Pentagon Invests $400 Million in MP Materials to Reduce China Reliance

The Pentagon has agreed to invest $400 million to acquire a 15 percent stake in MP Materials, a U.S. company specializing in the mining and processing of rare earth elements. This investment is part of a broader strategy to reduce the U.S. reliance on Chinese suppliers of critical minerals.

In addition to the equity purchase, the Department of Defense will support the construction of a new magnet factory. This facility is expected to produce 10,000 metric tonnes of magnets annually, with operations slated to commence in 2028. The U.S. government will also provide additional billions to build the magnet plant, making it the largest shareholder in MP Materials.

James Litinsky, the founder and CEO of MP Materials, highlighted that this move represents a significant step by the Trump administration to enhance American supply chain independence. MP Materials operates the sole rare earth mine in the United States, located at Mountain Pass in California. The mine extracts essential elements such as praseodymium and neodymium, which are crucial for manufacturing electric vehicles and advanced weapons systems.

Rare-earth magnets made from these metals are integral to various defense systems, including the F-35 Lightning II, unmanned drones, and submarines. Each F-35 requires approximately 408 kilograms of these materials, which are also used in Tomahawk missiles and precision-guided bombs. The U.S. aims to reduce its dependence on Chinese suppliers, who control around 55 percent of the world’s rare earth mining and 85 percent of its refining capacity.

In April, China imposed export limits on seven rare-earth materials and magnets, leading to a 75 percent drop in U.S. magnet imports and significant disruptions in the automotive, defense, and technology sectors. This move prompted the U.S. administration to consider supporting domestic mineral producers. Since 2020, the Pentagon has invested over $430 million to bolster U.S. rare earth supply chains, focusing on the refinement and separation of mined elements into finished magnets.

Under the new agreement, the Department of Defense will purchase $400 million of a new series of preferred stock in MP Materials, convertible into common shares at $30.03 each. This deal includes an offtake clause guaranteeing the Pentagon will buy every magnet produced at the planned facility over the next 10 years. MP Materials will use part of the funds to upgrade its operations at Mountain Pass, which was initially developed with about $45 million in Pentagon grants.

A key aspect of the arrangement is a fixed price floor of $110 per kilogram for praseodymium-neodymium. This guarantee protects MP Materials from sudden price drops due to surging global supplies. Producers outside China have long complained about Chinese companies dumping excess rare earths at below-cost prices, undercutting rivals. This price floor could enable junior developers and marginal producers to enter the market, potentially changing the dynamics of the rare earth industry.