Trump administration to acquire 10% of USA Rare Earth in $1.6B deal: reports

[Ben Graham]

The US government plans to acquire a 10% stake in USA Rare Earth (NASDAQ: USAR) as part of a $1.6 billion investment package to support the company’s development of a domestic mine-to-magnet supply chain, according to reports.

Under the agreement, as first reported by the Financial Times on Saturday, Washington would receive 16.1 million shares of USAR and warrants to purchase another 17.6 million shares, both priced at $17.17 a share.

The price represents a near 25% discount to USAR’s closing price of $22.71 in New York on Friday. The Oklahoma-based rare earth miner has a market capitalization of about $3.4 billion.

Separately, the US government would also provide the company with $1.3 billion in debt financing, drawn from a finance facility created for the Department of Commerce as part of the CHIPS and Science Act.

While further details of the deal were not disclosed, Reuters later followed up on the Financial Times report by stating that USAR plans host a morning conference call with investors to discuss the terms, citing its own sources.

In addition, Reuters said its sources also indicated that the US government plans to make a separate $1 billion private investment, and both deals will be unveiled on Monday.

Last October, USAR CEO Barbara Humpton told CNBC that the company had been in “close communication” with the White House about a potential deal.

Critical minerals push

The USAR investment marks the latest push by the Trump administration to bolster the US critical minerals supply chain. Last year, it struck similar deals with Canada’s Lithium Americas (TSX: LAC) and Trilogy Metals (TSX: TMQ), both of which have significant projects on American soil.

Before that, Washington had already signaled its intent to go big on the critical minerals sector, with a landmark multi-billion-dollar deal between the Pentagon and MP Materials (NYSE: MP), the nation’s only producer of rare earths.

USAR is currently developing a rare earth mine in Sierra Blanca, Texas, that is slated to begin production in late 2028. The deposit, known as Round Top, is specifically rich in “heavy” rare earths such as dysprosium, which are essential ingredients to make permanent magnets found in high-tech applications such as electric vehicles, wind turbines and defence systems.

A 2019 technical report estimates that the open-pit mine could produce 2,213 tonnes of rare earth elements, of which over 1,900 tonnes would be “heavy” REEs, over a 20-year life. Last January, the project achieved a key milestone by producing its first batch of dysprosium oxide with a purity of 99.1%.

The Round Top deposit is expected to backstop a US-based mine-to-magnet value chain that also includes a magnet manufacturing plant in Stillwater, Oklahoma, which has an annual production capacity of 5,000 tonnes and is set to enter commercial operations this year, as well as a processing and separation laboratory in Wheat Ridge, Colorado.