The Pentagon's Gamble on Rare Earths: How MP Materials Could Be the Key to U.S. Supply Chain Independence

In an era where rare earth metals underpin everything from electric vehicles to missile guidance systems, the U.S. government has placed a bold bet on MP Materials. On July 9, 2025, the Pentagon announced a landmark partnership with the company—one that could redefine America's vulnerability to China's stranglehold on the rare earth supply chain. For investors, this deal isn't just about geopolitics; it's a catalyst for MP Materials' valuation to surge. But will the risks outweigh the rewards?

The Deal: A Strategic Lifeline for MP Materials

The partnership is a masterclass in public-private collaboration. The DoD's $400 million investment in convertible preferred stock and warrants positions it to own 15% of MP Materials, making it the company's largest shareholder. This equity stake isn't just financial—it's a strategic endorsement of MP's role as a “national champion.” Pair that with a $1 billion financing package from JPMorgan and Goldman Sachs to build the 10X magnet facility and a $150 million DoD loan for heavy rare earth separation at its Mountain Pass mine, and MP is now armed with the capital to dominate the domestic rare earth value chain.

The crown jewel is the 10X Facility, slated to begin production in 2028. Its 10,000-metric-ton annual magnet capacity, paired with the 1,000-metric-ton Texas plant (operational by 2026), creates a vertically integrated supply chain from mining to magnet manufacturing. Crucially, the DoD has locked in a 10-year offtake agreement for all magnets produced at 10X—a guarantee that removes market risk for MP. To further insulate the company from price volatility, the Pentagon has set a floor of $110/kg for neodymium-praseodymium (NdPr), shielding MP from China's export controls or sudden market swings.

Why This Deal Matters: Breaking China's Grip

China's dominance in rare earths is staggering: it supplied 70% of U.S. imports in 2023 and used export curbs in 2024 to highlight vulnerabilities. The MP-DoD partnership attacks this at its core. By securing domestic production of magnets—the final step in the supply chain—America can insulate its defense sector and EV industry from disruptions. MP's pivot to heavy rare earth separation (HREEs), which are critical for advanced magnets, is equally vital. While Mountain Pass primarily produces light rare earths, the DoD's funding and technical support aim to bridge this gap, though challenges remain in sourcing HREEs domestically or through geopolitically risky partnerships (e.g., Brazil, Vietnam).

The Valuation Upside: A Bull Case for MP

Investors should focus on three drivers:
1. Guaranteed Revenue Streams: The DoD's offtake agreement and price floor eliminate the volatility that crippled MP in 2023–2024, when weak NdPr prices led to losses.
2. Scale and Vertical Integration: The 10X Facility's 10,000-metric-ton capacity, if fully utilized, could position MP to rival Chinese and Japanese competitors.
3. Strategic Monopoly: As the sole U.S. rare earth miner and processor, MP's role as a national asset could attract further government funding or partnerships.

Even with challenges like HREE sourcing and cost competition, MP's valuation has room to grow. Analysts project EBITDA margins could expand from ~20% to over 30% by 2027 as fixed costs are absorbed. If the DoD's investment is fully converted, MP's equity could be valued at $2.7 billion by 2026—a 40% premium to its current market cap.

Risks and the Bear Case

The pitfalls are clear. HREEs are scarce in U.S. deposits, forcing MP to rely on imports or risky partnerships. Competitors like China's Baotou Rare Earth or Japan's Toyota Motor (TM) have decades of scale and cost advantages. Regulatory hurdles, such as permitting delays for the 10X Facility, could push timelines into 2029. And if China floods the market with cheap NdPr to undermine MP, the price floor may not hold.

The Bottom Line: A High-Reward, High-Risk Bet

MP Materials is now a geopolitical play as much as an industrial one. For investors with a long-term horizon and tolerance for risk, the partnership's guarantees and strategic importance make MP a compelling buy. The DoD's equity stake and offtake agreements reduce execution risk, while the U.S. government's urgency to secure supply chains could lead to further subsidies or mandates.

Investment Thesis: Buy MP if you believe the U.S. will prioritize rare earth independence, and the company can navigate HREE challenges. Avoid if you see this as a temporary subsidy without sustainable profitability. The upside? MP's valuation could double by 2027. The downside? A misstep in scaling could leave it stranded.

In the race to control the rare earth supply chain, MP Materials is now the U.S.'s best—and only—hope. The question is, will investors bet on that gamble?