Critical Minerals Financing: M&A Structuring, Capital Formation

April 16, 2026

US Government Equity and Equity-Linked Investments in Critical Minerals

Karen Chong, Meaghan Connors, Paul de Bernier, Timothy Keeler, Jason Parsont, Amir Rousta, Gabriela Sakamoto, Rachel Speight Mayer Brown + Follow Contact LinkedIn Facebook X ;) Embed

Federal equity and equity-linked instruments have become embedded in the sector’s financing architecture, with direct consequences for M&A structuring, capital formation, liability management, governance and exit planning.

The US government’s role in critical minerals has shifted materially. Executive actions, agency designations, and sustained public emphasis have framed critical minerals as essential to national security, defense readiness, grid resilience, job creation and advanced manufacturing. That policy posture is now reflected not only in regulation and procurement—but in capital formation. Federal capital deployment forms a significant component of a broader policy framework that also includes procurement authorities, strategic stockpiling, and regulatory initiatives aimed at strengthening critical-mineral supply chains.

Federal agencies are investing in the sector through an equity and equity-linked capital toolkit, which includes minority equity investments and other instruments that are convertible into or exchangeable for equity, commodity price support mechanisms, long-term offtake commitments, and strategic reserve initiatives. Public transactions such as the US Department of Defense’s partnership with MP Materials Corp. (“MP Materials”), together with other equity investments by the US International Development Finance Corporation (“DFC”) and the US Department of Commerce confirm that this is no longer theoretical. In particular, the reauthorization of DFC in the Fiscal Year 2026 National Defense Authorization Act established a $5 billion equity revolving fund, and increased DFC’s minority equity investment authority up to 40% ownership. At a Milken Institute panel in March 2026, DFC CEO Ben Black explained that these developments allow DFC “to play across the capital structure and be in risk positions [and] further incentivize private capital” and highlighted critical minerals and rare earths as priority sectors. The federal government’s equity and equity-linked capital toolkit is now integrated into the capital structure of the sector.

This is not an episodic intervention. It instead reflects a structural shift in how the federal government is managing supply-chain risk—and it has direct consequences for how mining and energy transactions are structured, financed and exited.

For sponsors, developers, and strategic investors, the relevant question is not whether the federal government will deploy capital. It is instead how the federal government’s participation reshapes capitalization, governance, risk allocation and exit strategy.

WHY EQUITY AND EQUITY-LINKED INVESTMENTS, AND NOT JUST DEBT?

Federal support has historically relied on grants, loans and loan guarantees. The increasing use of equity and equity-linked instruments reflects deliberate financial and policy logic.

Equity enables the government to share in upside where federal capital is deployed to de-risk strategically important assets. In development-stage mining and processing projects—where cash flows are uncertain and price volatility is inherent—convertible notes, preferred equity or warrants are often better aligned with risk profiles than non-convertible fixed-rate debt.

Equity also aligns incentives. Minority participation signals that federal capital is tied to long-term project success rather than credit recovery alone. There is a further practical dimension: federal participation through equity can function as a signaling mechanism, reducing perceived policy risk and attracting additional private capital—including from lenders sensitive to geopolitical exposure.

Liability management through debt to equity displacement is sometimes the goal to help a company de-lever their balance sheet and increase the prospect of long-term profitably. However, in many cases, the use of equity does not mean that debt is being displaced. Equity has become an accepted complement where risk-sharing and strategic alignment justify participation beyond fixed returns. Preferred equity, for example, functions as a risk-sharing mechanism suited to the volatility and strategic importance that coexist in development-stage mining assets.

WHOLE-OF-CHAIN ENGAGEMENT

Federal capital is not confined to upstream extraction. Policy framing has embraced a whole-of-chain model that encompasses:

• Upstream mining and project development;
• Midstream refining and rare earth processing; and
• Magnet, battery, and advanced materials production, enabling technologies across the supply chain. Minerals regularly referenced in policy include rare earth elements (notably neodymium and praseodymium), lithium, cobalt, nickel, and graphite. Graphite anode materials have particular significance for use in lithium-ion batteries across various industries. Copper has received increasing attention given its central role in grid infrastructure and industrial electrification.

The policy objective extends beyond domestic extraction to reinforcing supply chains, diversifying processing capacity and mitigating concentration risk across allied countries as well.

