MP Materials seals mega rare-earths deal with US to break China’s grip

By Katha Kalia and Eric Onstad

(Reuters) -MP Materials unveiled a multibillion-dollar deal with the U.S. government on Thursday to boost output of rare earths and help loosen a stranglehold by top producer China on the minerals vital for military applications, electric vehicles and wind turbines.

Under the deal, the U.S. Department of Defense (DoD) will become the biggest shareholder in MP, the only integrated U.S. producer of the 17 minerals of which China controls 90% of global processed output.

The DoD will also guarantee a floor price for key rare earths at nearly twice the current Chinese market price, which has languished at low levels and has long deterred investment.

The deal sent MP’s shares rocketing nearly 50%.

“This is a game changer for the ex-China industry and a much-needed surge in magnet production capacity,” said Ryan Castilloux, managing director of consultancy Adamas Intelligence.

MP will build a new factory for rare earth permanent magnets, lifting the company’s output to 10,000 metric tons a year, with the new factory launching in 2028.

The super-strong magnets power EV and wind turbine motors as well as drones and fighter jets for the military.

CHINESE DOMINANCE

Companies have been scrambling to source rare earths after China imposed restrictions in April, leading to a 75% drop in rare earth magnet exports from the country last month and causing some auto companies to suspend production.

U.S. President Donald Trump in March invoked emergency powers to boost domestic production of critical minerals as part of a broad effort to offset China’s near-total control of the sector.

China’s iron grip on the sector extended to MP, with China’s Shenghe Resources one of MP’s biggest shareholders, with a stake of about 8%, and with MP having sent most of its ore to China for processing.

But the DoD will vault above Shenghe to take an effective stake of 15% through buying $400 million worth of preferred stock plus receiving warrants.

MP will also stop sending any material to China for processing.

“We’re getting an important national security need met, but we’re maintaining our free market public company approach,” MP’s CEO James Litinsky told an investor call.

The company’s shares were trading at $43.26, their highest since April 2022. The stock had already nearly doubled this year, through Wednesday’s close.

MP Materials said it would construct its second magnet manufacturing facility in the U.S., the ’10X Facility’, at a still-to-be-decided location to serve defense and commercial customers.

The DoD has agreed to guarantee a minimum price of $110 per kilogram over 10 years for neodymium-praseodymium (NdPr), the two key rare earths needed for magnets, paying MP for the difference to the global market price set by China, which is currently around $60.

MP Materials expects to add additional heavy rare earth separation capabilities at its California-based Mountain Pass facility for which it will receive a $150 million loan from the Defense Department.

(Reporting by Katha Kalia in Bengaluru and Eric Onstad in London; Editing by Sriraj Kalluvila and Susan Fenton)