No Magnets, No Drones: How China Controls the Future of Warfare
One high-powered, precise weapon has quickly and permanently transformed modern warfare. It can weigh less than a suitcase…and cost a few hundred dollars to build…but take out a multimillion-dollar tank from miles away.
The drone has changed the face of war. Nothing has disrupted the battlefield so drastically since the introduction of the machine gun in World War I. Military experts describe the shift as transformative…a fundamental rewiring of how conflicts are fought, won, and lost.
Ukraine produced 1.2 million drones in 2024 alone. The scale is staggering, as Ukraine is now deploying roughly 9,000 drones per day. By 2025, drones were engaging over 80% of all frontline targets and accounting for an estimated 70% of Russian equipment losses. And every major military in the world is racing to match that capability. What this could mean is that the country that controls drone technology controls the next generation of warfare.
But all of those drones share one vulnerability: virtually every magnet in every one of those 1.2 million Ukrainian drones used in 2024 was manufactured in China. And the same is true for Western defense systems across the board.
Every drone motor, every missile guidance system, every fighter jet turbine starter…all of them depend on rare earth magnets that trace back to Chinese processing. That’s a vulnerability most people haven’t even begun to understand. And one company, REalloys (NASDAQ: ALOY), is racing to close that gap before it’s too late.
REalloys operates the only proven commercial-scale platform in North America for producing the heavy rare earth metals and alloys that go into defense-grade magnets. Its facility in Euclid, Ohio, is already delivering materials under U.S. government contracts.
And there’s a hard deadline approaching that changes everything. On January 1, 2027, new U.S. defense procurement rules take effect that will effectively ban Chinese-origin rare earth materials from American weapons systems. That means every defense contractor currently sourcing magnets or magnet materials – for drones or any other military purpose – from China will need a compliant domestic alternative…and they’ll need it fast. So the companies that get qualified into these programs now might own these supply chains for decades.
No Magnets = No Military
To understand why China’s grip on rare earth processing is so dangerous, you have to understand just how deeply drones have penetrated modern warfare…and just how dependent they are on one particular component.
Every drone motor requires a permanent magnet to function. These magnets are made from rare earth elements – specifically neodymium, praseodymium, dysprosium, and terbium. The light rare earths (neodymium and praseodymium) provide the base magnetic strength. The heavy rare earths (dysprosium and terbium) are what allow those magnets to survive the extreme temperatures and intense stress of military and aerospace applications.
Simply put…without these magnets, a military drone motor doesn’t work at all.
And drones are just the beginning. An F-35 fighter jet contains roughly 435 kilograms of rare earths. A next-generation U.S. destroyer carries about 2-2.5 tons. A nuclear submarine, around 4-4.5 tons. Missile defense systems, precision-guided munitions, drone motors, EV drivetrains, wind turbines, robotics, medical devices…rare earth magnets are embedded in virtually everything the modern economy depends on.
The future battlefield will be dominated by drone technology at every scale. And every single one of them requires rare earth magnets to fly. Call it what it is: a single point of failure for the entire Western military.
It’s a vulnerability that REalloys (NASDAQ: ALOY) was specifically built to address…and right now, it’s the only company in North America with a proven path to closing it.
China Holds the Key
China controls approximately 90–95% of global rare earth processing. That’s not mining…it’s processing. Rare earths exist in the ground across North America, South America, Greenland, and elsewhere. But the West gave up the ability to actually process those raw materials into usable metals and magnets roughly 40 years ago. China filled that void and now controls nearly the entire global supply chain.
In fact, China is so incredibly dominant in this space that virtually every rare earth magnet used in Western defense systems, vehicles, electronics, and industrial equipment traces back to Chinese processing.
And China maintains an incredibly strict control over its advantage, as it issues rare earth export licenses on a monthly basis. That means Beijing can throttle supply to any country at any time.
When President Trump threatened 100% tariffs on China, Beijing’s counter was a threat to cut off rare earth exports. Trump backed down quickly. That moment revealed the true balance of power…and most people in America missed it entirely.
