Unpacking the Department of Defense and MP Materials Critical Minerals Partnership
Rare earth elements have been the primary target of critical minerals trade tensions between the United States and the People’s Republic of China (PRC), which processes 91% of all rare earth elements globally. In response to significant new tariffs from the Trump administration, in April 2025, the PRC instated new export controls on seven rare earth elements, which resulted in a significant decrease in exports as companies had to apply for new licenses and wait for approval.1 Luckily, the list of materials did not include neodymium and praseodymium (collectively known as NdPr), which are key to the manufacture of permanent magnets used in all kinds of motors, from those in electric vehicles and wind turbines to aircrafts and submarines.
The Department of Defense (DoD) has expressed significant interest in developing domestic NdPr supply chains for magnets, due to the risk of relying upon “overseas, single-points-of-failure” for such critical materials and components. A new multibillion dollar partnership between DoD and MP Materials, the only active domestic producer of NdPr, announced on July 10th, seems to be the agency’s big bet on a solution.
The announcement has received both excitement and questions regarding the structure of the partnership and its potential impact. The partnership is notable not only for the sheer amount of funding that DoD is committing, but for its use of both supply- and demand-side policy tools to strategically support the expansion of MP Materials’ NdPr processing and magnet manufacturing capacity. These policy tools have never been used in tandem like this before, marking a new development in U.S. industrial policy, so let’s unpack exactly what the partnership entails.
Supply-Side Policy Tools
Equity Investment. DoD will invest an initial amount of $400 million in MP Materials in return for Series A Preferred Stock. This investment, combined with a separate $1 billion loan from JPMorgan and Goldman Sachs, will provide MP Materials with the capital needed to construct a “10X” magnet manufacturing facility expansion that would increase MP Materials’ manufacturing capacity from 3,000 to 10,000 metric tons. MP Materials is obligated to raise another $350 million, either from other sources, another investment from DoD, or an addition to the JPMorgan and Goldman Sachs loan.
Warrant. A 10 year warrant provides DoD with the option to increase its shares of MP Materials up to 15%, in which case DoD would become the largest shareholder of MP Materials.
Loan. MP Materials will also receive a $150 million loan from DoD to expand their rare earth processing facility.
Demand-Side Policy Tools
Price Floor Commitment. To ensure a stable market for MP Materials’ NdPr processing facility and its expansion, starting in Q4 2025, DoD will guarantee a price floor of $110/kg for NdPr, nearly double the current market price, over 10 years. The structure of the price floor agreement is essentially a modified contract-for-difference.
When the market price is below the floor, DoD will pay MP Materials the difference between the two for every kg of material produced.2 Note that this includes not just materials sold to commercial buyers, but also materials that are internally consumed by MP Materials for magnet manufacturing and excess materials that are stockpiled, with priority given to magnet manufacturing. At the current market price of $60/kg, this would cost DoD roughly $300 million/year.3 When the market price is above the floor, DoD will in turn receive 30% of the amount above the floor, though given how high the price floor is, the expected amount of upside is low unless there is another supply crunch in the future.
Unlike a traditional price floor, this structure provides the federal government with the added benefit of sharing in the upside from windfall profits. This modified contract-for-difference also innovates upon the original contracts-for-difference model designed for less risky electricity markets by uncapping the amount of upside that companies can earn. This is key to ensuring that the project remains appealing to private-sector investment.
Source: MP Materials
Offtake Commitment. To derisk MP Materials’ magnet manufacturing facility expansion, DoD is also providing a 100% offtake commitment for the 7,000 MT/year of expanded magnet manufacturing capacity over the first 10 years of production. For the magnets, DoD will pay MP Materials a price equal to the cost of production. In addition, DoD will pay MP Materials $140 million/year to guarantee a minimum level of earnings before interest, taxes, depreciation, and amortization (EBITDA) (i.e. raw profits).
MP Materials also has the option to sell some or all of the 10X expansion magnets to commercial buyers with DoD’s consent. For additional profits (i.e. EBITDA) generated from those sales, the first $30 million above the $140 million threshold will go to DoD, after which profits will be shared 50/50 between DoD and MP Materials.
