USA Rare Earth is building a rare-earth metals mine, which will be a very expensive effort even though it could transform its business.
USA Rare Earth (USAR 0.16%) is an upstart making material progress toward its goals. That’s the good news. The bad news is that the next step required to bring its business together is a big one. Here’s what you need to know about USA Rare Earth before you buy it, thinking that it will make you a millionaire.
Rare-earth metals are all the rage
Wall Street loves a good story, often using that story to flood the market with companies that play off the same theme. You’ve seen that happen recently with electric vehicles (EVs), artificial intelligence (AI), and now with rare-earth metals. That last one is why investors are interested in USA Rare Earth stock, which is up roughly 35% over the past year. However, the stock rose nearly 200% at one point during that span.
Image source: Getty Images.
Rare-earth metals are important for the production of everything from technology products to vital items used for national defense. There is a very real demand, and that demand is growing. The problem is that most rare-earth metals currently come from China, which has proven that it is willing to use access to rare-earth metals as a geopolitical bargaining chip. This is why companies like USA Rare Earth are attempting to build rare-earth businesses in more economically and politically stable regions.
The company has done a solid job of building its capacity to process rare-earth metals into usable products, such as magnets. It has made capital investments in its own business and used acquisitions to quickly add processing capacity. The next big step is for the company to build a rare-earth mine.
Building a mine is no easy task
Having processing capacity lined up is important for USA Rare Earth because it means the company can hit the ground running once it starts producing its own rare-earth metals. However, building a mine is not easy. Mining is a capital-intensive business, and going from a good location to an operating mine is a long and difficult process.
Given USA Rare Earth’s current projections, the mine won’t see commercial production until late 2028. That’s two years earlier than previous estimates but still around three years away. Until that point, even with the company’s rare-earth processing assets producing revenues, it is likely that this start-up business continues to bleed red ink while facing material execution risks.
Today’s Change
(-0.16%) $-0.03
Current Price
$19.17
Key Data Points
Market Cap
$2.8B
Day’s Range
$17.79 – $21.61
52wk Range
$5.56 – $43.98
Volume
622K
Avg Vol
11M
Unless you can stomach owning a company that is losing money year after year, you probably won’t want to own USA Rare Earth. That comes on top of the news-driven stock price volatility that is likely to be a key part of the story. The wide price swings in the stock price over the past year are likely to continue, since emotions are high around rare-earth metals right now. This is a stock that only the most aggressive growth investors should probably consider.
Good things could be in the cards for USA Rare Earth
Those warnings made, USA Rare Earth could help you build a seven-figure portfolio if you buy it and hold it for the long term. The rare-earth story is real. USA Rare Earth is making important progress with its business plans. And assuming it gets its rare-earth mine up and running in a timely fashion, the business will be well positioned to prosper.
However, there is always the possibility that something goes awry. Three years is a long time on Wall Street to sit with what will likely be a money-losing business, which is why most investors should probably keep this stock on their watch list, revisiting it closer to the time when it has an operating rare-earth mine.
