By Kennedy Maize
In acquiring control of the nation’s only rare earth mining company, the Trump administration has mimicked the model developed by China’s Communist Party government, according to an analysis by London’s prestigious Financial Times newspaper.
On July 10, MP Materials of Las Vegas announced a deal where the Pentagon acquired a controlling interest in the company that owns the nation’s only producing rare earths minerals mine, the Mountain Pass mine in southern California, for $400 million in preferred stock, convertible to common stock.
The complex deal, which also includes MP’s commitment to build a new factory, known as “the 10X Facility” to turn Neodymium-Praseodymium (NdPr) oxide into magnets critical to many of the military’s advanced weapons systems as well as civilian uses including wind turbines, electric vehicles, and robotics.
The company summarized the deal as encompassing “a comprehensive, long-term package – including convertible preferred equity, warrants, loans, and price floor and offtake commitments – that extend for more than a decade.”
The contractual elements include:
A $110/kilogram price floor for the NdPr oxide products.
DOD agrees to a 10-year guarantee “to ensure that 100% of the magnets produced at the 10X Facility will be purchased by defense and commercial customers with shared upside.”
JPMorgan Chase Funding Inc. and Goldman Sachs Bank USA will provide $1.0 billion of financing for the costs of the 10X Facility plus DOD will loan the company (at undisclosed terms) $150 million “to expand its heavy rare earth separation capabilities at Mountain Pass.”
The Financial Times reported, “Mining executives and former officials have voiced concerns about the highly unusual US government deal to buy into the country’s only producing rare earths company, warning the arrangement echoed state interventions more typical of China.” The terms of the deal, the FT said, are “nearly double the current market rate” for its products”, adding, “It is rare for the government to make direct investments in businesses, and critics argue this deal went too far.” The current price for NdPr oxide is about $60/kilo, according to fastmarkets.com and cited by the FT.
Industry experts and veterans, speaking on condition of anonymity “for fear of angering the White House,” told the newspaper the Pentagon deal enables MP to “undercut competitors and distort the market.” An executive at a rival company said the deal “risked replicating the ‘Chinese model’ of state-backed industry.”
In an interview, David S. Abraham at Boise State University, a former staffer at the Office of Management and Budget during the George W. Bush administration and author of the 2017 book on rare earths, “The Elements of Power” (Yale University Press), told the FT that the “MP deal had several ‘peculiarities’, particularly how the US government had overnight become the dominant ‘influence’ in the market” for NdPr. The market, he said, is relatively small and the Pentagon is “going to be stockpiling so much material” by offering a price much higher than the commercial market.
Mining economist Gracelin Baskaran, who directs the critical minerals security program at the Washington think tank Center for Strategic and International Studies, told the FT, “The price floor is the level of intervention you’d normally see in China.” She was co-editor of a recent, 169-page CSIS study, “Critical Minerals and the Future of the U.S. Economy.”
The Trump administration’s unorthodox approach to market economics has recently spawned fundamental criticism that aligns with its plans to manipulate rare earths markets. Legendary conservative columnist George Will, in a recent Sunday column in the Washington Post, titled “How Trump dominates and corrupts the private sector,” wrote, “The most statist administration in U.S. history has replaced capitalism with what economists call ‘economic repression’: government supplanting the market by restraining or compelling economic activities for political objectives.”
Will wrote, “Campaigning in 2024, Trump called price controls ‘socialist,’ ‘communist,’ ‘Marxist’ and ‘fascist.’ This year, he promises price controls on prescription pharmaceuticals and vows to ‘investigate’ noncompliant companies. Under the personalist rule by an unfettered executive, the process is the punishment: ‘Sentence first — verdict afterwards,’ said such an executive, the Queen of Hearts in ‘Alice’s Adventures in Wonderland.’”
Will criticized the administration’s conditioning of the sale of U.S. Steel to Nippon Steel which, he argued, has “in effect nationalized U.S. Steel, which must give to presidents, in perpetuity, a ‘golden share’ in the corporation. The New York Times explains: “U.S. Steel’s charter will list nearly a dozen activities the company cannot undertake without the approval of the American president or someone he designates.”
Will concluded by quoting founding father James Madison in Federalist No. 10, “Enlightened statesmen will not always be at the helm.”
Will added, “Those who in 1787 framed our system of checks and balances had this in mind. They could not have imagined the desuetude into which their system has decayed 238 years later.”
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