Why USA Rare Earth Stock Surged 19.2% Last Month

USA Rare Earth (NASDAQ: USAR) stock recorded strong double-digit gains in August. The company's share price climbed 19.2%, according to data from S&P Global Market Intelligence, in a month that played host to a 2.6% increase for the S&P 500's level and a 3.9% gain for the Nasdaq Composite.

Along with the bullish backdrop for the broader market, the company also published its second-quarter results and announced the completion of an upsized $1.55 billion capitalization of the special purpose vehicle (SPV) backed by the U.S. government to support its acquisition of Brazilian rare-earth mining specialist Serra Verde. While the company's Q2 report didn't do anything to push the stock higher, the SPV announcement did boost the stock -- and investors have gotten more good news in September.

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USA Rare Earth's Q2 report wasn't exciting

USA Rare Earth published its Q2 results on Aug. 10, and the report didn't arrive with much for investors to get excited about. The company reported a non-GAAP (adjusted) loss of $0.15 per share on sales of $5.82 million in the period. The performance fell short of the average Wall Street targets, which called for an adjusted loss of $0.13 on sales of roughly $6.5 million.

USA Rare Earth is still in a relatively early stage of ramping its business, so the sales and earnings misses in Q2 didn't look particularly significant. On the other hand, the company didn't deliver the kinds of scaling updates that investors were looking for -- and the stock lost ground following the earnings release. The good news was that investors didn't have to wait long for positive developments.

The Serra Verde deal looks to be transformative

On Aug. 24, USA Rare Earth published a press release announcing the finalization of its SPV deal with the U.S. Department of War to support its acquisition of Serra Verde. Through the arrangement, the Department of War agreed to provide a direct $750 million investment in the SPV, the facilitation of a $500 million debt facility from a tier-1 institutional bank, and a five-year purchasing contract worth at least $300 million. In short, the deal helped secure both financial support and a rare earth mineral purchasing contract from the U.S. government contingent on the finalization of the Serra Verde acquisition.

USA Rare Earth then published a press release on Sept. 4 announcing that it had completed its roughly $2.8 billion acquisition of Serra Verde. When USA Rare Earth announced the acquisition in April, it said that Serra Verde was expected to achieve annualized earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2027 and that the combined corporate entity was expected to generate roughly $1.8 billion in EBITDA by 2030. The completion of the deal has transformed USA Rare Earth's financial profile, and it positions the company to rapidly scale in the critical minerals space.

Keith Noonan 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.