China Rare Earth Giant Eyes Takeover Of MP Materials' Seventh-Largest Shareholder As Resource War Intensifies

One way to view the Reuters report saying that state-owned China Rare Earth Group is in takeover talks with Shenghe Resources is that the deal could further cement Beijing's control over critical materials, especially rare earths. But what's most intriguing is that Shenghe holds a minority stake in US rare earth producer MP Materials.

The potential takeover would bring one of China's top rare earth mining and refining companies under the state group's control, with some private ownership. It would also extend that control to Shenghe's overseas holdings, including a 3.11% stake (7th largest shareholder) in MP Materials.

The outlet reported:

Talks between the two companies have been underway since earlier this year, said the sources who spoke on the condition of anonymity given the sensitivity of the matter. China Rare Earth Group wants to take a controlling stake, one of the people said.

The takeover would almost certainly cause some alarms in Washington: a major Chinese state-owned supplier could inherit a minority holding in a US company amid efforts by Washington to break China's stranglehold on critical materials supplied to the West.

The sources did not know what would happen to Shenghe's foreign assets and stakes.

In terms of leverage, China Rare Earth Group's takeover of Shenghe Resources would give Beijing tighter control over materials that are critical to electric vehicles, wind turbines, electronics and the defense sector. These are the same materials that Beijing has restricted some access to the US over the past 1.5 years amid a resource war. 

Recall that one move in Beijing's playbook was buying Canada's only antimony mine and then shutting down operations several years ago. Antimony is a critical mineral used in military hardware, from small arms and artillery shells to advanced missile seekers and night-vision goggles.

Beijing's leverage over the US lies in critical materials, while the US crusade from Venezuela to the Strait of Hormuz has been about leveling the playing field with China and squeezing Beijing's access to crude.