Highlights
- The U.S. Department of Defense invests $400 million in MP Materials.
- The investment gains potential 15% ownership and extensive strategic control over rare earth magnet production.
- The partnership includes innovative price protection and profit-sharing mechanisms.
- There is a commitment to building a 10,000 metric ton annual rare earth magnet facility by 2028.
- The deal represents a bold industrial policy experiment that could reshape U.S. rare earth supply chains.
- There are risks of creating a government-favored monopoly.
MP Materials’ recently disclosed partnership with the U.S. Department of Defense (DoD)—as detailed in a comprehensive suite of SEC filings—goes well beyond headline figures. Our initial reporting covered the $400 million equity investment and 10-year offtake deal. But the official transaction documents and investor materials reveal a far more complex, multi-layered arrangement that positions MP as a quasi-strategic asset for U.S. national security—and potentially reshapes rare earth policy in America.
Rare Earth Exchanges (REEx) reviewed documentation available via the Securities Exchange Commission, including the Form 8-K (opens in a new tab) and related exhibits (opens in a new tab) and presentation, (opens in a new tab) plus conversations with experts strictly off the record.
Equity and Governance Terms: Government as Shareholder
Under the agreement, the DoD will acquire $400 million in Series A convertible preferred shares, with a fixed conversion price of $30.03 per share, matching MP’s stock price on July 9, 2025. These preferred shares accrue a 7% annual dividend, paid in-kind, and are convertible into common stock after 45 days. The DoD also receives a warrant for an additional 11.2 million shares exercisable over 10 years at the same strike price. Upon full conversion and exercise, DoD would own 15% of MP Materials, becoming its largest shareholder.
The government’s influence doesn’t stop there. As long as the DoD holds a significant stake or its loan remains unpaid, MP cannot nominate non-U.S. citizens to its board without DoD approval. Furthermore, it cannot sell critical assets, enter foreign-majority ownership, or approve CFIUS-triggering transactions without consent.
Price Floors and Profit-Sharing: De-Risking the Magnet Supply Chain
The filings detail an innovative NdPr price protection agreement. If market prices for NdPr oxide, metal, or concentrate fall below $110/kg, the DoD will compensate MP for the difference on all qualifying volumes. This ensures predictable cash flow for MP amid volatile global REE markets. On the upside, once production at the planned “10X Facility” hits full capacity, the DoD shares in excess profits—receiving 30% of EBITDA above $140 million, and 50% of profits above $170 million.
Additionally, the 10-year offtake agreement guarantees 100% magnet output from the new 10X plant will be purchased—either by the DoD directly or syndicated to commercial customers under DoD oversight. The Pentagon is also committing $150 million via a 12-year loan to support heavy rare earth (HREE) separation, particularly for samarium, dysprosium, and terbium—elements still overwhelmingly sourced from China and Myanmar.
Strategic Commitments and Project Scope
MP is obligated to construct the 10X Facility with a capacity of 10,000 metric tons per year of rare earth magnets by 2028. It must also expand its existing Texas “Independence” facility to 3,000 tons annually, recommission acid facilities at Mountain Pass, and build new midstream capabilities for HREE refining—including samarium oxide separation—using the DoD loan proceeds.
Notably, MP must allocate up to $600 million of its own capital to fund these initiatives and has already secured $1 billion in commercial financing from JPMorgan and Goldman Sachs, $650 million of which is dedicated to 10X Facility construction.
Risks and Covenants: No Free Lunch
While the strategic upside is clear, the SEC filings reveal significant constraints. MP’s long-term strategic flexibility is restricted. It must terminate its Shenghe (opens in a new tab) offtake deal by 2026, cease stock repurchases, and adhere to foreign ownership limitations. Any non-compliance or change in government priorities could jeopardize DoD support. Moreover, the entire arrangement hinges on future congressional appropriations and the continued enforceability of Defense Production Act Title III authority.
Should the government reduce or delay funding—or withdraw entirely—MP would face liquidity challenges. SEC filings caution that without alternate financing, development timelines could stall, asset sales may be necessary, and projected margins could evaporate. With magnet specs tailored for DoD, MP may also struggle to pivot to commercial buyers if demand shifts or defense contracts lapse.
Execution Risk and Capital Intensity
The filings emphasize execution risks. MP must simultaneously construct and scale two complex manufacturing facilities while sourcing specialized equipment, recruiting high-skilled engineers, and complying with strict U.S. environmental and procurement laws. Delays, cost overruns, or production shortfalls could undermine MP’s ability to meet long-term obligations to both the DoD and GM, which is also under contract for magnet supply.
Market Implications: A New U.S. Rare Earth Order—or a One-Off Windfall?
While many rare earth mining companies celebrated the MP-DoD deal as the beginning of an “ex-China price discovery mechanism,” a closer inspection reveals a more uncomfortable truth: this is not a market-wide price floor—it very well could represent a bespoke contract for one company. The $110/kg NdPr floor applies only to MP Materials’ output and only under a 10-year federal partnership. No broader pricing benchmark was established. No competitive bidding process occurred. And no other U.S. or allied producer is guaranteed similar protection. Instead of creating a transparent, rules-based domestic market, Washington has essentially anointed a national champion, and everyone else is left to fend for themselves.
This raises serious concerns for the rest of the sector. If companies like Energy Fuels, Ucore, or even Lynas are excluded from similar price guarantees or magnet offtake commitments, they could be cornered by Chinese predatory pricing.
The Chinese model—undercut, wait for collapse, then acquire or dominate—remains intact unless the U.S. extends industrial policy support beyond MP. In fact, this move could inadvertently concentrate risk rather than distribute resilience. MP is now heavily insulated from price volatility. Still, its peers remain exposed, and if those firms collapse or are acquired by foreign interests, the long-term diversity of the U.S. supply chain could be at risk.
The DoD’s bold action sends a powerful signal. Still, it also begs a fundamental question: Is this the dawn of a national rare earth ecosystem, or the quiet birth of a state-favored monopoly that may never be able to supply enough for the entire market? And remember, with the heavy rare earth elements as REEx reported today, there are few short-term solutions outside of Myanmar, Laos, and China itself.
Conclusion: Prototype of Strategic Industrial Policy
REEx sees the MP-DoD agreement as a milestone—arguably the most ambitious U.S. industrial policy initiative in rare earths since the Cold War. Unlike past grants or tax credits, this deal embeds government ownership, revenue guarantees, price floors, and performance triggers. It is an experiment in rebuilding domestic industrial base resilience through deep public-private integration.
However, success is not guaranteed. Execution, geopolitical volatility, regulatory compliance, and future political will all remain open variables, not to mention the bespoke problems and markets we suggested above. For now, MP is the cornerstone of America’s rare earth revival. But whether it becomes a national champion—or a cautionary tale—will depend on how well it delivers on this unprecedented mandate, and how much the U.S. government opens up to other players to facilitate a sustainable, competitive ex-China market.
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