Pentagon to become largest shareholder in rare earth miner MP Materials; shares surge 40%
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A wheel loader operator fills a truck with ore at the MP Materials rare earth mine in Mountain Pass, California, January 30, 2020.
Steve Marcus | Reuters
The Defense Department will become the largest shareholder in rare earth miner MP Materials after agreeing to buy $400 million of its preferred stock, the company said Thursday.
MP Materials owns the only operational rare earth mine in the U.S. at Mountain Pass, California. The company said it will use the proceeds of the Pentagon’s investment to expand its rare earths processing capabilities and its magnet production capacity.
Shares of MP Materials jumped more than 40% premarket on the news.
Interior Secretary Doug Burgum said in April that the Trump administration was considering making direct equity investments in critical mineral companies to break U.S. dependence on China.
“This initiative marks a decisive action by the Trump administration to accelerate American supply chain independence,” MP Materials CEO James Litinsky said in a statement.
The Pentagon is buying a newly created class of preferred shares that are convertible into MP Materials’ common stock. It is also buying a warrant that allows it to purchase additional common stock in the rare earth miner. The convertible shares and the warrant for common stock would represent about a 15% stake in MP Materials as of July 9.
MP Materials will build a second magnet manufacturing facility in the U.S. to serve defense and commercial customers with support from the Pentagon. The facility is expected to start commissioning in 2028 and have a rare earth magnet manufacturing capacity of 10,000 metric tons.
The Defense Department will ensure that 100% of the magnets produced at the facility, called 10X, are purchased by defense and commercial customers for a decade-long period after the plant is built.
The Pentagon will also establish a price floor for 10 years of $110 per kilogram for NdPr products that are stockpiled or sold by MP Materials. NdPr is a rare earth compound used to make permanent magnets.
JPMorgan and Goldman Sachs are providing $1 billion to help finance the manufacturing facility. MP Materials also expects to receive a $150 million loan from the Pentagon to expand its rare eart h separation capabilities at Mountain Pass.
