MP Materials Seals Mega Rare-Earths Deal with US to Break China’s Grip

In a landmark move poised to reshape the global critical minerals landscape, MP Materials (MP.N), the operator of the only rare earths mine in the United States, has announced a multi-billion-dollar agreement with the U.S. government. This strategic partnership, unveiled on Thursday, aims to dramatically boost domestic output of rare earth magnets, a crucial step in loosening China’s near-monopoly on these indispensable materials. The deal, which sent MP Materials’ shares soaring by nearly 50%, marks Washington’s most significant investment to date in the critical minerals sector, underscoring a heightened national security imperative.

The agreement positions the U.S. Department of Defense (DoD) to become the largest shareholder in the Las Vegas-based MP Materials, acquiring an effective 15% stake through a $400 million purchase of preferred stock and warrants. This investment will effectively vault the DoD above China’s Shenghe Resources (600392.SS), which currently holds approximately 8% of MP Materials, signaling a decisive shift away from Chinese influence in a critical American supply chain. The transaction is expected to finalize on Friday, marking a new era for U.S. rare earth independence.

The Strategic Imperative: Why Rare Earths Matter

Rare earths are not just any metals; they are a group of 17 chemically similar metallic elements that possess unique magnetic, catalytic, and luminescent properties. Despite their name, most are not particularly rare in the Earth’s crust, but they are rarely found in concentrations high enough for economical extraction. This geological reality, combined with complex and environmentally challenging processing requirements, makes their supply chain particularly vulnerable.

These “vitamins of modern industry” are absolutely essential for a vast array of high-tech applications that underpin contemporary life and national security. They are the backbone of:

• Electric Vehicles (EVs): Neodymium and praseodymium, often combined to form Neodymium-Iron-Boron (NdFeB) magnets, are critical components in EV motors, enabling the powerful, compact, and efficient designs required for electric propulsion.
• Wind Turbines: Similar to EVs, large offshore wind turbines rely on powerful rare earth magnets for their generators, making them vital to the global transition to renewable energy.
• Defense Systems: From precision-guided missiles and stealth aircraft to advanced radar systems and night-vision goggles, rare earth magnets are irreplaceable in modern weaponry, ensuring the functionality and superiority of military hardware.
• Consumer Electronics: Smartphones, laptops, hard drives, and medical imaging equipment all contain various rare earth elements, contributing to their miniaturization, efficiency, and performance.

The profound dependence of these strategic sectors on rare earths has elevated them from obscure geological curiosities to materials of paramount geopolitical importance. You can learn more about the strategic importance of these elements from Gale Blog and Tufts Now.

China’s Unrivaled Grip: A Decades-Long Ascendancy

For decades, China has meticulously built an almost unparalleled dominance over the global rare earths supply chain. This control spans the entire value chain, from mining and initial processing to the production of advanced rare earth magnets. China currently accounts for over 80% of the world’s refined rare earth output and a significant majority of rare earth magnet production.

This dominance was not accidental. It was the result of a deliberate, long-term national strategy that leveraged several key factors:

• Abundant Reserves: China possesses some of the world’s largest and most accessible rare earth deposits, particularly in regions like Inner Mongolia (Bayan Obo mine) and southern China (ion-adsorption clays for heavy rare earths).
• Lower Production Costs: Historically, China benefited from lower labor costs and less stringent environmental regulations compared to Western nations. This allowed Chinese producers to flood the market with rare earths at prices that made it uneconomical for competitors to operate.
• Strategic Government Support: The Chinese government provided substantial subsidies, tax breaks, and export quotas to its rare earth industry, fostering its growth and consolidation. This strategic backing enabled Chinese companies to invest heavily in processing technologies and capacity.
• Environmental Externalities: The extraction and processing of rare earths can be highly polluting, generating significant amounts of radioactive waste, toxic chemicals, and wastewater. Many Western nations scaled back their rare earth operations due to environmental concerns and rising compliance costs, while China continued to expand.

This iron grip has given Beijing considerable leverage in global trade and geopolitics. The vulnerability of global supply chains became acutely apparent in March when China halted rare earth exports as part of its ongoing trade dispute with the U.S. under President Donald Trump. While there were some signs of easing tensions late last month, the broader geopolitical friction underscored the urgent need for greater U.S. domestic output and supply chain diversification. 

A Game-Changer: The DoD’s Price Floor and Investment

A cornerstone of the new deal is the U.S. Department of Defense’s commitment to guarantee a floor price of $110 per kilogram for the two most popular rare earths – likely Neodymium and Praseodymium (NdPr). This price is nearly double the current Chinese market level, which has long languished at low levels, deterring significant investment in non-Chinese rare earth projects. For context, MP Materials reported receiving an average of $52 per kilogram for these same rare earths in the second quarter.

“This is a game changer for the ex-China industry and a much-needed surge in magnet production capacity,” commented Ryan Castilloux, managing director of consultancy Adamas Intelligence. He highlighted that such a price floor has been a long-sought objective for U.S. critical minerals companies, which have historically struggled against what they describe as China’s market manipulations. Past owners of MP’s Mountain Pass mine, for instance, faced bankruptcy partly due to aggressive Chinese competition and low global prices.

