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RARE EARTHS miner Molycorp has agreed to buy Canadian processing outfit Neo Material Technologies for C$1.3b (US$1.3b), as it seeks a foothold in China.

Neo Material has processing facilities in China, Thailand and North America, where it produces rare earth oxides, alloys and magnetic powders – critical for a range of high-tech applications. It also processes minor metals including indium and rhenium.

The deal will create a so-called ‘mine-to-magnet’ company. Molycorp will process its own ores into value-added products and, with Neo Material’s Chinese processing facility, gain direct access to the world’s largest and fastest-growing market for rare earths. It’s estimated that China consumes some 70% of global output.

Coverage of the rare earths metals sector in the last two years has been dominated by China’s grip on global supplies – it produces more than 90% of output – and the race by manufacturers outside of China to diversify supplies after it cut exports in response to a territorial dispute with Japan.

Shortly after the dispute, the US government approved Molycorp’s plans to restart and expand its rare earths mine and processing unit in California. The deal is expected to be complete by the end of Q3 2012, in time for Molycorp’s expansion project to begin operations in 2013.

The purchase price for Neo Material is a 42% premium on its closing share price yesterday, when the deal was announced.

Outside of China, Molycorp’s main rival miner of rare earths is Australia’s Lynas. The Malaysian government has granted Lynas permission to build a new rare earths refinery in Kuantan, to process ores imported from Western Australia. The facility has provoked strong resistance from local communities and environmentalists, after another Malaysian rare earth plant in Bukit Merah was linked to leukaemia and birth defects.

Rare earth metals are crucial for refining and the manufacture of advanced technologies including hybrid cars, mobile phones and weapons systems.