China Rare Earth Group is in talks to acquire Shenghe Resources, potentially placing Shenghe’s stake in MP Materials under Chinese state control.
By Penny Langford
China Rare Earth Group, the state-owned company created to consolidate the country’s rare-earth industry, is in talks to acquire Shenghe Resources, a Chinese rare-earth processor and trading house that owns roughly 3% of U.S. producer MP Materials, according to a Reuters exclusive.
The discussions have been under way since earlier this year, Reuters reported, citing people familiar with the matter. There is no guarantee that an agreement will be reached, and the timing of any announcement remains unclear.
If completed, the transaction would bring Shenghe’s overseas assets under the control of China Rare Earth Group. That would put a Chinese state entity closer to the shareholder register of MP Materials, the California-based rare-earth producer at the centre of Washington’s effort to build a non-Chinese supply chain for critical magnet materials.
The immediate financial interest is relatively small. The strategic significance is much larger.
A state buyer moves closer to MP Materials
Shenghe has been a long-standing shareholder and commercial partner of MP Materials. Its stake has declined from earlier levels as MP Materials issued new shares and completed strategic financing transactions, but Reuters puts Shenghe’s current holding at roughly 3%.
A takeover by China Rare Earth Group would not give Beijing operational control of MP Materials. It would, however, shift control of Shenghe’s assets, including its MP Materials stake, from a Chinese private-sector company to a state-owned rare-earth group.
That distinction matters because the U.S. Department of Defense is now MP Materials’ largest shareholder following a public-private partnership announced by the company. Under that agreement, the Pentagon committed approximately $400 million through preferred stock and warrants, giving it an effective stake of about 15%, according to company disclosures and reporting cited by Reuters.
MP Materials would therefore have an unusual shareholder structure: a major U.S. government investor on one side and a Chinese state-controlled entity with indirect exposure on the other.
The Shenghe stake is non-controlling. It does not give China Rare Earth Group authority over MP Materials’ mine, processing plants or magnet operations. But it could invite additional scrutiny from U.S. regulators and policymakers as Washington tries to reduce reliance on Chinese rare-earth processing.
The strategic contest is moving beyond mine ownership to processing, quotas and downstream manufacturing.
Why Shenghe would want a state-backed owner
The talks also reflect the importance of China’s production and processing quota system.
China controls much of the country’s rare-earth mining, smelting and separation capacity through state-linked groups. Access to quotas can determine how much material a company is able to process and sell, particularly as Beijing tightens oversight of strategic minerals and magnet materials.
Bringing Shenghe into China Rare Earth Group could improve its access to those allocations, Reuters reported. It could also give the state group greater control over Shenghe’s international commercial relationships and overseas resource interests.
Shenghe has built a position beyond China through investments, offtake agreements and project interests. Its overseas portfolio has included exposure to Australia’s Peak Rare Earths and the Ngualla rare-earth project in Tanzania, as well as other international ventures.
If the transaction proceeds, China Rare Earth Group would gain more than a minority holding in an American producer. It would also acquire a broader set of links to rare-earth feedstock outside China, potentially connecting those assets more directly to China’s processing and trading network.
That would reinforce a model Beijing has used for years: maintain dominance in refining and magnet manufacturing while securing access to mineral resources in other jurisdictions.
China’s refining advantage remains the central issue
China accounts for roughly 80% of global rare-earth refining, although estimates vary by material and processing stage. Its position is even stronger in some parts of the magnet supply chain.
The International Energy Agency has estimated that China accounted for about 91% of global refining of magnet rare earths in 2024 and approximately 94% of sintered permanent-magnet production. Those figures include materials such as neodymium, praseodymium, dysprosium and terbium, which are used in high-performance motors and other industrial applications.
The concentration matters because rare earths are not simply mined and shipped directly into finished products. Ore must be upgraded, chemically separated, refined into oxides and metals, converted into alloys and then manufactured into magnets.
A mine outside China can therefore remain commercially and strategically dependent on Chinese processing capacity.
That is the vulnerability exposed by the Shenghe talks. Ownership of a small stake in MP Materials is not the main issue. The wider question is whether Chinese state consolidation will continue to link domestic quotas, overseas resources, trading houses and processing infrastructure into a single strategic network.
Skillings has previously examined this midstream challenge in its analysis of the critical-minerals supply chain.
Export controls have raised the stakes
China tightened rare-earth export controls during 2025 and 2026, particularly for heavy rare earths and magnet-related materials.
The measures introduced licensing requirements for materials including dysprosium, terbium, yttrium, samarium, gadolinium, lutetium and scandium. These elements are important in high-temperature and high-coercivity permanent magnets used in electric vehicles, wind turbines, electronics, aerospace systems and defence equipment.
