(Yicai) Oct. 19 -- Shares of China Rare Earth Group Resources and Technology rose after it was revealed that the firm’s major shareholder, state-owned China Rare Earth Group, plans to take control of four rare earth oxide suppliers for as much as CNY1.81 billion (USD271 million), while expectations of faster third-quarter earnings growth also buoyed the stock.

China Rare Earth [SHE: 000831] closed 4.1 percent higher at CNY49.06 (USD7.34) per share in Shenzhen today. Shenghe Resources Holding [SHA: 600392], the firm selling control of the suppliers, ended down 6.9 percent at CNY16.19, after having slumped to CNY15.65 at one point, a 52-week low.

China Rare Earth will buy a 51 percent stake in the four rare earth smelters and separators, Chengdu-based Shenghe Resources announced late yesterday. The businesses are located in Leshan, Sichuan province, Ganzhou in Jiangxi province, Jiangyin in Jiangsu province, and Zibo in Shandong province.

The accounting firm appointed by Shenghe Resources valued the combined assets of the four companies at between CNY3.25 billion and CNY3.55 billion as of June 30. On that basis, the deal is worth from CNY1.66 billion to CNY1.81 billion. The final price will be confirmed by both parties when they sign a supplemental agreement, according to the announcement.

Rare earth smelting and separation is the refining of the mineral products into various single or mixed rare earth oxides, salts, and other compounds. Because China imposes output controls on the smelting and separation of rare earth mineral products, transferring control of the businesses to China Rare Earth, an industry leader, could put them in a more favourable position when applying for future quotas.

The acquisition may also boost earnings at China Rare Earth. Shenghe Resources said the four companies had combined revenue of CNY1.76 billion and net profit of CNY332 million (USD49.7 million) in the first half of the year, before the effects of related-party transactions were eliminated.

China Rare Earth has not yet issued a statement on the deal. In a financial update issued on Oct. 16, the Jiangxi province-based business said net profit for the first three quarters of the year was likely to have been between CNY363 million and CNY463 million, an increase of 89 percent to 141 percent from a year earlier. First-half profit rose 47 percent to CNY237 million.

The company said it benefitted from much higher product prices compared with the same period of last year. Its first-half earnings report showed revenue of CNY1.28 billion from the rare earth oxide business, representing 78 percent of its total income.

State-owned China Rare Earth Group, the actual controller of China Rare Earth Group Industrial Development, is one of the country’s two leading rare earth enterprises. It mainly mines and processes heavy rare earths in South China.

Editor: Tom Litting