Australia has launched a landmark legal action against a China-linked company and a former associate for allegedly breaching its foreign investment laws, in a case centred on a strategic rare earths producer, Northern Minerals (ASX: NTU).
The Federal Court filing, confirmed by Treasurer Jim Chalmers on Thursday, is the first time a Treasurer has pursued such an action under the national foreign investment framework.
The case targets Indian Ocean International Shipping and Service Company, based in the United Arab Emirates, one of five foreign entities ordered in June 2023 to divest a combined 10.37% stake in Northern Minerals.
The company had previously been required to unwind its investment on national interest grounds, but now faces penalties and declarations from Australia’s top economic authority.
National interest drives crackdown on strategic resources
Australia has been strengthening its scrutiny of foreign investment, particularly in critical minerals and sensitive industries.
Rare earths, which are vital components in defence, renewable energy, and electronics manufacturing, have emerged as a key area of focus amid concerns about overreliance on China.
The latest lawsuit underscores Canberra’s determination to protect its rare earths sector from perceived foreign control.
Northern Minerals is currently supplying materials to a downstream processing facility under construction by Iluka Resources (ASX: ILU) in Western Australia, a critical part of the country’s strategy to build an independent rare earths supply chain.
Treasurer Chalmers noted the action reinforces the integrity of Australia’s investment laws.
Although the government did not disclose how much stake the Indian Ocean or the unnamed former associate currently holds, the divestment order from 2023 had instructed all five entities, including the UAE-based company, to sell their shares within three months.
Link to Yuxiao Fund and past investment block
The origins of the legal move can be traced to a May 2023 decision by the Australian government to block an attempt by Yuxiao Fund, a Singapore-registered firm controlled by Chinese businessman Wu Tao, to raise its stake in Northern Minerals to just under 20%.
At the time, the decision marked one of the clearest signals of Australia’s growing resistance to foreign influence over strategic mineral assets.
Following that, five entities—including Indian Ocean, Black Stone Resources based in the British Virgin Islands, and several others—were ordered to divest their holdings.
According to disclosures, the five together controlled over 10% of Northern Minerals’ share capital.
The government’s response forms part of a broader recalibration of its foreign investment rules.
It is particularly concerned with opaque investment structures and the influence of foreign state-linked entities in critical sectors.
Enforcement follows rare earths policy shift
Australia’s rare earths policy has evolved in tandem with geopolitical shifts and growing demand for alternative supply routes.
Rare earths are essential in producing smartphones, wind turbines, guided missiles, and radar systems, making them an economic and strategic asset.
Northern Minerals plays a unique role as one of the few non-Chinese producers of dysprosium and terbium, both used in high-performance magnets.
The company’s strategic value has made it a lightning rod for foreign investment attention, particularly as Western countries seek to reduce China’s 87% global share of processed rare earths.
The Federal Court case marks a new stage in Australia’s investment enforcement regime.
While the government has previously blocked or conditioned acquisitions under the Foreign Investment Review Board process, taking legal action against investors who defy those orders sends a clear warning.
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