Pentagon takes major stake in rare earth miner MP Materials
The US Department of Defense will become the largest shareholder in rare earth mining company MP Materials after agreeing to purchase $400 million of preferred stock, the firm announced on Thursday.
MP Materials owns America's only operational rare earth mine at Mountain Pass, California, situated approximately 60 miles from Las Vegas. The Pentagon investment will fund expansion of the company's rare earth processing capacity and magnet production facilities.
Shares in MP Materials surged to close at $45.23, boosting the company's market capitalisation to $7.4 billion, an increase of roughly $2.5 billion from the previous trading session.
Rare earth elements are crucial components in magnets used across various military weapons systems, including F-35 fighter jets, drones, and submarines. In 2023, the United States remained almost entirely dependent on foreign sources for these materials, with China accounting for approximately 70% of imports, according to the US Geological Survey.
The strategic partnership forms part of the Trump administration's efforts to reduce American dependence on Chinese supply chains. Interior Secretary Doug Burgum indicated in April that the administration was considering direct equity investments in critical mineral companies to break reliance on China.
MP Materials Chief Executive James Litinsky described the Pentagon investment as a public-private partnership designed to accelerate development of an end-to-end rare earth magnet supply chain within the United States.
"This is not a nationalisation," Litinsky told CNBC. "We remain a thriving public company with a great new partner as our economically largest shareholder, but we still control our company and destiny."
The agreement includes plans for MP Materials to construct a second magnet manufacturing facility in the US, expected to begin commissioning in 2028. This will bring the company's total rare earth magnet manufacturing capacity to 10,000 metric tonnes annually.
The Pentagon has committed to purchasing 100% of magnets produced at the new facility for ten years, whilst also guaranteeing a minimum price of $110 per kilogram for neodymium-praseodymium oxide over the same period.
It is highly unusual for the US government to make direct investments in private companies, typically reserved for technologies crucial to national interests or systemically important firms during crises. The Pentagon has already invested more than $430 million in establishing domestic rare earth supply chains since 2020.
The agreement comes as MP Materials faces challenges with its Chinese operations. The company had been shipping a portion of its extracted rare earths to China for refinement through Shenghe Resources, a Chinese mining firm partly owned by the government. However, exports to China were suspended in April amid renewed trade tensions, forcing MP to stockpile approximately half of its concentrate production.
China's dominance in rare earth processing remains formidable, controlling 55% of global mining capacity and 85% of refining operations. In April, Beijing imposed export restrictions on seven rare earth elements and permanent magnets, causing major disruptions across automotive, defence, and technology sectors and resulting in a 75% drop in magnet exports.
The strategic importance of rare earth elements cannot be overstated. A single F-35 Lightning II fighter jet requires 900 pounds of rare earth materials. These elements are also critical components in Tomahawk missiles, Predator drones, and Virginia-class submarines.
The Pentagon has committed to purchasing 100% of magnets produced at the new facility for ten years, whilst also guaranteeing a minimum price of $110 per kilogram for neodymium-praseodymium oxide over the same period.
