In a significant strategic move to diminish dependence on Chinese imports for critical technological components, MP Materials has forged a groundbreaking multibillion-dollar partnership with the U.S. government. This initiative, unveiled on Thursday, aims to significantly ramp up the domestic production of rare earth magnets, essential materials used in the manufacture of weapons, electric vehicles, and various electronics.

Under the terms of this landmark deal, the U.S. Department of Defense (DoD) is set to become the largest shareholder in Las Vegas-based MP Materials, acquiring an effective 15% stake through the purchase of $400 million worth of preferred stock and associated warrants. This investment marks Washington's most high-profile commitment to date within the critical minerals sector, underscoring the urgency to secure a reliable domestic supply chain for these vital materials. The transaction is expected to finalize on Friday, and MP Materials' shares surged by nearly 50% following the announcement.

A cornerstone of the agreement is the DoD's commitment to guarantee a floor price of $110 per kilogram for the two most popular rare earths. This price is nearly double the current Chinese market level, which has historically been depressed and has deterred significant investment in non-Chinese rare earth production. MP Materials, which received an average of $52 per kilogram for the same rare earths in the second quarter, stands to benefit significantly from this price stability. The price floor specifically addresses long-standing complaints from U.S. critical minerals companies about China's market manipulations, which previously led to bankruptcies, including that of past owners of MP's California mine.

Further bolstering domestic capacity, MP Materials will construct a new factory dedicated to rare earth magnets, projected to commence operations in 2028 and elevate the company's output to 10,000 metric tons annually. The company is investing $600 million of its own funds into these expansion projects. Additionally, MP Materials announced plans for a second magnet manufacturing facility, dubbed the '10X Facility,' at a yet-to-be-determined U.S. location. The DoD has pledged to guarantee the off-take of all production from this second facility by defense and commercial customers for the next decade. Financial backing for the 10X facility includes a $1 billion loan from JP Morgan and Goldman Sachs.

The company also expects to enhance its heavy rare earth separation capabilities at its Mountain Pass facility in California, supported by a $150 million loan from the Defense Department. This comprehensive strategy is a direct response to China's near-total control over the rare earth sector. Rare earths, a group of 17 metals, are fundamental for magnets that convert power into motion. China's dominance has historically extended to MP Materials itself, with China's Shenghe Resources previously holding an approximate 8% stake, and MP having traditionally shipped most of its ore to China for processing. However, MP Materials ceased sending rare earths to China for processing in April.

The urgency for this domestic build-out has been highlighted by recent events, including China's export halt in March as part of a trade spat, and a subsequent 75% drop in rare earth magnet exports from China last month, which caused some auto companies to suspend production. U.S. President Donald Trump had previously invoked emergency powers in March to boost domestic production of critical minerals. As MP CEO James Litinsky stated on an investor call, this deal ensures an important national security need is met while maintaining a free-market public company approach. Industry experts, such as Ryan Castilloux of Adamas Intelligence, view this agreement as a 'game changer for the ex-China industry and a much-needed surge in magnet production capacity.'