Department of Defense has guaranteed it would pay MP Materials above market rates for 10 years to mine rare earths. (Credit: Joe Buglewicz/Bloomberg)
The United States Department of Defense’s multibillion-dollar investment in a rare earths miner this week could offer a road map for how to revitalize Canada’s resources sector, according to some analysts and executives who see government support as the only way to establish metal supply chains independent from China.
Under the deal announced on Thursday, the DoD injected US$400 million into Las Vegas-based MP Materials Corp., positioning it to become its largest shareholder. It also guaranteed it would pay MP above market rates for 10 years to mine rare earths, a group of obscure metals increasingly found in many modern technologies.
Supporters of such government investment say China manipulates commodity prices to keep them at artificially low levels, making it challenging if not impossible for Western companies to raise capital from investors who look for profitable businesses. In the rare earths sector, North America has a single mine, which until recently sent all of its product to China.
“I’m very much on the supportive side of this,” said Bentley Allan, a principal at Ottawa-based Transition Accelerator, which has been researching government support. “China has made an explicit attempt to generate geopolitical leverage in the critical minerals sector, and the only way they’re going to back off that strategy or lose the leverage is if governments in the west show the kind of commitment that the DoD just showed.”
Rare earths are a group of 17 elements that require multiple stages of processing, but are ultimately transformed into magnets that are more powerful and heat resistant than traditional magnets. They are increasingly being used in products from drones and missiles to medical devices and wind turbines.
Although Canada has one of the largest known reserves of rare earths, estimated at more than 15 million tonnes in 2023, it does not currently produce significant quantities. China produced 210,000 tonnes in 2022, more than every other country combined.
In April China restricted the export of seven rare earth elements and magnets used in military and automotive applications in response to U.S. President Donald Trump’s tariffs.
That gives it leverage in trade negotiations, Allan said, which will likely cost Canada and the U.S. far more than whatever the deal with MP Materials ends up costing.
In addition to the US$400-million equity investment, MP Materials said it expects a US$150-million loan to help construct a new magnet facility in the U.S. It also said it received a commitment letter from JPMorgan Chase Funding Inc. and Goldman Sachs Bank USA to provide US$1 billion in financing for its proposed magnet facility.
“This (DoD investment) is a cheap deal when you consider the other side of it, which is that China holds you over a barrel,” Allan said.
Although Canada doesn’t have a mature rare earths supply chain either, it has many fledgling exploration companies and startups looking to build mines and other projects.
At least one company has built a high-profile position in the growing sector so far. Toronto-based Neo Performance Materials Inc. has built rare earths processing plants, but in other parts of the world, such as Estonia, Thailand and China. The company does not mine rare earths, but has exploration assets that could eventually create feedstock for its plants.
In a sign of Neo’s growing role, Prime Minister Mark Carney during a press conference at last month’s G7 summit pulled a small metal token from his suit pocket that he said was a rare earths magnet made at the company’s Estonia plant and is the only rare earth magnets produced entirely without Chinese inputs.
But just as many U.S. mining executives have complained about how difficult it is to compete against Chinese companies that receive government support, it is not clear how Canadian companies such as Neo will compete against U.S. companies receiving U.S. government support.
Neo chief executive Rahim Suleman declined to comment on the impacts that MP’s new partnership with the U.S. government could have, but said governments and customers now appreciate the critical role of rare earth magnets and are looking for ways to mitigate the risks of supply chain concentration.
Under the deal announced with MP Materials, the DoD also made a 10-year guarantee to pay US$110 per kilogram of rare earths oxide, which the company mines and then refines at a site between Los Angeles and Las Vegas.
That’s roughly 83 per cent above the current spot price of around US$60 per kilogram, according to Chris Berry of House Mountain Partners, a critical metals advisory firm in Washington, D.C.
“The biggest surprise for me was the price floor,” he said. “US$110? It’s never been that high.”
The DoD also committed to purchase rare earth magnets from MP Materials for 10 years from its as-yet unbuilt facility.
MP Materials has operated its open-pit mine and a refinery to produce rare earth oxides, but its first magnet plant only commenced production in November and it has not yet hit commercial production. It has a 1,000-tonne per year capacity, with a plan to eventually expand to 3,000 tonnes per year, but the new proposed facility would have a 7,000-tonne capacity.
Berry and Allan both praised the structure of the deal but acknowledged some of the details aren’t perfect.
“If we want to build our own supply chains here, it has to be competitively priced,” Berry said. “To do that, you need some sort of a backstop, whether it’s offtakes or a price floor or stockpiling.”
Allan said the deal makes sense because the U.S. government stands to share in the upside with MP Materials, as one clause entitles it to receive 30 per cent of any revenues made by the company if it sells its rare earths oxides for more than US$110 per kilogram.
He said that may be unlikely given the high price floor and that he would like to see the government receive a higher share of the upside, but nonetheless thought the structure sets an important template for others to follow.
Allan also said the Canadian government should consider a similar arrangement for Neo.
“This is the only policy mechanism that is going to fully address China’s geopolitical leverage over the West,” he said. “And it’s one where the government shares in the upside. It’s creating demand-side certainty.”
Still, even without such government support, the U.S. government and MP Materials deal could benefit some Canadian companies.
For example, Kingston, Ont.-based Cyclic Materials Inc., a rare earths recycling startup that is working to build facilities in Arizona and Kingston, may be well-positioned to supply MP Materials, if needed, with some of the feedstock for its magnet offtake agreement with the DoD, Berry said.
Ahmad Ghahreman, chief executive of Cyclic, said the DoD deal makes sense to him because Chinese companies receive more subsidies from their government than Western companies.
“It would be phenomenal to see a version of that in Canada,” he said.
Having a secure North American supply chain will ensure that new products are designed with permanent magnets, Ghahreman said. He said the uncertainty about the supply of such magnets sometimes causes product designers to look for alternatives.
“This is a small industry,” he said. “But it unlocks multitrillion-dollar industries in the downstream.”
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