Here's Why USA Rare Earth Shares Surged This Week
Key Points
The Round Top deposit is unique for its high heavy rare earth content.
Management's 2030 targets imply the stock is an excellent value, but it needs to execute on its operational plans.
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Shares in USA Rare Earth (NASDAQ: USAR) rose by 16.2% in the week to Friday morning. The move comes in a week when the company released exciting investor presentations on its website that provided significantly more color on its plans for the Round Top deposit, which it aims to start commercial production in 2028.
USA Rare Earth updates investors
There was no change to management's 2030 financial targets. They are helpful because they provide a valuation framework for a company in an industry notoriously difficult to model.
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For reference, management's targets by 2030 include $2.6 billion in revenue, $1.2 billion in earnings before interest, taxation, depreciation, and amortization (EBITDA), and $900 million in free cash flow (FCF). Given the current $4.4 billion market cap, those figures would put the stock on very attractive valuations of less than 5x FCF and 3.7x EBITDA.
That said, the company, which recently received government support, has to execute its plans to produce metals and magnets at its Stillwater facility starting this year and to begin commercial production at Round Top in 2028.
Round Top and heavy rare earth
The deposit is interesting because, unlike its peer MP Materials' Mountain Pass mine, the Round Top deposit is rich in heavy rare earths. In fact, management claims it's the only deposit in the world of more than 70% heavy rare earths. Critical rare earth elements such as Dysprosium and Terbium are essential for electric vehicles (EVs), defense, and renewable energy.
Management disclosed that it had selected leading engineering companies Fluor and WSP Global to support the development of the mine. It also argued that Round Top's properties allow it to pursue a simplified high-volume production process that could begin in three and a half years, rather than the usual seven.
Where next for USA Rare Earth
The company has ambitious plans, and its heavy rare earth minerals and magnets help address the challenge of securing a domestic supply of critical heavy rare earth magnets from non-Chinese sourced materials.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends WSP Global. The Motley Fool has a disclosure policy.
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