USA Rare Earth (USAR 1.67%) is attracting a lot of attention these days, which is appropriate for a company that specializes in mining for rare-earth minerals that are used to make powerful magnets.
NASDAQ: USAR
Key Data Points
Rare-earth deposits are not really that rare in the Earth's crust. It is just challenging to find them in concentrations high enough to make mining them economically feasible. The term refers to 17 chemically similar elements that are valued for their magnetic, luminescent, and electrochemical properties. These materials are commonly used in electric vehicle motors, robotics, wind turbine generators, and in electronics, such as laptops and phones. They are also critical in certain types of military technology, such as guidance systems, sonar, lasers, and stealth systems.
The mining company's stock is up by more than 60% so far this year. While maintaining such a steep upward course over the next three years will likely be hard, two key tailwinds should drive the company's growth.
1. Don't bet against Washington
The U.S. government announced in January that it will provide $1.6 billion to the company as part of its wider effort to reduce the nation's dependence on China for rare earths. The investment includes a $1.3 billion loan of funds made available under the CHIPS Act of 2022 and $277 million in federal grants. In return, the U.S. government will take a 10% equity stake in the company.
The company will use that funding to develop its Round Top Heavy Rare Earth, Lithium, and Critical Minerals Project in Hudspeth County, Texas, and to fund the completion of a magnet manufacturing facility in Stillwater, Oklahoma.
Simply put, Washington is vested in USA Rare Earth's success because it wants to reduce China's ability to use its dominant position as an extractor and exporter of rare earths as a political tool.
2. USA Rare Earth could soon produce revenue
The company is on track to bring its Stillwater manufacturing facility online in the first half of 2026. The plant will make neodymium iron boron (NdFeB) magnets, which are used in defense, aerospace, automotive, and other high-growth industrial uses.
In the short term, the plant will use rare-earth metals produced by other mining companies, but by 2028, thanks to stepped-up plans at Round Top, the company expects to be able to control its entire metal-to-magnet supply chain. Round Top is the richest known deposit of the rare-earth elements gallium and beryllium.
This will give USA Rare Earth the first rare-earth metal and manufacturing facility in the U.S., providing a significant first-to-market advantage over its domestic rivals. By 2029, the company said it will be able to produce more than 10,000 metric tons of rare-earth magnets per year. U.S. demand, pegged at 50,000 tons per year now, is expected to double by 2035.
By controlling the entire process, USA Rare Earth will benefit from better margins and avoid the volatility of dealing with third-party vendors.
Success won't come overnight
In recent months, prices for rare-earth metals have risen significantly, which is a bullish sign for the company.
Assuming all goes according to plan, and if USA Rare Earth can get its plant operating at full capacity, the company's latest long-term forecast is that by 2030, it will be booking annual revenues of about $2.6 billion and earnings before interest, taxes, depreciation, and amortization of $1.2 billion.
The company's pre-revenue status would normally make it a significantly more risky investment, but the government's direct support of it will help mitigate that danger, giving it time and funds to commercialize its magnet-making process. However, the great unknown is how profitably it will be able to operate once it steps up its operations. That said, for investors with a high tolerance for risk, USA Rare Earth has significant upside potential, as this growth stock could easily double or triple over the next three years.
