Pentagon Invests $1.4 Billion to Rebuild America’s Rare Earth Magnet Industry and Cut Reliance on China
America’s $1.4 Billion Gamble to Break China’s Magnet Grip
The Pentagon is pouring money into rare earths, hoping to revive an industry that faded decades ago—but the road ahead is anything but smooth.
WASHINGTON — Inside the Pentagon’s newly renamed Department of War, officials gathered on November 3 to announce what they hailed as a defining step toward America’s mineral independence: a $1.4 billion push to rebuild the nation’s supply chain for rare earth magnets—the tiny but mighty components that make fighter jets fly and electric cars run.
It sounds bold. In reality, it’s a high-stakes experiment with massive execution risks.
The Department’s Office of Strategic Capital is lending $620 million to Vulcan Elements, a Durham, North Carolina startup that currently makes only a few dozen metric tons of neodymium-iron-boron magnets a year. Another $80 million goes to ReElement Technologies, a recycling and separation firm partly owned by American Resources Corporation. To reach the full $1.4 billion mark, private investors must add another $700 million—assuming they’re brave enough to bet on an industrial base that’s been dormant for 30 years.
The goal is staggering: produce 10,000 metric tons of magnets a year by 2030. That’s about 10% of what the U.S. military alone consumes. Achieving it would give America a “mine-to-magnet” capability on home soil for the first time in decades. But to get there, Vulcan has to expand its output by a thousandfold in just five years—a leap that even seasoned industry veterans whisper sounds more like wishful thinking than a workable plan.
“This shows America can make rare earth magnets entirely on U.S. soil,” declared Vulcan CEO John Maslin. Commerce Secretary Howard Lutnick struck a patriotic note too, saying the investment would “ensure America’s supply chain is strong, secure, and reliable.”
The numbers tell a harsher truth. China still commands between 85% and 90% of global magnet production, and nearly all—94%—of the processing capacity for the rare earth elements that power them. When Beijing limited exports in 2010, prices exploded tenfold. When it tightened controls again this fall, F-35 jet assembly lines slowed and hypersonic weapons programs stalled. The U.S., meanwhile, mines only about 15% of the light rare earths it needs—and almost none of the heavier, more valuable ones crucial for advanced magnets.
This isn’t Washington’s first attempt to rebuild the supply chain. Since 2020, the Pentagon has poured more than $439 million into rare earth projects, including $35 million for MP Materials—the country’s only major rare earth miner—in 2022. Even with government support, equity funding, and guaranteed contracts, MP has struggled to meet production targets.
Vulcan, founded in 2021, raised $65 million in August from Altimeter Capital and other backers drawn to its “cleaner” approach: sourcing from U.S. and allied mines, recycling discarded magnets, and using proprietary sintering methods that save water and cut pollution compared to China’s heavily contaminated Baotou complex. But turning a 21,000-square-foot pilot plant into a full-scale industrial operation means solving three problems that have sunk earlier efforts.
First, raw materials. ReElement extracts rare earths from discarded magnets and used batteries using chromatography, but global recycling rates are still below 1%. That’s nowhere near enough to sustain large-scale production. Vulcan will have to rely on fresh rare earth oxides, linking its success to suppliers like MP Materials or foreign partners.
Second, lost know-how. The U.S. hasn’t produced magnets at scale since the 1990s. Manufacturing at that level requires hard-won expertise—everything from yield optimization and quality control to specialized tooling and customer certification. Meanwhile, China has spent decades perfecting its efficiency, keeping its magnets 30–50% cheaper than anything made domestically without government subsidies.
Third, customers. The Pentagon alone can’t keep an industry alive. Real volume lies in electric vehicles, wind turbines, and data centers. Those markets move slowly and demand long-term pricing and multi-year qualification tests. Yet so far, no commercial partners have been named.
The financing structure itself adds another wrinkle. The Pentagon’s loans rank first in the repayment line, pushing private investors further back in the queue. The government also took warrants in ReElement—essentially a right to profit if things go well—diluting existing shareholders. When American Resources’ stock spiked on the news, traders treated it as if the firm had landed an $80 million cash grant. In reality, it’s a loan ReElement must match with its own funds while juggling government oversight and minority ownership.
“Throwing money at a problem without the materials to back it up will cost trillions and achieve little,” investor Jason Smith warned on social media, echoing the market’s skepticism.
Still, the political logic is clear. Every major economy is scrambling to secure rare earth supplies as tensions with China mount. The “One Big Beautiful Bill Act” passed in July gave the Pentagon’s capital office a $100 billion war chest specifically for critical minerals. Bureaucrats now need tangible projects to justify it. Vulcan and ReElement are the chosen champions of that policy—and in capital markets, being chosen often matters as much as being capable.
Momentum vs. Math
For investors, the announcement clarifies the landscape but muddies the math. MP Materials remains the most established U.S. play in rare earths—already producing, already supplying the Pentagon, and trading on tangible results. Its shares jumped 50% after the July bill passed, validating the model that Vulcan now hopes to replicate on a far smaller scale.
American Resources, by contrast, is a speculative bet. Its valuation is inflated by policy buzz, not fundamentals. With a small ownership stake, looming dilution from warrants, and loans rather than direct capital, the hype may fade fast once the market digests the details. Investors should watch for specific loan terms, warrant prices, and real-world progress before piling in.
Key signs to monitor: any supply deals with automakers, wind energy developers, or major defense contractors would greatly reduce the project’s risk. If those don’t appear soon, the case for a slower build strengthens. Likewise, securing feedstock partnerships with firms like Energy Fuels or expanding cooperation with MP Materials would mark a major step forward.
The geopolitical wildcard remains Beijing. If China imposes new export limits, the entire domestic rare earth sector could surge overnight as scarcity drives prices up. That’s the bullish scenario in one line: if China squeezes supply, American producers suddenly become indispensable.
But optimism can’t replace physics or economics. Building a magnet factory is hard. Reviving an entire industry from scratch is herculean. Vulcan is trying to do both, one ton at a time. The Pentagon is betting $620 million that the U.S. can’t afford another failure. Private investors, however, would be wise to keep their eyes wide open.
NOT INVESTMENT ADVICE