USA Rare Earth to raise $3.1B as US takes 10% stake

The United States government is acquiring 10% of USA Rare Earth (Nasdaq: USAR) – its fourth equity stake in a miner since last July – as part of about $1.6-billion (C$2.1 billion) in backing for the company developing a Texas mine. The stock surged.

USA Rare Earth’s non-binding letter of interest with the U.S. Department of Commerce includes $277 million of Federal funding and a $1.3 billion senior secured loan from the CHIPS Act of 2022, according to a company statement issued Monday. USA Rare Earth has also agreed to sell $1.5 billion worth of stock to Inflection Point – a special purpose acquisition company that helped the miner go public last year – with participation from other undisclosed fundamental and strategic investors.

This marks the fourth equity investment into critical minerals companies that the Trump administration has announced since the president was sworn in a year ago. It follows the acquisition of equity stakes in MP Materials (NYSE: MP), Lithium Americas (TSX: LAC) and Trilogy Metals (TSX: TMQ) last year. In December, USA Rare Earth announced an accelerated ramp-up target for commercial production of rare earths.

“USA Rare Earth’s heavy critical minerals project is essential to restoring U.S. critical mineral independence,” U.S. Secretary of Commerce Howard Lutnick said in the statement. “This investment ensures our supply chains are resilient and no longer reliant on foreign nations.”

The “landmark collaboration with the U.S. government represents a transformative step in USAR’s mission to secure and grow a resilient, independent domestic rare earth value chain,” added CEO Barbara Humpton. “With this unprecedented show of public and private support for our company, we are positioned to accelerate the build-out of important domestic capabilities that are essential to U.S. national security, global economic competitiveness, and critical technologies of the future.”

Close contact

Shares of the company surged 9.6% to $27.15 Monday afternoon in Nasdaq trading, valuing the company at about $3.8 billion. The stock has doubled since the start of the year.

Under the terms of the deal announced Monday, USA Rare Earth will issue 16.1 million shares of common stock – priced at $17.17 a share – and about 17.6 million warrants to the Department of Commerce. Closing is expected by March 31.

As for Inflection Point and the other investors, they will buy 69.8 million shares for $21.50 apiece. That transaction is expected to close on Jan. 28.

Prices for both transactions represent discounts to USA Rare Earth’s closing price of $22.71 in New York on Friday.

In October, 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 would be backed by state funding of $152 million. 

Minerals push

USA Rare Earth is developing a rare earth mine in Sierra Blanca, Texas, that’s scheduled to start 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. A year ago, the project achieved a key milestone by producing its first batch of dysprosium oxide with a purity of 99.1%.

Round Top is expected to backstop a U.S.-based mine-to-magnet value chain that also includes a magnet manufacturing plant in Stillwater, Oklahoma, and a processing and separation laboratory in Wheat Ridge, Colorado. The magnet factory – which is set to enter commercial operations this year – has an annual production capacity of about 5,000 tonnes, doubling to 10,000 tonnes by 2029.

Acceleration

The injection will help USA Rare Earth accelerate and de-risk its planned expansion. By 2030, the company expects to extract 40,000 tonnes per day of rare earth and critical mineral feedstock from Round Top and process a combined 8,000 tonnes a year of mixed rare earth carbonates and heavy rare earths from both the deposit and third parties.

In addition, USA Rare Earth aims to repatriate 10,000 tonnes of heavy rare earth metal, alloy-making and strip-casting capacity, capabilities that don’t exist in the U.S., through its recently acquired subsidiary Less Common Metals. It also plans to more than double its neodymium-iron-boron (NdFeB) magnet-making capacity to 10,000 tonnes.

USAR will also collaborate with the U.S. Department of Energy’s National Energy Technology Laboratory to advance heavy rare earth separation technologies at the company’s Wheat Ridge laboratory and at Round Top. The ultimate goal is to create the country’s first fully domestic mine-to-magnet supply chain, USA Rare Earth said.