* Plant to be built in South Africa, near GWG mine
* GWG will own 75 pct of JV, Ganzhou to own 25 pct
* CEO sees potential REO output of 10,000 tonnes/year
* Final deal to be signed in August
TORONTO, July 25 (Reuters) - Great Western Minerals (GWG.V) is teaming up with a Chinese rare earth producer to build a rare earth processing plant in South Africa, the company said on Monday.
The separation plant, a joint venture with Ganzhou Qiandong Rare Earth Group Ltd, will be built close to Great Western's Steenkampskraal mine in Western Cape province.
"This deal moves us from where we may have been perceived as a junior miner, to a fully integrated operator," Great Western Chief Executive Jim Engdahl told Reuters of the preliminary agreement. "It completes our integration chain and that's a key part of what we're doing."
Rare earths are not actually rare. What is rare is finding economic deposits of the group of 17 metals, which are used in technology products such as smartphones and hybrid cars.
China currently dominates production, with some 95 percent of the market, but tighter Chinese export quotas have led to skyrocketing prices and a global drive to find new sources.
By working with Ganzhou Qiandong to develop the separation plant, Great Western will have access to "the most advanced technology in the rare earth world," Engdahl said.
The company will be able to mine rare earths, separate them into oxides, then used those oxides to produce alloys, metals and magnets.
"It's a very strong deal," said Engdahl, adding that the final agreement should be signed by the end of August. "It really does show that China will need product from outside of China to develop their economy."
He added that the majority of oxide output from the separation plant will go to Great Western's processing facilities, with the rest going to customers and into China.
"We will provide our own customers first, before any of that goes back into China," Engdahl said.
The joint venture will be 75 percent owned by Great Western and 25 percent owned by Ganzhou Qiandong, and will process concentrate from Steenkampskraal.
The mine, which produced thorium from 1951 to 1963, is expected to start production in January 2013 at 2,700 tonnes of rare earths a year, ramping up to 5,000 tonnes a year.
"We're also in discussions with several other companies in South Africa and area, for working with their tailings," said Engdahl. "We could easily see us getting to 10,000 tonnes a year, around there, within the next two to three years."
While Engdahl would not give a price for the separation plant, he said it was in line with earlier estimates of around $30 million.
Great Western also owns rare earth exploration properties in North America, including one at Hoidas Lake in Saskatchewan.
Ganzhou Qiandong has been processing rare earth oxides and metals for 20 years, and is a supplier to Great Western subsidiary Less Common Metals.
Great Western's shares have risen 40 percent so far this year. Larger rival Molycorp MCP.N is up 12 percent in the same period, while Avalon Rare Metals (AVL.TO) is down 24 percent and Rare Element Resources (RES.TO) has tumbled 42 percent.
Shares of Great Western were down 1 percent at C$0.94 on Monday afternoon on the Toronto Stock Exchange.
($1=$0.95 Canadian) (Reporting by Julie Gordon; editing by Peter Galloway)