By Melanie Burton

MELBOURNE (Reuters) -Australia's richest person, Gina Rinehart, become a substantial shareholder in Lynas Rare Earths, the largest producer of rare earths outside of China, an exchange filing showed late on Tuesday.

The stake, taken by Rinehart's privately held Hancock Prospecting, is fuelling speculation of sector consolidation, after the magnate acted as a kingmaker in Australian lithium, and following merger talks between Lynas and the next biggest Western rare earths miner, MP Materials, earlier this year.

Lynas shares rose as much as 5.9%.

Rinehart and Hancock Prospecting have become substantial shareholders of Lynas with 5.82% voting power, according to the filing. Hancock took a substantial stakeholding in the U.S. rare-earths producer MP Materials, MP said earlier this month.

Lynas and MP Materials ended talks over a potential merger in February.

Lynas appreciates the support of its shareholders but does not comment on individual shareholders, a Lynas spokesperson said. Hancock declined to comment.

"We wonder whether Rinehart's emergence as a major shareholder in both Lynas and MP will prove a catalyst that encourages a merger," broker Canaccord said in a note on Wednesday.

"We could imagine clear synergies from such a tie-up: strategic re-orientations and cost savings that would enhance profitability at a time of subdued prices. A merged entity would also help to solidify a scaled Western rare earths champion to counter China’s dominance."

Lynas mines rare earths at its Mount Weld mine in Western Australia which are shipped to Malaysia for processing. It is building out processing facilities in the United States for the highly magnetic metals that are critical to wind turbines, electric vehicles and missiles.

Lynas investor Andy Forster of Argo Investments said Hancock's move was interesting "given she's clearly made a play across the whole space. She obviously wants to potentially have a seat at the table if there's any chance of consolidation."

"In the scheme of things for her, it's probably a relatively small investment," he said. "(Rare earths have) obviously been pretty depressed of late. If you're making a strategic long-term investment it's probably not a bad time to get in."

Prices for Neodymium have slumped by nearly three quarters since early 2022 when prices spiked following COVID-era border closures that crimped supply to dominant producer China.

Rinehart is Australia's richest person with a fortune made from iron ore. Hancock has been aggressively acquiring stakes in lithium miners, thwarting a deal by top U.S. lithium chemicals maker Albemarle for Australia's Liontown last year.



More recently she has turned her attention to rare earths. Hancock's investments include a 6.17% stake in Brazilian Rare Earths and a 9.14% holdings in Arafura Rare Earths, according to LSEG data.

(Reporting by Melanie Burton; Editing by Stephen Coates)