The Pentagon Is Now Setting the Price of Rare Earths

On Monday a company you have probably never heard of announced that it had shipped its first commercial-scale product from a mine in Brazil to a buyer in the United States. The press coverage treated it as a milestone for one small company. It’s a great deal more than that.

The buyer is the United States government. And the price was set by the Pentagon.

Here is the deal. USA Rare Earth owns the Serra Verde mine in Goiás, Brazil, one of the few operations outside China that produces the heavy rare earths, dysprosium and terbium, that go into the magnets inside missiles, fighter jets, drones, and electric motors. In October it began shipping mixed rare earth carbonate to a special purpose vehicle called US SIIE, LLC. That vehicle was funded by the U.S. government and reached financial close under Department of War funding arrangements. The government put $750 million into it, confirmed another $300 million in forward purchase contracts, issued a commitment letter for a $500 million debt facility, and separately arranged a $565 million financing package through the Development Finance Corporation.

In exchange, the government gets 100% of the mine’s Phase I output for 15 years, on a take-or-pay basis. It buys the material whether it needs it or not.

And it guaranteed the price. Neodymium and praseodymium: $110 a kilo. Dysprosium: $575 a kilo. Terbium: $2,050 a kilo. If the market trades above those floors, the company keeps 70% of the difference. If it trades below, the government pays the floor anyway. For 15 years.

If this sounds familiar, it should. In July 2025 the Department of Defense took an equity stake in MP Materials, the largest American rare earth miner, and guaranteed it $110 a kilo for neodymium-praseodymium for ten years. At the time that was treated as an extraordinary one-off, the kind of thing a government does once in a crisis. Sixteen months later it has done it again, for a different company, at a mine in a different country, and extended the guarantee to the heavy rare earths that China controls almost completely.

Once is an emergency measure. Twice is a policy.

Here is the part of the story that nobody in the coverage touched, and it’s the part that matters for your money. There are now two prices for rare earths in the world, and the gap between them is the clearest measurement you will ever get of what a gray-zone war actually costs.

The first price is the China price. China mines most of the world’s rare earths and separates almost all of its heavy rare earths, and for 20 years it has used that position to set the world price wherever it wanted. When a rival tried to build capacity, Beijing let prices fall until the rival went bust. That’s how it kept the chokepoint.

The second price is the one the rest of the world now pays for material that does not come from China. According to USA Rare Earth’s own disclosures, based on late-October index prices from Argus and Benchmark, dysprosium oxide outside China is trading at 14 to 16 times the China price. Terbium oxide is trading at 6 to 9 times. And the Pentagon’s contract is explicitly priced off U.S. and European reference prices, not Chinese ones.

The United States government has written a 15-year contract that formally refuses to recognize the Chinese price of a strategic commodity, and instead guarantees a Western price with taxpayer money. Call it what it is: a wartime price control, running in reverse. In the last war the government capped prices to hold costs down. In this one it is putting a floor under them to make sure the supply exists.

I have been writing for months that we are in a wartime economy, and that the war is a gray-zone war in which strategic assets are the prize. This is what that looks like in a contract. Nobody declared anything. The Pentagon just became the buyer of last resort for a Brazilian mine and told the market what dysprosium is worth.

Yesterday I wrote that every seam, once found, has to be sealed, and that sealing it is never free. China’s control of heavy rare earths is the oldest seam in the American supply chain, and this is the invoice: $2,050 a kilo, guaranteed, for 15 years, plus a couple of billion dollars in government capital to get the material out of the ground. Multiply that across every critical mineral on the government’s list and you begin to understand why inflation in a wartime economy does not behave the way the Fed’s models expect.

Now, the company. USA Rare Earth (NASDAQ: USAR) owns Serra Verde outright, is building a magnet plant in Oklahoma, and is targeting roughly 4,000 tonnes a year of rare earth oxide from Stage 1 by the second quarter of 2027, rising to about 6,400 tonnes by year-end. Its first sales and first payments from the government vehicle arrived this month. The stock fell on earnings the same day because the quarterly loss widened, and most of the market was looking at the loss instead of the contract.

Whether you buy it is your call. What I can tell you is what the contract means, because the contract is the trade.

A company with a 15-year, 100% take-or-pay offtake from the U.S. government at guaranteed floors isn’t a mining company in the ordinary sense anymore. It’s closer to a utility with a sovereign counterparty and an upside kicker. The risk that kills junior miners, that the price collapses before the mine pays back, has been transferred to the Treasury. What remains is execution risk, which is a kind of risk the market knows how to price.

That’s the point to take away, and it’s bigger than one stock. The Pentagon has now shown, twice, that it will put a floor under any producer of strategic minerals outside China that can get to production. The floors it chose are well below current non-China spot, which tells you where Washington expects prices to settle once Western supply exists, and they’re far above anything China would allow if it still controlled the market alone. Every heavy rare earth project outside China, in Australia, in Brazil, in the United States, just became more financeable, because lenders now know who the buyer of last resort is.

So here is my call, and I will put a date on it. By the end of 2027 the Pentagon will sign a third price floor agreement, and it will be with a producer outside the United States, because the model has now worked twice and the heavy rare earths it needs most are not in Nevada or California. When that happens, the two-price system for strategic minerals becomes permanent, and the companies that got their floors first will be the ones the next round of capital chases.

What would make me wrong: a durable settlement with Beijing that reopens Chinese heavy rare earth exports at Chinese prices, or Congress refusing to fund the next vehicle. I don’t expect either. The first would require China to give up its best weapon, and the second would require Congress to vote against the Pentagon’s supply chain in an election cycle. Neither party is going to do that.

The rest of the financial press is going to write this up as “small rare earth company ships first product.” What actually happened is the United States government set a second world price for a strategic commodity, in writing, for 15 years. Only one of those stories will make you money.

Step back from the one company and look at what the contract tells you about the next decade. A government that is willing to guarantee ,050 a kilo for 15 years to make sure a metal exists is a government that has decided supply matters more than price. That decision is being made right now across every strategic input in the economy: minerals, chips, power, shipping, munitions. Each one gets a floor, a subsidy, a stockpile, or a take-or-pay contract, and each one of those is paid for with borrowed money. That’s the inflationary engine of a wartime economy, and it doesn’t switch off when the Fed raises rates, because the Fed isn’t the one signing the contracts.

This is precisely why I put together a special report called Survive the Inflationary Storm. It outlines how inflation is going to play out over the next 12 months, which assets will come out ahead, and specific investments to own as a wartime economy puts a floor under the price of everything strategic.

It normally sells for $499. I’m releasing 100 copies free to Gains, Pains & Capital readers today, and when they’re claimed the offer closes.

To pick up your copy, Click Here Now!

Best Regards,

Graham Summers, MBA

Chief Market Strategist

Phoenix Capital Research