China Rare Earth Group in talks to buy MP Materials shareholder Shenghe Resources

Key facts

• China Rare Earth Group is in talks to acquire Shenghe Resources.
• Shenghe Resources holds a 3% stake in US rare earths company MP Materials.
• MP Materials' largest shareholder is the US Department of Defense.
• Shenghe Resources denied reports of a controlling stake transfer.
• Shenghe Resources acquired Australia's Peak Rare Earths last year.
• China Rare Earth Group is China's largest supplier of heavy rare earth elements.

State-owned China Rare Earth Group is reportedly in discussions to acquire Shenghe Resources, a move that would consolidate Beijing's control over the sector and give the firm a stake in one of Washington's key rare earth plays. If successful, the deal would hand over control of Shenghe's stakes in foreign firms, including a 3% share of US rare earths company MP Materials, which counts the US Department of Defense as its largest shareholder after an investment last year.

Shenghe Resources stated it was aware of "false" reports in overseas media regarding a certain rare earth enterprise group's alleged plan to acquire a controlling stake in the company and indirectly hold interests in the company's overseas assets. The company, in a filing to the Shanghai stock exchange, said its controlling shareholder, the Institute of Multipurpose Utilization of Mineral Resources, explicitly stated there are no plans to transfer the company's controlling stake to external parties.

Talks between China Rare Earth Group and Shenghe Resources have been underway since earlier this year, with China Rare Earth Group seeking a controlling stake. An acquisition would give China Rare Earth control over one of the last leading Chinese companies in rare earth mining and refining with some private ownership, concluding a decades-long push to consolidate the sector under state control. It would also grant Beijing tighter control over elements vital to electric vehicles, wind turbines, electronics, and the defense sector.

Last year, Shenghe acquired Australia's Peak Rare Earths. It remains unclear how the prospect of a major Chinese state-owned rare earth firm sharing space on a shareholder registry with the US Department of Defense could impact the deal. MP Materials has stated that neither Shenghe nor the Chinese government has any control over its operations. A deal would also grant Shenghe better access to quotas that Beijing typically uses to control supply, according to one of the sources.