THE “DIRECT EQUITY” AND EQUITY-LINKED CAPITAL TOOLKIT

“DIRECT EQUITY” INVESTMENTS

The US Department of Commerce and DFC have taken or intend to take equity positions in critical minerals platforms and companies engaged in mining, processing and supplying rare earths. Instrument selection now spans the full capital stack. In addition to common equity, this also includes senior loans, subordinated or structured credit, convertible notes, preferred equity, and warrants.

CONVERTIBLE NOTES AND OTHERS

DFC recently announced a non-binding strategic investment plan in Syrah Resources Limited (Syrah), the parent company of the Vidalia Active Anode Material (AAM) processing facility, and Balama graphite mine in Mozambique, which hosts one of the largest natural graphite reserves in the world. According to DFC’s press release, DFC proposed a creative liability management structure that would represent the first time DFC has received a convertible loan note (CLN) issued by a publicly listed company. It would initially convert a portion of its existing loan to Balama into common equity in Syrah, with the remaining balance of the loan rolling into a CLN to be issued by Syrah. As part of the proposed transaction, DFC would also receive warrants to acquire additional equity in Syrah, and would retain the option to provide additional CLN financing to cover contingent expenses at Balama.

CONVERTIBLE PREFERRED EQUITY

In its partnership with MP Materials, the US Department of Defense invested in convertible preferred stock and warrants. Convertible preferred equity combines structural downside protection with upside participation; it typically includes negotiated liquidation preferences, dividend features, and consent rights, while preserving the right to convert into common equity either optionally or upon the occurrence of negotiated triggers. Conversion triggers, valuation methodology, anti-dilution protection, and dividend accrual are important factors to consider, as each can materially affect post-conversion ownership.

WARRANTS AND EQUITY KICKERS

The US Department of Energy’s financing for the Thacker Pass project includes warrants at both the corporate and project levels. Warrants are common in private credit transactions as equity kickers attached to risk-bearing debt. In a federal context, they provide contingent upside participation tied to credit support or subordinated capital and embed meaningful optionality.

COMMODITY PRICE SUPPORT

The MP Materials transaction includes a long-term neodymium-praseodymium (NdPr) price floor, publicly reported at $110/kg, with shared upside participation through the US Department of Defense’s convertible preferred stock and warrants. Price support mechanisms mitigate revenue volatility in inherently cyclical markets, improve underwriting visibility and may materially affect project finance sizing. However, price support mechanics should be aligned with project finance covenants, as misalignment can create unintended refinancing pressure.

LONG-TERM OFFTAKE

Federal offtake commitments anchor demand during ramp-up and early production. Such arrangements may include minimum volumes, pricing frameworks and milestone obligations. They reduce commercialization risk and can enhance bankability.

In joint venture structures, coordination is essential: government offtake commitments must be reconciled with partner marketing rights and downstream commercial agreements at the outset.

PROCUREMENT AND STRATEGIC RESERVES

Federal capital operates alongside procurement and stockpiling mechanisms. The National Defense Stockpile continues to acquire strategic materials, and initiatives such as “Project Vault” aim to provide inventory stabilization and supply assurance backed by public financing authorities.

These mechanisms address demand visibility and market volatility rather than capital stack risk. Together with equity and equity-linked instruments, they create layered federal engagement across supply, demand and financing simultaneously.

EFFECTS OF INVESTMENTS: DILUTION AND GOVERNANCE

Equity and equity-linked instruments reshape ownership dynamics. Equity investments affect economic terms and governance rights on day one, while dilution from the conversion or exercise of convertible or equity-linked instruments can further alter governance thresholds, supermajority voting mechanics and board composition. This is particularly relevant in the critical minerals context, where capital structures are increasingly layered—combining private equity, bespoke capital solutions, project finance debt, offtake-linked financing, and direct or indirect federal government equity—each with its own governance footprint. Sophisticated acquirers, including sponsors, will evaluate transactions on a fully diluted basis, and diligence into the capital stack should specifically map outstanding warrants, convertible instruments, option pools, anti-dilution provisions, and any rights triggered by the transaction itself—not simply headline ownership percentages. Dilution can also intersect with exit timing: embedded consent rights or conversion triggers may introduce transactional friction that affects valuation even where the economics remain attractive, and consent rights that do not ultimately block a transaction can still extend it by weeks or months. That timing exposure should be priced into deal planning from the outset.

