In its effort to usher in a domestic supply chain for critical minerals, the Trump administration has been leveraging a rarely used industrial policy tool: the government equity stake. In the last four months, the federal government has taken some form of equity in three separate critical minerals projects, using both the Department of War (until recently known as the Department of Defense) and the Department of Energy, and spanning exploration, mining, and manufacturing.
It’s an approach the government has used sparingly in the past, and generally with bipartisan support. During the 2008 financial crisis the government took equity stakes in banks, insurers, and automakers. And in 2020 it applied that approach toward airlines, taking warrants (which it later auctioned off) to purchase stock as that industry reeled from the Covid-19 pandemic.
What the government is doing now with critical minerals is essentially a “portfolio approach,” explained Abigail Hunter, executive director of the Center for Critical Minerals at SAFE. That’s not unexpected, she added, “because you have a bunch of Wall Street people leading these initiatives.”
Hunter is largely enthusiastic about the use of government equity, though acknowledges it is something the administration should “tread carefully with.”
Government equity stake is best utilized upstream in a supply chain, where it can have “broader impacts across a variety of end users, especially if there’s market distortion, which we know there is,” she added. “Not to give them free rein in terms of using this industrial policy, but it is a foundational tool that I think they should still consider strategically.”
Despite the fact that the approach is relatively new, most companies are enthusiastic; Hunter said they are “reaching their hands out for this” because they face such steep challenges getting capex financing for their projects.
So far, there have been significant upside to the equity move, she added, including spurring capital from Goldman Sachs, JP Morgan, and Apple, and boosting the stock prices of critical minerals companies across the board, even as the Trump administration inks deals with foreign partners. “They’re all winning and losing together, and they effectively met the market in the challenging place that it is,” she added.
But there are also inherent challenges and concerns that come with this approach.
Speaking on a panel at ACP Recharge in Austin last week, Hunter likened government equity stake in a critical minerals project to “asking wheat farmers to bake bread for the entire army…Sure, they can do it, but how long are they actually going to take to get there?” That may be what the administration is tackling with its portfolio approach, she added, but the gap between domestic supply and demand is so massive that no single company can fill it.
Then there’s the risk of “picking losers,” or more generally distorting the market. In championing one company via equity stake, the government could effectively “take the wind out of the sails” of another — though Hunter added that “we haven’t seen that yet.” So far, the equity activity has brought more attention overall to companies in the space, not just those doing equity deals with the Trump administration.
Perhaps the stickiest challenge, at least for private investors, is the issue of governance, even if the federal government is taking nonvoting board seats. Hunter said she recently asked a group of investors how they felt about having the government in a board seat for a project in their investment bank portfolio: “And this guy mimed vomiting; he was stressed about this!”
Looking ahead
So far, despite the flurry of activity, there isn’t a clear blueprint for leveraging equity in the critical minerals supply chain; the administration’s approach has looked a little different in each of the three critical minerals projects where it has leveraged that capability so far.
In July, the government took a 15% stake in MP Materials via the Department of War. That deal also included a $150 million loan to help build a new magnet factory, established a price floor, and built in an offtake backstop via GM.
Then, in October, the Trump administration reinstated federal permits for a controversial industrial road in Alaska that will cut through a national park to access massive but remote deposits of copper and zinc, which the Biden administration previously rejected. At the same time, DOW invested around $35.6 million in mining company Trilogy Metals (which is half of the joint venture known as Ambler Metals that is developing the road) to support its exploration of that newly accessible region. That investment makes the government a 10% shareholder in the company, and the deal includes warrants to purchase an additional 7.5%, the White House said.
The Department of Energy, meanwhile, took a 5% equity stake in Lithium Americas, as well as a 5% stake in a joint project between that company and General Motors for the Thacker Pass lithium mine, as part of a loan issued by the Loan Programs Office. In both cases the stake was issued through warrants, giving DOE the right to purchase the shares at a certain price, but not obligating it to do so.
It should ultimately be down to Congress to craft guidelines around the use of equity as industrial policy, and to oversee the projects in which the government is now a shareholder, said Meredith Broadbent, a senior advisor at the Center for Strategic and International studies, who spoke on the panel with Hunter. “It’s a new approach…to try and move the needle,” she said. There needs to be some form of “bipartisan thinking” as to what types of market interventions the government wants to leverage, and how to do so “in a way that doesn’t get yanked back the next time the pendulum switches.”
Efforts to solidify the equity approach aren’t happening yet, Broadbent added, in part because President Trump “hasn’t really thought about what kind of legislative legacy he wants to leave on some of this stuff.” And ironing that out will be critical to ensuring this approach has staying power: “There’s a natural inclination to resist congressional involvement, but at the same time, it does secure your legacy.”
