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The federal government of Australia has ordered five international companies funded by China to divest their shares in rare earth miner Northern Minerals Limited on the grounds of national interest.

After the Foreign Investment Review Board (FIRB) advised the government, Treasurer Jim Chalmers asked Yuxiao Fund and four other companies to sell their shares totaling 10.4% of the issued capital of Northern Minerals Limited, which operates the Browns Range heavy rare earths mine in Western Australia, ABC News reported.

Northern Minerals aims to become the leading producer of dysprosium, which is a key component used in electric vehicles.

The companies were referred to FIRB after suspicions of share trading among the Chinese shareholders emerged.

"Australia operates a robust and non-discriminatory foreign investment framework, and will take further action if required to protect our national interest in relation to this matter," Chalmers stated. "The decision, based on advice from the Foreign Investment Review Board, is designed to protect our national interest and ensure compliance with our foreign investment framework."

Yuxiao Fund and others have been allowed 60 days to dispose off 80 million shares, CNBC reported.

Yuxiao Fund is the Singapore-registered private investment vehicle of Chinese national Wu Yuxiao. In 2022, the company had sought approval by FIRB to raise its ownership of Northern Minerals to 19.9 percent from 9.81 percent. However, Chalmers blocked raising the investment to more than 10 percent citing national interests.

And, last November, Yuxiao Fund had proposed a resolution to remove Chairman Nicholas Curtis as a director of the company.

Northern Minerals Chairman Adam Handley stated that the company alerted FIRB on the share-buying activity and asked for an investigation.

"Northern Minerals made the referral to FIRB because of our duty to act in the best interests of all shareholders, ensure the integrity of the company's share register and uphold our high standards of good governance," he said.

The divestment would not impact the development of the Browns Range mine, Handley added.