The United States faces significant vulnerability in its supply chain for rare earth elements. The federal government has actively intervened to strengthen domestic rare earth mining and processing capabilities, and has invested in two companies—MP Materials (MP) and USA Rare Earth (USAR)—to enhance U.S. capacity in this critical sector.
Both companies are expanding their capabilities in rare earth mining, processing, and refining for magnet manufacturing, which are essential for defense, aerospace, and technology applications. The U.S. government has close financial interests in both companies. Last year, MP Materials reached a historic agreement with the U.S. Department of Defense to help accelerate the construction of its second domestic magnet facility (the 10X Factory) and to enhance its mining capacity. Under the agreement, the Department of Defense agreed to purchase MP Materials’ neodymium-praseodymium (NdPr) products at a price of $110 per kilogram over a 10-year period, providing the company with a price floor that protects it from potential price suppression by foreign entities. NdPr is a rare earth alloy used to produce the high-strength permanent magnets required for defense and technology systems. The U.S. government also agreed to purchase 100% of the magnet products from the 10X Factory for 10 years after its completion. In return, the Department of Defense agreed to buy $400 million worth of stock in the rare earth company and has since become its largest shareholder, holding 15% of the outstanding shares.
In January of this year, USA Rare Earth also secured a $1.6 billion deal with the U.S. Department of Commerce through the CHIPS Act, which will enable the company to establish its own “mine-to-magnet” supply chain. Under the agreement, USA Rare Earth will issue 16.1 million common shares and approximately 17.6 million warrants to the U.S. Department of Commerce.
MP Materials holds a significant first-mover advantage over USA Rare Earth. This is because MP owns and operates the Mountain Pass mine in California, the only active large-scale rare earth mining and processing site in North America. This established infrastructure allows the company to ramp up quickly and generate revenue rapidly.
In contrast, USA Rare Earth is still in its early stages and is aggressively acquiring assets to launch its mining and processing operations. Growth-oriented investors may be drawn to USA Rare Earth because its Round Top deposit is rich in scarce heavy rare earth elements such as dysprosium and terbium, which are critical materials for producing high-temperature-resistant permanent magnets used in electric vehicles, wind turbines, and military defense systems.
Investing in either of these stocks is not for the faint of heart. Both companies are still in their early stages, are unprofitable, and are making significant investments to build out their mining and processing capabilities. As a result, conservative investors may wish to avoid both stocks for now.
