Deal Overview & Key Components
- MP Materials entered a landmark public-private partnership with the U.S. Department of Defense (DoD) in mid-2025 to build out a domestic rare-earth magnet supply chain. JPMorgan acted as exclusive financial advisor and lead left arranger on $1 billion of committed financing. [1][2][3]
- Under the agreement, the DoD invested $400 million in preferred stock in MP Materials and obtained a warrant, becoming the company’s largest shareholder (approximately 15% fully diluted as of July 9, 2025). [2][4][5]
- MP Materials will build a second rare-earth magnet facility, known as the “10X Facility,” which is expected to be operational around 2028. This adds to existing facilities: the Mountain Pass mine in California and a magnet facility in Texas. [2][3][4]
- The DoD committed to purchasing 100% of magnets produced at the 10X Facility for 10 years, for both defense and commercial customers, under a long-term offtake agreement. Additionally, a price-floor of $110 per kilogram for neodymium-praseodymium (NdPr) oxide was set over 10 years for stockpiled or sold material, with DoD receiving 30% of any price upside above that floor once the 10X facility is operational. [2][3][4]
- Also included is a $150 million loan from the DoD to expand heavy rare earth separation capabilities at the Mountain Pass site. [2][4]
Rationale & Context
- The deal was driven in part by China’s tightening of rare earth export controls and a 75% drop in rare earth magnet exports from China in April 2025. [2][3]
- Rare earth magnets are critical components in many defense systems (jets, drones), electric vehicles, renewable energy, and consumer electronics. Ensuring domestic supply is seen as a matter of national strategic security. [1][2][3]
- MP Materials is the only U.S.-scaled fully integrated rare earth producer spanning mining (Mountain Pass, CA) through magnet manufacturing (Texas), offering upstream and downstream control. [1][2][3]
Financial & Production Metrics
- JPMorgan and Goldman Sachs committed $1.0 billion to help finance construction and development of the 10X Facility. [2][3]
- DoD bought $400 million in preferred shares (convertible) and gained a warrant exercisable over 10 years. [2][4]
- The 10X Facility is targeted to produce ~10,000 metric tons of magnets annually, sufficient to meet all the DoD’s needs. [1][2]
Strategic Implications
- The deal significantly reduces U.S. dependence on foreign (especially Chinese) supply chains for rare earth magnets and materials. [2][3]
- It represents one of the largest government equity positions in a private company in recent years within this sector—a model for pro-active industrial policy via financial stakes, price-stabilization, and guaranteed offtake. [2][4]
- DoD’s guaranteed customer base and price floor help buffer MP Materials against price volatility and long development timelines typical in rare earths; however, taxpayers gain exposure to downside risks if market prices fall or the project under-delivers. [2][4]
- Timing is tight: despite missing a final site for the 10X facility at agreement signing, the parties agreed on milestones and long-term contracts to ensure progress. [1][3]
Open Questions & Risks
- Location of 10X Facility: As of mid-2025, the site had not been selected — this creates uncertainty around permitting, logistics, local incentives, and workforce. [1]
- Execution risk: Constructing a large-scale rare earth magnet plant, scaling separation, refining, and magnetization is technically complex and capital-intensive; delays or cost overruns possible.
- Market risk: Demand from EVs, defense, renewable energy must remain strong; competition from other domestic startups, overseas producers, and innovative magnet-free or reduced-rare-earth technologies could erode margins.
- Price floor implications: If global NdPr price falls below $110/kg for extended periods, government subsidy obligations may rise; upside sharing ensures some benefit, but downside exposure remains.
- Regulatory and environmental risks: Rare earth processing and mining have environmental impacts; site permitting, waste management, and community/regional concerns may slow progress.
Conclusion
This agreement between the DoD, MP Materials, and JPMorgan marks a watershed moment in U.S. industrial policy toward critical minerals and rare earth magnets. It combines financial innovation (convertible preferred equity, warrants, financing), guaranteed demand, and price stabilization to underwrite a supply chain that has long been exposed to geopolitical risk. Its success will depend on careful execution, favorable regulatory environments, disciplined cost control, and sustained demand over the multiyear horizon to 2028 and beyond.
Bibliography
- “J.P. Morgan leads groundbreaking rare earth magnets deal,” J.P. Morgan Insights, Oct. 2, 2025. Source describing JPMorgan’s advisory role, deal structure, and strategic impact. [1]
- Ernest Scheyder, “MP Materials shares surge on mega deal with defense department to boost US magnet supply,” Reuters, July 10, 2025. Covers DoD investment, $1B financing, 10X Facility details. [2]
- “Pentagon Invests in Rare Earth Magnet Producer to Back New Plant,” Bloomberg, July 10, 2025. Additional reporting on financing partners, strategic rationale. [3]
- “U.S. Department of Defense to become largest shareholder in rare earth magnet maker MP Materials,” CNBC, July 10, 2025. Explains ownership stake, price floor, offtake agreements. [4]
- Washington Post reporting on implications, foreign dependence, and local impacts. [5]