Will MP Materials Rare Earth Deal Help US Cut Out China?

MP Materials, operator of the United States’ only active rare earths mine, strengthens its association with Washington after agreeing to a prominent deal with the Department of Defense (DoD).

The Pentagon emerges as MP’s primary shareholder while pledging extensive financial assistance to escalate domestic rare earth processing and production.

This reflects escalating concerns within trade and defence circles on dependence on China for essential minerals, setting the stage to anchor these materials within US territories.

Rare earths, tariffs and strained supply lines

Rare earths, a cluster of 17 metals, are vital to the production of magnets crucial in contemporary technologies.

They are integral to the manufacture of electric vehicles, wind turbines, smartphones and military apparatus like submarines and fighter jets.

However, despite consuming vast amounts, the United States has significantly relied on China for refining and processing these materials.

As per the US Geological Survey, China accounted for 70% of US rare earth imports in 2023.

Central to the new deal is MP’s Mountain Pass site in California.

Until now, the company's primary output destination for processing has been China, with Shenghe Resources, a semi-state-backed Chinese firm, acting as both investor and principal client.

Escalating US-China trade disputes, exacerbated since President Donald Trump's return, have disrupted this framework.

In response to Beijing’s export controls and US-imposed tariffs reaching up to 145%, MP has proclaimed its decision to stop exporting to China.

“It was neither commercially viable nor in alignment with America’s national interests,” the company said. That stance hasn’t changed, even with the partial easing of tariffs.

China’s dominance in the industry remains formidable, accounting for roughly 70% of mining and 90% of processing worldwide, amid accusations of manipulating prices to retain supremacy.

In March, China's halting of rare earth exports amid intensified trade tensions with Washington triggered supply shocks, pushing some automakers to pause production.

The US response is now taking shape through deals like this one. “We’re getting an important national security need met,” said MP’s Founder and CEO James Litinsky. “But we’re maintaining our free market public company approach.”

Strategic investment and supply chain guarantees

The Department of Defense is acquiring US$400mn of MP’s new preferred stock, which will convert to common shares, affording the government a 15% stake.

This surpasses the stakes of Shenghe Resources and BlackRock Fund Advisors.

In addition, the DoD gains warrants exercisable at US$30.03 per share over the next decade.

The deal also offers assurance of a floor price of US$110 per kilogram for neodymium-praseodymium oxide (NdPr), a compound essential for producing permanent magnets. This rate nearly doubles China's current market price around US$52 per kilogram.

If market prices dip below US$110, the government will cover the deficit quarterly.

If they exceed this level, the government will partake in the profit, securing 30% of any gains post-MP’s second factory launch.

“This is a game changer for the ex-China industry and a much-needed surge in magnet production capacity,” said Ryan Castilloux, Managing Director of Adamas Intelligence, a firm tracking rare earths.

MP plans to invest US$600m to enlarge production and establish a secondary magnet manufacturing site, its so-called 10X Facility, with commissioning anticipated in 2028.

The DoD has pledged to purchase 100% of the magnets produced there over 10 years, catering to both defence and commercial sectors.

Funding is reinforced by a US$1bn loan from JPMorgan and Goldman Sachs. Within 30 days, MP also anticipates a USD $150m Pentagon loan to boost its heavy rare earth separation abilities at Mountain Pass.

James emphasised the hybrid nature of the arrangement. “I want to be very clear, this is not a nationalisation,” he told investors.

“We remain a thriving public company. We now have a great new partner in our economically largest shareholder, DoD, but we still control our company. We control our destiny.”

Could the public-private model be replicated?

The deal’s broader supply chain implications are noteworthy.

The US rare earth industry has previously struggled to attract investors due to Chinese producers often suppressing prices.

The guaranteed price floor, DoD-backed off-take agreements and equity stake indicate a new level of public-private alignment.

This is conducted under the Defense Production Act, a Cold War-era regulation granting the government authority to prioritise materials vital to national security.

However, MP concedes in filings that continued Congressional funding can fluctuate.

Interior Secretary Doug Burgum suggests the Trump administration might explore replicating this model in other critical mineral sectors to diminish foreign reliance.

The deal already resonates in financial markets, causing MP’s shares to climb nearly 50%, closing at US$45.23, the highest since April 2022.

The firm’s market valuation now stands at US$7.4bn.

Whether the rest of the sector will follow is uncertain, but at present, MP is reshaping its supply chain and procurement strategy alongside Washington’s industrial ambitions.