The Pentagon Needs 300,000 Drones However China Controls The Magnets

The Pentagon just lately positioned the largest drone order in American history — 30,000 one-way assault drones, with plans to scale previous 300,000 by early 2028. There’s one main drawback: each a type of drones runs on a uncommon earth magnet. And in response to Goldman Sachs, roughly 98% of the world’s magnets are manufactured in China.

That is the dilemma REalloys (NASDAQ: ALOY) has spent years constructing to resolve. The corporate holds the one totally non-Chinese language “mine to magnet” heavy uncommon earth provide chain in North America — from processed metals to completed alloys to the magnet-ready inputs that protection contractors really want.

To grasp why the Pentagon is transferring this aggressively, you must have a look at what occurred in Ukraine.

Over the previous two years, drones have basically reshaped fashionable fight like no different know-how because the machine gun. Ukraine built over 1.2 million of them in 2024 alone.

The magnets that powered almost each single one got here from China. That signifies that one transfer from China might probably shut down the army of main nations within the West.

The Pentagon has watched that play out in actual time. And its response has been probably the most formidable autonomous weapons program in fashionable American historical past.

In June, President Trump signed an government order titled “Unleashing American Drone Dominance” that might assist boost drone manufacturing each in business and army sectors.

The subsequent month, Protection Secretary Pete Hegseth issued a memo planning to construct up drone manufacturing by approving the acquisition of lots of of American merchandise.

Add to {that a} protection finances for 2026 with $13.6 billion for autonomous methods, and it is turning into clearer by the day simply how committed the U.S. is to drones as part of their protection technique.

Nonetheless, allocating billions of {dollars} to the issue cannot repair the provision chain situation behind the manufacturing of those magnets.

At present, at least 80,000 parts throughout 1,900 U.S. weapons methods rely upon Chinese language-sourced uncommon earths. That is not simply drone motors — it contains steerage methods, sensors, and nearly each platform the Pentagon fields.

The Pentagon’s drone push is already reshaping the broader protection provide chain, with firms like AeroVironment Inc. (NASDAQ: AVAV), Kratos Protection & Safety Options Inc. (NASDAQ:KTOS), and Palantir Applied sciences Inc. (NASDAQ:PLTR) all increasing deeper into autonomous warfare, AI-driven focusing on, and next-generation battlefield methods. However whether or not it’s assault drones, autonomous surveillance platforms, or AI-enabled fight software program, almost each platform in the end depends upon the identical fragile uncommon earth magnet provide chain that also runs closely by means of China.

If Beijing tightens the valve, there isn’t any backup provider to name. That is precisely why REalloys constructed what it constructed.

The Hole No one Else Is Filling

Whereas a lot of Europe has uncared for the issue, America has been spending aggressively with American firms to repair the difficulty in 2026.

For instance, the Pentagon took a $400 million equity stake in MP Materials final 12 months, turning into the corporate’s largest shareholder, and has loaned hundreds of millions more to different home uncommon earth firms.

These are critical strikes and present the federal government’s dedication to staying forward of the altering army panorama. And MP Supplies is making actual progress on the sunshine uncommon earth aspect — neodymium and praseodymium, the weather that go into on a regular basis magnets for client EVs and electronics.

However this is the excellence most individuals don’t notice about this uncommon earths’ disaster.

Gentle uncommon earths provide the base magnetic energy. Heavy uncommon earths like REalloys produces — together with dysprosium and terbium — are what keep these magnets steady on the excessive temperatures inside a jet engine or a drone motor in fight.

With out them, your magnets shortly degrade beneath warmth. That is the distinction between a consumer-grade magnet and a military-grade one.

However whereas many have targeted on the buyer aspect of the provision chain points, the heavy uncommon earth hole — the one which military-grade drone motors, missile steerage methods, and jet engines really rely upon — is a separate drawback.

It’s an issue that requires America and its allies to sidestep China’s capacity to chop them off at every step of the provision chain, and REalloys sits at a vital vantage level.

