‘Industry shaping’ US rare earths deal sends Aussie miners’s shares rocketing

Shares in Australian rare earths miners Lynas and Iluka have rocketed after a deal by the US Pentagon which could reshape the global industry.

Bags of rare earth concentrates sit for transport at the Mountain Pass mine operated by MP Materials in California. Picture: Bloomberg

Australian rare earths miners Lynas Rare Earths and Iluka Resources soared on Friday, riding the coat-tails of a landmark Pentagon deal that analysts say could reshape the global industry.

Lynas jumped 20 per cent to a three-year high of $9.96 and Iluka soared 27 per cent to a six-month high of $5.06 after US peer MP Materials announced a lucrative public-private partnership with the Department of Defence.

The Pentagon is taking a 15 per cent stake in MP Materials, committing billions of dollars in investment and guaranteed purchases.

MP Materials shares jumped 51 per cent, igniting global interest in the rare earths sector.

In February 2024, Lynas said it was in talks with MP Materials on a potential transaction.

However, last August Lynas chief executive Amanda Lacaze said a merger with MP Materials would have been “an excellent tie-up” for both businesses but that the companies were unable to reach a commercial agreement.

Jefferies analyst Mitch Ryan upgraded Lynas to “buy” and boosted his target price 56 per cent to $10, citing the deal’s implications for the broader industry.

The Pentagon guaranteed MP Materials a 10-year price floor of $US110 per kilogram for neodymium-praseodymium (NdPr) – nearly twice China’s current spot price.

“This signals a strong US push for rare earth magnet independence, lifting upside risk across the rare earth pricing complex,” Ryan said. “Lynas appears to be the next logical beneficiary of government market support.”

The partnership agreement aims to undercut China’s dominance in rare earths, which are critical for manufacturing magnets used in vehicles, wind turbines, jet fighters and missile systems.

MP Materials plans to build a new magnet factory that vastly exceeds current US production capacity, expected online by 2028.

“In essence, the US government is underwriting MP’s growth to establish a domestic mine-to-magnet pipeline,” Ryan said. “This framework could become the new baseline for rare earths economics in the West, spurring further investments across the supply chain.”

UBS called the deal the “biggest catalyst yet” for the Western rare earths magnet supply chain, with analyst Dim Ariyasinghe naming Lynas as the firm’s “top pick in the space”.

The funding package includes $US1bn ($1.52bn) in debt and $US400m in Pentagon equity, plus a $US150m Defence Department loan for MP Materials to expand heavy rare earth element separation at its Mountain Pass facility in California.

The Pentagon guarantee protects MP Materials against potential market flooding if China reverses its restrictive export policies. The government will ensure all magnets produced at the facility are purchased by government or commercial customers.

“This initiative marks a decisive action by the Trump administration to accelerate American supply chain independence,” MP Materials chief executive James Litinsky said.

The planned 10,000 metric tonnes of annual magnet production is “enough to meaningfully support US defence and commercial needs”.

UBS highlighted growing demand prospects beyond traditional applications, predicting 300 million humanoid robots by 2050 would fuel additional magnet demand.

The deal addresses a longstanding chicken-and-egg problem that has cemented China’s market dominance. Western producers have struggled to secure funding without firm purchase commitments, while buyers have been reluctant to lock into long-term contracts at premium prices.

Rare earth tensions escalated this year when US President Donald Trump imposed tariffs on Chinese goods, prompting Beijing to limit exports. While the US and China reached a trade truce in June, the threat of future supply disruptions remains.

Western producers have long complained that China manipulates rare earth supplies to prevent competitors from emerging, alternately flooding markets to drive out competition or restricting exports to create shortages.

Under the Pentagon plan, Las Vegas-based MP Materials will expand Fort Worth production and build a second, larger facility.

The strategic importance of rare earths has intensified amid US-China technological competition, with both nations viewing supply chain control as critical to national security and economic competitiveness.

For Australian miners, the Pentagon deal signals potential government support for allied rare earths producers as Western nations seek to reduce dependence on Chinese supply chains. Analysts expect this could translate into higher commodity prices and increased investment in non-Chinese production capacity.

The development marks a significant shift in rare earths economics, with government intervention becoming increasingly accepted as necessary to counter China’s market control.

Additional reporting: The Wall Street Journal