MP Materials’ $2.6B Defense-Backed Leap Comes with Some Investor Risk: But What Alternatives?

Highlights

• MP Materials receives $2.6 billion in capital from the U.S. Department of Defense, Goldman Sachs, and JPMorgan to develop rare earth magnet manufacturing capabilities.
• The deal includes:
  • A 10-year price floor
  • Preferred stock
  • Strategic control mechanisms that limit MP’s operational freedom but secure national security interests
• Investment comes with potential risks, including:
  • Dilution
  • Dependency on government support
  • Complex execution of multiple rare earth processing facilities

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As Rare Earth Exchanges (REEx) reported in July, in a high-stakes fusion of industrial ambition and national security, MP Materials Corp. (NYSE: MP) secured over $2.6 billion in capital and guarantees from the U.S. Department of Defense (DoD), Goldman Sachs, and JPMorgan. At face value, it’s the rare earth sector’s most ambitious ex-China magnet manufacturing bet. But beneath the surface, investors should note: the lifeline comes with chains. But this is what is likely necessary to spur the ex-China rare earth element supply chain in America.

While REEx reported on this unprecedented deal we revisit the Securities and Exchange Commission documentation (opens in a new tab) for a review of the deal. We have heard through reputable sources that more federally involved deals may be imminent.

The DoD Deal: Price Floors, Preferred Stock, and Strategic Control

Under the DoD Transaction Agreement, MP secured:

• $400M in Series A Preferred Stock with a 7% compounding PIK dividend, convertible at $30.03/share.
• A 10-year NdPr price floor of $110/kg—DoD pays the difference quarterly if spot prices fall below that.
• A 10-year magnet offtake agreement guaranteeing at-cost purchases from the upcoming 10X Facility.
• A $150M unsecured Samarium Project Loan, maturing in 12 years at Treasury +1%.
• A warrant for 11.2M common shares at $30.03, also exercisable in 45 days.
• Restrictions on foreign ownership, board nominations, asset sales, and prior offtakes with Shenghe Resources.

These terms effectively cement the DoD as both financier and strategic customer. But they also restrict MP’s operational freedom: no new equity to foreign entities (>14.9%), no strategic asset sales without DoD consent, and no independent magnet exports to restricted buyers.

Investor Alert: These protections are a geopolitical hedge—but they also limit commercial optionality, especially if defense priorities shift or DoD support falters.

The Goldman Sachs & JPMorgan Package: $724M Equity Raise + $1B Secured Debt

Days after the DoD deal, MP priced 13.59M shares at $55/share, raising $724.2M net (after $1.65/share underwriting discount).

Under the parallel financing package:

• $1B in committed secured debt was arranged by Goldman Sachs and JPMorgan.
• $650M is earmarked for the 10X magnet facility in Texas.
• A $350M funding gap must be filled within 45 days—either via more DoD preferred shares or drawdowns from the debt facility.

Investor Risk: If the preferred raise fails and MP leans on the credit line, leverage could spike. The 7% “Payment-in-Kind” (PIK) feature on preferreds also risks hidden dilution over time—especially if conversion occurs after compounding.

The 7% PIK feature is a non-cash, compounding dividend that grows MP’s preferred equity obligation over time. It defers cash outflow but amplifies future dilution—especially if the stock rises or if MP doesn’t redeem the preferreds. For common shareholders, it’s possibly representative of quiet and accelerating overhang.

Dilution, Overhang & Exit Risk

Combined, the preferred stock and warrant package gives the DoD potential ownership of 15% of MP’s common equity. There are caps on beneficial ownership (19.9%) and resale restrictions, but no guarantee that DoD will remain a long-term holder—or avoid political interference.

Furthermore, MP must register these shares within 45 days, setting the stage for eventual resale.

What’s Not Priced In?

• Control risk: DoD can block M&A, board picks, or foreign deals for as long as it holds preferreds or the warrants.
• Dependency: DoD is now MP’s largest customer. If appropriations dry up or administrations change, MP faces major revenue volatility.
• Execution risk: Two parallel magnet facilities (Independence and 10X), midstream HREE processing, samarium oxide expansion, and hydrochloric acid restarts—all under tight timelines.

Conclusion: Strategic Windfall or Price of Admission?

MP’s deal with the U.S. government secures near-term capital, revenue certainty, and geopolitical prestige. But investors must weigh that against encumbrances on strategic freedom, dilution risk, and a concentrated customer base now anchored to Washington, D.C.

REEx are generally advocates of this deal, given the alternative situation involving China’s domination.

The government’s price support and offtake are invaluable—but if politics shift, the very hand that feeds could also revoke the table.

Rare Earth Exchanges™ Verdict: Game-changing and dangerous in equal measure. Watch the next days closely.

Check out the REEx Forum (opens in a new tab) to discuss this deal and others.