UPDATE 3-Australia orders Chinese investors to sell down stake in rare earths miner

(Updates Northern Minerals comment, changes dateline)

By Melanie Burton and Kirsty Needham

MELBOURNE, June 3 (Reuters) - Australian Treasurer Jim Chalmers has ordered several China-linked investors to dispose of shares in rare earths miner Northern Minerals on national interest grounds, a spokesperson said on Monday.

Northern Minerals is developing the Browns Range heavy rare earths project in Western Australia, at a time when the sector has become increasingly strategic for its uses in green energy and defence.

A disposal order issued by Chalmers on Sunday said Yuxiao Fund had 60 days to dispose of 80 million shares it bought in September. Yuxiao Fund is the Singapore-registered private investment vehicle of Chinese national Wu Yuxiao, Reuters has previously reported.

The fund had sought Foreign Investment Review Board (FIRB) approval to raise its ownership to 19.9% in 2022, from 9.81% of Northern Minerals, but was declined last year.

Northern Minerals Chairman Adam Handley in a statement to Reuters said that it had referred certain share buying activity to the FIRB to investigate last October.

"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, adding that it would have no impact on its development of the Browns Range mine. In aggregate, the number of shares that must be divested amounts to around 10.4% of Northern Minerals’ issued share capital, it noted, which, added to Yuxiao Fund's holdings, would come close to 20%, the point at which a party would have to declare its intentions under Australian takeover law.

Northern Minerals has said the fund was controlled by Wu Tao, the chairman of mainland China-based Jinan Yuxiao Group.

Other foreign shareholders ordered to dispose of shares within 60 days include Ximei Liu, Xi Wang, and Black Stone Resources, the notice said.

"The Treasurer has issued orders that Yuxiao Fund Pte Ltd and four associates reduce their shareholdings in Northern Minerals," a spokesperson for Chalmers said in a statement on Monday.

"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."

Browns Range is set to supply Iluka Resources' Eneabba rare earths refinery under construction in Western Australia, which already has a A$1 billion($665.10 million) funding pledge from the Australian government and is waiting on a decision for more.

Australia has said it is looking for friendly nations to build out its critical minerals industry as the West diversifies away from dominant producer China.

Last week Northern Minerals Chairman Nick Curtis exited the company's board. Curtis declined to comment. Shares in Northern Minerals were little changed at A$0.035. The company's annual general meeting is on June 6. Canberra screens foreign investment in key sectors for national security, including critical minerals, and has blocked some Chinese deals which has irked Beijing. Australia is preparing for a visit by Chinese Premier Li Qiang later this month.

Chinese Foreign Minister Wang Yi said on a visit in March that he hoped Australia would ensure its market environment did not discriminate against Chinese business.

Chalmers' spokesperson said Australia's foreign investment framework did not discriminate against any nation. ($1 = 1.5035 Australian dollars) (Reporting by Kirsty Needham in Sydney and Melanie Burton in Melbourne; Editing by Stephen Coates and Louise Heavens)