Why The Pentagon Leads in US Rare Earth Supply Chain

MP Materials, operator of the United States’ only functioning rare earths mine, is tying itself more closely to Washington after striking a major deal with the Department of Defense (DoD).

The Pentagon is becoming MP’s largest shareholder and has pledged wide-ranging financial support to increase domestic rare earth processing and manufacturing.

The move reflects growing concerns in both trade and defence circles over the reliance on China for critical minerals and highlights a concerted effort to anchor these materials within US borders.

Rare earths, tariffs and strained supply lines

Rare earths are a group of 17 metals used in the production of magnets essential to modern technologies. They power components in electric vehicles, wind turbines, smartphones and military systems such as submarines and fighter jets.

However, while the United States consumes a large amount of these materials, it has long relied on China for both refining and processing.

In 2023, 70% of US rare earth imports came from China, according to the US Geological Survey.

At the heart of the new arrangement is MP’s Mountain Pass site in California. The company has until now shipped most of its output to China for processing, with Chinese firm Shenghe Resources - partly state-owned - serving as both investor and primary customer.

Worsening US-China trade relations, particularly since President Donald Trump returned to office, have brought that model to a halt.

Following Beijing’s export restrictions and US-imposed tariffs of up to 145%, MP declared it would no longer send its materials to China.

“It was neither commercially viable nor in alignment with America’s national interests,” the company said. That stance hasn’t changed, even with partial easing of tariffs.

Beijing’s hold on the industry remains formidable. China accounts for about 70% of mining and 90% of processing worldwide. It has been accused of manipulating prices to maintain its position.

In March, China halted rare earth exports entirely as trade tensions with Washington escalated, triggering supply shocks and forcing some automakers to suspend production.

The US response is now taking shape through deals like this one. “We’re getting an important national security need met,” said MP’s Founder and CEO James Litinsky.

“But we’re maintaining our free market public company approach.”

Strategic investment and supply chain guarantees

The Department of Defense is buying US$400m of MP’s newly created preferred stock, which will convert into common shares, giving the US government a 15% stake. That exceeds the holdings of both Shenghe Resources and BlackRock Fund Advisors.

The DoD is also receiving warrants—rights to purchase additional stock—exercisable at US$30.03 per share for the next decade.

The deal includes an agreement to guarantee a floor price of US$110 per kilogram for neodymium-praseodymium oxide (NdPr), a compound used to produce permanent magnets. That rate is nearly double China’s current market level, which has languished around $52 per kilogram.

If market prices fall below US$110, the US government will cover the difference each quarter. If they rise above US$110, the government will share in the upside, collecting 30% of any gains once MP’s second factory opens.

“This is a game changer for the ex-China industry and a much-needed surge in magnet production capacity,” said Ryan Castilloux, Managing Director of Adamas Intelligence, a firm tracking rare earths.

MP will invest US$600m of its own funds to expand production and build a second magnet manufacturing facility, its so-called 10X Facility, at a location yet to be revealed. Commissioning is expected in 2028.

The Department of Defense has committed to buying 100% of the magnets produced there for the following 10 years, serving both defence and commercial markets.

Financing is being underpinned by a US$1bn loan from JPMorgan and Goldman Sachs. MP also expects to receive a US$150m Pentagon loan within 30 days to enhance its heavy rare earth separation capabilities at Mountain Pass.

James emphasised the hybrid nature of the arrangement. “I want to be very clear, this is not a nationalisation,” he told investors.

“We remain a thriving public company. We now have a great new partner in our economically largest shareholder, DoD, but we still control our company. We control our destiny.”

Could the public-private model be replicated?

The wider supply chain implications of the agreement are substantial.

The rare earth industry in the US has previously struggled to attract investment, partly due to price suppression by Chinese producers. The guaranteed price floor, DoD-backed off-take agreements and equity stake represent a new level of public-private alignment.

This deal is being executed under the Defense Production Act, a Cold War-era law which gives the federal government powers to prioritise production of materials critical to national security. However, MP acknowledged in filings that continued Congressional funding can’t be guaranteed.

Interior Secretary Doug Burgum has said the Trump administration may look to replicate this model in other critical mineral sectors to reduce foreign dependency.

The arrangement has already been felt in financial markets. MP’s shares surged by almost 50%, closing at US$45.23, their highest level since April 2022. The firm’s market capitalisation now stands at US$7.4bn.

Whether the rest of the sector follows suit remains to be seen, but for now MP is reshaping its supply chain and procurement strategy in line with Washington’s industrial goals.