The DoD’s investment is being funded, in part, through the Defense Production Act (DPA), a Cold War-era piece of legislation that grants the U.S. President broad authority to compel industries to prioritize national defense needs. The DPA has been invoked in various contexts, from accelerating vaccine production during pandemics to securing critical mineral supplies. While the DPA provides a powerful mechanism for immediate action, MP Materials noted in a regulatory filing that continued funding from the U.S. Congress for the agreement could not be guaranteed in perpetuity, highlighting a potential long-term legislative challenge. More information on the DPA’s use for critical minerals can be found on Thomasnet and a CSIS analysis.

MP Materials’ Ambitious Expansion: Building a Resilient Supply Chain

Beyond the DoD’s direct investment, MP Materials is committing a substantial $600 million of its own funds to these expansion projects. The company, which operates the Mountain Pass mine in California – the only active rare earths mine in the U.S. – is strategically working to boost not only domestic processing but also the crucial final step: rare earth magnet production.

A key part of this expansion is the construction of a new factory dedicated to rare earth magnets. This facility is projected to lift the company’s annual output to 10,000 metric tons, with operations slated to commence in 2028. This new plant will complement an existing magnet manufacturing facility already under development in Texas.

MP Materials is calling this second, yet-to-be-decided location its ’10X Facility,’ signifying a tenfold increase in capabilities or ambition. Crucially, the DoD is guaranteeing the off-take from this second facility, ensuring that all its production will be purchased by defense and commercial customers for the next decade. This long-term commitment provides the financial stability and demand certainty necessary for such a massive capital investment.

To further bolster these ambitious plans, MP Materials has secured significant financial backing. JP Morgan (JPM.N) and Goldman Sachs (GS.N) are supporting a $1 billion loan to facilitate the construction of the 10X facility. Additionally, the Defense Department is providing a $150 million loan to MP Materials to add heavy rare earth separation capabilities at its California-based Mountain Pass facility. Heavy rare earths, such as Dysprosium and Terbium, are particularly vital for high-performance magnets that operate at elevated temperatures, making this a critical enhancement to the domestic supply chain.

This comprehensive strategy addresses a major vulnerability: while MP Materials has been mining rare earth ore, much of it was historically sent to China for processing due to a lack of domestic capacity. In a significant move towards full vertical integration, MP Materials announced in April that it would cease sending rare earths to China for processing, further solidifying its commitment to a fully domestic supply chain.

“We’re getting an important national security need met, but we’re maintaining our free market public company approach,” MP CEO James Litinsky stated during a Thursday investor call, emphasizing the balance between strategic national interests and commercial viability. The market’s positive reaction was immediate, with the company’s shares trading at $43.95, their highest since April 2022, having already nearly doubled this year through Wednesday’s close.

The Broader Context: Global Race for Critical Minerals

The MP Materials deal is not an isolated event but a prominent example of a broader global scramble for critical minerals. Nations worldwide are recognizing the profound economic and strategic risks associated with concentrated supply chains, particularly those controlled by geopolitical rivals.

• European Union: The EU has unveiled its own Critical Raw Materials Act, aiming to boost domestic extraction, processing, and recycling of key minerals, setting ambitious targets to reduce reliance on single suppliers. More details can be found on the EU’s Internal Market, Industry, Entrepreneurship and SMEs page.
• Australia and Canada: These resource-rich nations are actively positioning themselves as alternative suppliers, forging partnerships with the U.S. and other allies to develop new mines and processing facilities. Australia’s critical minerals strategy is detailed on Geoscience Australia and Austrade International. For Canada’s strategy, you can refer to UKRI and the Office of the Auditor General of Canada’s report.
• Japan and South Korea: Heavily reliant on imported rare earths for their advanced manufacturing industries, these countries have been proactive in diversifying their sourcing and investing in recycling technologies. Japan is even exploring deep-sea rare-earth mud mining as reported by Mining Weekly. South Korea is focusing on cooperation with African countries and accelerating recycling efforts.

The increasing demand for EVs, renewable energy infrastructure, and advanced electronics is only intensifying this competition. The International Energy Agency (IEA) has repeatedly warned that the world’s energy transition goals could be jeopardized without a secure and diversified supply of critical minerals. Their Global Critical Minerals Outlook 2025 highlights these concerns, as summarized by the World Resources Institute.

Challenges and the Road Ahead

While the MP Materials deal represents a monumental step for U.S. rare earth independence, significant challenges remain.

• Environmental Concerns: Rare earth mining and processing are energy-intensive and can generate substantial environmental waste. Ensuring sustainable and environmentally responsible practices at Mountain Pass and future facilities will be crucial for long-term viability and public acceptance. MP Materials has stated commitments to modern environmental standards, but ongoing vigilance will be necessary.
• Technological Advancement: While NdFeB magnets are dominant, research into alternative, rare-earth-free magnet technologies continues. However, these alternatives are generally not yet competitive in performance or cost for many high-demand applications.
• Workforce Development: Building a robust domestic rare earth industry requires a skilled workforce, from geologists and mining engineers to chemical processors and materials scientists. Investment in education and training programs will be essential.
• Market Volatility: Despite the DoD’s price floor for specific rare earths, the broader market remains subject to fluctuations. Maintaining competitiveness and attracting further private investment will require careful navigation of global market dynamics.

The U.S. government’s bold investment in MP Materials signals a clear intent to reclaim a strategic advantage in critical minerals. By securing a domestic supply of rare earths and fostering a complete “mine-to-magnet” supply chain, the U.S. aims to bolster its national security, support its burgeoning electric vehicle industry, and reduce its vulnerability to geopolitical pressures. This deal is more than just a financial transaction; it is a strategic declaration in the ongoing global competition for the resources that power the future.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

11th July, 2025