Could Investing $10,000 in USA Rare Earth Make You a Millionaire?

Right now, the U.S. has a gaping hole in its supply chain, a weak link that's gradually becoming a serious security risk. It's a strange kind of fragility, a vulnerability created by something you could easily lose between the cushions of your sofa. That missing link is the production of permanent magnets, and the security risk is that most of them are produced overseas in China.

Permanent magnets are made from rare-earth elements, like neodymium and praseodymium, which are found abundantly in the earth's crust but scarcely in viable quantities. Mining them is one thing, refining them into usable materials is quite another. And USA Rare Earth (NASDAQ: USAR) is aiming to do both.

Strategically, USA Rare Earth is positioning itself as the answer to that missing link in the U.S. supply chain. It wants to mine rare-earth elements and turn them into finished magnets. These homegrown magnets would then serve countless useful ends -- from electric vehicle motors to defense systems to clean energy -- and gradually reduce the United States' dependence on foreign exports.

Surging demand for these magnets has bolstered USA Rare Earth's ambitions, but it's still a long ways away from becoming the go-to American shop for rare-earth magnets. If successful, a huge investment -- say, $10,000 or more -- could possibly set investors up for life. But the risks are just as large as the opportunity, and investors should be aware of both before taking a huge stake in this mining stock.

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Building the missing link in America's supply chain

In a nutshell, USA Rare Earth is trying to build a mine-to-magnet pipeline.

It controls one of the largest critical mineral ore bodies in the U.S -- the Round Top Deposit in Texas. This site contains 15 of 17 rare-earth elements, including several other critical minerals that could serve useful purposes in the American industrial ecosystem. It plans to commission this mine in 2028.

Of course, mining is a capital intensive effort. In anticipation of this, USA Rare Earth also operates a research lab in Colorado in which it's piloting rare-earth separation techniques that could save it millions.

Downstream, the company is also developing a magnet manufacturing facility in Oklahoma. This facility, which is projected to go live in 2026, will be capable of producing 5,000 metric tons of sintered permanent magnets annually.

The mine, research and development lab, and magnet factory could all make USA Rare Earth one of the few fully integrated rare-earth companies outside of China.

But let's not get ahead of ourselves. One of this mining start-up's glaring weaknesses is that it has no history of commercial operations. Right now, it's 100% reliant on external funding for operations, and until it opens its mine and starts producing magnets, it will likely burn cash and report losses.

For $10,000 to grow into $1 million, USA Rare Earth stock would need to grow 100-fold. Its valuation at the end of this growth would be more than $424 billion. Fun fact: The largest industrial and mining stocks carry market caps below $400 billion.

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USA Rare Earth has potential to grow, but I would temper expectations. A small stake in this growth stock could pay off over the long term, but I'd avoid making it a core position.

Steven Porrello has positions in USA Rare Earth. The Motley Fool has positions in and recommends Caterpillar and GE Aerospace. The Motley Fool recommends BHP Group. The Motley Fool has a disclosure policy.