WASHINGTON — Senate Democrats voiced concerns Tuesday over the Pentagon’s rare earth mineral equity deal with MP Materials that ranged from the legality of the arrangement to questions about future competitions.
“I have questions about the legal basis, financial terms and strategic rationale for these transactions,” the top Democrat on the Senate Armed Services Committee, Sen. Jack Reed, told Pentagon witnesses. “The legal basis, in particular, appears questionable.”
Reed’s comments center on a July 2025 deal between the Department of Defense and MP Materials, billed as a way to shore up the rare earth magnet supply chain. MP Materials describes itself as “America’s only fully integrated rare earth producer” that produces “the world’s strongest and most efficient magnets” used in everything from transportation to defense.
Under the terms of the 10-year public-private partnership, the government agreed to purchase $400 million of a newly created series stock that could make the government the largest shareholder. In return the company said it would accelerate the build-out of an end-to-end magnet supply chain, aimed at reducing US dependency on foreign suppliers.
At the hearing, Reed said he’s concerned that the deal relies on future appropriations, which means it could fall afoul of the Antideficiency Act.
“Have you analyzed that and determined it won’t?” Reed asked defense officials.
Michael Cadenazzi, the Assistant Secretary of Defense for Industrial Base Policy, said his department has relied on the Office of General Counsel and the department’s legislative affairs team for legal advice on the MP Material deal and said he will push for those opinions to be delivered to Congress.
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But for now, he added, the Pentagon is proceeding with the rare earth mineral equity arrangement as a way of reconciling “a failed market-based approach” 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,” Cadenazzi added. “Going forward, we’ve planned that through the FYDP [Future Years Defense Program] and we expect that we’ll continue to barring any changes in policy.”
For his part, committee Chairman Sen. Roger Wicker did push for defense officials to deliver the legal opinions on the equity deals to lawmakers as quickly as possible but broadly threw his support behind the limited use of these arrangements, especially in cases where “no free market exists.”
When the deal with the Pentagon was announced, MP Materials CEO James Litinsky said in a press release the company was “proud to enter into this transformational public-private partnership and are deeply grateful to President [Donald] Trump, our partners at the Pentagon, and our employees, customers and stakeholders for their unwavering support and dedication.” The release noted that two lawfirms had acted as legal advisors for the company.
Aside from the legal issues directly tied to equity arrangement, Senate Democrats including Reed, Sen. Mazie Hirono, D-Hawaii, and Sen. Jeanne Shaheen, D-N.H., raised other questions about the investment strategy in rare earth minerals is and asked if equity deals are giving an unfair advantage to companies with whom the department holds stock.
“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?”
Although today’s Senate hearing focused on rare earth materials at a time when the US is playing catchup with China, it could open the door for a larger conversation around 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.
The 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.