MP Materials Secures Major US Government Deal to Boost Rare Earth Production

On July 10, MP Materials announced a significant multibillion-dollar agreement with the US government, designed to enhance the production of rare earth minerals essential for military uses, electric vehicles, and wind turbines. Under this agreement, the US Department of Defense (DoD) will become the foremost shareholder of MP Materials, the only integrated producer of the 17 rare earth minerals in the US, which China currently controls by a staggering 90% in terms of processed output. Furthermore, the DoD will secure a minimum price for critical rare earth elements, which is approximately double the prevailing Chinese market rate that has long influenced investment decisions due to its low levels.

The news of this landmark deal resulted in a nearly 50% surge in MP's stock price. Ryan Castilloux, a managing director at Adamas Intelligence, remarked that this development is a transformative moment for industries outside of China and signifies a much-needed increase in the capacity for magnet production. To support this, MP plans to establish a new rare earth permanent magnets facility, which is expected to ramp up production to 10,000 metric tons annually, launching operations by 2028. These high-strength magnets are critical for powering electric vehicles, wind turbine motors, drones, and military fighter jets.

The urgency for US companies to source rare earths intensified after China restricted exports in April, leading to a 75% decline in rare earth magnet exports the following month, prompting some automakers to halt production. In response, former President Donald Trump enacted emergency measures in March to stimulate domestic mineral production, aiming to counteract China’s overwhelming dominance in this sector.

Despite MP Materials having historical ties to China, including a substantial ownership stake held by Shenghe Resources, the new agreement alters the dynamics significantly. The DoD will invest $400 million in preferred stock, granting it an effective 15% stake, while the company will cease sending any materials to China for processing. James Litinsky, the CEO of MP, emphasized that while they are addressing a crucial national security requirement, they remain committed to maintaining a free-market approach as a public company.

Plans are also underway for MP to establish a second magnet manufacturing site in the US, termed the '10X Facility', to serve both defense and commercial markets. To encourage this initiative, the DoD has guaranteed a minimum price of $110 per kilogram for neodymium-praseodymium, the two key rare earth elements vital for magnets, with MP receiving payments to cover the market price differences influenced by China, which is currently around $60. Additionally, MP will enhance its heavy rare earth separation capabilities at its Mountain Pass facility in California, backed by a $150 million loan from the Defense Department.