Over the past year, the United States has taken steps to protect rare earth elements and reduce its dependence on China. Earlier this year, the US government offered USA Rare Earth (NASDAQ: USAR) with funds to develop its domestic “mine-to-magnet” production. The government is providing funding to strengthen supply chains and ensure domestic mining and processing of these key industries.
Given the importance of rare earths to national security, can investing in USA Rare Earth make you a millionaire?
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In January, USA Rare Earth secured access to $3.1 billion in much-needed funding. This includes $1.5 billion in private sector investment and another $1.6 billion from the US government, including $1.3 billion in senior secured debt; in return, the US government will receive a 10% equity stake in the miner’s stock. The money will help the company expand its production facility in Stillwater, Oklahoma and develop its Round Top project.
The company will produce sintered neodymium iron boron magnets, important for electric vehicles (EV), wind turbines, and defense systems such as missiles and military jets, at its Stillwater facility. Although it has produced a small batch of permanent trailers, it has not yet demonstrated that it can produce them at scale. The company hopes to open its facility in the first quarter, but as of this writing, it is still in the approval stage.
In March, USA Rare Earth struck a deal to buy Texas Minerals Resource Corporation for about $73 million in stock. The acquisition gives the company 100% control over the Round Top Project in Texas, described as the richest rare earth, gallium, and beryllium deposit in the United States. It hopes to start production here in 2028.
Prospective investors will want to keep an eye out MP Materialswhich competes with USA Rare Earth. MP Materials operates the Mountain Pass mine, currently the only rare earth mine in North America, which is already producing at high rates, and has established contracts with giants such as. General Motors again an apple.
The company is producing record NdPr oxide and rare earth concentrates as commercial-grade production has begun at its Independence facility in Fort Worth, Texas. In the long term, MP plans to build a “10X” facility, which will open around 2028, to significantly increase production.
For USA Rare Earth investors, owning a stock is a bet on its future and ability to execute. The company still needs to start production at its Stillwater facility, so keep an eye out for work on this in the coming months. Over time, the company will need to develop the Round Top project, which is at least two years away from being operational.
The investment has the potential to be a multibillion-maker if USA Rare Earth can pull it off and fulfill its role as a key domestic supplier of these precious magnets. However, the mining stock is still in its infancy, and faces the risk of execution along the way, so if you decide to invest, keep your position modest and do not invest more than you are willing to lose.
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Courtney Carlsen holds positions at Apple, MP Materials, and USA Rare Earth. The Motley Fool has positions and recommends Apple and is short Apple shares. The Motley Fool recommends General Motors and MP Materials. The Motley Fool has a policy of disclosure.
Is USA Rare Earth Stock a Millionaire Maker? was originally published by The Motley Fool
