The Pentagon could require enough specialized rare earth magnets by 2030 to absorb nearly half of today’s entire non-Chinese production, highlighting the scale of the challenge facing Washington as it tries to build a defence supply chain independent of China.
US Department of Defense needs are expected to rise about three times to 10,000 tonnes annually by 2030, according to a Sprott Asset Management report this week. That compares with only 20,000 to 25,000 tonnes of rare earth magnets produced outside China today, within a global market of roughly 250,000 tonnes.
“Reliability and source of supply matter more than cost to this buyer,” Sprott senior portfolio manager and economic geologist Justin Tolman said. “In a market where China administers rare earth prices through quotas and export controls, the US is carving out a parallel market in which supply security can take precedence over prevailing market prices.”
Global defence spending already exceeds $2.7 trillion a year, while NATO has classified rare earths among 12 defence-critical raw materials and pledged to raise defence spending to 5% of GDP by 2035. The elements are used across fighter jets, submarines, drones, missiles, radar and precision-guided weapons, making secure supply increasingly important as warfare becomes more electrified, autonomous and sensor-driven.
Downstream choke point
Rare earth permanent magnets allow motors and actuators to be smaller, lighter and more powerful, while rare earths are also used in sensors and other advanced electronics.
The vulnerability of that supply chain emerged in 2022 when deliveries of new F-35s were temporarily halted after a Chinese-sourced alloy was found in an engine magnet. China tightened the pressure in 2025 by imposing export controls on several heavy rare earths and related magnets.
The Asian giant controls 91% of global refining of rare earths used in magnets and 94% of finished permanent magnet production, even though it accounts for a smaller 60% of mine supply, according to the International Energy Agency.
That means simply developing more deposits in North America does not necessarily solve the problem.
“A new mine does little to strengthen supply security if its output must still be sent to China for processing or magnet manufacturing,” said Toronto-based Sprott, founded by gold bug Eric Sprott in 1981 and which has $55.6 billion in assets under management.
“For investors, the critical constraint is not the availability of rare earth resources, but the lack of secure, integrated supply chains capable of turning those resources into finished products.”
Canadian supply
Canada has potential upstream supply from projects such as Defense Metals’ (TSXV: DEFN) Wicheeda in British Columbia, where recent drilling returned 20.3 metres grading 6.1% total rare earth oxides within a broader 65-metre interval at about 3%. The company is carrying out resource-conversion drilling at the project near Prince George. Here’s a 3-D image.
But the processing bottleneck is already visible in the United States. US-backed MP Materials (NYSE: MP) and Energy Fuels (NYSE: UUUU)(TSX: EFR) have been selling rare earth products into Japan and South Korea because magnet-making capacity remains more established there than at home, MINING.COM reported in July. MP stopped selling its Mountain Pass mine output to China under its agreement with Washington.
Energy Fuels is trying to close that gap by extending beyond mining and separation. The company has up to $725 million in conditional US government support to expand rare earth separation at its White Mesa mill in Utah and build downstream capacity. It is also buying Australian Strategic Materials (ASX: ASM) and plans to acquire German magnet maker Vacuumschmelze, creating a chain spanning mineral-sands feed, oxides, metals, alloys and permanent magnets.
White Mesa is also being expanded to separate dysprosium and terbium, heavy rare earths that allow permanent magnets to retain their properties at high temperatures. Energy Fuels expects those circuits to be completed by the end of 2027.
Policy over price
Washington’s most direct attempt to overcome Chinese pricing power involves MP Materials. The Pentagon agreed last year to a 10-year price floor of $110 per kg for MP’s neodymium-praseodymium products and to ensure buyers for all magnets produced at its planned 10X facility for a decade.
MP selected Northlake, Texas, in February for the more than $1.25-billion 10X complex, which is planned to expand its fully integrated US business from mining and refining through alloys and finished magnets.
USA Rare Earth (Nasdaq: USAR) is pursuing a similar model. It secured nearly $1.6 billion in Commerce Department funding in June, including $277 million in federal funding and as much as $1.3 billion in loans, to help develop its domestic supply chain. Its planned South Carolina operation is targeting 6,400 tonnes a year of neodymium-iron-boron magnets, which together with an expansion in Oklahoma would bring the company’s planned US magnet capacity to 10,000 tonnes annually.
Washington steps in
Government support is also moving upstream. A $1.55-billion financing structure announced last month for output from Brazil’s Serra Verde operation includes a $750-million US government investment and at least $300 million of forward purchases over five years. USA Rare Earth agreed earlier this year to acquire Serra Verde, though the transaction remained subject to closing conditions in late August.
Sprott says such price floors, offtake guarantees and financing mark an important change from simply subsidizing new projects. Since 2020, the Pentagon has awarded close to $1 billion towards US rare earth separation, refining, metals and magnet manufacturing.
“US policy is shifting from supporting rare earth projects to helping make the domestic supply chain economically viable,” Tolman said. “But identifying a resource as strategic does not make every project economic. Some projects will require government support to proceed.”
Source: https://www.mining.com/pentagon-rare-earth-push-collides-with-chinas-grip/
