To reduce reliance on foreign sources, the U.S. Department of Defense will become the largest shareholder of the rare earth miner MP Materials.

【By Chen Sijia, Observers Network】According to a report by the U.S. Consumer News and Business Channel (CNBC) on July 10, U.S. rare earth producer MP Materials announced that the U.S. Department of Defense has agreed to purchase its $400 million preferred shares, becoming the company's largest shareholder. The Pentagon will support MP Materials in building a second rare earth magnet manufacturing plant within the United States to reduce reliance on foreign sources.

The report stated that the U.S. Department of Defense is purchasing newly issued convertible preferred shares of MP Materials and will receive warrants. According to data from financial data service provider FactSet, after exercising the convertible preferred shares and warrants, the U.S. Department of Defense will hold about 15% of MP Materials' shares, making the U.S. government the largest shareholder of this rare earth miner.

After the announcement of this deal, MP Materials' stock surged about 50% on the 10th, closing at $45.23. The company's market value increased to $7.4 billion, adding about $2.5 billion from the previous trading day.

James Litinsky, CEO of MP Materials, said that the investment by the U.S. Department of Defense is a "public-private partnership," which is expected to accelerate the establishment of an end-to-end rare earth magnet supply chain in the United States. He told CNBC, "This is not nationalization; we are still a thriving publicly traded company. Now, we have a new partner — the U.S. Department of Defense, our largest economic shareholder, but we still control the company."

Litinsky told investors during a conference call on the 10th that this collaboration will help MP Materials build "manufacturing capabilities sufficient to support U.S. defense and commercial needs," reducing reliance on foreign sources. "We have been working hard to achieve these goals, both executing our mission and loudly calling for the elimination of single points of failure in the U.S. supply chain."

MP Materials' rare earth mining and processing facility in Mountain Pass, California MP Materials website

CNBC reported that MP Materials is the only operating rare earth mine in the United States, located in Mountain Pass, California. With the support of the U.S. Department of Defense, the company will build a second rare earth magnet manufacturing plant in the United States, expected to start production in 2028 with an annual capacity of 10,000 tons of rare earth magnets, serving U.S. defense and commercial customers.

The U.S. Department of Defense has committed to ensuring 100% procurement of rare earth magnet products produced by the new factory over the next 10 years. The U.S. Department of Defense has also set a minimum price of $110 per kilogram for MP Materials' neodymium-praseodymium oxide products, with the same 10-year term. Litinsky revealed that if the market price falls below $110 per kilogram, the U.S. government will pay the difference to the company on a quarterly basis.

In addition, MP Materials will receive a $150 million loan from the U.S. Department of Defense to expand the rare earth separation capacity at the Mountain Pass mine. U.S. financial giant JPMorgan Chase and Goldman Sachs will also provide $1 billion in financing to support the construction of the manufacturing plant.

The Financial Times pointed out that the U.S. government rarely directly invests in companies, typically supporting only the development of technologies crucial to national interests or rescuing important companies from bankruptcy in extreme cases.

Rare earth magnets are essential materials in multiple fields such as military technology, electric vehicles, and renewable energy. For example, a single U.S. F-35 fighter jet requires more than 400 kilograms of rare earth materials. In recent years, the U.S. government has considered relying on foreign supplies in the rare earth sector as a "national security risk" and has continuously increased investments in the rare earth industry.

The Financial Times noted that since 2020, the U.S. Department of Defense has invested over $430 million to establish a domestic rare earth supply chain, including the separation and refining of rare earths in the United States and the production of rare earth magnets. In April this year, U.S. Interior Secretary Deb Haaland stated that the Trump administration was considering direct investment in critical mineral companies.

However, Mark Smith, a veteran in the mining industry and former CEO of Molycorp, told Bloomberg in an interview last month that Western countries would need several years to develop a certain level of rare earth processing capability. "We need to build the required facilities onshore to solve this problem, but it will be a long and difficult process."

Cameron Johnson, Senior Partner at TidalWave, a Shanghai-based consulting company and former Vice President of the Shanghai American Chamber of Commerce, expects that the strategy of diversifying rare earth supply in some countries like the United States faces many challenges, including time, cost, and human capital. "Just the time needed is at least 10 to 20 years, and the cost is at least tens of billions of dollars. Where will the talent come from? Who knows how to process these materials? Who understands the purification process? How to achieve high purity? These talents do not exist in most countries."

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