USA Rare Earth: Millionaire Maker or Market Hype? The Honest Truth.

Ever heard of neodymium? No? How about praseodymium? Or terbium, or dysprosium?

If you have heard of these -- they're the "core four" rare-earth elements, by the way -- there's a good chance you've come across rare-earth stocks like USA Rare Earth (NASDAQ: USAR). If you're not familiar, just imagine a world where smartphones, laptops, electric vehicles (EVs), and countless other electronics are a lot less efficient and a lot harder to manufacture. That's the world we'd be living in without these four critical metals.

The United States has very limited domestic capacity to process these metals, which is why most of the processing happens in China. This is not an ideal situation for the U.S. when China is also its biggest economic rival.

In its push to build its own rare-earth supply, the U.S. government has good reasons to support a company like USA Rare Earth, which it already has (we'll get there). But does that make this stock a potential millionaire maker? Let's take a look.

Image source: Getty Images.

Why USA Rare Earth has been in the spotlight

For starters, USA Rare Earth is a U.S.-based mining company that owns the Round Top deposit in Texas. It wants to become a vertically integrated rare-earth company, meaning it wants to control the entire supply chain, from mining the raw materials to manufacturing the permanent magnets used in electronics, EVs, and defense technology, among other things.

The Round Top deposit is an extremely significant asset: It contains valuable rare-earth elements, including the four mentioned above. This mine is not operational yet, and USA Rare Earth is targeting late 2028 for commercial production.

USA Rare Earth also has a magnet factory in Stillwater, Oklahoma, and it has acquired two businesses -- Serra Verde and Less Common Metals -- that have given it a stronger foothold in the mining industry.

Financially, USA Rare Earth is still in its growth stage. It's burning cash each quarter and barely generating revenue. It does, however, have strong government support -- the White House has given it access to up to $1.6 billion in funding -- and it also claims to be in discussions with over 100 potential customers. It seems USA Rare Earth has substantial support, even if it has yet to turn that backing into significant revenue.

Is USA Rare Earth hype or a millionaire maker?

I don't believe USA Rare Earth is empty hype, given its government backing, its growing magnet pipeline, its valuable assets, and its potentially enormous market opportunity.

At the same time, calling USA Rare Earth a millionaire maker seems a little premature. After all, this is a metal company that hasn't proven much yet. It's not manufacturing magnets at scale, and, most importantly, it's not turning a profit.

Given that, I wouldn't call it a millionaire maker. I'd say that USA Rare Earth has the potential to be very rewarding, but life-changing returns from a mining stock are anything but guaranteed.

Steven Porrello 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.