Questions on Security Trip Foreign Investments

Firstgold has mining leases on 8,300 acres of mostly federal government property in Nevada, including Relief Canyon, above.

In recent days, the administration has threatened to block theproposed takeover by the Chinese government of a tiny Nevada goldmining company, according to executives for the company, Firstgold.

Administrationofficials have also raised questions about a bid by a United ArabEmirates-controlled company to buy a large stake of Virgin Galactic,which is trying to build the world’s first commercial carrier to taketourists into space.

The issues involved are serious enough thatthe companies involved in the Virgin Galactic deal have agreed towithdraw the application to provide more time for them to be addressed.

“Foreigninvestments in the U.S. are critical to economic growth and jobcreation here at home, but we have an obligation to prioritize nationalsecurity,” the deputy Treasurysecretary, Neal S. Wolin, said in a statement released Thursday, inresponse to questions about the scrutiny of proposed deals.

Foreign investments in certain American industries, particularly thosewith critical technologies or military or homeland security assets, arereviewed by a federal panel and approved by the president, and thosedecisions can set off political firestorms. The Bush administration,for example, came under attack for allowing a Dubai company to buycontrol of a dozen American port terminals. The plan was eventuallyscuttled.

After a lull in foreign investment during the global recessionin the last year, applications before the panel, the Committee onForeign Investment in the United States, have increased in recentmonths. About 60 applications have been submitted for such transactionsthis year, compared with 155 in 2008, a former administration officialsaid. The panel’s decisions are not publicly released, though thecompanies can disclose them.

The Obama administration hasapproved most of the requests, including the proposed purchase by aFrench government-controlled company of a minority stake in nuclearpower plants owned by Constellation Energy, which is based in Baltimore.

But the administration has alerted those involved in the Nevada gold mine deal that it will not approve the plan.

“This is very difficult news to receive,” Terry Lynch, chief executive of Firstgold, said Thursday.

Heand other backers of the deal say the administration risks sending thewrong message to foreign investors, particularly China, by balking atsuch transactions. In that case, China’s giant Northwest NonferrousInternational Investment Company wants to buy 51 percent of Firstgold,its first purchase of a mine operator in the United States.

Washington officials, however, are increasingly concerned about Chinesedominance in the global precious metals marketplace. The Nevada minesare also close to military installations, including the Fallon NavalAir Station, complicating the deal, according to written summaries ofmeetings with Obama administration officials obtained by The New YorkTimes.

Under the proposed Firstgold transaction, NorthwestNonferrous would gain majority control of mining leases Firstgold hason 8,300 acres of mostly federal government property in Nevada, at fourlocations. The most important site is the so-called Relief Canyon inLovelock, about 110 miles northeast of Reno.

The federal review“raised serious and significant and consequential national securityrisks” associated with the proposed transaction at all four sites,pointing both to Fallon Naval Air Station and adjacent militaryfacilities it did not name that most likely are classified, accordingto a summary prepared by lawyers for the mining companies.

Inquestions it submitted to Firstgold, the administration also seemed tobe concerned with what minerals other than gold a Chinese-controlledcompany might dig up at the Nevada sites or try to export.

Onlyonce since 1990 has a president formally blocked a foreign acquisition.Typically, applications are withdrawn once serious objections areraised.

Firstgold and Northwest have until Monday to withdraw their application, or the recommendation of a denial will go to President Obama. “This smacks of anti-Chinese protectionismat a time when we need to be encouraging foreign investment to createjobs and expand our economy,” said Mark Nordlicht, managing partner atPlatinum Management, one of the Firstgold investors.

Executivesat Virgin Galactic, by comparison, say they remain confident they canclear up government concerns about the proposed sale of 32 percent oftheir venture to Aabar Investments of Abu Dhabi, which is controlled bythe government there.

Virgin Galactic, created by the British entrepreneur Richard Branson and Burt Rutan,an aerospace engineer, has proposed building a spaceport in New Mexico,where a new generation of spacecraft would carry tourists into spaceand commercial payloads into orbit.

National security officialsparticipating in the review have questioned whether sensitive rocketand missile launching and fabrication technology might be shared withforeign governments as a result of the transaction, according toexecutives involved in the deal who asked not to be identified becausedetails of the transaction are confidential.

The administrationalso sought to make sure that the deal would not violate aninternational agreement called the Missile Technology Control Regimethat is intended to prevent the global spread of missile-based weaponsdelivery systems.

As a result, the companies involved haveagreed to resubmit their application for government approval,restarting the 90-day clock the government has to accept or reject theproposal.

“Aabar and Virgin Galactic remain committed to thetransaction,” Jackie McQuillan, a Virgin Galactic spokeswoman, said ina statement. “Both companies are working together to secure thenecessary regulatory approvals, and expect to close the transaction ascontemplated.”

The review of these and other cases is also beencomplicated by the fact that at the Treasury and Commerce Departments,which both play a central role in the foreign investor review process,the two top political appointees who are supposed to oversee the effortare still awaiting Senate approval. They are Marisa Lago, nominated toserve as the assistant Treasury secretary for international markets,and Francisco J. Sánchez, Commerce under secretary for internationaltrade.

http://www.nytimes.com/2009/12/18/business/18invest.html?_r=1