U.S. Defense Department Takes a Stake in a Rare Earth Company

The Defense Department (DOD) is investing in MP Materials to undercut China’s rare-earth magnet dominance. China dominates the supply chain of refined rare earths, controlling 92% of the market. MP Materials has the only rare earth mine in the United States, the Mountain Pass Mine in California, and also produces magnets, which are a key component of weapons systems. With the DOD investment, MP Materials will build a second production facility to meet the needs of the Pentagon, which has committed to buying 100% of the production for 10 years.

The Defense Department is taking a 15% stake in MP Materials and committing to spending billions investing in the company and purchasing its output. The company’s new factory to make rare-earth magnets, expected to come online in 2028, will be at a scale that vastly exceeds current U.S. magnet production. In its deal with MP Materials, DOD is guaranteeing a price floor for rare earth minerals and magnets so that the company is protected if China floods the market with rare earth minerals, thereby lowering global prices.

DOD is guaranteeing a minimum price of $110 per kilogram for 10 years for neodymium-praseodymium oxide that is stockpiled or sold by MP Materials. It is a rare-earth compound used to make permanent magnets. If the market price is below $110 per kilogram, DOD will pay MP Materials the difference in a quarterly cash payment, according to James Litinsky, the chief executive of MP Materials.

The government is guaranteeing that all magnets produced at the new magnet-making facility will be purchased either by the government or commercial customers. According to Litinsky, the 10,000 metric tons of magnets the company will produce under the plan should be enough to support U.S. defense and commercial needs. This year, it is estimated the company will produce between 250 and 750 metric tons of the main type of rare earth magnet needed for industrial products such as automobiles, wind turbines, jet fighters, and missile systems.

Background

China uses its control over rare earths to prevent competitors from emerging, either by over-supplying the market or adopting restrictive export policies, depending on the situation. After President Trump put high tariffs on Chinese goods in April, China started limiting rare-earth exports, causing havoc for the automobile industry, as all cars made today, whether electric or gasoline-powered, require rare-earth magnets. Some factories were forced to close temporarily as exports of rare earth magnets to the United States dropped 58.5% in April. In June, the United States and China reached a trade deal, under which President Trump reduced tariffs on China, and in turn, China agreed to approve rare-earth export applications more quickly. China developed a regulatory framework it had issued in April to determine which companies would be denied access to the rare earth metals, including American military contractors.

By controlling the supply of rare earths, thereby manipulating their price, China was able to cement its dominance in the market. Many companies are reluctant to commit to long-term purchase agreements for Western-made magnets because it could lock them into paying high prices. But without long-term purchase agreements, those companies cannot obtain funds to buy equipment and build factories, creating a chicken-and-egg situation.

The United States was not always in this situation as it once was one of the largest producers of rare earths. From 1940 to 1990, the United States produced and mined rare earth minerals at the Mountain Pass mine in California. In the 1980s, China became a major producer due to its substantial rare earth deposits, cheap labor, and lax environmental standards. The Mountain Pass mine closed in the fourth quarter of 2015 because of China’s competitive prices, opposition from environmentalists, and U.S. environmental regulations escalating the cost of production. The mine returned to production in 2018 during President Trump’s first term. It was bought by MP Materials in 2017 from Molycorp, which had run it before it went bankrupt.

Since 2023, MP Materials has been refining rare earths at its California site and selling high-purity separated products to customers in the United States, Japan, South Korea, and other allied nations. MP Materials refines more than half its production domestically. In 2024, the United States produced an estimated 45,000 metric tons of rare earths, up from 14,000 metric tons in 2018 — a 221% increase. MP has also built the first integrated rare earth metal and magnet manufacturing facility in the United States in a generation. Located in Fort Worth, Texas, it is producing metal and is preparing to deliver U.S.-made magnets at scale to General Motors using materials mined and refined in California. Since 2020, MP has invested over $1 billion to restore the industry in the United States and created more than 850 high-paying U.S. jobs. As part of the new plan, the company will expand production at the Fort Worth factory and set up a second, larger magnet factory.

Conclusion

DOD is taking a 15% stake in MP Materials and committing to spending billions investing in the company and purchasing its output in order to undercut China’s dominance of rare earth magnets needed in the manufacture of weapon systems. DOD is guaranteeing a price floor for rare earth minerals and magnets so that the company is protected if China floods the market with rare earth minerals, which would lower global prices. The government is also guaranteeing that all magnets produced at the company’s new magnet facility will be purchased either by the government or commercial customers. According to the company, the 10,000 metric tons of magnets the company will produce under the plan with DOD should be enough to support U.S. defense and commercial needs. It is estimated that the company will produce between 250 and 750 metric tons of rare earth magnets this year, needed for industrial products such as automobiles, wind turbines, jet fighters, and missile systems.