U.S. Invests $439 Million to Reduce China REE Dependence

The United States is taking significant steps to reduce its reliance on China for rare earth elements (REEs), which are crucial for both high-tech and defense industries. In early June, President Trump emphasized that China would supply all necessary rare earths upfront, highlighting the geopolitical importance of these elements. China currently dominates the global REE market, controlling up to 70% of both mining and processing. This dominance puts the U.S. in a challenging position, as its defense systems, including the F-35 aircraft, rely heavily on REEs sourced from China.

REEs consist of 15 elements, known as lanthanoids, along with scandium and yttrium. Despite their name, REEs are more abundant than precious metals like gold. However, their extraction and refinement are costly due to their uneven distribution and the need to separate them from other minerals. Central Asia, particularly China, is rich in REE deposits, further underscoring China's geopolitical influence.

The International Tax and Investment Center (ITIC) noted that secure access to REEs provides economic advantages in manufacturing, while a lack of access results in economic disadvantages. Up to 2023, China was responsible for 99% of heavy REE processing, making it indispensable for various technologies, from electric vehicles and smartphones to defense systems. In response to China's heavy REE export restrictions, the U.S. Department of Defense (DoD) has committed over $439 million to develop domestic REE supply chains. The DoD aims to achieve a sustainable, mine-to-magnet supply chain capable of supporting all U.S. defense requirements by 2027.

However, the U.S. is still decades away from having a fully domestic REE supply chain for the entire consumer electronics sector. In the meantime, certain companies are being targeted to accelerate the process. Australian Lynas Rare Earths Ltd. is the largest REE producer outside of China and has expanded its relationship with the DoD to construct a REE processing facility in Texas. Australia, with its rich REE deposits, is seen as a key international partner for the U.S. in this endeavor.

Iluka Resources Ltd. has also invested significantly in establishing Australia’s first REE refinery, Eneabba, in Western Australia. This refinery is scheduled to be operational from 2027. Both Lynas and Iluka have seen their shares surge following a deal between the DoD and U.S.-based MP Materials. MP Materials runs the world’s second-largest REE mine in Mountain Pass, California, and has a downstream processing facility in Fort Worth, Texas.

MP Materials recently announced a 10-year, multibillion-dollar public-private partnership with the DoD to build its second magnetics facility, dubbed the “10X Facility.” This facility is expected to reach 10,000 metric tons of REE manufacturing capacity from 2028 onwards. The price floor commitment for MP Materials’ products is $110 per kg of the NdPr alloy, ensuring positive cash flows for the foreseeable future. This premium price floor also signals the significance of Australian REE assets, boosting the shares of Lynas and Iluka.

Wyoming-based Rare Element Resources Ltd. is another company to watch for REE exposure. The company’s main exploration and extraction operation is in Bear Lodge, and it has secured $553 million in debt financing from the Export-Import Bank of the United States. The company is expected to start its Demonstration Plant in late 2025, with the production of up to 10 tons of Nd/Pr oxide/alloy. This milestone is expected to serve as another piece of bullish news for REEMF stock, which is up 152% year-to-date.