Why the Pentagon is investing $400 million in a rare earths company to counter China

In a dramatic effort to reduce US reliance on China for critical minerals, the Pentagon is investing $400 million in MP Materials, the only company currently producing rare earths in the United States. Under the deal, the Department of Defense will be MP Materials’ largest shareholder, owning 15% of equity and committing to fund the building of a huge magnet factory in the US, which will open by 2028, the Financial Times reported.

“This initiative is a bold action by the Trump administration to advance American supply chain self-sufficiency,” said MP Materials CEO James Litinsky, whose own wealth grew by $200 million as shares jumped over 48% when the news first broke.

Why rare earths matter for US security

Rare earth minerals like praseodymium and neodymium are critical to many high-tech devices, especially in the military sector. The minerals power the F-35 warplane systems, Tomahawk cruise missiles, drone warfare aircraft, and US Navy attack subs. A single F-35 requires 900 pounds of rare earths.

The American government regards China as a strategic liability because it relies on China for these materials. China now controls 55% of rare earth mining and 85% of refining capacity worldwide. When Beijing started restricting exports of several rare earth elements in the early part of this year, supply chain disruptions rippled through the automotive, technology, and defense sectors, leading Washington to accelerate its domestic production.

A first-of-its-kind Pentagon funding tool

The Pentagon will purchase $400 million of MP Materials’ preferred stock, which can be converted into common stock. The Defense Department also took an option to buy additional shares, the first time that the military has used this sort of equity vehicle to fund a strategic minerals project.

This is a record-breaking instrument for the Department of Defense,” noted Gracelin Baskaran of the Center for Strategic and International Studies. “Government equity is a large instrument.”

The investment is part of a broader Pentagon strategy that has invested more than $430 million in the rare earths sector since 2020—ranging from mining to metal conversion and magnet production.

Long-term supply commitment and price protections

The agreement is accompanied by a 10-year offtake commitment, under which the Pentagon agrees to purchase all the magnets produced in the new MP Materials facility. The neodymium-praseodymium has also been capped at a floor price of $110 per kilogram to safeguard the company against possible price plunges triggered by Chinese overproduction.

This floor price alone would enable marginal producers and junior developers to enter the market,” said Benchmark Mineral Intelligence rare earths analyst Neha Mukherjee. “It’s a game-changer policy decision.”

A US industrial policy shift

The deal represents a larger pattern of US industrial policy under the Trump administration, which has increasingly come to support government intervention in strategic sectors—particularly those involving national security. While rare, government stakes in companies have previously been used to support technologies that have been deemed indispensable or crucial or to support struggling sectors in times of crisis, as during the financial crisis of 2008.

Here, not only is the intention to protect a single company but to rebuild an American supply chain capable of being independent of China. MP Materials, which reopened its California-facility Mountain Pass mine with previous Pentagon support, will now ramp up production as the centerpoint of this supply chain initiative.

“This is the kind of long-term investment it takes to change global rare earth supply chains,” Mukherjee said. “It sends a very strong message that the US is committed to regaining leadership in this space.”