The Pentagon's Bold Move: How Strategic Equity Investments Are Reshaping U.S. Critical Minerals Dominance

The U.S. government's pivot toward strategic equity investments in critical minerals has reached a critical milestone. On July 14, 2025, the Pentagon's $400 million stake in MP Materials—securing a 15% ownership position in the sole American rare earth producer—marks a watershed moment in the nation's efforts to insulate its supply chains from China's dominance. This move, part of a broader public-private partnership framework, is not merely a financial transaction but a geopolitical and economic realignment with profound implications for investors.

At the heart of the deal is the Mountain Pass mine in California, the only active rare earth mine in the U.S. The Pentagon's investment will directly fund the expansion of rare earth separation facilities and the construction of the “10X Facility,” a magnet manufacturing plant backed by $1 billion in financing from JPMorgan and Goldman Sachs. By 2028, this facility aims to produce 10,000 metric tons of magnets annually—materials vital for defense systems like F-35 fighter jets and commercial applications such as electric vehicles and wind turbines.

The Mechanics of De-Risking

The partnership's financial architecture is designed to mitigate both market and geopolitical risks. A 10-year price floor of $110 per kilogram for neodymium-praseodymium oxide (NdPr)—a key rare earth used in magnets—ensures MP Materials receives stable revenue. If global prices drop below this threshold, the U.S. government subsidizes the difference. If prices rise, the Pentagon shares 30% of excess profits. This “revenue-sharing” model creates a win-win: MP Materials gains guaranteed cash flow, while taxpayers benefit from upside potential.

The stock's 50% surge since the deal's announcement underscores investor confidence in this structure. The Pentagon's 10-year commitment to purchase 100% of the 10X Facility's output further de-risks MP's operations, shielding it from the volatility that has historically plagued rare earth markets.

Why China's Dominance Matters—and How This Deal Challenges It

China's near-total control over the rare earth value chain—85% of refining and 90% of magnet production—has long been a vulnerability for U.S. industries. The Pentagon's move directly addresses this by creating an end-to-end domestic supply chain. With China restricting magnet exports in 2025 (a 75% drop year-on-year), the urgency of this initiative has never been clearer.

The strategic equity model pioneered here could set a template for other sectors. Consider cobalt for batteries or lithium for EVs—both areas where foreign dependence remains acute. The Pentagon's approach blends fiscal prudence (shared risk/reward) with industrial policy, offering a middle ground between pure privatization and nationalization.

Investment Implications: A Structural Shift with Risks

For investors, MP Materials is now a proxy for the broader critical minerals renaissance. The stock's valuation, however, hinges on execution: delays in the 10X Facility's ramp-up or oversupply in global magnet markets could pressure margins.

Yet the fundamentals are compelling. By 2028, the 10X Facility alone could meet 10% of U.S. magnet demand, reducing reliance on Chinese imports. Meanwhile, the Pentagon's financial guarantees insulate MP from cyclical price slumps.

Caveats and Considerations

Risks remain. China could retaliate with tariffs or export restrictions, while the U.S. may face challenges in scaling domestic refining capacity. Additionally, rare earth stocks have historically been volatile, with prices tied to EV adoption rates and geopolitical tensions.

Final Analysis: A Strategic Core Holding

MP Materials is no longer just a mining company—it is a linchpin of U.S. national security. Investors seeking exposure to the critical minerals boom should treat MP as a core holding, particularly in portfolios focused on defense resilience or infrastructure investments.

For a more diversified approach, consider companies like Lynas Corporation (LYC.AX), which supplies unrefined rare earths, or Vale (VALE), a diversified miner with rare earth projects. However, MP's unique combination of government backing and end-to-end production makes it the purest play in this sector.

In conclusion, the Pentagon's strategic equity model has transformed the calculus for critical minerals investments. By aligning national security with market forces, Washington has created a template for de-risking supply chains—a move that could redefine global industrial dynamics for decades to come.