State-owned China Rare Earth Group, the country’s largest producer of heavy rare earth elements, is in talks to take a controlling stake in listed peer Shenghe Resources, according to people familiar with the matter — a domestic industry consolidation that has pulled the U.S. Department of Defense into the spotlight via a tangled cross-Pacific shareholding link.
The two sides have held negotiations since earlier this year, the people said, requesting anonymity because the discussions are commercially sensitive. No timeline has been set for an official announcement or deal close, and the state-backed rare earth champion is targeting majority control of Shenghe.
If the transaction closes, it will mark a landmark step in Beijing’s decades-long campaign to bring China’s rare earth mining and refining sector fully under state oversight. Shenghe is one of the last remaining leading domestic rare earth operators with private-sector roots; bringing it into the state fold will tighten Beijing’s grip on the critical minerals underpinning electric vehicles, wind turbines, consumer electronics and defense systems — leverage China has already deployed to strong effect during its ongoing trade dispute with Washington.
The rare strategic twist of the deal lies in Shenghe’s overseas asset portfolio. Shenghe holds a roughly 3% stake in U.S. rare earth producer MP Materials (MP), operator of the Mountain Pass mine in California — the only rare earth mine currently in production on U.S. soil. Last year, the Pentagon invested $400 million in MP via preferred stock and warrants, making it the company’s largest shareholder. A completed acquisition would therefore place a Chinese central state-owned enterprise, reporting directly to the State Council’s asset regulator, on the same shareholder register as the U.S. Department of Defense for a strategically sensitive American mineral asset.
For Shenghe, joining China Rare Earth Group would also unlock easier access to the tightly controlled production quotas Beijing allocates for rare earth mining, smelting and separation. The quotas are handed down to state-owned groups, which then distribute them to subsidiaries; they are closely tracked by global markets as the key barometer of rare earth supply, even as Beijing has stopped publishing the figures publicly in recent years.
Multiple core uncertainties remain around the transaction, the sources said. It is unclear how Shenghe’s global asset base will be treated post-close: beyond the MP Materials stake, Shenghe finalized its acquisition of Australia’s Peak Rare Earths last year, and the future arrangement for those overseas holdings is unresolved. MP Materials has repeatedly emphasized that neither Shenghe nor the Chinese government exercises any control over the company’s day-to-day operations.
Shares in MP Materials fell 2.35% to $48.22 after the talks were first reported, valuing the company at $8.6 billion. China Rare Earth Group, Shenghe and China’s Ministry of Commerce did not respond to requests for comment.
Against a backdrop where Washington is rushing to build a fully domestic rare earth supply chain to cut reliance on China, the overlapping cross-Pacific shareholding on MP’s register has turned an internal industry consolidation into a fresh flashpoint for observers tracking U.S.-China competition over critical strategic minerals.
