Pentagons Rare Earth Deal Sparks Senate Scrutiny Over Strategic Dealings With Privatized Supplier

The Pentagon’s recent rare earth mineral equity deal with MP Materials has sparked concerns among Senate Democrats, who are questioning the arrangement’s legality, financial terms, and strategic rationale. The deal aims to shore up the US’s supply chain for rare earth magnets, a critical component used in various defense applications.

At the heart of the controversy is the 10-year public-private partnership between the Department of Defense (DoD) and MP Materials, billed as “America’s only fully integrated rare earth producer.” Under the terms of the agreement, the government agreed to purchase $400 million of a newly created series stock that could make the US the largest shareholder. In return, MP Materials promised to accelerate the build-out of an end-to-end magnet supply chain, reducing US dependency on foreign suppliers.

However, Senate Democrats have raised several concerns about the deal. Sen. Jack Reed, top Democrat on the Senate Armed Services Committee, has questioned the legal basis for the arrangement, citing the Antideficiency Act, which prohibits the expenditure of funds for purposes not explicitly authorized by law. Reed has asked defense officials to analyze this and determine that it won’t violate the act.

Assistant Secretary of Defense for Industrial Base Policy Michael Cadenazzi acknowledged the concerns but assured lawmakers that his department has relied on the Office of General Counsel and the legislative affairs team for legal advice. He promised to push for those opinions to be delivered to Congress as soon as possible.

Cadenazzi emphasized that the rare earth mineral equity arrangement is a necessary measure to address pressing national security concerns. “From an industrial-based policy standpoint, we’ve submitted requests for funds to go ahead and pay the quarterly payments that we expect are necessary to meet our off-take agreements,” he said.

The committee chairman, Sen. Roger Wicker, broadly threw his support behind the limited use of these arrangements, especially in cases where “no free market exists.” However, his comments also highlighted the need for greater transparency and oversight.

MP Materials CEO James Litinsky described the deal as a “transformational public-private partnership” that would accelerate the development of an end-to-end magnet supply chain. He praised President Trump, Pentagon partners, and employees, customers, and stakeholders for their support. However, he did not address the concerns raised by Senate Democrats.

A closer examination of the investment strategy in rare earth minerals reveals potential risks and benefits. Some lawmakers worry that equity deals may give an unfair advantage to companies with which the department holds stock, potentially putting other domestic companies at a competitive disadvantage.

“We’ve heard from various companies… [that when] the government is literally picking winners and losers, [it] puts other companies at a competitive disadvantage,” Reed said. “How can other domestic companies remain competitive when DoD invests so heavily in one company and provides that company a competitive advantage?”

The rare earth mineral equity deal has sparked a broader conversation about equity deals in the defense realm. Last month, for example, the Pentagon announced plans to invest $1 billion into L3Harris’s solid rocket motors business, which the company intends to spin off as a separate, publicly held company later this year.

This agreement allows for the Defense Department to take a direct ownership stake in L3Harris’s Missile Solutions business, with an initial public offering of that division planned in the second half of 2026. While some see this deal as a way to boost innovation and competitiveness in the defense sector, others express concerns about the potential for unfair advantages.

The issue is particularly relevant at a time when the US is playing catch-up with China in the production and export of rare earth minerals. The global supply chain for these critical materials has become increasingly complex, with multiple players vying for market share.

In recent years, the US government has taken steps to diversify its rare earth mineral supply chain, including investing in domestic production facilities and partnering with private companies. However, some lawmakers argue that these efforts should be more coordinated and strategic.

The Pentagon’s rare earth mineral equity deal with MP Materials is just one aspect of this broader effort. As policymakers navigate the complexities of the global rare earth market, they will need to balance competing interests, ensure transparency and oversight, and prioritize national security objectives.

The deal has also raised questions about the role of private companies in the defense sector. While some argue that these partnerships can drive innovation and efficiency, others worry about the potential for undue influence or conflicts of interest.

In this context, lawmakers will need to carefully weigh the benefits and risks of such arrangements, ensuring that they align with national security goals and promote a level playing field for all domestic companies.

The MP Materials deal serves as a reminder of the complex and often contentious nature of defense contracting. As policymakers move forward, it is essential to prioritize transparency, oversight, and accountability, while also fostering innovation and competitiveness in the defense sector.

Ultimately, the rare earth mineral equity deal with MP Materials represents a critical moment for US policymakers to reassess their approach to this critical component of national security. By taking a nuanced and evidence-based approach, lawmakers can ensure that these efforts promote American interests and enhance the nation’s defense capabilities.