New agreements make the Department of Defense the largest shareholder in MP Materials and commit billions in loans, equity and offtake guarantees under Title III of the Defense Production Act — a controversial use of the statute critics say circumvents federal contracting safeguards while aiming to speed domestic magnet production.
The Department of Defense has quietly become a major financial backer of the United States’ only operating rare‑earth mine, using an uncommon interpretation of a Cold War‑era statute to structure a multibillion‑dollar public–private partnership that critics say sidesteps routine federal contracting safeguards.
According to reporting in E&E News and filings by MP Materials, the definitive agreements reached in early July 2025 position the DOD as the company’s largest shareholder — on an as‑converted basis roughly 15% of issued and outstanding shares — and commit a package of preferred equity, warrants, loans and offtake guarantees to accelerate domestic production of rare‑earth magnets. MP Materials described the arrangement as “transformational” in a July 10, 2025 press release; its Form 8‑K filed with the Securities and Exchange Commission the same day sets out the transaction documents, the financial instruments involved and a list of risk factors tied to the unconventional structure.
At the centre of the controversy is Title III of the Defense Production Act, a provision first enacted in 1950 that gives the president broad powers to expand industrial capacity for national defence. That statute includes language allowing agencies to act “without regard to” certain limits of existing law when using Title III authorities. MP Materials’ public disclosures and subsequent reporting indicate the DOD relied on that waiver to avoid compliance with a suite of standard rules that normally govern federal procurements — including the Federal Acquisition Regulation, the Cost Accounting Standards, the Competition in Contracting Act and the Truthful Cost or Pricing Data Statute.
Defenders of the approach say it reflects the urgency of rebuilding a domestic supply chain for magnets and the rare earths used to make them. A Department of Defense announcement confirmed a first direct loan of $150 million to add heavy rare‑earth separation capability at MP Materials’ Mountain Pass facility in California, and the DOD has described the broader package as necessary to counter the strategic risks posed by the concentration of processing capacity overseas. “The department selected a unique approach to this agreement to account for the difficulties in establishing and sustaining production of critical rare earth magnets in a market environment in which China controls much of the supply chain,” a DOD spokesperson said in a statement to reporters.
Proponents argue that conventional procurement rules can be ill‑suited to jump‑starting early‑stage industrial capacity when market signals have failed to attract sufficient private investment. Drew Horn, who worked on minerals policy in the first Trump administration and now runs an advisory firm, told E&E News the move is “definitely unprecedented” but framed it as an attempt to “act more nimbly and cut through red tape in an emergency situation to combat China.” The DOD and MP Materials say the package also includes mechanisms to share commercial risk — such as price‑floor commitments and long‑term offtake arrangements — and that officials are conscious of avoiding market distortions or perceptions of monopoly.
But watchdog groups, former agency officials and legal experts warn the choice to invoke the “without regard to” authority invites significant risks. Public Citizen’s Tyson Slocum told E&E News that past administrations used the Defense Production Act in various ways, “including to address supply chain issues during the pandemic, but not to circumvent existing laws,” calling the apparent use here “an unprecedented abuse of DPA to exploit emergency authorities to circumvent federal standards.” Joel Dodge of the Vanderbilt Policy Accelerator described the structure as a possible “new playbook,” warning it can reduce competition, pick “winners and losers,” and weaken taxpayer protections.
Legal and fiscal checks are, however, not entirely absent. MP Materials’ SEC filing discloses that the transaction rests on Title III authority and explicitly flags the need for sustained congressional appropriations and the risk of legal or legislative challenge. Matthew Zolnowski, a former DOD official who oversaw DPA investments, told E&E News that while the statutory “without regard” language does empower the executive to bypass certain laws, agencies remain constrained by the Anti‑Deficiency Act — they cannot obligate or spend funds beyond what Congress has appropriated. He argued that the size of the MP deal — widely reported as running into the billions and estimated by some observers at roughly $3.5 billion when all commitments are considered — raises immediate questions about whether existing appropriations are sufficient to cover the outlays contemplated under the agreement.
Those fiscal questions matter because, even as the DOD positions itself as providing critical early‑stage support, the department’s investments are intended to be catalytic rather than permanent subsidies. The publicly described package includes an option for the DOD to invest up to $350 million more in the same preferred stock, a guaranteed floor price (reported at $110 per kilogram for rare‑earth oxides), a ten‑year offtake commitment for magnets from a proposed new “10X” magnet facility, and commitments to expand processing capacity in Texas and build a second, larger magnet plant by 2028. MP Materials has also said in investor materials that the DOD will buy magnets from the new facility for a decade. The company later announced commercial agreements — including a large supply understanding with a major electronics firm and offtake ties with automakers — which MP characterised as evidence that the partnership can underpin a robust domestic industry; those commercial claims come from company statements and should be read as such.
Underlying the policy debate is a more elemental strategic concern. Rare earth elements — a set of 17 metallic elements used in permanent magnets, electronics, medical devices, aircraft engines and weapons systems — are geologically widespread but industrially concentrated because extraction and refining require specialised, often environmentally sensitive processing. U.S. Geological Survey analyses and industry data have for years highlighted the vulnerability created by global concentration of refining capacity, particularly in China, and policymakers across administrations have treated rare‑earth supply chains as a national security priority.
The DOD and MP Materials say the partnership is meant to tackle that vulnerability by speeding the re‑establishment of domestic processing and magnet‑making capability. “Rebuilding the critical minerals and rare earth magnet sectors of the U.S. industrial base won’t happen overnight, but DOD is taking immediate action to streamline processes and identify opportunities to strengthen critical minerals production,” the department said in its statement.
But the speed‑versus‑safeguards trade‑off at the heart of the MP Materials agreement will almost certainly invite sustained congressional scrutiny and, potentially, litigation. Observers note that using Title III to place the federal government in an equity position in a private company is novel at scale; while it may deliver rapid industrial capacity, it sets precedents about executive power, market intervention and the limits of procurement law. As Matthew Zolnowski put it, the “without regard” clause “operates in a lawless space, constrained only by the availability of funds and a national security need, however a president defines it,” and that prospect alarms advocates of separation of powers and fiscal accountability.
For now, the transaction stands as a high‑stakes experiment in industrial policy: an attempt to marry national security urgency with market mechanisms while using an extraordinary statutory authority seldom deployed in this way. Whether it will become a scalable model for other critical‑mineral projects or a one‑off that prompts tighter legislative guardrails remains to be seen. What is clear is that the contours of U.S. rare‑earth industrial policy have shifted rapidly in mid‑2025, and the debate over how far government may go — and how transparently it must do so — is only beginning.
Source: Noah Wire Services
Subscribe to Industry Updates
