China Rare Earth Group in Talks to Acquire Shenghe Resources, Sources Say

State-owned China Rare Earth Group is in talks to acquire Shenghe Resources, a move that would tighten Beijing's grip on the global rare earths supply chain and give the state-run giant a stake in a key U.S. producer, according to two sources with knowledge of the matter.

Details of the Negotiation

Discussions between the two companies have been underway since early this year, with China Rare Earth Group seeking to secure a controlling stake in Shenghe, one of the sources said. The people, who spoke on the condition of anonymity due to the sensitivity of the negotiations, did not provide a timeline for when an acquisition might be announced or finalized.

An acquisition would represent a major step in China's decades-long effort to consolidate its rare earths industry under state control. It would bring one of the last major Chinese mining and refining firms with some private ownership into the state-owned fold. China Rare Earth Group, Shenghe Resources, and China's Ministry of Commerce did not respond to requests for comment, according to Reuters.

Geopolitical and Market Implications

A successful deal would have significant international repercussions. Shenghe Resources holds a 3% share of U.S. rare earths company MP Materials, which would transfer to the state-owned Chinese entity. This development is notable as the U.S. Department of Defense is also a major shareholder in MP Materials, creating a potentially complex ownership structure.

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MP Materials has previously stated that Shenghe Resources does not have any control over its operations. The sources did not clarify what would happen to Shenghe’s other overseas assets, which include Australia’s Peak Rare Earths, acquired last year. The acquisition would also likely grant Shenghe better access to China's closely guarded production quotas, which Beijing uses to manage global supply.

Context and Background

Rare earth elements are a group of 17 metals crucial for manufacturing a wide range of products, including electric vehicles, wind turbines, consumer electronics, and advanced defense systems. China has previously leveraged its dominant position in the sector during trade disputes.

China Rare Earth Group was established in 2021 through the consolidation of five state-run entities and is the country's largest supplier of heavy rare earth elements. This potential acquisition underscores Beijing's strategy to maintain firm control over resources it deems critical to its economic and national security.