PAYNE INSTITUTE COMMENTARY SERIES: EXPLAINER

By Sangita Gayatri Kannan, Brad Handler and Ian Lange

July 30, 2025

Earlier this month, MP Materials Corp. (MP), the U.S.’s only producing rare-earth mining company, announced a partnership with the U.S. Department of Defense (DoD). The partnership involves a large equity investment, profit sharing provisions, price guarantee, and an offtake agreement and, by enabling a massive expansion of MP’s magnet production capacity, it provides a basis for MP to both meet domestic defense needs for the foreseeable future and to make U.S. rare-earths magnet manufacturing competitive globally.

The de-risking of announced capacity expansion presented by the partnership and subsequent private actions have been enthusiastically received by the market, with MP share prices doubling from pre-announcement levels. MP shares are now trading at a multiple of earnings — that assume full realization of announced expansion and cost efficiency targets — that traditionally points to investor expectations of significant revenue and earnings growth well beyond those announced targets.

At the same time, limitations of the rock (notably the lack of heavy rare-earths) imply that dependency on non-U.S. sources remains. The deal also makes it incrementally more difficult for other would-be U.S. rare-earths miners and processors to compete with MP without similar support (subjecting it to some criticism although it should be noted that competitors were publicly supportive of the deal and welcomed further U.S. intervention). This article explores the structure and relevance of the deal, and possible implications and challenges ahead for MP and other non-China actors given the current rare-earths supply chain landscape.

MP MATERIALS HISTORY

MP is the operator of the Mountain Pass mine in California, the only operating rare-earth mine in the United States. Mountain Pass originally opened for rare-earth production in 1952 and fell out of use when Molycorp went into bankruptcy owing to financial difficulties caused by falling rare-earth prices in 2015. Under its current corporate structure, MP reopened in 2017, with a strategic plan to move down the rare-earth value chain in a phased process. See Figure 1 for depiction of the rare-earths value chain.

Fig. 1: Rare-earth magnets supply chain

Up until 2022, MP earned 95+% of its revenues by selling the vast majority of its rare-earth concentrate to the trading affiliate of Shenghe Resources (Shenghe), a Chinese rare-earth company, which then sold it to Chinese refiners for processing. Shenghe is also one of MP’s largest shareholders. However, by 2023 MP had already begun shifting away from its reliance on rare-earth concentrate revenue as it developed oxide separation capacity; by the first quarter of 2025, 40% of MP’s revenues were from oxide sales. The company has sold oxide primarily to customers in South Korea and to Sumitomo Corporation via a distributorship agreement for sales to customers in Japan; it also has a tolling agreement with Vietnam Rare-Earth Company through which MP delivers part of its NdPr oxide for conversion to NdPr metal, which MP then sells globally.

MP has the capacity to produce 40,000 metric tonnes (MT) of total rare-earth oxides (TREO), representing around 11.5% of the global market, and is expanding upstream capacity to target 60,000 MT of TREO production. The 1000-MT per year downstream Independence facility in Texas to produce rare-earth metals, alloys and magnets is expected to begin production by the end 2025, with General Motors (GM) already committed to purchasing 1000 MT. MP has the ability to expand magnets production at the Independence facility to 3000 MT a year.

RARE-EARTHS BACKGROUND

Rare-earths are a group of 17 elements in the periodic table, generally grouped into light and heavy rare-earths. Rare-earths are crucial for both defense and commercial sectors. The composition of individual rare-earth elements in mines vary depending on the type of deposit, location etc. The Mountain Pass mine which MP extracts from is a bastnäsite type ore deposit, is considered a light rare-earth mine. It produces >80% lanthanum and cerium, about 15% of the relatively more valuable neodymium and praseodymium (Nd and Pr) and less than 2% of samarium, europium, gadolinium (SEG+) precipitate that contains highly valuable heavy rare-earth elements such as samarium, dysprosium and terbium. See Table 1.

