USA Rare Earth Now Has $3.5 Billion to Establish a "Mine-to-Magnet" Business That Is Crucial to National Security. Is the Stock a Buy Today?

Rare-earth magnets are central to many modern technologies, including electric vehicles, wind turbines, defense and missile guidance systems, and advanced consumer electronics. For years, the U.S. has become dependent on China for mining and processing raw materials into refined magnets, a trend that has grown into a national security concern.

The U.S. is taking steps to achieve full independence in producing rare-earth permanent magnets by reshoring the supply chain, including mining, processing, and manufacturing of these crucial materials. This "mine-to-magnet" strategy has put several mining companies on the map, including USA Rare Earth (NASDAQ: USAR).

Over the past year, USA Rare Earth has raised significant capital from the U.S. government and outside investors to build its supply chain. Does that make the stock a buy today? Let's dive into the company and find out.

USA Rare Earth has raised significant capital

Earlier this month, USA Rare Earth finalized an agreement with the U.S. Department of Commerce for up to $1.6 billion in federal funding under the CHIPS and Science Act. This funding package consists of $277 million in direct grants and up to $1.3 billion in senior secured loan capacity. In return, the federal government received 16.1 million common shares and 17.6 million warrants.

In addition to this federal funding, the company secured another $1.5 billion in private placement funds in January, bringing total liquidity to $3.5 billion. This funding is crucial for USA Rare Earth to build out its domestic mine-to-magnet supply chain, including developing the Round Top mine in Texas and expanding its processing and manufacturing capabilities.

The mine-to-magnet company has made some huge moves

USA Rare Earth is building out its near-term capabilities and has made several key acquisitions to do so. Last year, it acquired U.K.-based Less Common Metals (LCM) for $100 million in cash, plus 6.5 million shares. Building on this, in April, it acquired Serra Verde Group for approximately $2.8 billion, structured via $300 million in cash and 126.8 million newly issued common shares.

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This move is crucial to helping USA Rare Earth get off the ground and running. That's because Serra Verde's Pela Ema mine in Brazil is currently the only operating, large-scale producer outside Asia that supplies all four primary magnetic rare-earth elements.

In addition, the company recently announced a $1.2 billion magnet manufacturing facility in South Carolina. Combining this with its acquisition of LCM and its active permanent magnet facilities in Oklahoma helps USA Rare Earth bridge the gap between raw extraction and finished commercial products.

The expansion efforts by USA Rare Earth have management projecting that the company will reach a magnet manufacturing run rate of 600 metric tons per annum (MPTA) at its Oklahoma facility, along with 3,000 MPTA of metal-making and alloy capacity through its LCM subsidiary.

In the longer term, the company is targeting annualized production capacity of 10,000 tons of rare-earth metal alloys and 10,000 tons of Neodymium Iron Boron (NdFeB) permanent magnets, positioning it to capture high-margin market share across the defense, electric vehicle, and semiconductor sectors.

Is USA Rare Earth for you?

USA Rare Earth is making progress on building its mine-to-magnet supply chain, and recent acquisitions have given its business a big boost. Looking ahead, the company will continue advancing its Round Top mine in Texas, which is rich in heavy rare-earth elements critical to the production of high-heat permanent magnets.

Another benefit of this mine is that its mineralization enables cleaner, cheaper processing of these rare-earth elements, which could enable low-cost production and provide a notable competitive advantage for USA Rare Earth. The company hopes to begin commercial production at Round Top as soon as 2028.

With this in mind, USA Rare Earth is still undergoing massive expansion efforts that will be expensive for shareholders. Its dealings with the U.S. government and other acquisitions have diluted shareholders, and scaling its mining and processing capabilities will take time, underscoring the risks of owning early-stage, start-up mining stocks.

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.