China Rare Earth Group in Reported Talks to Acquire Shenghe Resources

State-owned China Rare Earth Group is in discussions to acquire a controlling stake in Shenghe Resources, according to a Reuters report citing two sources with knowledge of the matter. The potential deal would consolidate Beijing's control over the strategic rare earths sector and give the state-run giant an indirect holding in U.S.-based producer MP Materials.

The Reported Talks and Denial

Talks between the two Chinese firms have been underway since earlier this year, with China Rare Earth Group seeking a controlling stake, the sources told Reuters. The sources, who requested anonymity, did not provide a timeline for the potential acquisition's completion or announcement.

In response, Shenghe Resources issued a filing to the Shanghai Stock Exchange late on Sunday, stating it was aware of "false" overseas media reports. The company said its controlling shareholder, the Institute of Multipurpose Utilization of Mineral Resources, confirmed in writing that there are "no plans to transfer the company’s controlling stake to external parties."

Geopolitical and Strategic Implications

An acquisition would represent a significant step in China's decades-long push to consolidate its rare earths industry under state control. Rare earth elements are critical components in a wide range of technologies, including electric vehicles, wind turbines, consumer electronics, and advanced defense systems.

Crucially, the deal would transfer Shenghe's overseas assets, which include:

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• A 3% stake in U.S. rare earths company MP Materials.
• Ownership of Australia’s Peak Rare Earths, which Shenghe acquired last year.

The potential for a major Chinese state-owned enterprise to become a co-investor in MP Materials alongside the U.S. Department of Defense, a key shareholder, raises significant geopolitical questions. MP Materials has previously stated that Shenghe has no control over its operations.

Industry Context

China has previously used its dominance in the rare earths supply chain as leverage in trade disputes. The deal would grant Shenghe, one of the last leading Chinese firms in the sector with some private ownership, better access to state-controlled production quotas that Beijing uses to manage global supply.

China Rare Earth Group was established in 2021 through the merger of several state-run companies and is the country's largest supplier of heavy rare earth elements. Neither China Rare Earth Group nor the Chinese Ministry of Commerce responded to Reuters' requests for comment.