Anti-dilution provisions warrant particular attention in this environment. Where federal capital has been deployed through preferred equity or convertible instruments, the mechanics—whether weighted average or full ratchet—can materially affect the economics of a subsequent financing or acquisition in ways that are not always apparent from the headline terms. Acquirers and co-investors would be well advised to model the fully diluted cap table across a range of scenarios, including down-round conversions and transaction-triggered adjustments, before committing to price. From the government’s perspective as investor, anti-dilution protections that preserve the federal economic position in a down round may conflict with the broader policy objective of catalyzing additional private capital into the sector—a tension that would be expected to be addressed in the investment documentation rather than left to a subsequent financing.

Federal equity stakes would also be expected to carry substantive governance rights reflecting the government’s policy objectives and accountability framework. These would typically include board representation or observer rights, information and audit rights tied to production and compliance milestones, approval rights over material strategic decisions such as asset disposals or changes in business scope, and restrictions on transfers to foreign persons—particularly those connected to jurisdictions of concern. In transactions where the strategic sensitivity of the asset warrants it, veto rights or golden share mechanics of the kind seen in recent high-profile critical minerals transactions would also be expected to feature. Reporting and certification obligations tied to production milestones, capital deployment or domestic capacity targets sit alongside these governance rights and reinforce them. Counterparties entering a capital structure alongside the government would be well advised to understand the full scope of these rights and their consent mechanics before committing to a transaction—they constrain not only the company but every future investor and acquirer.

From the government’s perspective, those rights would be expected to be carefully scoped: sufficient to ensure domestic production commitments are met, prevent transfer to adversarial foreign owners, and maintain meaningful visibility into operational and financial performance, while remaining calibrated so as not to deter the private capital the investment is designed to catalyze. Governance provisions that extend to routine commercial decisions or create uncertainty around approval timelines for future financings can undermine the investment’s strategic purpose even where the economic terms are well structured. Controls for tracking compliance—and mapping federal consent obligations—should be integrated into operational systems and deal processes early, not retrofitted under the time pressure of a live transaction.

Finally, CFIUS adds a dimension that intersects directly with federal equity stakes. Where the US government holds an equity interest in a critical minerals company, a subsequent acquisition by a foreign investor—even from an allied country—would be expected to attract heightened scrutiny. The presence of federal equity is itself a signal of national security sensitivity, and acquirers would be well advised to assume that mandatory or voluntary CFIUS filing will be required and to factor review timelines into deal structuring and financing commitments accordingly. Transfer restrictions and foreign ownership consent rights built into the investment documentation from day one would be expected to complement rather than duplicate that process—a well-drafted contractual restriction provides faster and more targeted protection than reliance on post-closing regulatory review alone.

INVESTMENT BEYOND US BORDERS

Federal capital is not confined to US issuers. Public reporting reflects support for projects in Australia, Canada and Africa. For non-US companies, federal participation may expand funding options and enhance credibility with global lenders—while also introducing US-style documentation rigor.

Transactions involving federal capital typically include enhanced reporting obligations, compliance representations, defined change-of-control provisions and restrictions on certain types of equity holders. The precision and durability of such provisions may exceed local market norms. Federal participation tends to standardize documentation toward US-style covenant packages and governance frameworks—increasing complexity for some issuers while improving institutional acceptance for others.

STRUCTURING THEMES

Recent transactions suggest recurring issues being addressed at the term sheet stage:

• Negotiation of aggregate dilution limits;
• Detailed change-of-control definitions;
• Alignment between price support mechanisms and debt covenants;
• Board observer roles in favor of voting board seats; and
• Early coordination of offtake commitments with joint venture marketing rights.

THE CRITICAL RISK: POLICY PRIORITIES MAY EVOLVE MATERIALLY OVER PROJECT LIFECYCLE

The trajectory points toward increasing normalization of passive minority federal equity in strategically sensitive sectors. However, federal capital structures introduce a lifecycle alignment question that sponsors should take seriously.

Mining and processing projects typically span 10 to 20 years from development through steady-state operations. Policy priorities may evolve materially over that timeframe. The most significant risk is not dilution—it is misalignment between long-term project economics and shifting policy priorities. Sponsors should structure with sufficient flexibility to navigate this reality from the outset.

CONCLUSION

The US government is now deploying equity and equity-linked investments on a recurring basis in the critical minerals landscape. It affects capitalization, governance, valuation and exit planning—it signals strategic alignment in sectors considered essential to national resilience.

Federal capital should be treated as a structuring variable, not simply a funding source. Participants who model dilution comprehensively, align governance thresholds thoughtfully, and anticipate lifecycle friction will be better positioned as federal capital continues to intersect with private markets.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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