China is the world's largest producer of these minerals and has threatened to stop their export to the United States.
The Pentagon on Tuesday said it awarded $9.6 million to MP Materials Inc, which owns the only U.S. rare earths mine, to help the company process light rare earths.
Rare earths are 17 metals that are difficult and costly to mine and process cleanly. Most are so-called light rare earths, used in cellphones and other consumer goods. MP's California mine has a large supply of light rare earths.
But MP has to ship more than 50,000 tonnes of concentrated rare earths per year to China for final processing because equipment it inherited from its predecessor, Molycorp, is not operational. Chinese customers account for all of MP's $100 million in annual revenue.
MP Materials went public on Wednesday on the New York Stock Exchange, a deal that netted the company about $489 million. Shares rose 14% to $16.40.
This is the second Pentagon award that MP has received this year. The company and Australia's Lynas Corp Ltd received grants in April to focus on production of so-called heavy rare earths, a less-common type of the minerals used in weaponry.
The Pentagon also said on Tuesday it awarded $2.3 million to California-based TDA Magnetics Inc and $860,000 to Texas-based Urban Mining to focus on rare earth magnet production and stockpiling. The Pentagon earlier this year had granted $28.8 million to Urban Mining for similar magnet work.
Rare earths must be turned into magnets after processing, otherwise they are of little value to manufacturers. China dominates the rare earth magnet industry, too.
(Reporting by Ernest Scheyder; editing by Jonathan Oatis)
By Ernest Scheyder