No Magnets, No Drones: China's Strategy for Shaping Tomorrow's Battlefield

The Drone Revolution in Modern Warfare

Modern combat has been fundamentally altered by a single, highly effective and accurate weapon: the drone. Compact and inexpensive to produce, drones are capable of destroying high-value targets such as tanks from great distances.

Since their introduction, drones have reshaped military strategies more profoundly than any innovation since the machine gun. Experts agree that this shift is redefining how wars are fought, won, and lost.

Ukraine's Massive Drone Deployment

In 2024, Ukraine manufactured over 1.2 million drones, deploying approximately 9,000 daily. By 2025, drones were responsible for striking more than 80% of frontline targets and causing around 70% of Russian equipment losses. This surge has prompted militaries worldwide to accelerate their own drone programs, signaling that dominance in drone technology could determine the future of warfare.

A Critical Weakness: Magnet Supply Chain

Despite their effectiveness, nearly all magnets used in Ukrainian drones—and in Western defense systems—are sourced from China. Every drone motor, missile guidance system, and jet turbine starter relies on rare earth magnets processed in China, exposing a vulnerability that few recognize. REalloys (NASDAQ: ALOY) is working to address this gap before it becomes a crisis.

REalloys: Building a Domestic Solution

REalloys operates North America's only proven commercial-scale platform for producing heavy rare earth metals and alloys used in defense-grade magnets. Its facility in Euclid, Ohio, is already supplying materials under U.S. government contracts.

A major change is imminent: starting January 1, 2027, new U.S. defense procurement regulations will prohibit the use of Chinese-origin rare earth materials in American weapons. Defense contractors will need compliant domestic alternatives, and those who secure supply chains now could dominate for decades.

No Magnets, No Military

To grasp the significance of China's control over rare earth processing, consider how integral drones have become to military operations—and how reliant they are on a specific component.

The Role of Rare Earth Magnets

Permanent magnets, made from rare earth elements like neodymium, praseodymium, dysprosium, and terbium, are essential for drone motors. Light rare earths provide magnetic strength, while heavy rare earths enable magnets to withstand extreme conditions required in defense and aerospace.

Without these magnets, military drones simply cannot function.

Drones are only one example. An F-35 fighter jet contains about 435 kilograms of rare earths, a U.S. destroyer up to 2.5 tons, and a nuclear submarine around 4.5 tons. Rare earth magnets are vital not only for defense but also for electric vehicles, wind turbines, robotics, and medical devices.

The future battlefield will be dominated by drones, all dependent on rare earth magnets—a single point of failure for Western militaries.

REalloys (NASDAQ: ALOY) was founded to solve this issue and remains the only North American company with a proven solution.

China's Dominance in Rare Earth Processing

China processes about 90–95% of the world’s rare earths. While rare earth minerals are found globally, the West lost its processing capabilities decades ago, allowing China to control nearly the entire supply chain.

Virtually every rare earth magnet in Western defense systems, vehicles, and electronics originates from Chinese processing. China tightly regulates exports, issuing licenses monthly and can restrict supply at will.

When the U.S. threatened tariffs, China responded by threatening to cut rare earth exports, revealing its leverage over global supply chains.

Ukraine, fighting for its survival, relies on Chinese-made components for its drones. If China restricted exports, Ukraine’s drone production—and Western defense manufacturing—would stall.

Japan foresaw this risk and maintains a strategic stockpile of processed rare earths. The U.S. and Europe, however, have no such reserves.

Western defense industries operate on a just-in-time supply chain for critical materials, sourced almost entirely from a geopolitical rival. This makes REalloys’ work in Ohio and Saskatchewan vital for national security.

Why Mining Investments Haven’t Solved the Problem

Despite billions invested in rare earth mining, China’s dominance persists because the real challenge is processing, not extraction. Even President Trump and Elon Musk have acknowledged that the bottleneck lies in converting raw minerals into usable metals and magnets.

Processing rare earths involves separating 17 elements through complex extraction, converting oxides into metals at high temperatures, and precise alloying—all requiring specialized expertise built over years.

