The shares of MP Materials (MP 7.24%) experienced a rather predictable correction this week, shedding just over ten percent of their value. One begins to suspect the market, in its infinite wisdom, is occasionally prone to fits of reason. The catalyst, as is so often the case, appears to be a change in the prevailing wind, specifically regarding the rather optimistic assumptions underpinning the rare-earth sector.
A Curious Episode in National Industrial Policy
The week commenced with a flourish of patriotic expenditure, as USA Rare Earth secured a substantial injection of federal funding – $277 million, to be precise – and a further $1.3 billion in loans under the CHIPS Act, augmented by a generous $1.5 billion in private capital. A commendable display of faith, one might say, though whether it will actually result in anything beyond a proliferation of press releases remains to be seen. It does, however, offer a degree of de-risking, which is always appreciated by shareholders, and a bolstering of domestic supply, which is, of course, the official narrative.
The market, naturally, had been anticipating such largesse ever since MP Materials negotiated its own transformative public-private partnership with the U.S. Government back in July. One begins to wonder if these arrangements are less about strategic national interests and more about providing opportunities for well-connected individuals to navigate the labyrinthine corridors of power.
The Devil, as Always, is in the Detail
However, a closer examination reveals a rather crucial distinction between the two agreements. MP Materials secured a ten-year pricing floor of $110 per kg for its Neodymium-Praseodymium (NdPr) products, a remarkably favorable term. The Department of Defense also committed to purchasing magnets produced at the company’s new “10X” facility, with a shared upside arrangement. One suspects such generosity might not be universally extended.
A recent article in Reuters, hinting at a governmental reticence regarding price floor agreements, has understandably caused a degree of consternation amongst MP Materials’ investors. The market, it seems, is beginning to realize that promises made by governments are not necessarily promises kept, particularly when subject to the whims of electoral cycles and budgetary realities.
A Cautionary Note
While MP Materials already possesses a binding agreement, and should therefore be somewhat insulated from any policy shifts, the recent developments serve as a timely reminder of the inherent political risk associated with such arrangements. The market’s reaction this week – a modest decline, but a decline nonetheless – suggests a growing awareness of this vulnerability. It is a risk that prospective investors should carefully consider, not least because policies, administrations, and even the most carefully crafted agreements, are subject to change. One might even say, to capricious alteration. The notion of relying on governmental benevolence for long-term investment returns is, at best, naive.
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2026-01-30 17:22