Trump administration to acquire 10% of USA Rare Earth in $1.6B deal: reports

The U.S. government plans to acquire a 10% stake in USA Rare Earth (Nasdaq: USAR) as part of a $1.6-billion investment package to support the company’s development of a domestic mine-to-magnet supply chain, according to reports.

Under the agreement, as first reported by the Financial Times on Saturday, Washington would receive 16.1 million shares of USAR and warrants to purchase another 17.6 million shares, both priced at $17.17 a share.

The price represents a near 25% discount to USAR’s closing price of $22.71 in New York on Friday. The Oklahoma-based rare earth miner has a market capitalization of about $3.4 billion.

Separately, the U.S. government would also provide the company with $1.3 billion in debt financing, drawn from a finance facility created for the Department of Commerce as part of the CHIPS and Science Act.

In addition, Reuters followed up on the Financial Times report by stating that the U.S. government plans to make a separate $1-billion private investment, and both deals will be unveiled on Monday.

Fourth deal

“This is the fourth equity investment into critical minerals companies announced by the administration following the acquisition of equity stakes in MP Materials (NYSE: MP), Lithium Americas (TSX: LAC) and Trilogy Metals (TSX: TMQ) last year,” BMO Capital Markets said in a note on Monday. “In December, USA Rare Earths announced an accelerated ramp-up target of 2028 for commercial production of rare earths.”

While further details of the deal were not disclosed, Reuters said USAR plans to host a morning conference call with investors to discuss the terms, citing its own sources.

Last October, USAR CEO Barbara Humpton told CNBC that the company had been in “close communication” with the White House about a potential deal.

On Jan. 22, the company said its plan to build a metal and alloy plant in southwest France this year is being backed by state funding of $152 million. 

Minerals push

USAR is developing a rare earth mine in Sierra Blanca, Texas, that is slated to begin production in late 2028. The deposit, known as Round Top, is specifically rich in “heavy” rare earths such as dysprosium, which are essential ingredients to make permanent magnets found in high-tech applications such as electric vehicles, wind turbines and defence systems.

A 2019 technical report estimates that the open-pit mine could produce 2,213 tonnes of rare earth elements, of which over 1,900 tonnes would be “heavy” REEs, over a 20-year life. Last January, the project achieved a key milestone by producing its first batch of dysprosium oxide with a purity of 99.1%.

The Round Top deposit is expected to backstop a U.S.-based mine-to-magnet value chain that also includes a magnet manufacturing plant in Stillwater, Okla. That factory has an annual production capacity of 5,000 tonnes and is set to enter commercial operations this year. There’s also a processing and separation laboratory in Wheat Ridge, Colo.