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This week:

  • China-Australia rare earth intrigue: Canberra has ordered China-linked investors to divest from an Aussie miner. Who are those investors? We do a bit of digging.

  • Weekly Links…will be back next week

China-Australia rare earths intrigue

The Australian government this week ordered China-linked funds to slash their stakes in a rare earths miner, citing national interest grounds.

The Western Australia miner, Northern Minerals, boasts the “most advanced heavy rare earths project globally.” It aims to be the first significant ex-China supplier of heavy rare earths critical for high performance magnets used in clean energy and military technologies. China currently dominates the global rare earths industry in general, and heavy rare earths in particular.

At the center of the divestment controversy is Singapore-registered Yuxiao Fund, linked to a Chinese businessman, which currently has a 9.8% stake in Northern Minerals.

What and who exactly is Yuxiao Fund? As it turns out, there’s more than first meets the eye.

Why China is snapping up rare earth projects worldwide

First, some context. This is at least the third time Australia has blocked Chinese interests from investing in Northern Minerals.

Last March, Canberra barred Yuxiao Fund from doubling its ownership to 19.9%. And in April 2020, the Australian government prohibited an investment from Chinese state-owned Baotou Steel, as The Rare Earth Observer has pointed out.

Why is China so eager for a slice of Australia’s rare earths?

For one, China increasingly faces a shortage of rare earth raw materials. It needs those inputs to feed its processing and magnet-making dominance.

Meanwhile, as the West scrambles to cut China out of rare earths, China is countering by embedding itself more deeply into global critical mineral supply chains.

“Under such circumstances, it is natural for relevant government departments to encourage Chinese companies to acquire rare earth projects overseas,” says China Non-Ferrous Metals News.

For its part, Australia wants to become a key global supplier of critical minerals, including rare earths. Chinese involvement in that effort would undermine Canberra’s de-risking strategy.

Untangling the Yuxiao empire

Enter Yuxiao Fund, an investment vehicle headquartered in Singapore.

According to Singapore business registry filings, Yuxiao Fund has a single shareholder, 30-year-old Wu Yuxiao:

Source: Accounting and Corporate Regulatory Authority of Singapore

For a while now, Yuxiao Fund has sought to significantly increase its control over Northern Minerals.

In November 2023, Yuxiao Fund sought to oust Northern Minerals’ previous executive chairman. That happened just weeks after Yuxiao Fund tried to install its own candidate, Wu Tao, on the Northern Minerals board. This prompted Northern Minerals to request the Australian government to investigate whether a series of share purchases were being orchestrated by Yuxiao Fund to evade investment restrictions imposed by Canberra.

And that board candidate, Wu Tao, that Yuxiao Fund put forward? He is the father of Yuxiao Fund’s Wu Yuxiao.

Wu Tao, father of Yuxiao Fund’s sole shareholder Wu Yuxiao, and executive director of Yuxiao Group. Source: Yuxiao Group/Economic Daily

The elder Wu, 53, is the executive director and ultimate controller of Shandong-headquartered Jinan Yuxiao Group. Chinese media reports have described Wu Tao as a “Shandong tycoon” and the “controller of a large-scale Shandong mining enterprise.”

Though Yuxiao Group started out in the real estate business, it now styles itself as a “world-class international enterprise” in minerals, including rare earths. Its website lists a number of investments and subsidiaries. Among these are:

  • Several zirconium-titanium mining projects in Mozambique;
  • A shipping business to transport mineral resources back to China;
  • A real estate venture in “a prime coastal area of Mozambique;”
  • Two domestic rare earth processing facilities in Shandong and Guangxi;
  • …and Australia’s Northern Minerals

Deep ties to China’s largest rare earth players

Yuxiao Group isn’t just any old rare earths player. It has deep connections with some of the largest rare earths companies in China.

In November 2023, Yuxiao Group signed strategic cooperation agreements with China Northern Rare Earth, the world’s largest rare earth producer, and Shenghe Resources, the Shanghai-listed company at the center of Beijing’s global rare earths strategy. Also present at the ceremony were government officials from Baotou, Inner Mongolia, China’s rare earths hub.

Wu Tao, front left, at a strategic cooperation agreement signing ceremony with state-owned China Northern Rare Earth and Shenghe Resources, in Nov. 2023. Source: Yuxiao Group

Ties between Yuxiao Group and Shenghe Resources — which owns a stake in US-listed MP Materials, and is ultimately controlled by the Chinese Ministry of Finance — go even further. Shanghai Yuxiao Rare Earth, a Yuxiao Group subsidiary, counts Shenghe as a major customer:

Source: Shanghai Yuxiao Rare Earth 2023 annual report (translation added)

Beyond that, Shenghe indirectly owns a 20% stake in another Yuxiao subsidiary, Guangxi Yuxiao Xijun Rare Earth Functional Materials, which operates a rare earth smelting, separation, and processing project. A Shenghe executive is a director at that subsidiary.

Source: Shenghe Resources 2023 annual report (translation added)

Yuxiao Group might be relatively new to the rare earths realm, at least compared with China Northern and Shenghe Resources. But it’s certainly not relegating itself to the kiddie pool.

Rare earth fun and games

There’s another unusual part to the Yuxiao story. At first, it appears to have little to do with rare earths.

A Chinese online games company, Shanghai U9 Game, had been faltering. With profits and operating income plummeting, the Shanghai Stock Exchange in May 2022 ordered it to be delisted.

Yuxiao Group spied an opportunity.

U9 Game may have been down on its luck, but it still had decently sized coffers and prime real estate in the heart of Shanghai.

Plus, U9 Game had an enviable pedigree: a decade earlier, it had been acquired by a coal mining firm, whose claim to fame was being one of the “original eight” companies listed at the Shanghai Stock Exchange’s inception in 1990.

That’s probably why, from April to June 2022, investors associated with Yuxiao Group — including the elder Wu Tao, the younger Wu Yuxiao, and their respective spouses – built up a stake in the gaming firm. Together, they quickly became the largest shareholder of the now-delisted Shanghai U9 Game.

According Chinese media reporting, Yuxiao Group then moved to amend Shanghai U9 Game’s articles of association. Notably, it sought to expand the gaming firm’s registered business cope to include “investment in mineral resources, geological exploration…and resource exploration.”

Then, Yuxiao Group was able to transform the formerly Shanghai-listed U9 Game into a company listed on China’s over-the-counter exchange, NEEQ. Last June, it changed the listed entity’s name from U9 Game to Yuxiao.

Thanks to some corporate acrobatics, Yuxiao Rare Earth is now a publicly listed company, and can boast a company lineage going back decades.

Tracing Yuxiao’s ambitions

Yuxiao’s newfound ability to tap capital markets could help fund its global ambitions. What might those look like?

For now, Yuxiao Fund’s designs on Northern Minerals have been thwarted. The China-linked entity must reduce its stake in the Australian firm to 8%.

And on Thursday, Wu Tao’s bid to join the Northern Minerals board was narrowly voted down.

But this is unlikely the last we will have heard from Yuxiao Group.

(Photo via Australian Trade and Investment Commission, annotations added)