Think about that for a moment. A country fighting for its survival in Ukraine -- against an ally of China -- is entirely dependent on Chinese-made components to power the drones that are keeping its military in the fight. If China decided tomorrow to restrict those exports, Ukraine’s drone production would likely grind to a halt. And the same would be true for Western defense manufacturers.
Japan understood this threat decades ago. The Japanese government maintains a strategic stockpile of processed rare earths covering several months of domestic demand, with individual companies maintaining their own reserves on top of that.
Now here’s what is shocking: The United States maintains zero strategic stockpile of processed rare earths. Europe’s stockpile? Also zero.
The entire Western drone and defense industrial base operates on a just-in-time supply chain for the most critical materials on the planet…and it’s sourced almost entirely from a geopolitical adversary that can turn the tap off any time it wants. This is the threat that makes what REalloys is building in Ohio and Saskatchewan so critical…not just as a business, but as a matter of national defense.
Why Billions in Mining Investment Haven’t Fixed Anything
There’s a reason billions of dollars in rare earth mining investment haven’t made a dent in China’s dominance. It’s because most of the money was spent working to solve the wrong problem.
Even President Trump has acknowledged this publicly, remarking at the World Economic Forum in Davos that America doesn’t have a rare earth problem; it has a processing problem. Elon Musk echoed the same point, noting that there’s nothing rare about rare earths except the processing and separating.
Converting raw rare earth minerals into defense-grade metals and magnets is a ridiculously complex industrial challenge. It involves separating 17 individual elements through multi-stage solvent extraction…then converting oxides into metals at temperatures above 1,200 degrees…then precision alloying to exact specifications across thousands of micro-steps…and all of this must be controlled with extreme precision.
The Center for Strategic and International Studies calls this metallization step the least developed and most difficult capability to rebuild outside China. It’s the kind of expertise that can only be built through years of doing it…and no amount of money can speed that up.
Making matters worse, many companies claiming to operate supply chains outside China’s influence are still quietly dependent on Chinese technology, equipment, and consumables.
For example, graphite anodes, which are a critical furnace component that needs replacing several times per week, come almost exclusively from China. Some companies have purchased Chinese processing equipment and can’t get it to function properly. China sold them the hardware but kept the knowledge.
As one rare earth processing expert put it: 1% reliance on China is 100% reliance on China.
It’s a principle that REalloys and its processing partner, the Saskatchewan Research Council, built their entire operation around…and it’s why their supply chain was designed from the ground up to be completely free of Chinese dependency.
Meanwhile, the billions being poured into mining still haven’t changed a thing. You can dig all the ore you want. If you can’t process it into usable metal without Chinese involvement somewhere in the chain, you haven’t solved anything. And every day this problem goes unsolved, another 9,000 drones roll off the line in Ukraine – every one of them powered by Chinese-made magnets.
The Only Proven Platform in North America
No other company in North America has what REalloys (NASDAQ: ALOY) has built: a proven, commercial-scale heavy rare earth supply chain that can take raw material all the way to a finished magnet with zero reliance on Chinese technology, equipment, or critical consumables.
The company controls every step of the supply chain. Upstream, it owns the Hoidas Lake rare earth project in Saskatchewan and has locked in non-binding feedstock agreements with partners in Kazakhstan, Brazil, and Greenland. Midstream, it holds an exclusive 80% offtake on production from the Saskatchewan Research Council’s Rare Earth Processing Facility in Saskatoon, targeting first commercial production in late 2026 to early 2027. Downstream, it operates a metallization and magnet-manufacturing facility in Euclid, Ohio, which is a site with more than three decades of specialty metals experience and existing contracts with the U.S. Department of Defense, Department of Energy, and NASA.
That Euclid facility is a critical asset. It is currently the only facility in North America with a proven track record of delivering heavy rare earth metals, alloys, and magnets to government and commercial partners. The team behind it goes back over 40 years, including eight years of hands-on collaboration with U.S. national laboratories and the Defense Logistics Agency.
And the processing technology that feeds it is just as impressive. Where a comparable Chinese facility requires roughly 80 workers running manual operations around the clock, the SRC’s AI-driven system runs the entire separation process with six people. The AI ingests approximately 5,000 data points on a millisecond basis, producing higher-purity metals with greater efficiency than conventional methods. And it does so without any reliance on Chinese technology.
