Why USA Rare Earth Stock Popped on Monday
Key Points
President Trump contemplates establishing a strategic rare-earth metals reserve: Project Vault.
$11.7 billion could be poured into the effort to stockpile rare-earth elements.
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USA Rare Earth (NASDAQ: USAR) stock started another week strong Monday, rising 6.3% through 10:15 a.m. ET after reports began filtering out of Washington, D.C., about a planned government "Project Vault."
Project Vault envisions building a $1 billion stockpile of critical minerals, including rare-earth metals, with the support of $10 billion in loans from the U.S. Export-Import Bank and $1.7 billion in private funding, as Bloomberg and CNBC report.
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What Project Vault means for USA Rare Earth stock
Details on Project Vault are sparse at present, but the general drift of the plan seems to be to buy rare-earth metals on the open market and stockpile them for future use in the event of an attempt by China to cut off supply. (According to International Energy Agency reports, China accounts for about 60% of global rare-earth mining, more than 90% of rare-earth refining, and as much as 94% of the total number of rare-earth metal magnets produced.)
As such, Project Vault probably wouldn't benefit USA Rare Earth stock directly by funding an investment in the company (although it might involve government subsidies of the company's mining). More likely, the funds allocated to Project Vault would be used to buy rare-earth elements, regardless of source, and store them for future use -- much like the U.S. Strategic Petroleum Reserve.
What this means for USA Rare Earth stock
USA Rare Earth could, of course, sell rare-earth metals into such a stockpile, but it's not yet mining rare-earth metals in quantity itself. The company's best chance to participate in Project Vault, therefore, would be to buy and resell rare-earth metals at various stages of production through its new Less Common Metals subsidiary in Britain.
While potentially good news, it's probably not worth a 6% pop in USA Rare Earth stock.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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