Bitter cold may be bearing down on much of the country this morning, but investors are warming up to USA Rare Earth (USAR +6.42%) stock in a big way. After much speculation, the company announced an equity deal with the United States government.
As of 11:56 a.m. ET, shares of USA Rare Earth are up 12%, pulling back from their earlier 29.5% climb.
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The deets of the deal
Signing a non-binding letter of intent (LOI) with the U.S. Department of Commerce in collaboration with the U.S. Department of Energy, USA Rare Earth will gain access to $1.6 billion of funding, representing $277 million in proposed federal funding and $1.3 billion in a proposed senior secured loan from the CHIPS Act.
NASDAQ: USAR
Key Data Points
In return, USA Rare Earth will issue to the Department of Commerce 16.1 million shares of common stock and about 17.6 million warrants.
Additionally, the company has signed a $1.5 billion Private Investment in Public Equity (PIPE) transaction, totaling 69.8 million shares issued at $21.50 per share, with Inflection Point and other investors.
The provided capital will support USA Rare Earth in developing the Round Top project, where it plans to mine rare-earths and other critical minerals.
USA Rare Earth expects the PIPE transaction to close this week. Funding from the CHIPS Act and the senior secured loan are both projected to close this quarter, subject to meeting the closing conditions.
The company expects commercial operations at the Round Top project to begin in 2028.
Is it too late to buy USA Rare Earth stock now?
While access to capital will reduce some of the risk associated with an investment in the company, prospective investors must recognize that USA Rare Earth remains a speculative investment. Developing large-scale mining operations, such as the Round Top projects, is capital-intensive, and it would be unsurprising if the projects require more capital than the company anticipates. Plus, there's no guarantee the project will be profitable. For these reasons, only investors with a high tolerance for risk should consider positions.