Table 1: Rare-earth content of select rare-earth deposits

Source: Roskill Rare-earths outlook to 2030, 2018

The entire rare-earths supply chain, which is highly capital intensive, is dominated by China. China mines over 60% and processes over 80% of rare-earths globally and manufactures around 90% of the high-performance rare-earth magnets in the world.

MP-DOD PARTNERSHIP

The MP Materials-DoD partnership announced in July 2025 has five key components. First, DoD has agreed to invest $400 million in exchange for convertible preferred equity and warrants to purchase additional shares; the DoD’s equity stake in MP on an as-converted and as-exercised basis was 15% as of the date of the announcement.

Second, the DoD has committed to purchase 7,000 MT per year for 10 years of rare-earth magnets to meet defense needs and supply commercial markets. This commitment supports and commences MP’s capacity expansion with the construction of the ‘10-X’ facility (the new facility is to have an annual capacity of 7000 MT,  along with the expansion of the Independence facility from 1000 MT to 3000 MT,  raising MP’s magnet capacity to 10,000 MT per year from 1,000 MT currently).

Third, DoD’s off-take commitment includes a price guarantee of $110/kg on neodymium-praseodymium (NdPr). This is structured as a “Contract for Difference”, in which the difference between $110/kg and the market price would be paid by the DoD. The guarantee is applicable to the NdPr content in all of the products that MP manufactures, viz, rare-earth concentrate, NdPr oxide, and metal. The price floor can be realized on products sold, stockpiled or internally used for the production of magnets or their precursor materials.

Fourth, the DoD has agreed to provide the company with a $150 million loan for a 12-year period to expand its heavy rare-earths separation capabilities.

Fifth, the DoD is entitled to receive profit sharing once profit thresholds are reached. Specifically, it is to receive the first $30 million in EBITDA above $140 million per year and then to receive 50% of EBITDA above $170 million per year.

Separately, but announced in conjunction with the DoD commitment, JP Morgan Chase and Goldman Sachs have already committed to finance $1 billion as a loan for constructing the ‘10-X’ facility.  And within a week of the DoD announcement, Apple made a $500 million investment in MP’s Independence facility, funding a new recycling line to process recycled magnets and components for use in Apple’s devices. And MP raised $650 million through a secondary equity share offering.

 DoD RATIONALE

The United States’ requirement (including embedded imports) for high-performance neodymium-iron-boron (NdFeB) rare-earth magnets was over 16,000 MT in 2020, according to Section 232 investigations conducted in 2022. The demand for these magnets is anticipated to increase given their applications and strong performance attributes; rare-earths magnets are used in defense, electric vehicles and several other applications such as aerospace, electronics, hard-drives, medical diagnostics. United States’ (and the rest of the world’s) significant reliance on China to meet their requirements creates significant vulnerability.

Yet geographic diversification of the rare-earth supply chain outside of China faces significant challenges given China’s competitive advantages borne out of decades of learning-by-doing and industrial policies leading to cheap capital for Chinese companies. Companies such as MP have been struggling to compete in the current rare-earth price environment — to wit the NdPr decade-long price guarantee of $110/kg in the deal is over twice MP’s realized prices of $51/kg in 2024. Further, as the price-floor is applicable to NdPr content in all of its products from rare-earth concentrate to magnets, it provides more avenues for MP to conduct business, i.e. it is not entirely reliant on selling end-use products (magnets).

This is not the first time the DoD has supported critical mineral projects. Lynas USA LLC received a $258 million expenditure-based remuneration contract for the construction of Lynas’ heavy rare- earths refinery and DoD grant support was also provided to the Jervois mine in Idaho, the only primary cobalt mine in the U.S. Yet as the Jervois experience illustrates — the company suspended operations in the face of low market pricing — grant-based support may not always suffice when companies are faced with market challenges.

