Chinese rare earth firm to form megacompany

BEIJING - China's top rare earth producer announced Friday it will gain control of 12 other firms in the sector, making its first move to form a megacompany.

Inner Mongolia Baotou Steel Rare-Earth (Group) Hi-Tech Co (REHT) on Thursday signed framework agreements on consolidating and restructuring with other rare earth firms based in Inner Mongolia, the REHT said in a statement filed to the Shanghai Stock Exchange.

Under the agreements, the 12 firms and their shareholders will transfer 51 percent of the companies' combined equity to REHT for free while REHT will plan their management and production.

REHT will also provide the firms with support in terms of talent, technology, funding, production and export quotas.

REHT's light rare earth output accounts for more than half of the world's total.

The move is the company's first step in its ambition to create a massive rare earth enterprise that will integrate light rare earth resources in the country's northern region, a plan that was unveiled in August this year.

The industry consolidation is also part of efforts to control environmental damage caused in rare earth mining and processing, stave off resource depletion and nurture competitive domestic firms in the sector.

Authorities expect bigger enterprises to churn out products with higher added value and shoulder more responsibility in environmental protection.

If the first step goes well, REHT will eventually team up with major rare earth producers in Gansu, Sichuan and Shandong provinces to form the China North Rare Earth (Group) Hi-Tech Co, the company's general manager Zhang Zhong said in August.

However, the framework agreements will become invalid if formal deals cannot be inked within one year, according to REHT's statement.

Rare earth metals are a group of 17 metals that are vital for the manufacture of high-tech products ranging from smartphones and wind turbines to electric car batteries.

As the world's largest producer of rare earth metals, China now supplies more than 90 percent of the global demand for the metals, although its reserves account for just 23 percent of the world's total.

The process of extracting the metals from the earth is extremely harmful to the environment. The Chinese government has implemented output caps, export quotas, stricter emission standards and higher resource taxes to curb environmental damage.