MP Materials accuses USA Rare Earth of magnet tech theft

MP Materials (NYSE: MP) has issued a lawsuit against USA Rare Earth (NASDAQ: USAR) alleging that its rare earth mining rival stole its proprietary magnet technology through an ex-employee, Bloomberg reported.

According to a lawsuit filed with a Texas court last Friday and seen by Bloomberg, MP said one of its former employees had shared “grain boundary diffusion” formulations with USAR, which later disclosed the information to a third-party technology company.

“USA Rare Earth has exhibited a pattern of recruiting employees from other companies and then using those employees to misappropriate trade secrets to accelerate USA Rare Earth’s own development,” MP alleged in the suit.

In addition, the Las Vegas, Nevada-based miner also claimed USAR had failed on multiple operational milestones and questioned the validity of the mineral resources being touted at the latter's flagship Round Top deposit in Texas.

USAR did not respond to questions regarding the MP lawsuit.

Shares of USA Rare Earth fell over 3% during the early hours of trading, sending its market capitalization below $6 billion. MP Materials also fell 3%, trading at a market capitalization of $11.6 billion.

Key US rare earth players

MP -- the only producer of rare earths in the US -- has developed its own technology to turn the extracted minerals from its Mountain Pass mine in California into permanent magnets used in electric vehicles, defense systems and advanced electronics.

USAR is also looking to follow the same path by developing its Texas deposit, which it calls "the largest heavy rare earth deposit" in the US, and has already commissioned a magnet manufacturing facility in Stillwater, Oklahoma. It also has ambitions to expand abroad through building another plant in France and recently announced a $2.8 billion acquisition of Serra Verde Group, which owns Brazil's only rare earth mine.

Both companies are seen as key players in the US government's plans to establish a domestic rare earth supply chain to reduce its dependence on economic rival China, which controls more than half of the world's mined supply and almost all of its processing. To facilitate this strategy, the Trump administration has made large financial commitments to both, including a $400 million equity investment in MP last July, followed up by a $1.6 billion agreement with USAR this year.

MP's lawsuit places USAR under further scrutiny, as the latter's deal with the White House had already received pushback from lawmakers, while the Serra Verde deal remains under review. USAR, however, has said it is not concerned by questions surrounding the government's investment.