The US has backed two Australian-listed rare earths projects with up to $850-million of funding as Western nations build a supply chain for the strongly magnetic metals used in sectors from renewable energy to defence.

Australian Strategic Materials said on Thursday it has received a letter of interest (LoI) for a debt funding package of up to $600 million from the US Export-Import Bank (EXIM) to support construction of its Dubbo rare earths project northwest of Sydney.

The bank has also offered up to $250 million in preliminary support for Australian-listed Meteoric Resources, which is developing its Caldeira rare earths project in Brazil, Meteoric said on Thursday.

Shares in ASM surged as much as 39% to A$1.65 before paring gains to $1.40 while Meteoric shares were up 1% at A$0.2425.

"When it comes to rare earths, there is a priority for critical minerals and the US supply chain being developed domestically using feedstock and raw materials supply from allied nations," said Dylan Kelly of fund manager Terra Capital.

"They are putting their money where their mouth is and effectively backing high-probability projects," he added.

Backing by a government authority is seen as key to attract commercial lenders and private investment to the sector given a recent drop in prices and complex, often costly production requirements.

ASM is due to make a final investment decision by year-end on the Dubbo project that will produce light and heavy rare earths oxides. It already has A$200 million ($132.24 million) of initial support from the Australian government.

In December 2021, it said the plant would cost A$1.68 billion, but construction costs have since surged. It also operates a processing plant in South Korea.

Meteoric is targeting an investment decision late next year for Caldeira which will produce light rare earths neodymium, praseodymium (NdPr) and heavy rare earths dysprosium and terbium.

"The LoI represents a material step in ASM’s project funding strategy and is recognition of the strong engagement the Company has experienced from government, investors, and industry groups in North America," ASM said in an exchange filing.

The US has already offered support to Australia's Lynas Rare Earths for its processing facilities in Texas that are under construction.

The US and Australia last year set up a critical minerals taskforce as Australia looks to drum up investment for minerals processing from allied nations as an alternative to top producer China, which accounts for more than 80% of global supply.

EXIM's support for both projects is linked to the potential US content in equipment, goods and services.

ASM last year agreed to sell neodymium iron boron alloy from its South Korean metals plant to US-based rare-earth magnet maker Noveon Magnetics Inc from material sourced from Vietnam.

Australia last week said it would provide up to A$840 million ($550 million) for a combined rare earths mine and refinery in the country's Northern Territory, owned by Arafura Rare Earths.