Pentagon to become largest shareholder in rare earth magnet maker MP Materials

Rare earth deal with China is 'long-term' industrial crisis, says MP Materials CEO

The Defense Department will become the largest shareholder in rare earth miner MP Materials after agreeing to buy $400 million of its preferred stock, the company said Thursday.

MP Materials owns the only operational rare earth mine in the U.S. at Mountain Pass, California, about 60 miles outside Las Vegas. Proceeds from the Pentagon investment will be used to expand MP’s rare earths processing capacity and magnet production, the company said.

Shares of MP Materials jumped more than 50% on the news.

Rare earths are used in magnets that are key components in a range of military weapons systems including the F-35 warplane, drones and submarines, according to the Defense Department.

The U.S. was almost entirely dependent on foreign countries for rare earths in 2023 with China representing about 70% of imports, according to the U.S. Geological Survey. Rare earths have been a central point of contention in recent trade disputes between the U.S. and China.

Interior Secretary Doug Burgum said in April that the Trump administration was considering making direct equity investments in critical mineral companies to break U.S. dependence on China.

MP Materials CEO James Litinsky described the Pentagon investment as a public-private partnership that will speed the buildout of an end-to-end rare earth magnet supply chain in the U.S.

“This initiative marks a decisive action by the Trump administration to accelerate American supply chain independence,” Litinsky said in a statement.

Public-private partnership

The Pentagon is buying a newly created class of preferred shares convertible into MP Materials’ common stock, in addition to a warrant that allows the U.S. to buy additional common stock. The Defense Department’s investment converts at a fixed price of $30.03 per share. It does not have a cash dividend.

The convertible shares and the exercise of the common stock warrant would equal about a 15% stake in MP Materials as of July 9, nearly twice the 8.61% held by Litinsky and the 8.27% held by BlackRock Fund Advisors, according to FactSet data.

MP Materials will build a second magnet manufacturing facility in the U.S. to serve defense and commercial customers with support from the Pentagon. The facility, whose location wasn’t disclosed, is expected to start commissioning in 2028 and will bring MP Materials rare earth magnet manufacturing capacity to 10,000 metric tons.

The Defense Department is guaranteeing that 100% of the magnets made at the new facility, called 10X, are purchased by defense and commercial customers for 10 years after the plant is built.

The Pentagon will gaurantee a price floor for 10 years of $110 per kilogram for NdPr products that are stockpiled or sold by MP Materials. NdPr is a rare earth compound used to make permanent magnets. The U.S. will pay MP Materials the difference between $110 per kilogram and the market price.

JPMorgan and Goldman Sachs are providing $1 billion to help finance the manufacturing facility. MP Materials also expects to receive a $150 million loan from the Pentagon to expand its rare earth separation capabilities at Mountain Pass.