UPDATE 2-US may block China mine investment near Navy site

* Company says "comical" to think deal a security risk
* Obama has 15 days to decide after getting recommendation (Recasts with company, Chinese Embassy comment)
By Doug Palmer and Lucy Hornby
WASHINGTON/BEIJING, Dec 18 (Reuters) - U.S. mining company Firstgold (FGD.TO) still hopes to complete a partnership deal with a Chinese mining company despite U.S. national security concerns that could cause President Barack Obama to block it, the company's chief executive said on Friday.
Firstgold has been told by the Committee on Foreign Investment in the United States, or CFIUS, a panel headed by the Treasury Department, that it would recommend Obama reject the plan for China's Northwest Nonferrous International Investment Co to buy 51 percent of the company.
CFIUS said the $26.5 million deal to develop the Relief Canyon mine, near Lovelock, Nevada, raised national security concerns due to its proximity to the Fallon Naval Air Station and other military installations, Lynch said.
The Navy uses Fallon, which is over 50 miles (80 km) from the Relief Canyon mine, for tactical aviation training.
If Obama rejects the deal, it would be only the second time a U.S. president has intervened to block an investment on national security grounds, a trade attorney said.
For China, however, it would form part of a growing roster of overseas resources deals that have been blocked following foreign government intervention, in what the Chinese see as a trend of protectionism in Western nations.
"Firstgold's perspective is to not withdraw (its request for U.S. government approval of the transaction) and it's not out of any disrespect," company chief Terry Lynch said.
"We just don't think the right decision has been made. ... To see this as a national security risk, you really have to give your head a shake."
"It's comical. ... If the Chinese want to buy a house in Lovelock, Nevada, nothing's going to stop them. There's no CFIUS review on that," Lynch said, adding there were no plans for the Chinese to replace the U.S. workforce.
CFIUS "definitely would like us to withdraw the petition" and spare Obama the decision, but there is no incentive for Firstgold to do that, Lynch said.
It is possible Northwest could decide by Monday to back out of the deal, but Lynch said he did not know what it would do.
Once Obama gets the CFIUS recommendation, he has 15 days to announce his decision.
'BIG DEAL'
Usually, companies decide themselves to abandon a project if they cannot reach an agreement with CFIUS on how to mitigate national security concerns.
"What's extraordinary here is that these companies might actually force the president himself to do it," said Timothy Keeler, a former U.S. trade official now at Mayer Brown LLP.
"It very well could be the right decision. But nestled in the broader context of U.S.-China relations right now, it's a big deal," Keeler added.
A spokesman at Beijing's embassy in Washington said China believed Chinese companies should be able to invest abroad based on market principles and international rules.
"China has been very open for foreign enterprises to invest in the country, and we hope that other countries will take the same attitude toward Chinese enterprises' investment activities," embassy spokesman Wang Baodang said.
A U.S. Treasury Department spokeswoman said she could not by law comment on specific CFIUS cases.
"CFIUS' statutory obligation is to protect national security, while maintaining an open investment environment, a responsibility that we take very seriously," U.S. Deputy Treasury Secretary Neal Wolin said in a statement given to The New York Times.
Australia's Defense Department objected this year to a joint venture between China's Wuhan Iron and Steel and Western Plains Resources (WPG.AX) near the Woomera missile testing site. An investment by Chinese state trading firm Minmetals inOz Minerals (OZL.AX) was only cleared after a mine near Woomera was stripped out.
A senior executive at Northwest's parent firm said the Chinese side had only just found out about the military base, which had not come up during initial discussions.
"A developed country should have clear laws, for instance, what kind of perimeter around military installations is allowed," said the executive. (Additional reporting by Paul Eckert in Washington; Editing by Ian Geoghegan and Peter Cooney)