By Ernest Scheyder and Jarrett Renshaw
NOBLESVILLE, Indiana, July 10 (Reuters) - Rare earths startup ReElement Technologies has stopped seeking an $80 million Pentagon loan that was part of a broader push by the Trump administration to jump-start domestic production of critical minerals to challenge China's dominance of the sector, two administration officials told Reuters.
The officials said the move came after the company struggled to satisfy the federal government's due diligence requirements for
the conditional loan offer. The officials, who spoke on condition of anonymity, declined to elaborate and did not provide documentation on the due diligence issues.
The company, which aims to use a novel processing technology to refine rare earths and other critical minerals, is seeking other forms of federal assistance, including potentially a new government loan under different terms, the two officials said.
The $80 million loan was part of a broader $700 million critical minerals financing package announced last November by the U.S. Department of Defense's Office of Strategic Capital. It included a $620 million loan for Vulcan Elements, a startup magnet maker that counts as an investor the private equity fund 1789, where Donald Trump Jr. is a partner. Vulcan aims to use rare earths refined by ReElement to make magnets for the U.S. military.
When the loan package was announced, administration officials said ReElement and Vulcan were central to U.S. efforts to reduce reliance on China, which dominates global rare earths processing and magnet production used in electric vehicles, advanced electronics and U.S. military systems.
White House senior adviser Peter Navarro said he had advocated for the Vulcan/ReElement financing package as part of the administration's efforts to build domestic supply chains for materials and technologies viewed as essential to U.S. national security, adding that the administration continues to support ReElement.
"Small startup companies like ReElement and Vulcan represent the future of supply chain resilience and the reindustrialization of the United States," Navarro said in response to questions about the loan. "Their innovative technologies will help counter China's pricing power and boost America's national security."
ReElement CEO Mark Jensen told Reuters in June that his company decided it did not need the government loan and would rely on private investment to grow. Jensen said the company preferred to avoid taking on the debt and its associated costs.
"Putting debt on your balance sheet adds cost to your balance sheet," Jensen told Reuters during a visit to ReElement's Noblesville, Indiana, pilot facility on June 16. Relying instead on equity investments, he said, would enable the company to drive down costs and better "compete head-to-head against China."
Jensen said in a follow-up statement to Reuters on June 29 that the company was still exploring options with the government. "The structure has been changed based on mutual desire and we are working through the process," Jensen said.
Jensen declined to clarify whether the company was still seeking a government loan or some other kind of financing, and he did not respond to questions about the due diligence requirements of the original conditional loan.
Vulcan said its Pentagon loan remains on track. That was confirmed by the administration officials Reuters spoke to.
ReElement has not publicly given a cost estimate to renovate a building in Marion, Indiana, that is slated to house its planned commercial facility. The loss of the Pentagon loan could increase the company’s borrowing costs, as Washington typically lends money at rates cheaper than private lenders.
Earlier this year, Transition Equity Partners invested $200 million in ReElement and Japan's Mitsubishi Materials agreed to acquire an undisclosed stake in the startup. Both firms did not respond to requests for comment.
In response to Reuters questions to the press office about the ReElement funding, a White House official did not comment on the status of the $80 million loan but said: "The Trump administration continues to explore different deal structures with ReElement to help strengthen America's supply chains."
The Department of Defense also declined to comment on the ReElement loan package.
Under plans announced last year by Vulcan and ReElement, the two firms would work closely together, with ReElement processing the rare earths that Vulcan requires to make 10,000 metric tons per year of magnets for the Pentagon. “What we’re trying to do is ensure that we create an entire ecosystem here in the United States,” Vulcan CEO John Maslin told Reuters last November when the financing was announced.
The $700 million financing package has drawn scrutiny from Democratic lawmakers, who have questioned whether Vulcan Elements' ties to Trump Jr. influenced the companies' selection for federal support and have sought information on whether proper review procedures were followed. Reuters could not establish whether Trump Jr. played any role in securing the financing.
Vulcan declined to comment on the congressional scrutiny and Trump Jr. did not respond to questions about it.
(Reporting by Ernest Scheyder in Noblesville and Jarrett Renshaw in Washington; editing by Claudia Parsons)
