Two startups aiming to produce rare earth magnets have struck a $1.4 billion deal with the U.S. government and private investors. It's the latest sign that the Trump administration is looking to build a domestic supply chain for rare earths, thwart China's dominance in the sector, and is willing to pay big bucks to do so, the Wall Street Journal reported.
Lead by Vulcan Elements, the deal includes a $620 million loan from the Defense Department's Office of Strategic Capital to build and operate a U.S. magnet facility capable of producing 10,000 metric tons of magnets each year, the company said. The Commerce Department is contributing $50 million, and private investors are putting in another $550 million.
Rare-earth magnets are essential for building motors needed in artificial intelligence data centers, electric vehicles, and consumer electronics, as well as in missiles, drones, satellites, ships, fighter jets, and other defense systems. China has long dominated the supply chain from mining to processing.
The deal also includes ReElement Technologies, a company that works to purify and recycle rare-earth materials, which will help recycle old magnets and boost local manufacturing. ReElement has secured $160 million from the Office of Strategic Capital and Private Equity.
In exchange for the funding, Raleigh, North Carolina-based Vulcan said the Commerce Department will receive $50 million of its own capital.
It’s the administration’s latest move to take stakes in private companies building technologies that President Trump has prioritized. In July, MP Materials, the largest U.S. producer of rare earths, announced that the Defense Department had acquired a 15% stake. In August, the administration acquired a 10% stake in Intel. It followed deals with artificial intelligence chipmakers Nvidia and Advanced Micro Devices to get a 15% share of their sales to China.
The deal marks a major boost for the newly formed Vulcan Elements, led by former Navy officer John Maslin, which opened its first commercial manufacturing facility in March. This summer, the company announced a $65 million venture capital round. The startup’s magnet manufacturing has been in high demand since China first imposed export restrictions on rare earths and critical minerals essential to U.S. manufacturing and defense – and which are difficult or impossible to source elsewhere.
ReElements’ participation in the deal highlights the important role that recycling rare earth magnets, not just mining, will play in supplying new U.S. factories.
American defense manufacturers and contractors are scrambling for alternatives, and the shortage has heightened the vulnerability of their dependence on China for critical minerals since Beijing imposed strict export restrictions on them late last year, followed by restrictions on rare earth magnets in April. Subsequently, American companies had to seek permission from Beijing and prove that their products were not used for defense.
In recent days, China has lifted some restrictions on rare earth exports. After trade talks with Chinese leader Xi Jinping last week, Trump said the hostility over rare earths was “settled”.