Why Shares in USA Rare Earth Popped Higher Today

Key Points

• USA Rare Earth aims to produce rare-earth magnets and eventually source them from its own controlled mine.

• The company is highly likely to need substantial capital in the coming years, and its strategic importance might encourage government investment in line with the MP Materials deal.

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Shares of USA Rare Earth (NASDAQ: USAR) spiked higher by as much as 15.6% in early trading today. The move comes after commentary on a JPMorgan podcast created optimism that the company could be the next in line for government investment following the landmark deal with MP Materials announced recently.

What JPMorgan said

In the internal podcast, JPMorgan's co-head of mid-cap mergers and acquisitions, Andrew Castaldo, discussed the recent MP Materials deal and said JPMorgan believes that "there's a whole slew of different critical minerals" that "the administration is also focused on, that could potentially be ripe for this type of collaboration." He also noted that "we've had no less than 100 calls with clients to talk about the MP transaction as well as what this means for other industries."

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What it could mean for USA Rare Earth

It's natural for investors to hear this kind of commentary and conclude that USA Rare Earth could be next. After all, the company is on track to begin producing rare-earth magnets at its Stillwater, Oklahoma, facility in 2026.

That will help reduce America's dependence on foreign-sourced rare-earth magnets. The company plans to use the near-term revenue and earnings from magnet production to ultimately develop the Round Top Mountain in Texas, which it controls the mining rights to, to provide its own supply of rare-earth materials for magnet production.

Image source: Getty Images.

Clearly, it will take time and likely a lot of capital to fulfill the plan. Given the strategic importance of securing a domestic supply of rare-earth materials and magnets, it's perfectly feasible that the current administration could also consider providing some form of support to USA Rare Earth.

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JPMorgan Chase is an advertising partner of Motley Fool Money. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.