DoD’s partnership with MP marks a commitment to support and an integration that is significantly deeper than previous support efforts, both through taking an equity stake (U.S. government had previously only done this on a smaller scale to support new technology efforts) and offering the long-term price support for product. The nature of the partnership also allows the government to offset the cost of the off take (through potential management of stockpiles and resale at higher prices) as well as the value of the DoD’s equity stake.

 INVESTOR REACTION

MP share prices have more than doubled since before the announcement, to $63 as of July 23^rd from $30 on July 9^th. Shares appear to be trading at ~18x Enterprise Value-to-EBITDA[1] on a “fully realized” segment EBITDA basis — i.e., assuming $70/ton gross margins on 10,000 MT per year of oxide (or magnet) sales ($110 guaranteed price less $40/ton targeted costs). This compares to traditional mining companies trading at EV/EBITDA multiples of approximately 5-8x on mid-cycle earnings. (Because of the highly cyclical nature of mining earnings, investors will typically try to “see through” cycles; this leads to share prices being less volatile than they would be otherwise because the shares trade at higher multiples on earnings during cyclical troughs and lower multiples on earnings during cyclical peaks.)

It can be difficult to put different valuation multiples into perspective, but MP shares appear to be “accepting” (i.e. putting full value on) that MP can find and construct a 7,000 MT per year facility as well as expand its current magnet production facility in Independence to 3,000 MT per year and that it can earn at least as much from magnet sales as oxide sales. Investors also appear to be giving credit in current share prices for (1) additional growth (e.g. to 60,000 MT per year of TREO), (2) market pricing increases (in oxide or magnets) that support greater profitability over the long term (presumably with the understanding that such upside is to be shared with the DoD) and/or (3) continued government support past the current 10 year term that is dramatically lowering the risk (and the natural cyclicality of minerals prices).

CHALLENGES GOING FORWARD

Access to Heavy Rare-Earths

Although MP’s partnership with the DoD is a substantial step, it is unlikely to “solve” the country’s diversification challenge for rare-earth supply chains. One key barrier MP faces is the issue that it lacks access to economic resources of heavy rare-earths.

With GM, DoD, and now Apple as committed buyers, MP will almost certainly be called upon to produce high performance rare-earth magnets that can be used in high-temperature applications such as electric vehicles and defense applications. Said differently, not all rare-earth magnets that contain NdPr are high-performance, but high-performance magnets more often than not require heavy rare-earths such as dysprosium or terbium. In rough numbers, a 10,000 MT magnet facility would require less than 4000 MT NdPr oxide but can require anywhere from 50-1000 MT of heavy-rare-earths such as dysprosium/terbium to produce high-performance NdFeB magnets.

At targeted expanded TREO capacity of 60,000 MT, and NdPr content of ~15.7%, MP can produce over 6500 MT of NdPr oxide at average recovery rates, well above its NdPr oxide needs for the proposed magnets capacity. However, with 0.03% dysprosium content in its TREO, less than 20 MT of dysprosium can be recovered, i.e., much less than the heavy rare-earths requirement for commercial high-performance magnets in the market at present.

The evolution in this space is towards little-to-no heavy rare-earths in high-performance magnets with companies announcing breakthroughs. Yet, it is expected that it will take several years before market adoption for such magnets occurs at massive scale.

MP currently does not separate heavy rare-earths such as dysprosium present in its SEG+ precipitate. The $150 million DoD loan notwithstanding, it is economically challenging to recover heavy rare-earths like dysprosium from bastnäsite using existing technologies. Additionally, to source enough dysprosium to produce 10,000 MT of high-performance magnets, MP plans to supplement the heavy rare earth content in its own ore by processing third-party feedstocks and recovering heavies from recycled materials.

Resolving this shortfall in heavy rare-earths will not be easy. The principal global sources of supply for heavy rare-earths such as dysprosium and terbium as separated products are from ion adsorption clay (IAC) mining operations. The only notable IAC operations in the world today are in China and Myanmar (>99%) although others are being explored elsewhere.

