The US has long depended on China for its rare earth elements. However, the Pentagon has seen an opportunity to potentially sever this dependence by investing $400 million in MP Materials, the sole company mining rare earth elements in the United States.
Rare earth elements are essential materials used in a wide variety of production. This factor, coupled with China supplying most of it, means securing a US supply will aid national security. The decision makes the biggest shareholder of MP Materials the Department of Defense.
The Importance Of Rare Earth Elements
Rare earth elements are crucial to many different military devices. They are used in anything from F-35 fighter jets to Tomahawk missiles and advanced submarines.
Beyond military application, they also provide the necessary materials to build important energy infrastructure, such as wind turbines and electric vehicles. The US needs a constant and reliable supply without any impacts from trade wars.
China’s Supply
China controls most of the world’s rare earth imports, around 70% of the US supply, and 85% of global refining capacity. This clear monopoly gives China a lot of bargaining power.
The nation could make these imports stricter at any time, leading the Pentagon to its recent decision to invest in domestic production.
Mountain View Pass Mine
Rare earth elements are scarce in the United States, and the only operational mine from which they can be sourced is the Mountain Pass mine in California, which MP Materials operates.
With a $400 million government investment, the site can be expanded, and future magnet manufacturing facilities can be established. If this investment meets expectations, the US could set up an entirely independent way of sourcing rare earth elements.
A Magnet Factory
One of the most important parts of the investment is the agreement to build a facility on American soil where rare earth magnets can be produced. These components cannot be substituted in military and commercial technology.
In its contract, the Pentagon also agreed to be the sole buyer of all the magnets produced for a decade following the facility’s establishment.
Protecting Against Market Manipulation
The Pentagon has established a minimum price for neodymium-praseodymium oxide at $110 per kilogram to ensure that MP Materials doesn’t suffer market manipulation through China overproducing the important compound.
This means there shouldn’t be any price drops that could complicate production and the future of the investment.
Supply Chain Shift
The investment in the domestic supply of crucial components is part of a broader trend to establish independent supply and production of US minerals.
The dependency on China has been a sore spot for years, and the Pentagon has invested $430 million into rare earth elements since 2020 to mitigate it.
A Matter Of National Security
While the impact economy is a boon, the Pentagon’s decision is more about national security than anything else.
At any point, China could use the United States’ reliance on its rare earth elements to hinder the production of important military assets, which would have implications for the country’s future defense.
Challenges
While investing in rare earth mining is a step in the right direction for national security and independence, extracting the minerals has implications for the environment.
Rare earth mining can substantially pollute surrounding areas, and a balanced approach is needed if production is to be scaled up with the investment.
Accelerating Through Investment
Accelerating the production of rare earth elements on domestic soil is a massive undertaking, and part of the deal includes private investment to maximize efficiency.
JPMorgan and Goldman Sachs are investing in the project alongside the Pentagon, leading to $1 billion being privately financed.
The Future
If goals are met, then rare earth magnet production from the planned facility will start in 2028. In just a few years of production starting, the United States could meet up to half of its needs for rare earth elements, according to industry expert David Argyle, CEO of REalloys.
However, in order to truly gain complete independence from foreign supply, further investment will be needed.
A Necessary Investment
The Pentagon investing nearly half a billion dollars into domestic rare earth mining and the production of rare earth magnets is a necessary investment in order to get ahead of dependencies and future risks with China’s dominant hold over supply chains.
As trade tensions rise, it could be the only way to ensure that the future of America’s national security stays secured.
