American rare earths miner gets Pentagon-sized investment

China is still by far the one to beat when it comes to the lucrative rare-earths market, but the US is making moves to catch up.

Today, the Pentagon agreed to purchase $400 million of rare-earths company MP Materials’s preferred stock, making the US military its biggest shareholder. MP Materials popped 50.62% on the news.

MP Materials operates the only rare earth mine in the US, which sits at Mountain Pass, CA. The investment by the Defense Department is intended to supercharge MP’s mining and production capacity, and fund a manufacturing plant that is expected to begin operations in 2028.

Zoom out: Rare earths have emerged as a flashpoint in the geopolitical tensions between the US and China. These raw materials are used to make powerful magnets necessary for the production of military planes, drones, submarines, and other high-tech products.

• Right now, the US relies on importing rare earths from foreign countries, mainly China, which mines about 70% of the world’s rare earths and processes about 90% of them.
• Trump’s trade war put a spotlight on China’s leverage with these magnets after Beijing rolled out export restrictions on certain rare earths in retaliation for US tariffs.

The deets: The Defense Department is purchasing a brand new class of shares, which are convertible into MP common stock. The government’s stake is worth roughly 15% of the company, roughly double the stake of its second biggest shareholder, founder and CEO James Litinsky, and its third, BlackRock Fund Advisors, according to CNBC.

The government has also agreed to buy all of the new magnets created at the planned manufacturing facility for a decade after its construction. JPMorgan and Goldman Sachs are jointly investing $1 billion to build the plant.

In a note, D.A. Davidson analyst Matt Summerville called the partnership “transformative” and reiterated his buy rating. Overall, the majority of analysts covering MP have a “buy” consensus rating on the stock.

They’re rare for a reason: Domestic rare earths mining failed in the US in recent decades because the mines couldn’t meet environmental regulations while keeping costs down and fending off competition from China.

And while China’s rare earths industry has boomed, it’s come at a steep health and environmental cost, causing heavy metal and radioactive pollution. —LB