The U.S. Department of Defense is set to become the largest shareholder in MP Materials, a pivotal move aimed at bolstering the domestic supply chain for rare earth magnets. The Pentagon’s $400 million investment in MP Materials’ preferred stock will help the company expand its rare earth processing capacity and establish a second magnet manufacturing facility in the United States.
Strengthening U.S. Rare Earth Supply Chain
MP Materials owns and operates the only active rare earth mine in the United States, located at Mountain Pass, California. Rare earth elements are critical for producing magnets used in advanced military weapons systems, including F-35 fighter jets, drones, and submarines. This investment reflects the growing urgency to reduce U.S. reliance on foreign imports, particularly from China, which accounted for 70% of rare earth imports in 2023.
The Pentagon’s investment will also support MP Materials’ expansion into magnet manufacturing to meet both defense and commercial demand. The new facility, whose location remains undisclosed, is expected to be operational by 2028 and will have an annual production capacity of 10,000 metric tons of rare earth magnets. The Defense Department has committed to purchasing 100% of the output for 10 years.
Economic and National Security Implications
MP Materials CEO James Litinsky hailed the investment as a landmark public-private partnership. He emphasized that securing a domestic supply of rare earth materials is critical for national security:
“This partnership is ultimately on behalf of the taxpayers and our national security, and with that comes a great responsibility to get this done right,” Litinsky said in a conference call.
In addition to supporting national security, the Pentagon’s involvement is structured to benefit taxpayers. The government negotiated a minimum price guarantee of $110 per kilogram for neodymium-praseodymium oxide (NdPr), a rare earth compound used in permanent magnets. If market prices fall below this threshold, the Pentagon will pay MP Materials the difference. However, the U.S. government will receive 30% of any profits above the $110 price once the second facility becomes operational.
Pentagon’s Shareholding and Financing Plans
The Defense Department’s investment includes newly created preferred shares convertible into MP Materials’ common stock, as well as a warrant to purchase additional shares over the next 10 years. If fully exercised, the Pentagon’s stake will increase to approximately 15%, making it the largest shareholder, surpassing current stakeholders such as CEO James Litinsky (8.61%) and BlackRock Fund Advisors (8.27%).
MP Materials will also receive a $150 million loan from the Pentagon within 30 days to enhance rare earth separation capabilities at Mountain Pass. Additionally, JPMorgan and Goldman Sachs are providing $1 billion in financing for the new magnet manufacturing facility.
Implications for U.S. Dependence on China
This investment marks a significant step in reducing U.S. dependence on China for critical minerals. Rare earths have been a central issue in trade disputes between the two nations, and the Biden administration has sought to establish greater domestic production to mitigate vulnerabilities in the supply chain.
By creating an end-to-end rare earth magnet supply chain within the U.S., MP Materials aims to meet domestic defense and commercial needs while safeguarding economic and national security.
Market Reaction
Following the announcement, MP Materials’ stock surged by 50%, signaling optimism about the company’s future growth and its critical role in the rare earth industry.
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