The Mine-to-Magnet Strategy Is Spurring M&A in Rare Earths

Electric vehicles, artificial intelligence (AI), and alternative energy may be transforming their respective industries in different ways. Yet all these innovations have something in common: critical minerals.

The properties of copper, lithium, and elements used in defense such as tungsten and antimony are critical to the functioning of these rapidly growing technologies. So, too, are rare earth elements. As demand for these minerals and elements accelerates, financial activity is on the rise as companies race to take advantage of opportunities in the sector, according to Andrew Timbers and Nicholas Smith, the co-heads of metals and mining in the Americas at Goldman Sachs Banking & Markets.

This activity includes mergers and acquisitions, initial public offerings, and investments from the US government. Washington is seeking to close the gap with China, the global leader in critical minerals and rare earths.

“Critical minerals now sit at the intersection of electrification, AI-driven power demand, and supply-chain security,” says Timbers.

What was a relatively quiet industry has turned into a priority for many asset managers, says Smith. “Institutional investors in the US now have much greater awareness and knowledge of mining companies,” Smith says. “There is a concentrated focus on unlocking tremendous value from these investments.”

We spoke with Timbers and Smith about what’s driving deal activity in the sector, the impact of AI, and the importance of a “mine-to-magnet" strategy.

How does the buildout of AI data centers affect mining companies?

Andrew Timbers: Copper remains top of mind given persistent supply deficits and rising AI power needs, but this is far from a single-metal story. Copper is scaling, with a single gigawatt-scale data center requiring up to 50,000 metric tons for cabling and grid upgrades. Other minerals are also rapidly entering the frame.

Lithium is back in the spotlight for its role in battery backup systems to ensure 24/7 data center reliability. Meanwhile, rare earths and strategic minerals are the top urgency story. Driven by extreme supply concentration and tightening export controls, these elements are critical for everything from high-efficiency cooling systems to advanced hardware.

Nicholas Smith: There is a cross-section of companies and sectors involved. You have power utilities and companies that are managing the distribution of power. You have hyperscalers that are building the data centers. And then you have the mining and minerals processors.

Just think about the electrification and copper needs in the buildout of these massive data centers to support AI. Copper is a critical material in those projects. An even bigger driver is providing power to these data centers. The modernization of the grid amid rising demand for baseload energy was already well under way. Now, on top of that, we have soaring demand from data centers.

How is demand for critical minerals and rare earths driving M&A activity?

Nicholas Smith: Let’s look at what’s happening with copper mining. Because of the acceleration in electrification and data centers, the competition for high-quality copper projects is at a fever pitch. Developing a new copper mine can take 15 years or more from discovery to production. Acquiring existing projects or junior developers is the fastest way for mining majors to meet demand. We expect continued consolidation and M&A activity as mining majors try to acquire smaller operators.

Andrew Timbers: At the same time, the rare earth M&A landscape is undergoing a shift toward vertical integration. To capture downstream value and bypass complex processing bottlenecks, companies are actively pursuing a “mine-to-magnet” strategy. This has triggered a wave of strategic M&A and joint ventures—some heavily backed by Western governments—specifically targeting heavy rare earths like dysprosium and terbium that have been impacted by tightening export restrictions. The goal is clear: build a fully integrated, resilient supply chain to support and secure the domestic industrial base.

A mine-to-magnet strategy?

Nicholas Smith: Yes. Historically, miners simply sold raw rare earth concentrate. A mine-to-magnet strategy vertically integrates the entire value chain—from extraction and separation to metallization and magnet manufacturing. This allows developers to capture significantly higher downstream margins and bypass complex midstream bottlenecks.

Andrew Timbers: This integration is also reshaping project finance. Given the high capital expenditure required for midstream refining, developers are increasingly leveraging public-private funding packages. We are seeing deals involving traditional private equity, combined with government backing, as well as strategic offtake agreements that include price support mechanisms to mitigate market volatility.

How are rare earths companies financing these deals?

Andrew Timbers: We are seeing a range of transaction structures where M&A is funded through a combination of common stock, cash, and structured equity to manage the unique risks associated with each deal. For example, in recent landmark mine-to-magnet acquisitions, the buyer used their equity as primary currency while structuring preferred shares to protect sellers against market volatility.

Government capital is not funding these acquisitions. Instead, federal agencies are acting as non-dilutive partners, providing low-cost debt to fund the capital expenditures required for post-acquisition expansion projects.

Nicholas Smith: Public companies, of course, also want to use their stock as currency for deals, especially if the share price is rising. This is an opportunity to catalyze vertical integration and to consolidate across this industry.

You mentioned supply chain security. Is this concern driving the US government to invest in critical minerals and rare earths?

Andrew Timbers: The government has shifted from policymaker to capital partner, deploying tools that go far beyond traditional grants. We are seeing a new era of federal participation, with agencies taking direct equity stakes, providing hybrid capital, and utilizing strategic stockpiling initiatives to de-risk projects and crowd in private investment.

This sovereign backing acts as a powerful credit-enhancement tool, giving commercial lenders and institutional investors the confidence to fund capital-intensive, long-lead-time projects that would otherwise struggle to clear traditional risk hurdles.

Given all these forces at work, are investors changing their approach to critical minerals and rare earths?

Andrew Timbers: While baseline economics like cost position remain fundamental, the evaluation framework for critical minerals has undergone a structural shift. Geopolitical alignment and asset location are now important drivers of capital allocation.

Institutional investors are prioritizing projects in stable, Western-aligned jurisdictions that directly address critical supply chain vulnerabilities. Instead of evaluating a mine as a standalone asset, investors are assessing its broader ecosystem—specifically looking for sovereign backing, strategic offtakes, which are pre-arranged contracts, and clear decoupling from concentrated, at-risk supply chains.

Nicholas Smith: The mining sector as a whole is inherently cyclical, and there is always going to be risk aversion because of that. At the same time, there is a fundamental view that there could be a significant upside in critical minerals and rare earths given the demand we’ve been discussing.

While investor expertise around mining was limited a decade ago, in recent years we’ve seen the prevalence of more in-house mining analysts inside institutions.

In copper mining equities, for instance, we are going to see significant production, expansion, and growth. So we expect to see substantial demand and investment in these companies. 

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