Stocks Fly as US-China Rare Earth Decoupling Starts

The US Department of Defense's $400 million investment in MP Materials represents a watershed moment in the global rare earth supply chain, potentially breaking China's stranglehold on this critical market. With a guaranteed floor price of $110/kg for neodymium-praseodymium (NdPr) - nearly double current Chinese-controlled prices of $63/kg - this partnership signals the beginning of pricing bifurcation that could unlock significant value across the rare earth sector.

The Strategic Partnership Details

The DoD-MP Materials deal encompasses a comprehensive $1.55 billion investment package designed to establish American rare earth independence. The structure includes $400 million in preferred equity from the DoD, $150 million in debt financing, and commitments for an additional $1 billion in external financing. If the DoD converts its warrants, it will emerge as a 15% shareholder in MP Materials.

The centerpiece of this arrangement is the planned 10X Facility, a new rare earth magnet production plant scheduled to begin operations in 2028. This facility will dramatically increase MP's total magnet production capacity to 10,000 tonnes annually, while the DoD has secured a 10-year offtake agreement for 100% of factory production.

Market Impact & Pricing Revolution

The $110/kg floor price for NdPr represents a seismic shift in rare earth economics. Current pricing sits at approximately $63/kg, controlled by China through domestic production quotas and export controls. This 75% premium to current market rates could fundamentally alter the competitive landscape for rare earth producers globally.

Canaccord's analysis suggests this floor price could mark the first step toward pricing bifurcation, potentially freeing non-Chinese producers from Beijing's pricing control. Given China's dominance across the rare earth value chain - controlling 68% of upstream production, 90% of oxide processing capacity, and over 90% of NdFeB magnet production - this represents a strategic challenge to Chinese market control.

Investment Opportunities Across the Sector

Immediate Beneficiaries as Stocks React

Energy Fuels represents another compelling beneficiary positioned to capitalize on the new pricing environment. The company's White Mesa processing plant in Utah stands as the only conventional uranium and vanadium mill operating in the United States, but critically, it also has rare earth processing capabilities. Energy Fuels has been developing its rare earth separation and processing expertise, positioning the White Mesa facility as a potential domestic source for NdPr production. With the establishment of the $110/kg floor price, Energy Fuels' rare earth processing operations could become significantly more profitable, while the company's existing infrastructure and regulatory approvals provide a competitive advantage in rapidly scaling production. The strategic value of domestic rare earth processing capacity cannot be overstated, particularly given the DoD's focus on supply chain security and the critical shortage of processing facilities outside China.

On the news, Energy Fuels CEO, Mark Chalmers stated, "We've got the ability over the next year or two to produce 10 of the critical minerals on that list of 50, including NDPr, in commercial quantities and at low cost. We have been executing our plan properly. We'll produce between 50 to 100% of the US demand for a number of those elements."

‍Lynas Rare Earths emerged as the most immediate beneficiary, with shares surging 10% to A$9.84 following the announcement. At this price, Lynas commands a market capitalization of approximately $9.2 billion. As Australia's leading rare earth producer, Lynas stands to benefit directly from higher NdPr pricing, potentially adding hundreds of millions in additional revenue annually.

Iluka Resources saw even stronger gains, jumping nearly 20% as investors recognized the company's exposure to heavy rare earth opportunities. The strategic focus on heavy rare earths becomes particularly relevant given Chinese export controls implemented in April that severely constrained supplies of these critical materials.

Development Pipeline Activation

The higher price floor could prove transformative for numerous development-stage companies. Canaccord estimates that many undeveloped projects have breakeven prices exceeding $80/kg NdPr, meaning the $110/kg floor price provides a substantial margin of safety for project financing.

Key ASX-listed development companies positioned to benefit include:

• Arafura Resources and Australian Strategic Materials with advanced heavy rare earth projects
• Hastings Technology Metals and Peak Rare Earths with diversified rare earth portfolios
• Brazilian Rare Earths, Lindian Resources, and Meteoric Resources with emerging projects
• Northern Minerals and VHM with specialized heavy rare earth focus

Strategic Implications for Supply Chain Security

The partnership addresses critical vulnerabilities in Western supply chains exposed by Chinese export controls. Mountain Pass, while primarily a light rare earth mine, produces some heavy rare earth-rich concentrate. The planned addition of heavy rare earth separation facilities could help address the supply constraints that have emerged following China's April export restrictions.

The timing aligns with broader geopolitical tensions and the Trump administration's emphasis on supply chain independence. As MP Materials CEO James Litinsky noted, this initiative represents "decisive action by the Trump administration to accelerate American supply chain independence."

Financial Performance & Valuation Metrics

MP Materials' stock performance has been exceptional, gaining approximately 200% since the start of 2025. Following the DoD announcement, shares surged as much as 60% during Thursday's NYSE session, closing up approximately 50% at $45.23. This values the company at roughly $7.4 billion.

JP Morgan's analysis suggests the NdPr floor price puts more than $400 million in earnings within reach for MP, with potential upside to over $650 million on an EBITDA basis. This represents a substantial improvement in earnings visibility and cash flow predictability.

Despite the positive outlook, investors should consider several risk factors. The 2028 timeline for the 10X Facility represents execution risk, while the location for the new plant remains undecided. Additionally, China's potential response to this strategic challenge could include further export restrictions or market manipulation attempts.

The success of pricing bifurcation depends on sustained Western demand and the ability to develop alternative supply chains. If Chinese producers respond with aggressive pricing, the sustainability of the higher price floor could face challenges.

Investment Conclusion

The DoD-MP Materials partnership represents more than a single company investment opportunity - it signals a fundamental shift in global rare earth market dynamics. The guaranteed floor pricing provides unprecedented revenue visibility while potentially unlocking a generation of development projects previously considered uneconomic.

For investors, this creates a multi-layered opportunity spanning immediate beneficiaries like Energy Fuels, Lynas and Iluka, through to development-stage companies that could benefit from improved project economics. The strategic nature of rare earth materials, combined with ongoing geopolitical tensions, suggests this trend toward supply chain independence will continue, potentially supporting sustained higher pricing and increased investment in non-Chinese rare earth capacity.

The key investment thesis centers on the transition from Chinese-controlled pricing to a bifurcated market structure, where Western producers can command premium pricing for strategic supply chain security. This fundamental shift could drive substantial value creation across the rare earth sector over the coming decade.