The Pentagon is actively working to establish supply chains for rare-earth elements that are independent of China, a move triggered by Beijing's past use of its monopoly to disrupt global production. Key players in this effort include Australian company Lynas Rare Earths and Las Vegas-headquartered MP Materials, both of which are receiving substantial U.S. government support. Lynas recently began producing heavy rare earths in Malaysia, addressing a shortage that had persisted for 20-30 years outside of China, and specifically commenced commercial production of samarium oxide, a critical element for heat-resistant magnets in jet fighters and missiles.
This push for independence comes after China's restrictions on heavy rare-earth exports caused significant disruptions, including forcing automobile factories in the U.S. and Europe to halt production. The U.S. government is providing financial incentives, such as a preliminary $96 million deal from the Pentagon for Lynas's rare earths and billions in support for MP Materials, which is developing its own heavy rare-earth refinery. Additionally, the U.S. International Development Finance Corp. extended $565 million in loans to Brazil's Serra Verde, a heavy rare-earth mine that USA Rare Earth plans to acquire for approximately $2.8 billion.
The initiative also addresses the 2027 government deadline for American defense companies to eliminate China-sourced rare earths from their magnet supply chains. Lynas is supplying non-Chinese rare earths to Japanese magnet makers that, in turn, supply the U.S. defense industry. Despite some setbacks, such as "significant uncertainty" regarding a $258 million Pentagon-funded processing facility in Texas due to wastewater challenges, the effort is showing progress. Samarium, identified as a high-risk mineral for disruption by the U.S. Geological Survey, was previously almost exclusively refined in China, highlighting the urgency of these new production capabilities.
In a related development, China has been limiting the flow of critical minerals to Western defense companies, leading to production delays and increased costs, with some materials like samarium seeing price increases of up to 60 times their standard. The Pentagon has responded with grants and investments, including $14 million for a Canadian company to produce germanium and a $400 million stake in MP Materials to boost its magnet manufacturing capacity. The U.S. has also launched Project Vault, a strategic critical minerals reserve with $10 billion in EXIM financing and nearly $2 billion in private sector investment, to secure critical raw materials for the broader U.S. industrial base, with Glencore and Mercuria committing $1 billion to procure and stockpile these minerals.
Amanda Lacaze, Lynas's chief executive, has expressed concerns about insufficient demand from Western nations, suggesting tax credits for commercial buyers to choose non-Chinese rare-earth magnets, as military demand alone is relatively small. Experts note that while momentum is real, translating announcements into production takes years. Former President Donald Trump also signed an Executive Order to secure defense supply chains, requiring comprehensive mapping and encouraging contractors to qualify new domestic sources of critical materials, aiming to reduce reliance on certain nations.
