Bauk said the opposite has occurred over the past month.

Bauk told S&P Global Market Intelligence that Chinese government data had shown the country's export quotas for individual separated rare earth oxides have actually risen in the past four weeks.

These include oxides of dysprosium, which Northern Minerals produces from its West Australian Browns Range project, neodymium and praseodymium.

London financial advisory Hallgarten & Co. said in June that "we are now in the territory of post-peak Chinese production of rare earths," and that China is on the verge of becoming a net importer due to its significant manufacturing plans.

Yet Bauk said China is presently "at its greatest strength" amid such geopolitical maneuvers, and if China is indeed exporting at subsidized prices as the U.S. Defense Department suggested in 2018, then "that's not allowing the free market to develop supply chains overseas."

CNN recently cited the department as saying "China has strategically flooded the global market with rare earths at subsidized prices, driven out competitors and deterred new market entrants."

While the governments of the U.S. and Australia would prefer the free market to develop non-Chinese supply chains, Bauk said the fact that they have started moving towards funding projects "suggests a broken market."

Highlighting the increasingly geopolitical nature of rare earths, Bauk said Japanese supply chain players have expressed concern over that much of Northern Minerals' investment come from China; to which his response is that this was not by design, merely a function of China's willingness to invest in projects globally to secure supply.

While he confirmed that Northern Minerals is "in conversations" with U.S. entities to work out their demand needs, the company's long-term aim is to produce dysprosium iron metal and terbium metal — which is what German, Japanese and U.S. markets want — by 2030, rather than just carbonate.

Bauk earlier highlighted to conference delegates the western defense industry's reliance on dysprosium, which 98% of the commodity's production currently produced in China, where many operations use in-situ leaching that is "dirty and environmentally dangerous" as it affects the groundwater and water table.

However, he said in an interview that China's determination to clean up its act "must not be underestimated."