(Reuters) -Shares of Australian rare earths miners, including Lynas and Iluka Resources, soared on Friday after U.S.-based MP Materials' a multibillion-dollar deal with the U.S. government to boost production of rare earth magnets.

Lynas Rare Earths, the world's largest rare earths producer outside China, surged as much as 20% to its highest since mid-August 2022 and was set for its best day since April 2020. Iluka skyrocketed 27%, marking its biggest intraday gain ever.

The stocks were the top gainers on the benchmark ASX 200, which edged higher, as of 0558 GMT.

The deal between the U.S. Department of Defense (DoD) and MP Materials lifted sentiment for Australian rare earth firms. It comes on the heels of China imposing restrictions on rare earths, resulting in a 75% drop in rare earth magnet exports from the country last month and forcing some auto companies to suspend production.

Rare earths comprise 17 metals used to make magnets that are critical in manufacturing cars, including electric vehicles, some auto parts, weapons, and electronics.

As part of the deal, the DoD will become the largest shareholder in MP Materials and guarantee a floor price of $110 per kilogram for the two most popular rare earths, nearly double of current market prices in China.

"This signals a strong U.S. push for rare earth magnet independence, lifting upside risk across the rare earth pricing complex. Lynas appears to be the next logical beneficiary of government market support," Jefferies said in a note.

"We see the resetting of the pricing metrics for rare earths as delivering material upside potential to Lynas' earnings in the near term and an increased potential for the de-risking of its growth projects via government entity funding."

The brokerage upgraded Lynas to "buy" from "underperform" and hiked its price target to A$10 a share from A$6.40. Lynas was last trading at A$9.67.

Smaller lithium players Sayona Mining and Liontown Resources jumped 2.8% and 1.6%, respectively.