Chinese rare earth giant Shenghe Resources has added a potential third foreign alliance to its books after signing a non-binding memorandum of Understanding (MoU) with Western Australian explorer RareX (ASX: REE).
The companies have laid the groundwork for the formation of a jointly owned rare earths elements (REE) trading company, which will source REE concentrates from non-China sources.
The trading company could get exclusive rights to all RareX’s Australian production once mining begins.
The MoU also provides for Shenghe to invest in the company’s flagship Cummins Range REE and niobium projected located in the Kimberley region.
Among the issues the two companies will now pursue is for the planned trading company to be offered exclusive marketing rights for any REE concentrates produced at Cummins Range.
Shenghe now processes US REE concentrates
Shenghe, listed on the Shanghai Stock Exchange, has a market capitalization of $US4.6 billion (A$6.05 billion).
Shenghe already holds 8% of New York-listed MP Materials Corporation, which operates the Mountain Pass REE mine in California, and which is the only significant producer of REE in the US.
All of Mountain Pass’s concentrates are now shipped to Shenghe’s operations in China — a situation that has generated considerable discussion in the US, with the US Defence Department seeking to help develop downstream processing in North America.
The Chinese company also owns 9.7% of Australian REE hopeful Greenland Minerals with its project in the eponymous Danish autonomous territory.
This move comes at a time when Washington, with the backing of the Australian Government, has placed priority on America freeing itself from dependence on Chinese REE supplies, especially for its defence industries.
It also follow the US Government commissioning Lynas Corporation (ASX: LYC) to build a light REE processing plant in Texas, using concentrates shipped from Australia.
China still controls more than 80% of the world’s REE supplies, with Lynas the only major supplier outside of that country.
Working toward binding agreement
There is also potential for joint investment by RareX and Shenghe in proposed or existing REE refineries outside China.
The next step will be to move to formal documentation and a binding heads of agreement.
RareX managing director Jeremy Robinson said his company is “absolutely delighted” about the alliance.
“This is an exciting development for RareX and our shareholders which opens up a number of significant growth pathways.”
Meanwhile, RareX says it remains focused on preparations for the upcoming drill program at Cummins Range.
Work is also progressing on an updated mineral resource estimate.