Master Stroke or Mistake?

Thoughts on the recently announced US Dept of Defence-MP Partnership

Last week MP Materials, which operates the Mountain Pass mine in California, announced an unprecedented partnership by the US government to resolve its rare earth dependence on China.

With a $400 million purchase of shares, the Department of Defense (DoD) is now the largest owner of MP Materials and has guaranteed a price floor of $110 per kilogram of NdPr produced by MP for the coming decade. DoD has also provided a $150 million loan to expand heavy rare earth separation at Mountain Pass, while JP Morgan and Goldman Sachs will finance $1 billion to construct the “10X Facility”, reportedly increasing MP’s annual production capacity to 10,000 tons of rare earth permanent magnets by 2028. 

Crucially, DoD has guaranteed it will purchase the entire volume of magnets produced by MP. This comes on top of the U.S.’s $112 million tax credit in e-VAC’s South Carolina magnet facility, which earmarked 1,200 tons of magnets per year for military demand. It is unclear to me whether that tax credit will survive the OBBA (One Big Beautiful Bill Act) gutting of the IRA (Inflation Reduction Act).

The deal is odd in a number of ways: it was announced without a competitive process, there was no full-and-open public tender, and it is highly unusual for the US government to purchase equity in a private firm.

Despite the news—which has received a rapturous response from many US industry participants—I cannot help but point out some hazards associated with putting so many eggs in the MP basket. 

A Troubled Mine

The open pit Mountain Pass rare earth mine has a troubled past. The surrounding San Bernardino county area experienced mining boom and bust cycles between the 1860s and 1950s. Yet Mountain Pass mine only gained prominence when, in 1949, a Geiger-counter-wielding prospector named Herbert Woodward detected unusually high radioactivity in local mineral samples. Hoping to mine uranium, a spectroscopic test of the local ore instead demonstrated the presence of rare earth oxides and fluorides (with a sprinkling of uranium and a healthy dose of radioactive thorium to boot).

One great hole in the ground - or one big hole in U.S. DOD finances?

The mine has been in various states of decline or disrepair between the 1990s and late 2010s. The first rare earth miner of the site, Molycorp, idled the mine after the authorities discovered multiple unreported spills of heavy metal laden and radioactive waste water totalling nearly 1,000,000 gallons into the Mojave Nature Preserve between 1984 and 1996. Molycorp suspended operations at the mine altogether in 1998.

In 2010, increased prices for rare earths made Mountain Pass commercially viable once again. A new company purchased the Molycorp name from Chevron, reestablished the mine, and quickly went bankrupt in 2015 when rare earth prices descended (Molycorp subsequently emerged from bankruptcy as Neo Performance Materials).

These stories point to some problems when running a rare earth mine outside China:

• Environmental costs of rare earth mining and refining are high—profits are thus slim or non-existent when competing against less-regulated Chinese producers.

• The price floor is a clear attempt to avoid a repeat of the Molycorp 2010s disaster.

• Mountain Pass is a relatively more radioactive source of rare earths than some alternatives, especially compared to ionic clay deposits prevalent in southern China, Brazil, Myanmar, & Malaysia.

• Market concentration in China naturally provides market making pricing power to Chinese firms.

Geological Constraints

Mountain Pass in particular has another issue: a relatively high ratio of uneconomical cerium and lanthanum (~80%), relatively low Neodymium and praseodymium, and a very low proportion of the seven ‘heavy rare earths’ recently put under export controls by China in retaliation for Trump’s tariffs. This implies that Mountain Pass has “one of the most unfavourable compositions of a rare earth mine for current and future rare earth market requirements”, according Thomas Krummer.

While MP now has an additional $150 million in financing to build a heavy rare earth refining circuit, they cannot produce sufficient feedstock for the refining operation. No active US mine can. Trump’s punitive tariffs may dissuade any potential heavy rare earth concentrate producers, like Brazil or Malaysia, from playing nice with MP, possibly starving their heavy rare earth refining circuit of needed input.

