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Overview
- The U.S. Department of Defense is investing $400 million in MP Materials through a preferred stock purchase.
- MP Materials operates the sole active rare earth mine in the United States, located in Mountain Pass, California.
- With backing from the Pentagon, the company plans to develop a second U.S.-based facility for magnet production.
- Rare earth elements are essential components used in various advanced military weapons systems.
On July 10, 2025, the U.S. Department of Defense revealed a $400 million investment in MP Materials, the operator of the only active rare-earth mine in the United States, located at Mountain Pass, California (Financial Times). This move positions the DoD as MP Materials’ largest shareholder, with a stake of approximately 15% on a fully converted and exercised basis as of July 9, 2025.
Why MP Matters
MP Materials owns and operates the only active rare-earth mine in the United States, located in Mountain Pass, California. Rare earths like neodymium and praseodymium (NdPr) are essential for producing high-performance magnets used in military systems, from fighter jets to missile guidance technology.
Crucial Concept
1. Convertible Preferred Equity
Explanation:
- Picture it: You lend money to someone, and instead of being paid back in cash, you get the right to take part ownership later at a fixed price. That’s what the DoD is doing: it pays $400 million now, and later can convert into MP Materials common stock at $30.03/share.
- Why it matters: This gives DoD both steady returns (preferred dividends) and a stake in MP’s future growth—if MP’s share price shoots up, DoD profits when converting.
- Example from history: In 2009, during the financial crisis, the U.S. government provided preferred equity to banks under TARP (Troubled Asset Relief Program). Banks like Wells Fargo could later convert those into common shares when recovering.
$30.03 Strike Price
The DoD will acquire a newly created series of preferred stock, convertible into common shares at an initial conversion price of $30.03 per share, with a closing scheduled for July 11, 2025 (MP Materials). In addition, the DoD receives a warrant to purchase further common shares at the same $30.03 strike price.
Government Will Own 15% of the Company
Once the preferred stock is converted and warrants are exercised, the DoD will own around 15% of MP Materials’ common stock as of July 9, 2025. This makes the U.S. government the single largest shareholder in the company.
Crucial Concept
2. Warrants
Explanation:
- Picture it: You have a coupon that lets you buy items (shares) at today’s price ($30.03) even if the price later jumps to $50. If so, you can buy cheap and sell at a profit.
- Why it matters: DoD gets to buy more shares if MP booms—giving them extra upside without paying the full price upfront.
- Example: In 2010, Detroit automakers Chrysler and GM got warrants as part of their government bailout, giving the government equity stakes if the companies recovered.
Crucial Concept
3. Public–Private Partnership (PPP)
Explanation:
- Picture it: A city builds a highway with private companies—government ensures the road serves public needs; private firms build it efficiently and get paid.
- Here: DoD (public) supports MP (private) with structured investments and contracts to build domestic rare-earth supply.
- Why it matters: Aligns national security goals with commercial incentives, shares risk & reward effectively.
- Example: The US government’s CHIPS Act for semiconductor facilities is the same model—with private chip makers receiving government support to build factories.
New Magnet Factory on the Way
MP Materials plans to build a second magnet production plant in the U.S., known as the “10X Facility.” This new site will complement its existing infrastructure and is expected to be operational by 2028. The project will be backed by both private banks and the Pentagon.
10-Year Purchase Agreement
The Pentagon has committed to buying 100% of the magnets produced at the new facility for a full 10 years once operations begin. This gives MP guaranteed demand and predictable revenue over a long horizon.
Crucial Concept
4. Strategic/Defensive Investment
Explanation:
- Picture it: A homeowner buys a generator—not because they expect power cuts, but to ensure they’re never powerless during storms.
- Here: The DoD isn’t just seeking profit—they’re securing US access to rare-earth materials critical for defense systems.
- Why it matters: The investment is policy-driven, not just financial. Returns are secondary to strategic control and supply reliability.
- Example: In 2017, after China banned exports of rare-earth magnets to Japan, the Japanese government helped fund local magnet production to safeguard against supply shocks.
