China Rare Earth Group in talks to acquire Shenghe, an MP Materials shareholder

State-owned China Rare Earth Group is in talks to acquire Shenghe Resources, a deal that would consolidate Beijing's grip on the rare earth sector and hand a Chinese state enterprise an indirect stake in MP Materials ↘ 4.29%, the only rare earth mining operation of scale in North America — and one backed by the U.S. Department of Defense.

A Pentagon-Linked Producer in the Crosshairs

The negotiations, first reported by Reuters on Friday, have been underway since earlier this year, according to two people with knowledge of the matter. China Rare Earth Group is seeking a controlling stake in Shenghe Resources, they said.reuters

Shenghe holds about 3% of MP Materials, which operates the Mountain Pass mine in California. The U.S. Department of Defense became MP's largest shareholder last year after agreeing to purchase $400 million in preferred stock and warrants. The prospect of a major Chinese state-owned rare earth firm and the Pentagon sharing space on MP's shareholder registry raises questions neither company has yet addressed publicly.tradingview+2

MP Materials has repeatedly said that neither Shenghe nor the Chinese government has any control over its operations. China Rare Earth Group, Shenghe Resources, and China's Ministry of Commerce did not respond to Reuters' requests for comment.reuters

Consolidation and Strategic Control

An acquisition would bring one of the last leading Chinese rare earth companies with some private ownership under full state control, capping a decades-long push by Beijing to consolidate the sector. China Rare Earth Group, formed in 2021 from the reorganization of five state-run companies, is already China's largest supplier of heavy rare earth elements.reuters

A deal would also grant Shenghe better access to mining and processing quotas that Beijing allocates through state-run companies, according to one of the sources. Those quotas are closely watched as a barometer for global supply.reuters

Broader Supply Pressures

The talks come as Western companies continue to grapple with the fallout from China's 2023 export curbs on gallium, germanium, and rare earths. Prices of gallium and germanium outside China have reached nine to ten times their 2023 levels, according to Reuters. China still accounted for 98.9% of primary gallium supply and 68.6% of germanium supply in 2025, consultancy Project Blue estimates.reuters

Several Western production projects have been announced, including efforts by Alcoa ↘ 5.41% in Australia, Rio Tinto ↘ 0.68% in Canada, and METLEN in Greece, but S&P Global ↗ 0.30% forecasts suggest non-Chinese supply will still fall far short of demand through the end of the decade. As Project Blue founder Jack Bedder told Reuters: "We think a material reduction in dependence is achievable over five years, but eliminating dependence on China is much less realistic".reuters