Cost Reduction

MP expects production costs to be $40/kg once they reach full capacity. This compares to the estimated $50-60/kg range (for NdPr oxide) currently. Thus, the DoD’s price support, along with offtake/market support from GM and Apple, give MP time to expand and derive economies of scale and learnings curve benefits. And if Chinese NdPr oxide and battery magnet producers remain willing and able to suppress market prices, then they will challenge the U.S. government to extend support beyond the initial 10-year horizon.

The Potential Impact on Competition

By guaranteeing a price for NdPr oxide and all products with NdPr in them, the partnership gives MP more commercial latitude to meet market pricing (the company’s Price Protection Agreement includes language to use “commercially reasonable efforts to [maximize pricing]”) that remains vulnerable to the influence of dominant Chinese production. The existence of a price floor for a single company inherently acts as an entry barrier to potentially new entrants.  Yet, it is important to bear in mind that Mountain Pass is the only operating rare-earth mine in the United States that operates at a relatively large scale. In the face of heavy dependence on China, DoD seems to have made a rational move in its attempt to catalyze a rare-earth supply chain outside China, with the hope that the investments despite high costs now will bear fruit in the long run.

            The DoD’s partnership with MP significantly de-risks company expansion and viability as it develops (at scale) a full value chain offering for rare-earth battery magnets in the U.S. Further, although there are some apparent implications for competitors/the market, the impact is muted given the limited scale of rare-earths operations in the U.S. As such, the partnership addresses goals of reducing U.S. dependence from China (assuming heavy rare-earth access is secured as required), while the structure attempts to defray cost of the partnership to the government (at least vis-à-vis grant funding) through appreciation in share prices and profit sharing.

[1] Enterprise Value = (Share Price * # of Shares Outstanding) + Debt – Cash. EBITDA = Earnings Before Interest, Taxes, Depreciation & Amortization; EBITDA is used as a proxy for period cash flow before items that are not intrinsic to business operations.

ABOUT THE AUTHORS

Sangita Gayatri Kannan, MS Mineral and Energy Economics, Colorado School of Mines
Sangita is a PhD candidate in the Mineral and Energy Economics (MEE) program at Colorado School of Mines (CSM) and a Research Assistant with the Critical Materials Innovation Hub. She researches the various aspects of critical mineral supply chains. Her research lies at the intersection of mineral economics, public policy, and the technical fields related to the manufacture of critical materials. She holds a masters in MEE from CSM and a bachelor’s in chemical engineering from Anna University, India.

Brad Handler, Payne Institute Program Director, Energy Finance Lab, and Researcher
Brad Handler is a researcher and heads the Payne Institute’s Energy Finance Lab. He is also the Principal and Founder of Energy Transition Research LLC. He has recently had articles published in the Financial Times, Washington Post, Nasdaq.com, Petroleum Economist, Transition Economist, WorldOil, POWER Magazine, The Conversation and The Hill. Brad is a former Wall Street Equity Research Analyst with 20 years’ experience covering the Oilfield Services & Drilling (OFS) sector at firms including Jefferies and Credit Suisse. He has an M.B.A from the Kellogg School of Management at Northwestern University and a B.A. in Economics from Johns Hopkins University.

Ian Lange, Associate Professor, Mineral & Energy Economics Program, Colorado School of Mines
Ian Lange is the Viola Vestal Coulter Chair of Mineral Economics at the Colorado School of Mines. Additionally, Ian serves as Chair of the U.S. Commodity Futures Trading Commission’s (CFTC) Role of Metals Markets in Transitional Energy Subcommittee. He is a member of the Colorado Governor’s Revenue Estimating Advisory Committee. Previously Ian has served as Senior Economist for Energy at the Council of Economic Advisors for both the Trump and Biden administrations as well as spending time at the U.S. Environmental Protection Agency and the U.S. Department of Energy.

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