TORONTO (miningweekly.com) – China's Northwest Non Ferrous International Investment will back out of a deal to buy 51% of gold junior Firstgold, after the US government objected to the deal on national security grounds.

Firstgold, which is listed in Toronto and hopes to develop gold properties in Nevada, signed an deal in July to sell a controlling interest to Chinese State-owned Northwest, which also agreed to buy the company's senior secured debt from its lenders.

Since then the US government has been considering the $26,5-million deal for approval, but Firstgold said last week it had been informed that the Committee of Foreign Investment would likely recommend to President Barack Obama that the deal be rejected.

The committee's objections include the proximity of Firstgold's projects to the Fallon Naval Air Station, which is about 60 miles away from the company's Relief Canyon project. The navy uses the station for tactical aviation training.

"We are very disappointed to receive this news but not surprised,” CEO Terry Lynch said on Monday.

“Northwest had thought they were making a simple investment in a mining property and had not anticipated on getting involved in what became a contentious national security issue.”

The company is mulling over its options, and will need to clarify whether Northwest's decision to withdraw from its investment will affect the agreement to buy Firstgold's senior secured promissory notes, he said.

Because of the uncertainty that has emerged around the Northwest deal, Firstgold has had preliminary talks with other parties that either buy or invest in the company.

“And we will now focus our attention on those opportunities," Lynch said.

As Chinese companies go abroad in search of resources to feed the nation's growing economy, some Western governments are expressing reservations at seeing local mineral deposits sold to Chinese government-owned investors, especially near strategic sites.

Earlier this year, Australia opposed a joint venture between China's Wuhan Iron and Steel and Western Plains Resources and the Australian Foreign Investment Review Board also rejected a proposal by China Nonferrous Metal Minin to buy 50,6% of rare-earths miner Lynas Corp and only permitted the acquisition of Oz Minerals by China's Minmetals after some assets were excluded from the deal.

The withdrawal by Northwest on Monday means that Obama will not have to make a decision on whether the investment must be blocked.