What can MP achieve without others’ heavy rare earths? Since mine operations started over 5 years ago, MP has stockpiled ‘more than 200 metric tons’ of heavy rare earth concentrate with approximately 4% terbium and dysprosium oxide.

While “more than 200” is a big range, let’s assume 250 tons for the purpose of analysis. That assumed 250 tons translates to 10 tons of terbium and dysprosium. For higher performance rare earth magnets requiring between 1% to 12% terbium or dysprosium to avoid demagnetization at elevated temperatures, MP’s theoretical stockpile will only supply up to 1,000 tons of high temperature NdFeB magnets.

The samarium content at Mountain Pass is not frequently discussed but is perhaps more relevant than NdFeB for national security purposes. Hopefully installation and operation of a samarium separation chain is also planned to justify DoD’s investment.

What next for Shenghe?

One of MP’s largest shareholders (~8% pre-DoD deal) is Shenghe Resources, a partly state-owned Chinese natural resources firm that is, in essence, the overseas investment branch of China’s state operated rare earth industry. 

Shenghe was the sole customer of MP’s rare earth concentrates prior to April 2025, when increased US-China tariffs made the business unworkable. As part of its deal with DoD, MP has ceased sales to Shenghe.

Alienating a powerful shareholder is one thing, but to lose your biggest customer is quite another.

Price floor

DoD has guaranteed a ‘floor price’ over the coming 10 years of $110 per kilogram of Neodymium-Praseodymium oxide, the main rare earth ingredient in magnet production. This is around $50 per kilogram higher than market prices today. Over the past 5 years, this price was only seen on the market between approximately October 2021 and August 2022.

Will DoD lose money on this subsidy? Yes, but how much? According to Matthew Zolnowski of Greyfriars:

Given MP's 2024 production (1,294 MT), $60/kg equates to ~$77.6M in (theoretical) revenue. At $110/kg, this NdPr quantum is worth ~$142.3M, leaving DoD on the hook for ~$64.7M. If MP hits their capacity (6,075 MT) and holding price constant, then it's $364.5M revenue with value of $668.2M–meaning DoD owes $303.7M. Further, since we now know the funding flows from DPA (Title III), we can estimate an initial outlay of ~$415M in CY 2025. If we straight-line a production ramp at MP over 10 years and hold prices constant, the annual subsidy starts at ~$88.6M (2026) and grows by at least $23.9M / yr to Year 10 ($303.7M).

A price floor also inherently disincentivises efficiency gains, while the offtake agreement leaves the US taxpayer on the hook. If China can continue to keep prices low, MP will either be uncompetitive in the market, or DoD will be forced to prop it up for a decade. DoD can sell stockpiled material at a market price and realize a loss (which is how a subsidy works in any case), but this support may leave MP unable to survive after the support concludes.

This will have the further effect of reducing available cash which could attend to other vulnerable critical mineral supply-chains like tungsten. It is also not yet clear to me what grade of NdPr must be produced to qualify for the credit–could MP pump production of low-grade NdPr unsuitable for producers into a DoD stockpile for profit?

So...

One must question MP’s conflicting motives created in this deal: maximizing shareholder value and reducing dependence on China. A $35 million investment under Biden in 2022 let MP buy samarium refining equipment, which they have left in storage. Will the company survive once the government life-support machine is unplugged after 10 years? Will they make tough decisions to benefit US national security at their own expense?

A further issue is that there is a very important difference between the government authorizing funding, and maintaining the appropriation to allocate that funding year after year. It is an open question whether Congress has the stamina or will to continue appropriating funds if the deal fails to show quick results.

On the other hand, what alternatives does the US have? Despite bipartisan Presidential efforts since 2017, MP relied on China for 70% of its revenue in 2024.  A radical step was necessary to try and reboot the US industry ‘from mine to magnet’.

Whether this puts the US on stronger footing or proves misstep, only time can tell.

By Aaron Jerome

Trader of Rare Earth elements at Lipmann Walton & Co Ltd

18.07.25