In taking a page out of Winston Churchill's playbook, where Britain acquired a 51% controlling interest in the Anglo-Persian Oil Company (now BP) on the eve of World War I, the Pentagon today made a $400 million dollar investment in rare earth miner/refiner MP Materials. The Pentagon on full exercise of its convertible preferred and warrants will own 14% of the company and become its largest shareholder. Paired with the investment is a long-term supply contract at fixed minimum prices thereby ensuring profitability.
Rare earths are used to make highly sophisticated magnets that are used in advanced aircraft (think F-35) and guided missiles. At the present time the bulk of the rare earths used by the Pentagon and U.S. industry are imported from China, not the best of circumstances.
The Pentagon's logic behind the deal is identical to Churchill's over 100 years ago. As First Lord of the Admiralty Churchill was seeking a secure supply of oil for the Royal Navy. In addition to its investment, Britain secured a 20-year supply contract for Anglo-Persian's oil.
As an aside, the preferred stock is convertible at $30.03 a share. MP Materials stock shot up to $44, so thus far the Pentagon is well ahead of the game.
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