Price Floor for Rare Earths
As part of the deal, the DoD is setting a price floor of $110 per kilogram for NdPr oxide, ensuring MP Materials is shielded from market price drops. If prices fall below that threshold, the government will still pay the minimum rate.
Crucial Concept
5. Price Floor Agreement
- Picture it: A farmer agrees to sell wheat at a minimum price every year. If the market dips, they still earn a set price.
- Here: DoD ensures MP gets at least $110 per kg of NdPr oxide for a decade. If market price is lower, DoD pays the difference; if it’s higher, MP keeps upside and shares a portion with DoD.
Why it matters: Stabilizes income for MP—makes bankers more confident, helps set reliable valuation and model future profits. - Example: Oil companies often use “hedging” (price floors) in futures contracts to lock in minimum prices. In 2016, airlines hedged jet fuel to protect margins.
$1.15 Billion in Financing Support
The project’s financial foundation is strong. JPMorgan and Goldman Sachs are contributing up to $1 billion in construction financing. On top of that, the Defense Department is providing a $150 million low-interest loan to help expand MP’s processing capabilities at Mountain Pass.
Crucial Concept
6. Debt Financing & Loan
Explanation:
- Picture it: You get a home loan to build your house, backed by a signed lease guaranteeing rent income.
- Here: JPMorgan & Goldman Sachs provide $1 billion in debt for the magnet plant. DoD adds a $150 million low-interest loan for processing expansion.
- Why it matters: Debt is cheaper than equity; banks lend more because revenue/demand is guaranteed by DoD backing.
- Example: Green infrastructure projects like wind farms often use project finance: banks lend against long-term power contracts.
Deal Summary Table
| Concept | Term from Deal | Why It Matters for JP Morgan / Goldman Sachs |
| Convertible Preferred | $400M purchase; convert at $30.03 | Fixed income + growth upside |
| Warrant | Exercise at $30.03 | Leverage future share gains |
| 15% Stake (Dilution) | Largest shareholder on conversion as of July 9, 2025 | Shifts control; new governance dynamic |
| Price Floor | $110/kg NdPr for 10 years | Revenue stability for bank modeling |
| Offtake Agreement | 100% magnet purchase from 10X Facility (10 yrs) | Secures demand; de-risks construction |
| PPP Debt Financing | $1B from JPM/Goldman; $150M DoD loan | Cheaper cost of capital, less risk |
| Vertical Integration | Mountain Pass -> 10X Facility by 2028 | End-to-end control; supply security |
| Stock Surge | ~60% intraday increase July 10, 2025 | Confirms market’s de-risking view |
This deal is a textbook pairing of risk mitigation and growth optionality:
- Revenue stabilization with price floors and offtake = bankable.
- Capital structure optimization: debt is cheaper than equity, and lenders favor secured cash flows.
- Investor upside preserved via warrants and convertibles.
- Government influence, not control: DoD is largest shareholder, but MP remains publicly traded and operationally independent.
- Valuation uplift confirmed by stock reaction—reduces cost of future capital raises.
Would you like to go deeper into modeling NdPr price scenarios, project finance structures, or comparing to similar PPPs in strategic minerals or semiconductors? I’m ready when you are!
Conclusion
The Pentagon’s $400 million investment in MP Materials marks a pivotal moment in America’s effort to regain control over its critical mineral supply chains. By taking a significant equity stake and locking in a decade of guaranteed demand through price floors and offtake agreements, the U.S. government is signaling just how strategic rare earths have become—not just for commercial use, but for national defense.
This partnership goes far beyond a financial boost. It’s a long-term commitment to reshoring key industries, reducing dependency on foreign suppliers, and ensuring the military has uninterrupted access to the materials it needs. With strong support from both Wall Street and Washington, MP Materials is now positioned to become the backbone of a domestic, vertically integrated rare earth supply chain—one that could shape the future of U.S. manufacturing and defense capabilities for years to come.
