Northern Minerals Ltd today said Australia's government has blocked the heavy rare earths producer's largest shareholder, China's Yuxiao Fund, from increasing its investment on grounds of national interest.

Yuxiao Fund sought Foreign Investment Review Board approval in August to raise its ownership to 19.9 from 9.92 percent. A government register showed Treasurer Jim Chalmers signed a prevention order on Feb 15.

The Singapore-registered fund is an investment vehicle of Chinese national Yuxiao Wu, who also owns miners in Mozambique supplying lower-grade rare earths to China, Northern Minerals executive chairperson Nick Curtis told Reuters.

"There is a special category of assets for any government to protect its national interest," Curtis said.

The Yuxiao Fund could not be reached for comment. The Australian Treasurer's office, which would be responsible for blocking such an investment based on the advice of the review board, declined to comment.

China has criticised Australia for previously blocking Chinese investment on national security grounds, saying this contributed to a year-long diplomatic freeze.

Key component

Relations between the two countries are improving after years of strained ties, although Chinese "trade blockages" on Australian exports remain in place.

In November, Chalmers said Australia, which is the world's top lithium supplier and a major producer of rare earths, would become more selective about who it lets invest in its critical minerals industry.

When asked about Chinese investment in the sector, Prime Minister Anthony Albanese said last week his government would consider the merits of any deal, but favoured using rare earths and other critical minerals to make batteries in Australia.

Wu invested in Northern Minerals for financial reasons, not to supply China, and voted in favour of an exclusive supply deal with Australia's Iluka Resources Ltd last year, Curtis said.

Northern Minerals said it planned to become the first significant world producer of dysprosium outside China, which controls 94 percent of the supply. Dysprosium is a key component for magnets for electric vehicles.

"Our material is needed for the magnet supply chain," said Curtis, adding this was the likely reason the increased investment by a Chinese investor was blocked.

Northern Minerals second-largest shareholder is also Chinese, although Chinese citizens or high net worth Australian citizens of Chinese background hold less than 30 percent of shares, he said.

The vice-president of the Australia China Business Council, Adam Handley, became a director in December.

- Reuters