Source: MP Materials
Funding and Authorities: the Defense Production Act
According to the Securities and Exchange Commission filing by MP Materials, DoD is using, in part, Defense Production Act (DPA) Title III authorities and funding to enter into this partnership.4 This is enabled by Executive Order (E.O.) 14241, which issued a Presidential Determination that critical minerals and their derivative products (e.g., rare earth magnets) meet the requirements for the use of DPA Title III and delegated Section 303 authorities to the Secretary of Defense.
Section 303 authorities include subsidies and purchase commitments, which DoD likely used for the demand-side components of the partnership.5 Section 303 provides exemptions from the regulations (e.g. the Federal Acquisition Regulation) that govern most government transactions, providing DoD with significantly greater flexibility to customize contract terms. This flexibility is key for effectively designing and implementing demand-side tools for critical minerals, tailored to the unique market conditions for each material and the private-sector partner.
Funding could come from the DPA Fund for Title III actions, which is managed by the DoD and primarily funded through annual defense appropriations. Or, from the $1 billion in new appropriations for DPA passed as a part of the One Big Beautiful Bill Act (OBBBA). Given that DoD’s FY26 budget request for the DPA Fund is only $266 million—less than the estimated annual price floor payments DoD must make at the current market price for NdPr—DoD will most likely have to draw on the new OBBBA appropriations in addition to or instead of the DPA Fund in the immediate term.
For future funding, especially after the OBBBA appropriations run out, DoD will be reliant upon Congress to make sufficient annual appropriations to the DPA Fund to cover the cost of the price floor payments and, once the 10X Facility comes online, the offtake commitment. Any potential future revenue from this partnership could also be used to replenish the revolving DPA Fund.
One key feature of the DPA Fund to note is that it’s capped at $750 million. The estimated annual cost of the MP Materials partnership once the 10X facility is in operation will take up at least 60% of the cap.6 Unless Congress decides to raise or remove the cap during the next DPA reauthorization, this partnership will limit the amount of funds available for other industries crucial to national security.7
A Model for the Future?
While the DoD and MP Materials partnership definitely stands out for its ambitious scale and its innovative use of policy tools, whether this can and/or should be used as a model for the future requires considering some additional questions.
First, will this partnership simply entrench a domestic monopoly on NdPr production? There was no known competitive bidding process for this funding opportunity, and it is unclear if DoD plans to offer similar support to other rare earth producers in the future. One argument for MP Materials is that they are the only currently operating producer of NdPr—all the other projects are still in development—so this was the least risky investment option for DoD. The current significant supply chain concentration and risk of future trade disruption to national security may also justify such an intervention in the industry.
Given MP Materials’ domestic monopoly and the significant amount of taxpayer money going to support that, should the government have negotiated for significantly more upside to compensate for the lack of competition? Market competition is key to driving innovation and efficiency improvements and bringing down prices over time. How can the federal government continue to foster growth and competition in the NdPr market after this partnership?
Lastly, does this model make sense for other critical minerals markets? There are a number of other critical minerals with similar levels of supply chain concentration in the processing step, including battery-grade graphite, nickel, cobalt, and lithium, which are crucial to the defense industrial base and multiple commercial sectors. Some of these materials also currently have only one domestic producer or no domestic producers. On the other hand, some of these materials have larger and more mature markets than NdPr, making them slightly less vulnerable (though definitely not free from) to market manipulation. The federal government could potentially make a similar impact on these material supply chains while using a smaller subset of policy tools, so long as it addresses both supply- and demand-side needs.
Could the largest U.S. public-private critical minerals deal of the decade be a model for the future?
To meet growing tech industry energy demands without imposing a staggering toll on individual energy consumers, Congress should create a pathway for data centers to be viably integrated into Thermal Energy Networks.
Now that the One Big Beautiful Bill is law, the elimination of clean energy tax credits will cause a nation of higher energy bills – even for consumers and states that aren’t using clean energy.
Federal and state governments need to ensure that the development of new AI and data center infrastructure does not increase costs for consumers, impact the environment, and exacerbate existing inequalities.