CNBC's Martin Soong and Chery Kang talked about U.S. Department of Defense's move to invest $400 million in rare earth miner MP Materials and how China factors in the decision.

Washington

The U.S. Department of Defense has invested $400 million in MP Materials, a rare earth mining company, securing a 15% stake. This investment surpasses the previous largest shareholder, China's Shenghe Resources, which held an 8% stake. The decision is part of a broader effort to reduce U.S. reliance on Chinese rare earth supplies, a dependency highlighted during the Trump administration.

The deal also establishes a floor price of $110 per kilogram for rare earths, doubling previous prices and potentially making domestic production more economically viable. The investment reflects ongoing concerns about supply chain security and is expected to be a topic of discussion in upcoming international summits involving China and the European Union.

Pentagon invests in rare earth miner MP Materials

I think what's interesting to note is that 400 billion, what does it buy the Pentagon or the U.S. government? It buys a 15% stake in MT. And this is the interesting part, right? A Chinese resource company, Shenghe Resources, before this deal was the top shareholder with a stake of about 8%. So the U.S. government's come in and said, no, we're going to double that. We're going to go to 15%. So there you go. We've got control. Yeah, we've got control. But my question is, why didn't the U.S. do this earlier? I mean, we sort of learned the importance of rare earth materials and the control that China has during the first Trump administration, and not that it hasn't been really known. And a lot of analysts have been pointing out, if the U.S. really wants to wean off the dependence on China, it needs to invest more. Of course, it does lack the raw deposits of rare earths, so nothing they can do about it. So here we go. Maybe we're starting to see that the government investment. But in the meantime, China is not just not doing anything about it. They've been spending a lot of money on automation and so on. So basically, reducing, replacing a mining workforce as well. So I think there is that advancement that we clearly see on the part of China. So we'll see. I mean, maybe this is just a start. Yeah, you know, and maybe better late than never, Sherry. But to your point, I think part of the answer to your question, why did it take so long? It simply comes down to economics, right? And I think if you dig through the details of the deal, one of the things that this investment does is it sets a floor price of $110 a kilo, a kilogram for rare earths, right? And that's double what MP was getting for rare earths before. And, you know, the low price of rare earths just made it uneconomical. One of the reasons why MP has been through a couple of ownership changes, right? One of the reasons why at least one of the previous owners just couldn't make it work economically because they couldn't get the right price or couldn't sell it for enough. But with this floor price guaranteed, $110 per kilo, that may make things much more viable now. So there. Yeah. Yeah. So there we go. The U.S. paying the price for the lack of government investment so far and literally paying the price of our big number, 400 million U.S. dollars. And of course, defense is a big angle in all this. And this is going to be one of the critical points on the table between China and the European Union at their summit that is coming up in just a couple of weeks as well.

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