America Needs Rare Earth Magnets, and USA Rare Earth Is Positioning Itself to Fill the Gap

Critical minerals, and more specifically rare-earth magnets, are taking center stage in the U.S. as policymakers scramble to cut reliance on China, which has become a powerhouse for rare-earth refining and magnet manufacturing. These essential materials are the backbone of defense systems, electric vehicles, renewable energy, and cutting-edge electronics.

In response, the U.S. is launching an ambitious initiative to establish a sovereign "mine-to-magnet" supply chain. One company to watch is USA Rare Earth (NASDAQ: USAR), which is developing a vertically integrated supply chain from mining to processing and production to ensure domestic magnet availability. Here's what investors should know about USA Rare Earth and the investment opportunity it presents.

How USA Rare Earth looks to secure U.S. critical minerals

As trade tensions rise, China has used export controls to limit supplies, making domestic mining and processing of critical minerals a top priority for U.S. policymakers. This is where USA Rare Earth seeks its opportunity.

USA Rare Earth is currently building a 310,000-square-foot facility in Stillwater, Oklahoma, and is in the final stages of commissioning for commercial-scale production, which is on track for the first quarter of this year. This industrial plant will produce sintered neodymium-iron-boron (neo) magnets, commonly used in defense, automotive, and industrial applications.

Image source: Getty Images.

To hit the ground running, USA Rare Earth has acquired Less Common Metals (LCM), a United Kingdom-based manufacturer of specialized rare-earth metals, for $100 million in cash and 6.74 million shares. This helps USA Rare Earth secure the feedstock of strip-cast alloy required for its Stillwater facility and provides it with immediate metal-making capabilities outside China sources.

In addition, it has its Round Top Project in Texas, which the company has described as the richest heavy rare-earth, gallium, and beryllium deposit in the U.S. The project is entering a pre-feasibility study phase, and if it moves forward, production will begin at the earliest in late 2028.

A very high-risk stock with upside potential

While USA Rare Earth is building its capabilities, there are real risks that investors should be aware of before buying. The company has no history in commercial operations and has no operating revenue as of this writing. It currently has over $400 million in cash, but it will likely need to raise more capital as it builds up its capabilities.

CEO Barbara Humpton stated the company is in "close communication" with the White House, which is reportedly considering reallocating $2 billion in CHIPS Act funds to critical minerals.

Critical minerals are in focus, and the U.S. is actively taking steps to secure their mining and production so it isn't as reliant on outside sources. With the domestic supply chain coming into focus, USA Rare Earth is a highly speculative stock that offers exposure to the development of U.S. rare-earth production.

Courtney Carlsen has positions in USA Rare Earth. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.