China Rare Earth Group in talks to buy Shenghe Resources

State-owned China Rare Earth Group is reportedly negotiating to acquire Shenghe Resources, a move that would result in indirect Beijing ownership of a stake in US rare earths producer MP Materials. According to reports citing sources familiar with the matter, discussions have been ongoing since earlier this year. The potential deal would place a major Chinese state entity on the shareholder register of a company where the US Department of Defense holds a significant interest.

Shenghe currently owns approximately 3% of MP Materials, which operates the Mountain Pass mine in California. The Pentagon became the largest shareholder of MP Materials last year following an agreement to purchase $400 million worth of preferred stock and warrants. Following the news of the potential acquisition, MP Materials shares declined, closing down 2.35% at $48.22 each. This price movement valued the company at $8.6 billion. Sources indicated that it remains unclear how the presence of both a Chinese state-owned enterprise and the Pentagon on the same shareholder register would impact future transactions or what would happen to Shenghe’s overseas holdings under such an arrangement.

MP Materials is the only US producer of rare earth elements, which are critical components for smartphones, jet engines, electric vehicles, and defense systems. The company has consistently stated that neither Shenghe nor the Chinese government controls its operations. An acquisition would bring one of China’s remaining major privately owned rare earths mining and refining companies under state control, extending Beijing’s decades-long consolidation of the industry. China Rare Earth Group was formed in 2021 through the reorganization of five state-owned businesses and is currently the country’s largest supplier of heavy rare earth elements.

The combination could provide Shenghe with greater access to government quotas governing rare earths mining, smelting, and separation. These quotas are typically granted to state-owned companies, which then allocate them among subsidiaries. Although China has stopped publicly disclosing these figures, they are closely monitored as an indicator of global supply. Greater consolidation would strengthen Beijing’s influence over materials essential for electric vehicles, wind turbines, electronics, and defence equipment. China has previously used its dominance in rare earths as leverage in trade disputes with the US. Shenghe also expanded internationally last year by acquiring Australia’s Peak Rare Earths, raising questions about the treatment of its international assets if state control is established. This potential transaction adds a geopolitical dimension to MP Materials as Washington seeks to build a domestic supply chain and reduce reliance on China.