China's largest rare earths producer will take over rival processors in Inner Mongolia, the local government has said, as Beijing further tightens its grip over the highly coveted minerals.

State-owned Baotou Iron and Steel (Group) will acquire four smelting and separation firms in the northern region and will compensate a further 22 companies to be shut down under a plan made public this week.

Another nine unlicensed processors will be closed without compensation, the Inner Mongolia government said in a statement. The overhaul is expected to be completed by the end of June.

China produces more than 95 percent of the world's rare earths -- 17 elements critical to making everything from iPods to electric cars and missiles -- and Beijing has been trying to bring the minerals under state control.

Baotou Steel Rare Earth Hi-Tech Co, the Shanghai-listed unit of Baotou Iron and Steel (Group), last month won approval to set up China's first exchange in the Inner Mongolian city of Baotou to handle spot transactions of the metals.

State media has reported that Baotou holds 87 percent of the country's reserves of the elements and accounts for around half of the nation's rare earths exports.

Analysts said the exchange, which is not allowed to deal in futures trading, would further regulate the market.

Beijing has taken a series of measures to tighten control over the industry, citing environmental concerns and domestic demand, leading to a surge in prices and triggering complaints from foreign buyers.

The government has cut rare earths exports for the first half of 2011 by 35 percent compared to a year earlier, having slashed the quota by 72 percent for the second half of last year.

It has also set tougher environmental standards for the industry, restricted production capacity in projects that separate rare earths from crude ores, and raised taxes.

The State Council, or cabinet, said last month it wants to consolidate the rare earths sector to allow the biggest producers to dominate the industry within two years.

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