Rare Earths Are Hot. Not All of the Government’s New Buys Will Thrive.

Bastnaesite ore extracted from MP Material’s Mountain Pass Rare Earth Mine & Processing Facility in California. (Courtesy MP Materials / Heather Jacquart)

About the authors: Morgan Bazilian is the director of the Payne Institute for Public Policy at the Colorado School of Mines. Brad Handler is the program director of the Institutes’s Energy Finance Lab. Ian Lange is an associate professor of economics and business at the school. Andrew Bauman is a student researcher.

The Trump administration struck more deals this week with domestic rare earths companies with a $1.4 billion stake in Vulcan Elements and its supply partner, ReElement Technologies. It is the administration’s fourth equity investment in critical minerals—the industry that has perhaps benefited most from the government’s muscular, profit-sharing approach to industrial policy.

Broadly, investors have responded favorably. Stock prices for MP Materials and its peers, for example, soared after the government offered a price floor for magnets. Share prices moved less for the peer firms of the other companies that struck deals in which the government is merely infusing money—although equity ownership is seen as a positive over loans provided by earlier administrations. Investors are well attuned to the reality that government investment alone won’t create success for all of these firms, or the industry at large.

In July, the government significantly bolstered Biden-era support for MP Materials , which owns the country’s only operating rare earth mine. The Department of Defense will invest $400 million for a 15% equity stake designed to provide balance sheet support for the construction of MP’s second U.S.-based magnet manufacturing facility. Arguably even more important, the government is providing a price floor for neodymium-praseodymium, a critical mineral used in magnets, and is guaranteeing the purchase of the magnet capacity from MP’s new facility.

The Department of Energy then made a deal with Lithium Americas. It will restructure a $2.26 billion loan that was originated at the end of the Biden administration. The government agreed to defer debt service payments for five years—worth $182 million—in exchange for a 5% stake in the company.

Late last month, the DOD also agreed to provide $36 million of funding to Trilogy Metals to support its development of copper-polymetallic mines in Alaska. The government also promised to help facilitate debt financing, build roads needed for Trilogy’s project, and ensure Trilogy will have an expedited permitting process. In exchange, the government received a 10% stake in the company and warrants for an additional 7.5%.

And now there is Vulcan Elements, a private start-up that produces magnets. The government will issue a $620 million loan and an $80 million loan to Vulcan’s supply partner, ReElement. The DOD will receive warrants in both companies, and the Department of Commerce will receive equity worth $50 million in Vulcan.

The administration’s partnership with MP Materials appears to, at least thus far, have generated what one can assume was the hoped-for response from the private sector. This includes access to capital.

JPMorgan Chase and Goldman Sachs committed to lend a combined $1 billion to the company. Shortly thereafter, Apple signed a $500 million partnership with MP to create a U.S.-based supply chain of recycled magnets. Further, in the weeks after the announcement, MP Materials raised $650 million worth of additional equity in a public offering.

It is also worth noting that the MP deal pushed up market prices. Neodymium-praseodymium rose to $88 per kilogram by late August, up from the low $60s before the deal. MP’s share price rose 160% after the announcement. (Shares have since retreated on fears of oversupply after a rare earth investment deal was announced between the U.S. and Australia and after China eased rare earth export restrictions.)

Share prices for other critical minerals providers rose as investors responded to the potential that the government might champion more companies similar to MP. Companies pursuing rare-earths-to-magnet vertical integration, like MP, performed best. Share prices for Lynas Rare Earths and USA Rare Earth rose 157% and 230%, respectively. Like MP, both companies’ shares sank following the Australia deal.

The peer response to the government’s other rare earth deals have been more muted. In the weeks following the Lithium Americas deal, Lithium’s peers’ shares only rose 20%. And while Trilogy’s shares rose 184% on the day of the announcement, the stock price of small cap Northern Dynasty Minerals, the owners of a prospective Alaskan copper mine similar to Trilogy’s, rose just 33%.

One early conclusion is that focused investments and financial tools are making a measurable difference in the share prices for the targeted companies and their projects. But their real effect may be more variable, based on how much the government commitment can be expected to actually reduce the risk for companies’ mineral developments.

That, in turn, will depend on the size of each specific minerals’ markets, the degree to which China can manipulate prices over those markets, how much of the supply chain is covered and the degree to which there are price or demand guarantees from the government.

The bespoke nature of these partnerships makes it more challenging to anticipate future government action. It may not always be clear why the government chooses one project over another. Nevertheless, this expansion of the government’s financial tool kit and steps to support development is spurring renewed enthusiasm for mining company investment outlooks and the potential for investor returns.

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