The Strategic Case for US Rare Earths Stocks in a Geopolitically Driven Supply Chain Shift

The global race for rare earth elements (REEs) has intensified as the U.S. government accelerates efforts to secure domestic supply chains. With geopolitical tensions and China's dominance over 85% of global REE processing capacity, the U.S. is deploying unprecedented financial and strategic resources to insulate its defense, energy, and industrial sectors from foreign dependency. For investors, this represents a compelling opportunity: government procurement and funding are now the primary drivers of demand, creating a tailwind for U.S. rare earths stocks.

Government Procurement as a Catalyst for Sustained Demand

The Department of Defense (DoD) has emerged as the sector's most influential catalyst. In July 2025, the DoD finalized a transformative partnership with MP Materials, the sole U.S. rare earth mining company, underpinned by a $400 million equity investment and a 15% stake in the firm. This equity stake, coupled with a $150 million loan to expand heavy rare earth separation at MP Materials' Mountain Pass Mine, signals a long-term commitment to domestic production. Crucially, the DoD secured a 10-year offtake agreement to purchase 100% of magnets produced at MP Materials' new 10X facility starting in 2028. Such agreements eliminate market volatility risks for producers, ensuring stable revenue streams and incentivizing capital expenditures.

Price protection mechanisms further solidify this dynamic. The DoD's 10-year minimum price guarantee of $110 per kilogram for neodymium-praseodymium oxide (NdPr)-a critical magnet material-doubles the current market rate. This structure not only stabilizes MP Materials' margins but also sets a precedent for other U.S. producers, creating a floor for REE prices and attracting private investment.

Federal Funding: Building a Resilient Supply Chain

Beyond procurement, the Department of Energy (DOE) is investing heavily in domestic processing and recycling infrastructure. In August 2025, the DOE announced $1 billion in funding for critical minerals projects, including a $135 million Rare Earth Elements Demonstration Facility to extract REEs from unconventional sources like acid mine drainage. A $250 million initiative targets pilot-scale recovery of critical minerals from industrial byproducts, while $500 million is allocated to expand battery materials processing and recycling. These programs aim to close the loop on rare earth usage, reducing reliance on primary mining and enhancing supply chain resilience.

The DoD's five-year "mine-to-magnet" strategy complements these efforts. Since 2020, it has awarded over $439 million to projects spanning mining, separation, and magnet manufacturing. For example, E-VAC Magnetics received $94.1 million to build commercial-scale magnet production by 2025, while TDA Magnetics secured $2.3 million to demonstrate defense-grade magnet output. These investments are not one-off grants but part of a coordinated plan to achieve full domestic supply chain independence by 2027.

Implications for the Sector and Investors

The confluence of procurement guarantees, price floors, and federal funding creates a unique environment for U.S. rare earths stocks. Companies like MP Materials, E-VAC Magnetics, and Noveon Magnetics are positioned to benefit from guaranteed demand and cost structures shielded from global market swings. For instance, MP Materials' planned expansion to 10,000 metric tons of rare earth magnets annually aligns with U.S. consumption levels, capturing over 3% of global demand.

Moreover, the sector's strategic importance ensures political and regulatory tailwinds. The Biden-Harris administration's emphasis on reducing reliance on foreign entities of concern (FEOCs) has led to stringent restrictions on Chinese involvement in U.S. supply chains. This policy environment favors companies with domestic production capabilities, further insulating them from geopolitical risks.

Conclusion

The U.S. government's aggressive procurement and funding strategies are reshaping the rare earths sector into a cornerstone of national security and industrial competitiveness. For investors, this represents a rare alignment of policy, capital, and demand. As the DoD and DOE continue to prioritize domestic supply chains, U.S. rare earths stocks are poised for sustained outperformance-a direct result of the government's role as both a buyer and a builder of a resilient, self-sufficient industry.