Pentagon to become largest shareholder in Rinehart-backed rare earth miner MP Materials

The Defense Department will become the largest shareholder in Gina Rinehart-backed rare earths miner MP Materials after agreeing to buy $US400 million ($606m) of its preferred stock.

MP Materials owns the only operational rare earth mine in the US at Mountain Pass, California, about 60 miles outside Las Vegas. Proceeds from the Pentagon investment will be used to expand MP’s rare earths processing capacity and magnet production, the company said.

Shares of New York-listed MP Materials soared about 50 per cent to close at $US45.23 ($68.59). Its market capitalisation grew to $US7.4 billion ($11.2b), an increase of about $US2.5b ($3.8b) from the previous trading session.

Mrs Rinehart, Australia’s richest person, saw her 8.5 per cent holding in MP via Hancock Prospecting add approximately $US211m ($320m) to her net worth overnight.

Rare earths are used in magnets that are key components in a range of military weapons systems including the F-35 warplane, drones and submarines, according to the Defense Department.

The US was almost entirely dependent on foreign countries for rare earths in 2023, with China representing about 70 per cent of imports, according to the U.S. Geological Survey. Rare earths have been a central point of contention in recent trade disputes between the US and China.

Interior Secretary Doug Burgum said in April that the Trump administration was considering making direct equity investments in critical mineral companies to break US dependence on China.

MP Materials CEO James Litinsky described the Pentagon investment as a public-private partnership that will speed the buildout of an end-to-end rare earth magnet supply chain in the US.

“I want to be very clear, this is not a nationalisation,” Litinsky told CNBC’s “Squawk on the Street” on Thursday. “We remain a thriving public company. We now have a great new partner in our economically largest shareholder, DoD, but we still control our company. We control our destiny. We’re shareholder driven.”

US miners are facing a unique threat from “Chinese mercantilism,” he said. The Pentagon investment in MP could serve as a model for similar deals with other US companies, the CEO said.

“It’s a new way forward to accelerate free markets, to get the supply chain on shore that we want and make sure that mercantilism is not going to hurt our ability to do so,” Mr Litinsky said.

Public-private partnership

The Pentagon is buying a newly created class of preferred shares convertible into MP Materials’ common stock, in addition to a warrant convertible at $US30.03 ($45.55) a share for 10 years that allows the US to buy additional common stock.

Exercising the convertible preferred shares and the warrant would leave the Pentagon holding about a 15 per cent stake in MP Materials as of July 9, nearly twice the 8.61 per cent held by Litinsky and the 8.27 per cent held by BlackRock Fund Advisors, according to FactSet data.

MP Materials will build its second magnet manufacturing facility in the US to serve defence and commercial customers with support from the Pentagon. The facility, whose location wasn’t disclosed, is expected to start commissioning in 2028 and will bring MP Materials rare earth magnet manufacturing capacity to 10,000 metric tonnes annually.

This manufacturing capacity is enough to “meaningfully support US defense and commercial needs,” Mr Litinsky told investors on a call Thursday morning.

The Pentagon has agreed to buy 100 per cent of the magnets made at the new facility, called 10X, for 10 years after the plant is built to support defense needs and the commercial market. JPMorgan and Goldman Sachs are providing $1b ($1.5b) to help finance the manufacturing facility.

The Pentagon is also guaranteeing a minimum price of $US110 ($166.86) per kilogram for 10 years for neodymium-praseodymium oxide, or NdPr, that is stockpiled or sold by MP Materials. NdPr is a rare earth compound used to make permanent magnets.

If the market price is below $US110 per kilogram, the US will pay MP Materials the difference in a quarterly cash payment, Mr Litinsky said. The Pentagon, in turn, will receive 30 per cent of the upside above $110 per kilogram once MP Materials’ second magnet facility is operational, the CEO said.

The Defense Department negotiated a very tough deal, Litinsky said. “The taxpayers are going to make a lot of money,” the CEO said.

MP Materials also expects to receive a $US150m ($227m) loan in 30 days from the Pentagon to expand its rare earth separation capabilities at Mountain Pass.

Additional reporting by The West Australian.