The rules have changed over time, with some broader restrictions suspended or adjusted following trade negotiations. But the licensing framework and China’s ability to control the flow of strategically important materials remain in place.
That gives Beijing leverage over manufacturers even when the underlying mine is located elsewhere.
For Western companies, the immediate risk is not limited to a physical shortage. Export approvals, customer qualification, technology restrictions and access to specialist equipment can all affect whether an alternative supply chain operates at commercial scale.
Rare-earth supply chains depend on separation, refining and magnet production as much as on mining.
Washington is responding across the supply chain
The United States has responded with a combination of equity investment, government financing, strategic stockpiling and support for processing capacity.
MP Materials is the most visible example. The company is expanding beyond mining at Mountain Pass, with plans to build domestic separation and magnet manufacturing capacity. The Pentagon’s investment is designed to accelerate that mine-to-magnet model.
Washington has also backed broader critical-minerals initiatives involving companies such as Lithium Americas and USA Rare Earth. Lithium Americas is focused on lithium rather than rare earths, but its support reflects the same policy objective: reduce dependence on Chinese-controlled processing for materials considered essential to industry and national security.
The United States is also advancing Project Vault, a strategic critical-minerals stockpile reported at roughly $12 billion in the broader policy push. The reserve is intended to provide manufacturers with a buffer during supply disruptions.
As Skillings noted in its analysis of Project Vault, stockpiling can buy time, but it cannot replace mines, separation plants, refineries or permanent-magnet factories.
That is the difficult part of the U.S. strategy. Building a mine is only the first stage. Establishing reliable chemical separation, qualifying customers and achieving competitive magnet production can take years.
What the talks could mean for MP Materials investors
The market reaction will likely focus on two competing interpretations.
One view is that a Chinese state entity moving closer to MP Materials could increase political and regulatory risk. Investors may expect additional scrutiny of ownership disclosures, foreign influence, technology transfer and any future commercial relationships involving Shenghe.
The other view is that the transaction underscores the strategic value of MP Materials as one of the few large rare-earth producers outside China. The more aggressively Beijing consolidates its sector, the greater the incentive for Washington and allied governments to support alternative supply.
The practical outcome will depend on details that remain unknown: whether the deal is completed, how Shenghe’s overseas assets are structured, whether Chinese approvals are required, and whether U.S. authorities review the indirect ownership position.
The high-energy investor take
If this were reduced to a blunt television-market read, the message would be simple: this is not a routine shareholder change. It is another signal that rare earths are being treated as strategic infrastructure.
For MP Materials and other Western rare-earth names, that can create policy support and long-term demand. It can also bring heavier regulatory scrutiny, higher execution requirements and more volatility around export controls.
The important distinction for investors is between strategic value and near-term operating performance. Government backing can improve a project’s financing and market position, but it does not automatically solve processing costs, construction delays, feedstock shortages or customer qualification.
That is not a buy-or-sell call. It is a reminder that the next phase of the rare-earth market will be decided as much by ownership, permitting and industrial policy as by the price of the underlying metal.
The broader geopolitical signal
China Rare Earth Group’s possible acquisition of Shenghe would deepen the consolidation of China’s rare-earth industry at a moment when the United States and its allies are trying to diversify supply.
It would place Shenghe’s MP Materials stake under a state-owned group, potentially improve Shenghe’s access to domestic quotas and give China Rare Earth Group greater reach across overseas rare-earth assets.
None of those developments changes MP Materials’ operational control or immediately alters the company’s production. But they show how quickly corporate ownership, state policy and supply-chain security are converging in critical minerals.
The contest is no longer only about who owns the mine.
It is about who controls the separation plant, who receives the export licence, who holds the offtake agreement and who can turn rare-earth feedstock into the magnets needed for electric vehicles, wind turbines, electronics and defence systems.
That is why the Shenghe talks matter well beyond a 3% stake.
Key facts at a glance
| Issue | Reported position | Why it matters |
|---|---|---|
| Shenghe stake in MP Materials | Roughly 3% | Could come under indirect Chinese state control |
| China’s share of global rare-earth refining | Roughly 80%; higher for some magnet materials | Keeps processing as the main supply-chain chokepoint |
| MP Materials’ U.S. government shareholder | Pentagon effective stake of about 15% | Places U.S. government and Chinese state-linked exposure on the same register |
| Rare-earth applications | EVs, wind turbines, electronics and defence | Extends the issue beyond mining into industrial and national security policy |
| Project Vault | Strategic stockpile reported at roughly $12 billion | Provides inventory protection but does not replace processing capacity |
The talks remain uncompleted and could still fail. But even before any transaction is announced, they underline the central fact of the rare-earth market: control over processing and strategic ownership may matter as much as control over the orebody.