The Center for Strategic and International Studies identifies metallization as the most difficult capability to rebuild outside China.

Many companies claiming independence from China still rely on Chinese technology, equipment, or consumables. For example, graphite anodes essential for furnaces are almost exclusively sourced from China.

As one expert said: even 1% reliance on China means total dependence.

REalloys and its partner, the Saskatchewan Research Council, have built their supply chain to be entirely free from Chinese influence.

Mining alone is insufficient; without independent processing, the problem remains unsolved. Meanwhile, Ukraine continues to produce thousands of drones daily, each powered by Chinese-made magnets.

REalloys: North America’s Unique Solution

REalloys (NASDAQ: ALOY) stands alone in North America with a commercial-scale supply chain for heavy rare earths, capable of producing finished magnets without any reliance on Chinese technology.

The company manages every stage: it owns the Hoidas Lake rare earth project in Saskatchewan, has agreements with partners in Kazakhstan, Brazil, and Greenland, and holds an exclusive 80% offtake from the Saskatchewan Research Council’s Rare Earth Processing Facility, targeting first production in late 2026 or early 2027. Downstream, its Euclid, Ohio facility manufactures magnets and has longstanding contracts with the U.S. Department of Defense, Department of Energy, and NASA.

The Euclid facility is the only North American site with a proven record of delivering heavy rare earth metals, alloys, and magnets. The team has over 40 years of experience, including extensive collaboration with U.S. national laboratories.

The processing technology is advanced: while Chinese facilities require 80 workers for manual operations, the SRC’s AI-driven system operates with just six people, analyzing thousands of data points in real time to produce high-purity metals efficiently—without any Chinese technology.

When China blocked export of processing technology in 2020, SRC developed its own, resulting in superior performance.

By early 2027, the platform aims to produce about 525 tonnes of neodymium-praseodymium metal, 30 tonnes of dysprosium oxide, and 15 tonnes of terbium oxide annually, making SRC the largest source of heavy rare earth oxides outside China.

Phase 2 will expand production further, including 200 tonnes of dysprosium metal, 45 tonnes of terbium metal, and up to 18,000 tonnes of heavy rare earth permanent magnets per year.

This capacity could supply not only traditional defense platforms but also the rapidly growing demand for drone-grade magnets across Western militaries.

The Next Year Will Shape the Future

On January 1, 2027, new U.S. rules will ban Chinese-origin rare earth materials from American weapons. Defense contractors must find domestic sources, and the deadline is approaching fast.

Once a supplier is qualified for a defense program, they are typically retained for the life of the platform, which can span decades. Qualification is a lengthy process involving rigorous testing and evaluation. With drone programs expanding rapidly, suppliers locked in now will serve a market expected to grow exponentially.

For competitors to match REalloys, they would need to secure non-Chinese feedstock, build processing capability, develop conversion technology, and qualify their products—a process that takes years. REalloys is already ahead.

Major institutions have taken notice: the U.S. Export-Import Bank has issued a $200 million letter of intent to support REalloys’ supply chain. Japan’s JOGMEC has signed an MOU for technology transfer and financing. The company’s board includes leaders from defense and policy sectors.

When governments and financial institutions rally behind a company in a field where expertise matters more than capital, being first is crucial. REalloys has secured that position.

Urgency in Building an Alternative Supply Chain

Demand for rare earth magnets is rising sharply. Morgan Stanley forecasts that demand will increase three to five times over the next decade, driven by electric vehicles, grid infrastructure, defense, robotics, and AI. The market, currently worth over $20 billion annually, could grow 40–50 times under high-adoption scenarios.

However, this growth depends on a supply chain heavily concentrated in China, which has restricted exports of processing technology and equipment, and imposed certification requirements that block defense applications. The opportunity to build an alternative is closing quickly.

Ukraine is deploying 9,000 drones daily, and demand is only increasing. Every drone requires magnets, and so do expanding NATO programs. The critical question is: where will these magnets be sourced?

By Josh Owens