Highlights

• The Office of Strategic Capital (OSC) acts as a strategic venture investor, providing loans and financing to strengthen U.S. technology supply chains.
• OSC targets 31 critical sectors, with a landmark first deal focusing on rare earth elements to reduce dependence on China.
• The initiative combines national security needs with creative financing.
• Potentially creates a new generation of investable companies aligned with U.S. strategic interests.

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The Office of Strategic Capital (OSC) (opens in a new tab) is the Pentagon’s new weapon to fix supply chain vulnerabilities. Launched in late 2022, OSC doesn’t hand out grants or contracts like traditional programs—it acts more like a strategic venture investor. Its mission: provide loans, guarantees, and financing tools to companies in 31 sectors vital to national security.

These include microelectronics, advanced manufacturing, and, critically, rare earth elements (REEs). Codified in the FY2024 defense authorization, OSC was told to “attract and scale private capital” into industries where the U.S. must reduce foreign dependence. By leveraging federal credit programs, OSC lowers financing costs and accelerates projects from pilot to production.

Why OSC Matters – Especially for Rare Earths

The timing couldn’t be sharper. The U.S. has been dangerously reliant on China, which still controls ~90% of global REE refining capacity. In 2025 Beijing restricted exports of certain REEs during trade tensions, forcing U.S. and European plants offline. That dominance threatens everything from EV motors and wind turbines to guided missiles.

OSC addresses the “valley of death” that cripples strategic projects. Mining and refining ventures often fail to secure long-term, affordable capital. OSC changes that by offering $10–$150 million loans on Treasury-like rates and long maturities, pulling in private co-investment. For investors, OSC is a green light: Pentagon backing de-risks projects and stabilizes revenues with tools like price floors and long-term offtakes. It’s a rare blend of policy and profit, accelerating timelines in markets the free economy alone hasn’t fixed.

Inside the Pentagon

OSC sits under the Under Secretary of Defense for Research & Engineering (OUSD(R&E)), alongside DARPA and DIU but with a financial mission. Acting Director Patrick Witt (opens in a new tab), a former venture investor, leads daily operations and reports to Under Secretary Emil Michael.

In July 2025, Congress supercharged OSC through the “One Big Beautiful Bill Act”, granting $500 million in credit subsidy—enough to support $100 billion in loan capacity. With White House and Pentagon backing, OSC has become one of the most potent industrial policy tools in decades. Remarkably, within six months of receiving funds, OSC launched its first loan program—an unusually fast tempo for the DoD.

Rare Earths: The Big Test Case

REEs are OSC’s proving ground. These 17 elements—including neodymium, praseodymium, and dysprosium—power high-performance magnets for EVs, wind turbines, and weapons systems. The U.S. has just one active mine—Mountain Pass in California—but historically depended on China for downstream processing. That chokepoint is exactly what OSC aims to eliminate.

On July 10, 2025, the Pentagon announced a landmark partnership with MP Materials, owner of Mountain Pass. The package is unprecedented:

• $150 M OSC direct loan for heavy REE separation facilities.
• $400 M DoD equity stake (~15%) in MP, with warrants that could make the Pentagon its largest shareholder.
• $1 B private financing from JPMorgan and Goldman Sachs for a magnet factory in Texas.
• 10-year offtake agreement guaranteeing DoD buys 100% of magnets from the Texas plant.
• Price floor of $110/kg for NdPr oxide, shielding MP from price wars.

Together, these moves attack every weak link: domestic separation of heavy REEs, massive new magnet output (from 3,000 tonnes to 10,000 tonnes annually by 2028), and guaranteed revenues to protect against China’s market maneuvers. This is industrial strategy in action, rebuilding a mine-to-magnet chain on U.S. soil.

OSC’s vision extends beyond MP. Its 2025 plan flags other REE ventures—like USA Rare Earth (Round Top, TX + Oklahoma magnet plant) and Ucore Rare Metals (Louisiana refinery)—as strong candidates. Many have DoD seed grants; OSC loans could push them to full commercialization, knitting together a true domestic ecosystem.

2025 Timeline: OSC Deals & Milestones

Date	OSC Milestone/Deal
Jan 2	OSC launches a $984 M Critical Tech Loan Program, offering up to $150 M per loan across 31 sectors. Applications for “Part 1” due by Feb 3
April 1	OSC reports 200+ applications totaling ~$8.9 B in requests—9× oversubscribed versus ~$1 B capacity. Reviews begin, with first loans expected by year-end.
July 4	The One Big Beautiful Bill Act adds $500 M credit subsidy, enabling $100 B in OSC loans—a massive expansion of firepower.
July 10	MP Materials partnership announced: $400 M DoD equity, $150 M OSC loan, $1 B private financing, plus 10-year offtake and $110/kg price floor.
Aug 10	First OSC loan closes: $150 M to MP Materials for heavy REE separation. DoD equity deal also finalized. Apple commits $500 M to buy U.S.-made magnets and fund recycling with MP.

By early September, no new OSC loans had been announced, but with a pipeline of 200+ applicants and ~$100 B in lending authority, more deals—possibly in battery materials or semiconductor substrates—are expected before year-end.

Outlook: Security Meets Opportunity

OSC represents a new era of industrial strategy: blending national security imperatives with creative financing. Its first rare earth deal shows how the U.S. can leap from near-zero to global-scale capacity when the government de-risks the economics.

For investors, OSC-backed ventures become investable supply chain plays, not speculative bets. MP’s stock surged ~20% on news of the Pentagon partnership, reflecting the market’s recognition of this shift. As OSC expands into lithium, semiconductors, and other dual-use sectors, it could create a generation of investable companies aligned with both market demand and U.S. security needs.

In short, the Office of Strategic Capital is rewriting the playbook. Its patient capital is closing the loop on America’s rare earth supply chain—and positioning investors to ride the wave of a secure, resilient, and profitable industrial base.