When China blocked the export of processing technology in 2020, SRC built everything from the ground up…and ended up building something better.
By early 2027, the combined platform is expected to produce approximately 525 tonnes per year of neodymium-praseodymium metal, roughly 30 tonnes of dysprosium oxide, and 15 tonnes of terbium oxide. At that scale, the SRC facility would be the largest source of heavy rare earth oxides outside China, sitting right in North America’s backyard.
Phase 2 plans call for significantly larger production later this decade, including approximately 200 tonnes per year of dysprosium metal and 45 tonnes of terbium metal, with capacity to produce up to 18,000 tonnes per year of heavy rare earth permanent magnets.
That’s the kind of capacity that could begin to supply not just traditional defense platforms like fighter jets and submarines, but the massive and fast-growing demand for drone-grade magnets across Western militaries…a demand that is scaling aggressively and shows no signs of slowing down.
Locked In for Decades: Why the Next 12 Months Change Everything
Here’s the part of this story that most investors are missing entirely.
On January 1, 2027, new U.S. defense procurement rules take effect that will effectively ban Chinese-origin rare earth materials from American weapons systems. Every defense contractor that currently sources magnets or magnet materials from China will need a compliant domestic alternative. That deadline is now less than a year away.
But the real story goes far beyond a single deadline, as in defense supply chains, once a material supplier gets qualified into a program, they’re essentially locked in for the life of that platform. Qualification alone takes years while material is tested, stressed, retested, incorporated into components, and evaluated again after changes in scale. Any variation in chemistry, microstructure, or processing conditions can reset the entire clock.
Once a supplier clears that process, replacing them becomes a technical and regulatory headache that nobody wants to take on. Defense platforms are designed to operate for decades, and suppliers are chosen early and rarely replaced. And with drone programs scaling faster than any other category in Western defense procurement, the suppliers that get locked into these programs now won’t just be supplying today’s demand. They’ll be supplying a market that military planners expect to grow exponentially over the next decade.
For a competitor to catch REalloys, it would need to simultaneously secure non-Chinese heavy rare earth feedstock, build commercial-scale separation capability, develop the technology to actually convert raw oxides into usable metal…and then qualify the output with defense customers, a process that alone can take several years. By then, REalloys could have a leg up in the programs that matter most.
REalloys’ position hasn’t gone unnoticed by the people who understand what’s at stake.
The U.S. Export-Import Bank has issued a $200 million letter of intent to support the company’s supply chain development. The Japan Organization for Metals and Energy Security (JOGMEC) has signed an MOU covering technology transfer and potential financing. And the company’s board reads like a who’s who of defense and policy leadership: Chairman Stephen S. DuMont, President of GM Defense; General Jack Keane (Ret.), four-star general and recipient of the Presidential Medal of Freedom; former Saskatchewan Premier Brad Wall; and former Canadian Ambassador to the U.S. David MacNaughton.
When the U.S. defense establishment, allied governments, and major financial institutions all start backing the same company, it usually means something. In rare earth processing, where the barriers are measured in years of expertise rather than dollars of capital, being first matters more than being biggest. REalloys got there first.
The Window May Be Closing
Demand for rare earth magnets is accelerating rapidly. Morgan Stanley projects magnet demand rising three to five times over the coming decade, driven by electric vehicles, grid infrastructure, defense platforms, and the emerging robotics and AI sectors. The market is currently valued at over $20 billion annually, and under high-adoption scenarios, demand could increase as much as 40 to 50 times over the coming decades.
But all of that growth rests on a supply chain that remains dangerously concentrated in China. And China isn’t standing still. Beijing has restricted the export of rare earth processing technology, equipment, and chemicals, and has implemented end-use certification requirements that effectively block exports for defense applications. The window for building an alternative is narrowing fast.
Ukraine is already deploying 9,000 drones a day, and that number is only going up. Every one of those drones needs magnets. And so does every drone program being built or expanded across NATO. The question is where those magnets will come from.