[Special Topic: Large-Scale Manufacturing] Practical Techniques for Legal Due Diligence in Investment and M&A of New Materials Enterprises

Source: Gudu Equity — Large-Scale Manufacturing Legal Team Affiliation: Beijing Yingke (Shenzhen) Law Firm Follow our WeChat official account: Gudu Equity Full text: 3,900 characters; reading time: ~6 minutes No. 1 Preface On January 4, 2012, the Ministry of Industry and Information Technology (MIIT) released the "12th Five-Year Development Plan for the New Materials Industry," stating: "China’s raw materials industry is enormous in scale; overcapacity plagues certain sectors; and constraints related to resources, energy, and the environment are intensifying. There is an urgent need to vigorously develop the new materials industry, accelerate the transformation and upgrading of the materials industry, and foster new growth drivers." The Plan also outlined ten major engineering initiatives, including: ① Special Project on Rare Earth and Rare Metal Functional Materials; ② Carbon Fiber Low-Cost Production and High-End Innovation Demonstration Project; ③ Special Project on High-Strength Lightweight Alloy Materials; ④ Special Project on High-Performance Steel Materials; ⑤ Special Project on High-Performance Membrane Materials; ⑥ Special Project on Advanced Battery Materials; ⑦ Demonstration Application Project on New Energy-Efficient and Environmentally Friendly Building Materials; ⑧ Special Project on Electronic Information Functional Materials; ⑨ Special Project on Biomedical Materials; ⑩ Special Project on Capacity Building for New Materials Innovation. To implement the national “13th Five-Year Plan” Outline and “Made in China 2025,” and in accordance with the requirements set forth in the “Notice on Issuing the MIIT’s 13th Five-Year Plan System” (MIIT General Office Document [2015] No. 24), MIIT—jointly with the National Development and Reform Commission, the Ministry of Science and Technology, and the Ministry of Finance—drafted the “Guidelines for the Development of the New Materials Industry” (MIIT Joint Regulation [2016] No. 454), officially released on January 24, 2017. The Guidelines emphasize strengthening the collaborative innovation system for the new materials industry, accelerating early-market cultivation for key new materials, and implementing the “Internet + New Materials Action,” among other strategic directives. When responding to industries encouraged by national policy, lawyers should closely monitor such sectors, promptly identify associated legal issues, and promote the improvement of relevant laws and regulations. No. 2 Key Practical Points for Legal Due Diligence on New Materials Enterprises I. Communication Principles In practice, communication with the target entity is the most direct and effective way to obtain enterprise information during legal due diligence. Only with full cooperation and assistance from the target can lawyers successfully complete the due diligence process. Achieving seamless collaboration requires effective communication—thus, communication must be prioritized. How, then, can communication be conducted effectively? (1) Identifying Common Ground to Build Trust with the Target Entity Due diligence is a meticulous, detail-oriented process requiring close coordination between lawyers and the target entity. When conducting due diligence on an unfamiliar enterprise, the first priority is to instill confidence and trust in the lawyer among company personnel—facilitating smoother progress later on. It is essential to help the target enterprise understand both the purpose and rigor of due diligence. Once foundational trust has been established, formal work may commence. However, enterprises may lack clarity about the objectives of due diligence—or be uncertain how best to assist lawyers—sometimes even perceiving requests for documents as repetitive, leading to impatience or skepticism. In practice, lawyers may already have obtained certain corporate information via public sources (e.g., government websites), yet still request original documents for verification. In such cases, the target entity may feel puzzled. Lawyers should therefore clearly explain the legal obligations of “exercising due diligence” and “verifying authenticity of supporting materials,” appealing both to reason and empathy.

Trends in Gold and Silver

August 7 report: According to CBS News, U.S. President Donald Trump plans to announce over $180 million in grants on Friday to support education and trade initiatives in the mining sector—aiming to boost output of critical minerals. A White House official revealed that Trump will unveil this plan at a roundtable hosted by the U.S. Department of State, attended by education leaders from institutions including the Colorado School of Mines. U.S. Secretary of State Marco Rubio, Secretary of the Interior Doug Burgum, and Secretary of Commerce Howard Lutnick will also attend. The U.S. Department of Energy will launch a $100 million grant program to expand the talent pipeline in mining and critical minerals, significantly increasing the number of degree-holders in related fields over the next two years. An official stated the initiative will fund scholarships and other related programs. Eligible applicants include universities, community colleges, vocational schools, industry associations, and other partner organizations. President Trump will convene senior executives from major global mining companies at the U.S. Department of State on August 7 (local time) to take action aimed at “securing critical mineral supplies for the United States and its allies.” According to Reuters, the U.S. currently urgently needs critical minerals to replenish weapon stockpiles depleted during hostilities with Iran. Attendees expected to include global mining giants Rio Tinto, Australia’s BHP Group, Freeport-McMoRan (U.S.), MP Materials (U.S.), USA Rare Earths (U.S.), Energy Fuels (U.S.), and Canada Metals (Canada). Sources indicate the Trump administration plans to announce multiple deals and memoranda of understanding. August 7 report: The U.S. Army seeks to lower barriers for defense contractors accessing military test ranges, enabling businesses to more easily conduct trials of critical weapons technologies. This move forms part of the Pentagon’s broader reform of the defense procurement system—and efforts to replenish weapon inventories depleted during the conflict with Iran. The Army announced it will open five test ranges to private-sector firms for testing drones, counter-drone systems, long-range missiles, low-cost air-defense interceptors, and other weapon systems. Its goal is to schedule firms’ access within 30 days of their reservation request—compared to current wait times of up to 18 months. August 8 report: According to Reuters, documents show that, coinciding with Trump’s meeting with mining executives, the U.S. Export-Import Bank will provide $58 million in loans to three critical-minerals companies. Westwater Resources will receive a $25 million loan for its graphite facility project in Alabama; 5E Advanced Metals will receive an $8 million loan for its boron project in California; and Global Advanced Metals will receive a $25 million loan to enhance its tantalum and niobium processing capacity. Essentially, the facts are laid out plainly—no further commentary is needed. Yang Mei believes that, following the midterm elections, a rally in critical minerals is virtually guaranteed. Copper is leading this surge, having already reached a new all-time high. A notable advantage is its relatively moderate historical volatility—far less extreme than the spikes observed at the end of last year. Copper’s price movement reveals two key insights: (1) Volatility itself has no directional bias—high volatility can precede new highs!

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