DoD-MP: Harbinger of US Govt Intervention in Public Markets?

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On Thursday, July 10th, MP Materials (“MP”) announced transformational public-private partnership with the US Department of Defense to accelerate US rare earth magnet independence. It’s not unique to see government support via grants or loans, govt entity purchase orders, subsidies (e.g. CHIPS, IRA, OBBA), etc. but this deal seemed to go above standard govt. involvement. MP was +~50% intraday on the news.

Transaction Terms

• Direct Equity Investment: DoD agreed to purchase $400 million of a newly-created series of the Company’s preferred stock convertible into shares
  • Makes DoD the largest shareholder in the company and the preferred + warrants represent ~15% of the company’s issued and outstanding shares
• Long-term Revenue Floor: 10-year agreement establishing a price floor commitment of $110 per kilogram for MP Materials’ NdPr products stockpiled or sold, reducing vulnerability to non-market forces
• Financing: Bank financing package (via JPM and GS) to provide $1.0 billion of financing for the costs of constructing and developing the 10X Facility
  • For up to 10 years following the construction of a new facility, DoD has agreed to ensure that 100% of the magnets produced at the 10X Facility will be purchased by defense and commercial customers
  • Also expects to receive a $150M loan from DoD in connection with this plant

At its core, the partnership aims to accelerate the development of a domestic rare earth magnet supply chain, addressing America’s near-total reliance on foreign sources (primarily China) for these essential components. MP, which operates the Mountain Pass mine in California (the world’s second-largest rare earth deposit) and is commissioning a magnetics facility in Texas, will use the funds to build a new “10X Facility” with an estimated capacity of 10,000 metric tons (~3-5% of global supply) annually by 2028.

This partnership feels like a newer approach in the US, a direct equity stake by the DoD in a publicly traded company to secure critical materials. While it stops short of full nationalization, it seems to open the door for partial state ownership of companies and/or industries vital to defense and economic resilience. I would assume investors with experience in international markets may have more experience with transactions like these?

Some questions that came to mind:

• Are there other industries the government will prioritize investments/partnerships in, especially as we seek to compete aggressively on scaling up AI (e.g., chips, power, etc.)?
  • What other sectors are most likely to be prioritized? What dependency thresholds are required for the US govt to prioritize direct action?
• China is far more aggressive about intervening directly in markets, does this further embolden them?
• Do these types of deal happen on a standalone basis, or do governments announce multiple across sectors within a small time frame?
  • How do the stocks that receive investments/partnerships perform over the long-run?

Rare Earths Background

Rare earth elements (REEs) are a group of 17 metals, including neodymium, praseodymium, and dysprosium, essential for high-tech applications like permanent magnets in electric motors, wind turbines, smartphones, and defense systems. They’re rare not in abundance but in economically viable deposits. China has been a chokepoint, mining ~60-70% of global REEs and processing ~80-90%, allowing it to wield influence. Strategically, REEs are irreplaceable in the clean energy transition (e.g., EVs need NdPr magnets) and military tech, making supply security a national imperative amid U.S.-China rivalry.

BBG Price Index for NdPr