The company faces execution risks around the construction of its magnet-producing facility and the development of a key mineral deposit.
The possibility that the U.S. government will actively support the company is key to the investment thesis for the stock.
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Investors in USA Rare Earth (NASDAQ: USAR) have had a wild ride since the company went public in March, largely due to ongoing speculation about the possibility that the federal government will step in to support or invest in a company that could significantly contribute to ensuring a domestic supply of rare-earth magnets that are critical for U.S. industry. The stock could outperform the market, but here’s what you need to know before investing.
Typically, mining and materials companies develop their deposits and then build the facilities to process the extracted materials, or do those things concurrently. However, USA Rare Earth is taking a somewhat unusual approach. Its ultimate plan is to operate on a “mine to magnet” basis. However, it’s constructing a magnet-producing facility in Stillwater, Oklahoma, before proceeding with the development of its Round Top deposit in Texas.
According to a recent press release, “Round Top is the United States’ richest known deposit of heavy rare earth elements, gallium, and beryllium,” and management plans to begin commercial development of it in late 2028. Meanwhile, the company plans to have the Stillwater plant commissioned and ready to commercially produce magnets in 2026. For reference, gallium is not a rare-earth metal, but is used in semiconductors critical for high-speed/high-frequency applications, and beryllium (also not a rare-earth metal) is often used in structural components in space and defense technologies.
Given this strategy, it will be essential for USA Rare Earth to ensure a non-Chinese supply of materials for the Stillwater facility. Its recent acquisition of the U.K.’s Less Common Materials (LCM), a rare-earth metal and alloy manufacturer that sources materials outside of China, is a key element in its plans. Pursuant to the acquisition in November, LCM signed a deal to supply Solvay and Arnold Magnetic Technologies with rare-earth materials. The deal will help USA Rare Earth generate revenue.
Putting all this together, USA Rare Earth needs to successfully start commercial production at Stillwater in 2026 and complete a pre-feasibility study on the Round Top deposit in the third quarter.
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