UPDATE 1-China's CIC may launch domestic rare earth company

(adds rare earth firm statement in para 7)

BEIJING, Sept 24 (Reuters) - China’s sovereign wealth fund, fresh from a series of investments in the global commodities sector, may launch its own domestic rare earth firm, a banking source and newspaper report said on Thursday.

China Investment Corp (CIC) could do so through Jianyin Investment, its wholly-owned domestic industrial investment arm, said the source, who is familiar with CIC. The $298 billion sovereign wealth fund’s primary focus is on foreign investments.

Rare earths are metals used in high-tech devices and green products. For a factbox, click on [ID:nSYD28850].

CIC and Jianyin are talking with Baotou Steel 600010.SS and the government of Baotou city in Inner Mongolia about setting up a rare earth company, state-run Economic Information Daily said.

“The talks are in a framework under which the two parties would set up a multi-billion yuan company to specialise in rare earth exploration and stock building,” the paper cited an unnamed source with knowledge of the issue as saying.

“It will also help restructure Inner Mongolia’s rare earth mining industry and CIC will hold a more than 80 percent stake,” the source told the paper.

Shares of Inner Mongolia Baotou Steel Rare-Earth Hi-Tech 600111.SS soared by the daily limit of 10 percent on the news. The company said in a statement to the Shanghai stock exchange that it had met with CIC officials earlier this month to discuss cooperation, but that no agreement had been reached yet.

“It is our long-standing principle not to comment on any market rumours,” a CIC public relations official said.

Rare earth metals are widely used in high-tech industries, such as information technology, biology, new energy and space and ocean exploration. China has proven rare earth reserves of 52 million tonnes, accounting for about 58 percent of the world’s proven reserves.

China’s rare earth products have a 90 percent share of global markets, but some officials have said that it should conserve more of the resources for its own future use.

“CIC’s participation in the rare earth industry is just the begining and the state might take more forceful measures to ramp up stock building,” an industry source told the newspaper.

The Inner Mongolia government issued a circular on Thursday ordering Baotou Steel to cap its rare earth production at 46,000 tonnes for this year, Xinhua reported, without offering a comparison to previous years.

Jianyin is a subsidiary of Central Huijin, CIC’s domestic investment arm, and it was recently transformed into an industrial investment firm from a financial entity, the banking source said.

Over the past three days, CIC has bought a 14.5 percent stake in commodities trading firm Noble Group NOBG.SI and lent Indonesian coalminer PT Bumi Resources Tbk BUMI.JK $1.9 billion. (Reporting by Eadie Chen, Aileen Wang and Simon Rabinovitch; Editing by David Cowell)