The Pentagon has sparked fears of an upcoming World War after it bought $400million in rare earth materials stock that are key to military weapons.
The purchase means the Defense Department will now be the largest shareholder in MP Materials, America’s only operational rare earths mine in Mountain Pass, California.
Rare earths are a group of 17 metals used to make magnets that turn power into motion. They are used in magnets that are key to building various military weapons like the F-35 warplane, drones and submarines.
The US government’s move is the biggest yet as the country looks to push back against China‘s weaponization of rare earth stocks, as noted by Bloomberg.
The US has until now been reliant on China for them, something the Asian nation used to its advantage during the trade war with Washington.
China halted exports in March as part of a trade spat with US President Donald Trump that showed some signs of easing late last month, even as the broader tensions underscored the need for greater US output.
The US government hopes the deal boosts output of rare earth magnets and helps loosen China’s grip on the materials used to build weapons, electric vehicles and many electronics.
The profits from the mine will be used to expand its processing capacity, according to MP Materials.
A view of mining facilities at the MP Materials rare earth mine in Mountain Pass, California
The US has until now been reliant on China for rare earths, something the Asian nation used to its advantage during the trade war with Washington. President Donald Trump and Chinese President Xi Jinping are seen in 2017
MP will also build a new factory for rare earth magnets, lifting the company’s output to 10,000 metric tons a year, with the new factory launching in 2028.
‘This is a game changer for the ex-China industry and a much-needed surge in magnet production capacity,’ Ryan Castilloux, managing director of consultancy Adamas Intelligence, told Reuters.
The deal, which sent MP’s shares up nearly 50 percent, makes the company Washington’s most high-profile investment to date in the critical minerals sector.
The Pentagon said it will guarantee a floor price of $110 per kilogram for the two most-popular rare earths, a price nearly twice the current Chinese market level, which has languished at low levels and has long deterred investment.
MP received an average of $52 per kilogram for those same rare earths in the second quarter.
The price floor especially is one that had long been sought by US critical minerals companies who have complained about China’s market manipulations. Past owners of MP’s California mine, for example, went bankrupt in part due to Chinese competition.
Rare earths are used in magnets that are key to building various military weapons like the F-35 warplane
The purchase means the Defense Department will now be the largest shareholder in MP Materials, America’s only operational rare earths mine
The Pentagon said the profits from the mine will be used to expand its processing capacity
In a Thursday regulatory filing, MP said that the DoD was funding the investment in part through a Cold War-era piece of legislation known as the Defense Production Act, and that it could not guarantee the US Congress would continue to fund the agreement in perpetuity.
MP is investing $600 million of its own funds into the expansion projects.
The company said it would construct a second magnet manufacturing facility in the US to compliment one under development in Texas.
MP is calling the second its ’10X Facility’ at a still-to-be-decided location. The DoD is guaranteeing all of the second facility’s offtake will be bought by defense and commercial customers for the next 10 years.
JP Morgan and Goldman Sachs are backing a $1 billion loan to build the 10X facility, MP said.
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