Lynas Rare Earths has inked a deal with a South Korean company to develop a magnet factory in Malaysia as it faces increased scrutiny over a supply deal with the Pentagon.

Finalisation of the partnership follows a memorandum of understanding signed between Lynas and JS Link in July last year to build the magnets plant next to Lynas’ refinery in Kuantan.

Lynas mines ore at its Mt Weld operation near Laverton, which is then processed at its Malaysia refinery into separated rare earth oxides.

Those oxides are then shipped to other locations for manufacturing into permanent magnets used in many modern goods including smartphones, precision guided missiles and electric vehicles.

Lynas is chipping in $50 million to support construction of the factory and will also exclusively supply its rare earth oxides to JS Link’s magnet factory in Yesan, South Korea, until January 2038.

Most of the world’s permanent magnets are currently manufactured in China, which dominates the world’s rare earths supply chain.

The deal came as a Malaysian parliamentary committee confirmed it would a hearing on July 16 to discuss a $US96m million rare earths supply deal signed earlier this year between Lynas and the US Department of Defense.

Some civil rights groups in Muslim-majority Malaysia have protested the four-year deal, accusing it of supplying ⁠materials for US-made weapons used by Israel in its war against Hamas in Gaza.

Last month, Malaysia’s Department of Environment blocked the proposed expansion of Lynas’ advanced materials plant in the Pahang region and told it to submit an updated environmental impact assessment, which the miner says it is doing.

Lynas was hoping to lift lanthanide concentrate processing from 95,000 to 110,000 tonnes a year through the expansion.

The ASX-listed mining major has faced environmentalist opposition to its rare earths plant over the radioactive and toxic remnants of its refining process.

The company has fed rare earth elements extracted from its Mt Weld mine through the refinery, which is the world’s largest processing hub for rare earths outside of China, since 2012.

Lynas is currently on the hunt for a permanent chief executive after long-serving boss Amanda Lacaze stepped down at the end of last month.

She took a job as the chair of the Minerals Council of Australia — the nation’s most prominent mining industry lobby group.