China's State-Owned Rare Earth Group in Talks to Buy Shenghe, Which Holds 3% of Pentagon-Backed MP Materials

State-owned China Rare Earth Group is in talks to acquire Shenghe Resources, a Chinese rare earths miner and refiner, according to a Reuters report cited by Mining.com, NDTV Profit, ZeroHedge, TradingView and Mining.com.au. The talks have been underway since earlier this year, Reuters' sources said, speaking anonymously given the sensitivity of the discussions. China Rare Earth Group wants a controlling interest, one source told Reuters. No timeline for a deal has been set.

Shenghe owns about 3% of MP Materials, the only scaled rare earths mining operation in the U.S. ZeroHedge, citing the same Reuters reporting, puts the exact figure at 3.11%, making Shenghe MP's seventh-largest shareholder. If China Rare Earth Group takes over Shenghe and keeps its overseas holdings intact, a Chinese state-owned company would hold an indirect stake in MP Materials at the same time the U.S. Department of Defense sits atop its shareholder register.

That Pentagon position isn't small. The Department of Defense became MP's largest shareholder last year by agreeing to buy $400 million in preferred stock and warrants, according to Mining.com. Rare Earth Exchanges reports that stake represents roughly 15% of MP on an as-converted, as-exercised basis, and comes attached to a 10-year price floor for neodymium-praseodymium and a magnet supply agreement. One outlet, Mining.com.au, refers to the agency as the U.S. Department of War rather than Defense, reflecting the Trump administration's 2025 rebranding of the Pentagon for public-facing purposes.

MP Materials' stock dropped 2.35% to $48.22 a share on the news, according to Mining.com, putting the company's market value at $8.6 billion.

The strongest concern, stated fairly

Critics of the deal's implications, including ZeroHedge, frame this as a genuine national-security problem. Washington has spent the last two years and hundreds of millions of taxpayer dollars trying to break China's grip on materials critical to fighter jets, EVs and magnets, only to end up with a Chinese state-owned entity holding a stake in the flagship company built to do that. ZeroHedge draws a comparison to Beijing's earlier purchase and shutdown of Canada's only antimony mine, a critical mineral used in ammunition and night-vision equipment, as evidence China has used ownership stakes strategically before.

What cuts against it

MP Materials has repeatedly said, according to every outlet covering this story, that neither Shenghe nor the Chinese government controls its operations. A 3% stake with no reported board seat is a minority position, not operational control. And Shenghe isn't newly compromised by this deal. It's already partly state-owned. Mining.com.au reports China's Ministry of Natural Resources is already Shenghe's largest shareholder. This transaction would shift Shenghe from one arm of the Chinese state to another, not from private hands into government hands for the first time.

Reuters' sources told the outlet they don't know what would happen to Shenghe's overseas assets, including the MP stake, if China Rare Earth Group completes the acquisition. Shenghe expanded internationally last year by acquiring full ownership of Australia's Peak Rare Earths, which is developing the Ngualla neodymium-praseodymium project in Tanzania, according to Mining.com.au. That asset's fate under new ownership is also unresolved.

The bigger prize for Beijing may not be MP Materials at all. NDTV Profit and Rare Earth Exchanges both note a deal would give Shenghe better access to China's mining, smelting and separation quotas, which Beijing typically reserves for state-owned firms. Those quotas are watched globally as a signal of rare earth supply, but China stopped publicly disclosing the figures, according to Mining.com, cutting visibility into the market at exactly the moment Washington is trying to build an alternative supply chain.

China Rare Earth Group was formed in 2021 from five state-owned rare earths businesses and is already the country's largest supplier of heavy rare earth elements, per Mining.com. Absorbing Shenghe would fold in one of the last Chinese rare earths companies with meaningful private ownership.

No deal has been announced. No U.S. regulatory review, including any potential Committee on Foreign Investment in the United States scrutiny, has been reported by any of these outlets. Whether a completed Shenghe acquisition would even trigger U.S. review, given the indirect and minority nature of the MP stake, remains an open question none of the current reporting answers.