China's grip on the rare-earth market has exposed a critical weakness in Western supply chains, and USA Rare Earth (USAR -4.02%) aims to turn that vulnerability into an opportunity.
The company is building a fully integrated "mine-to-magnet" business for rare-earth elements and permanent magnets outside China. By connecting mining, processing, alloy production, and magnet manufacturing, USA Rare Earth could become a key supplier of these materials crucial to defense and other technologies.
On Sept. 9, USA Rare Earth announced it was breaking ground on its $1.2 billion South Carolina facility, which will help it reach its long-term goal of producing 10,000 metric tons of magnets and 10,000 metric tons of strip-cast metal. With the new facility under construction, is it time to buy the rare-earth stock?
NASDAQ: USAR
Key Data Points
The new facility will help meet long-term production goals
USA Rare Earth is positioning itself as a key domestic source of critical minerals and neodymium-iron-boron (NdFeB) permanent magnets, which are crucial for modern electronics, motors, generators, and medical and industrial technologies.
Its new facility in Blacksburg, South Carolina, will play a key role. Costing $1.2 billion, the 800,000-square-foot plant will increase production capacity, adding 6,400 metric tons per annum (MTPA) of magnet capacity and 5,000 MTPA of strip-cast capacity. When combined with the expansion of its Stillwater, Oklahoma facility, USA Rare Earth is targeting 10,000 MTPA of each of these crucial materials by 2029.
The company is spending a lot of money to scale up
USA Rare Earth's opportunity is vast, but getting there isn't cheap. With its South Carolina facility and its expanding Oklahoma facility, the company is spending heavily to quickly secure the crucial materials it needs.
On Sept. 3, USA Rare Earth completed its acquisition of Serra Verde Group for roughly $2.8 billion. This gives it ownership of the only scaled production of all four magnetic and other critical heavy rare-earth elements outside China.
Image source: Getty Images.
It has also acquired Texas Mineral Resources, giving USA Rare Earth 100% control over the rare-earth-rich Round Top Project in Texas. The company hopes to begin commercial production there around 2028.
USA Rare Earth has raised $1.6 billion through the CHIPS Act, in the form of grants and loans. This has helped it raise the much-needed funds to expand, but it is also dilutive to equity investors both through upfront share issuances and mandatory future equity-raising commitments.
Is USA Rare Earth stock right for you?
USA Rare Earth is taking steps to ramp up production of critical minerals and permanent magnets to break the U.S.'s reliance on China for these key materials. The company is making progress in becoming a domestic supplier of these key materials, but it remains a high-risk stock as it scales its mining and manufacturing capabilities over the next couple of years.