How REalloys Constructed What No one Else Has

REalloys’ (NASDAQ: ALOY) provide chain begins on the Saskatchewan Analysis Council’s Uncommon Earth Processing Facility — the one operational, totally non-Chinese language processing plant in North America. The corporate holds an exclusive offtake covering 80% of that facility’s output.

From there, these processed metals ship to REalloys’ personal metallization facility in Euclid, Ohio, the place they develop into defense-grade alloys and magnet-ready supplies. Feedstock comes from North America, Brazil, Kazakhstan, and Greenland, which suggests there’s no single point of failure and no Chinese language inputs at any step.

That final half issues greater than you’d suppose.

That’s as a result of in late 2020, Beijing blocked the sale of uncommon earth processing gear and know-how to any nation exterior its orbit. That successfully minimize off the same old playbook: purchase Chinese language know-how, arrange a plant, and begin producing.

Which is why REalloys’ processing companion went a very different direction — designing customized furnaces, proprietary separation chemistry, and AI-driven management methods from scratch.

And that guess on homegrown know-how is clearly paying off right now as China has solely continued to tighten the clamps on the world’s uncommon earth provides.

In April 2025, Beijing imposed licensing requirements on seven heavy rare earth elements, together with dysprosium and terbium, masking all associated compounds, metals, and completed magnets.

A second wave of restrictions was introduced after which quickly suspended by means of November 2026, however the first wave remains in full impact.

The Pentagon’s Looming 2027 Deadline

The timing of the Pentagon’s drone program turns into much more important as they put together to set new procurement guidelines in 2027.

That’s when the federal government will effectively ban Chinese language-origin uncommon earths from the U.S. protection provide chain — from mining all over to completed manufacturing.

An F-35 incorporates greater than 900 kilos of uncommon earth supplies. A Virginia-class submarine requires over 9,200 kilos. Lockheed Martin, Northrop Grumman, and RTX will all must hint and certify their magnet provide chains earlier than the deadline hits — or risk shedding their contracts.

Which suggests the most important protection contractors on this planet will quickly want a compliant provider of heavy uncommon earth supplies. And REalloys has been transferring quick to fulfill that second.

In March, the corporate closed an upsized $50 million public offering, with roughly $40 million going towards constructing the largest heavy rare earth metallization facility outside China.

They’re focusing on first operations in 2027, with Part 2 scaling to make REalloys the largest Western producer of refined dysprosium and terbium by a large margin.

And in March, the corporate introduced that Joe Kasper — the previous Chief of Employees to the U.S. Secretary of Protection, who led efforts on important materials provide chain vulnerabilities throughout his time on the Pentagon — was appointed Chair of the Advisory Board.

He joins Normal Jack Keane, a retired four-star Normal and former Vice Chief of Employees of the U.S. Military, alongside a Chairman who additionally serves as President and CEO of GM Protection.

That signifies that whereas America races to safe its heavy uncommon earths provide chain for its drone program, the REalloys board has a transparent concept of how pressing the necessity is and how one can clear up it.

The place This Is Heading in 2026

The Pentagon has made its guess, committing to $13.6 billion on drones and autonomous methods, lots of of 1000’s of unmanned platforms, and a brand new sort of warfare.

Nonetheless, it’s inconceivable to purchase our method out of a provide chain that does not exist.

That takes years of labor in separation chemistry, metallurgy, and protection qualification — work that REalloys began over a decade in the past, lengthy earlier than uncommon earths turned a nationwide safety headline.

America at the moment imports 10,000 tons of uncommon earth magnets. The DFARS deadline to finish the dependence on China is 9 months away. And it could take a reputable competitor ranging from scratch between three to seven years to achieve comparable functionality.

You’ll be able to fund a mining operation in a 12 months. You’ll be able to break floor on a processing facility in two. However constructing the metallurgy, qualifying with protection contractors, and securing feedstock from a number of non-Chinese language sources takes the higher a part of a decade.

REalloys (NASDAQ: ALOY) has already put greater than a decade into securing each a part of the provision chain exterior China’s management.

When the Drone Dominance Program scales from 30,000 items to 300,000, the magnets inside each might want to come from someplace apart from China. REalloys is constructing that offer chain — and proper now, it is the one firm in North America positioned to ship.

By. Charles Kennedy

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