Short Bets Pile Up on US Critical Minerals Miners
Hedge funds have significantly increased their short positions against U.S. critical minerals companies this year, betting that the Trump administration's multibillion-dollar push for domestic supply chains will not be enough to break China's decades-long dominance over mining and processing. Data from S&P Global Market Intelligence shows short interest rising sharply in groups such as US Antimony Corporation (USAC), American Resources Corporation (ARC) and MP Materials, which had all seen their shares soar in 2025 on the back of government equity stakes, loans, contracts and production subsidies.
The short sellers argue that the stock rallies have outpaced economic reality. The U.S. government poured billions into the sector to secure supplies of rare earths, antimony, tungsten and germanium for technology and defence, but building new mines and processing facilities can take a decade or more. Meanwhile China, which still controls the vast majority of global rare earth processing, can easily hurt foreign producers by flooding the market or wielding export controls.
Short interest in USAC has climbed from 23% to 42% of its market capitalisation this year, while bets against ARC, a company that generated no revenue last year, have risen to 23% from 9%. MP Materials, by far the largest rare-earth miner in the U.S., has also seen an increase, though a person close to the company said a substantial portion of the short position stems from convertible bond arbitrage tied to its $862 million convertible issue, not outright bets against the business. USA Rare Earth, another high-flyer that received $1.6 billion in conditional funding from the Commerce Department, has also attracted modest new shorts, even as it has yet to extract ore from its Texas deposit.
Adding to the pressure, China placed MP Materials and USA Rare Earth on its export control list in June, a retaliatory move against Washington's sanctions on Chinese firms. Despite these headwinds, both companies defend their strategic value, with USA Rare Earth stating that “the strategic need for a secure rare-earth value chain outside China continues to grow.”
Why Hedge Funds Are Betting Against America's Mineral Independence
China's Unshakeable Processing Dominance
China's grip on the critical minerals sector is not merely about geological reserves. It stems from decades of state-led investment in processing technology, which now handles roughly 85% of the world's rare earth refining. A recent report from the Center for Critical Minerals Strategy at SAFE, a Washington-based NGO, notes that the West's ability to improve its supply chains depends less on access to mineral deposits than on scaling up public funding for processing capacity. Even with the current wave of U.S. support, building new plants and mines will take years, leaving a wide window for China to undercut nascent competitors or restrict supplies as geopolitical leverage.
Government Lifelines vs. Commercial Reality
The Trump administration has thrown a range of instruments at the problem: a Pentagon supply contract worth up to $245 million for USAC, a $27 million emergency defence investment, a $25 million Department of Defense grant to ARC's former subsidiary ReElement Technologies, and a $1.6 billion conditional funding package for USA Rare Earth. These sums are unprecedented for such small-cap companies, but they are tied to specific contracts or future production milestones. Short sellers, including Siegfried Eggert of Grizzly Research, argue that many of the stocks were pumped up by political rhetoric and that the underlying businesses lack the economic strength to support their valuations. ARC, for instance, remains pre-revenue, and USA Rare Earth has yet to mine anything.
Retail Money Fuels a Distorted Market
A significant chunk of last year's share price surges came from retail investors. Data from Vanda Research shows that nearly $200 million was poured into USAC and USA Rare Earth by individual traders in 2025, a stark contrast to negligible amounts in prior years. This retail enthusiasm creates a volatile dynamic: high short interest combined with a concentrated shareholder base could, in the event of a positive regulatory or contract announcement, trigger a sharp short squeeze that temporarily punishes short sellers. However, the short thesis is predicated on a longer time horizon—that even successful contracts will take years to translate into sustainable profits.
The MP Materials Convertible Arbitrage Wrinkle
MP Materials' short interest figures are partly misleading. A person close to the company said a “substantial part” of the short position is not a directional bet against the firm but rather the result of convertible bond arbitrage. Investors who bought MP's $862 million convertible notes may short the stock to hedge their exposure and lock in returns, a common practice that inflates reported short interest without signalling deep fundamental pessimism. That nuance does not entirely remove the bearish case—MP still faces processing competition and export controls—but it tempers the raw short-percentage headline.
What the Surge in Short Interest Means for Investors and the Sector
- Monitor short-covering triggers. With USAC short interest at 42% and ARC at 23%, any positive news flow—such as additional defence contracts or faster-than-expected permitting—could spark a short squeeze, temporarily driving share prices far above fundamental valuations.
- Track Chinese countermeasures. China’s placement of MP Materials and USA Rare Earth on its export control list in June is a concrete signal that Beijing will use supply-chain weapons to retaliate against U.S. sanctions. Further restrictions or price undercutting would directly hit these miners' revenue prospects.
- Scrutinise revenue timelines, not just contract announcements. USAC's $245 million Pentagon contract and ARC's defence-linked awards are multi-year frameworks. Investors should map expected cash flows against capital expenditure requirements, given that even the largest U.S. rare earth miner, MP Materials, is still building its processing facility.
- Distinguish between short bets and convertible arbitrage. MP Materials' elevated short interest is partly explained by arbitrage of its $862 million convertible bonds. Using raw short-interest percentages alone can overstate bearish sentiment for this stock specifically.
Risk & Opportunity Assessment
| Commercial Risk | High | If government funding fails to materialise at the scale needed or China dumps excess supply, several companies—such as ARC with no revenue—may not sustain operations, making their equity vulnerable. |
| Competitive Risk | Critical | China controls roughly 60% of rare earth mining and 85% of processing. Its ability to undercut prices or restrict exports poses an existential threat to US-based start-ups trying to build a parallel supply chain. |
| Regulatory Risk | Medium | While the current administration actively funds the sector through multiple channels, a change in fiscal priorities or a renegotiation of contract terms could abruptly reduce the flow of public money. Additionally, direct export controls from China, as already applied to MP Materials and USA Rare Earth, add regulatory unpredictability. |
| Reputation Risk | Low | At present, the companies are small enough that operational delays or missed milestones would primarily affect their stock prices and government relationships rather than cause a broad reputational crisis. |
| Technology Disruption | Low | Mineral extraction and processing is capital-intensive and slow to change. No near-term technological breakthrough is likely to overturn the fundamental supply-demand balance or bypass China's processing advantage. |
| Commercial Opportunity | High | If even one of these companies successfully establishes a functioning domestic supply chain for rare earths or antimony, it could secure long-term government and defence contracts and capture a significant share of a market currently dominated by a single foreign power. |
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