Samples of rare earth minerals from left: Cerium oxide, Bastnaesite, Neodymium oxide and Lanthanum carbonate at Molycorp's Mountain Pass Rare Earth facility in Mountain Pass, California June 29, 2015. REUTERS/David Becker/File Photo

LONDON, Aug 22 (Reuters) - Neo Performance Materials (NEO.TO) has agreed to buy a rare earth mining project in Greenland owned by Hudson Resources (HUD.V) to supply its growing needs for the minerals to produce permanent magnets, the two Canadian-listed firms said on Monday.

The European Union wants to develop domestic output of rare earth magnets - key for both electric vehicles and wind turbines - to help meet targets for cutting carbon emissions and to reduce reliance on China. read more

Neo will buy the Sarfartoq project for a total of $3.5 million, contingent on the Greenland government approving the transfer of the licence for the project, the companies said in a statement.

Last year, the Greenland government banned uranium mining, effectively halting development of the Kuannersuit rare earth project owned by Greenland Minerals (GGG.AX). read more

The Sarfartoq project does not contain elevated levels of uranium, but has high levels of neodymium and praseodymium, two essential elements for rare earth permanent magnets, Hudson has said.

Neo plans to develop the mine to supply its rare earth business, including a rare earth separation plant in Estonia, which it plans to expand into a European hub to produce rare earth alloys and magnets.

"Once in production, this project will significantly increase the diversity of global rare earth supply for our processing facilities around the world," said Neo Chief Executive Constantine Karayannopoulos.

China is the world's dominant producer of rare earths, accounting for about 90 percent of global supplies.

Under the agreement, Neo will initially pay Hudson $250,000 and upon Greenland government approval, will pay an additional $3.25 million for the project, which will be placed into a special purpose entity.

If the mine is sold or listed within five years, Hudson would get 5% of any proceeds or equity.

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Oil prices steadied on Friday, but fell for the week on a stronger U.S. dollar and fears that an economic slowdown would weaken crude demand.

Energy firms this week increased the number of U.S. oil and gas rigs but cut the count in August for the first time in 25 months, even as oil prices remain relatively high.

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