USA Rare Earth's $2.8 Billion Brazil Deal vs. Its $1.2 Billion South Carolina Bet: Which One Actually Matters More?
Key Points
USA Rare Earth is building a "mine-to-magnet" supply chain to break America's dependence on Chinese rare-earth and permanent magnets.
The company acquired Serra Verde for $2.8 billion, giving it immediate access to the rare-earth elements it needs.
It is also investing heavily in a manufacturing facility in South Carolina to produce permanent magnets at scale.
Rare-earth elements are crucial components for modern technologies, including defense systems. After decades of aggressive state subsidies and price undercutting, China controls 70% of rare-earth element extraction and 90% of processing, according to research from The Motley Fool.
USA Rare Earth (NASDAQ: USAR) is one of the companies looking to break China's dominance by establishing a fully integrated, Western-based "mine-to-magnet" supply chain independent of China.
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Building an end-to-end industrial network from scratch is a big undertaking, and USA Rare Earth has made some massive investments in the last year, including a $2.8 billion acquisition of Brazilian miner Serra Verde and another $1.2 billion investment in its South Carolina facility to process rare earths. Here's which investment matters more, and the role each plays in USA Rare Earth's mine-to-magnet strategy.
Image source: Getty Images.
USA Rare Earth is investing massively as it builds its domestic "mine-to-magnet" business
On Sept. 4, USA Rare Earth completed its $2.8 billion acquisition of Brazilian miner Serra Verde Group. The acquisition makes USA Rare Earth the only producer of scale for all four magnetic and heavy rare-earth elements outside Asia and gives it immediate access to the upstream feedstock it needs to produce permanent magnets.
But that is only half of the equation. USA Rare Earth aims to be fully integrated across the value chain, including extraction, separation, alloying, and magnet manufacturing.
The company currently operates a facility in Stillwater, Oklahoma, where it manufactures sintered NdFeB permanent magnets that combine light rare-earth elements (neodymium and praseodymium) and heavy rare-earth elements (dysprosium and terbium) with iron and boron.
In addition to its Oklahoma facility, USA Rare Earth broke ground on Sept. 9 on a $1.2 billion, 800,000-square-foot facility in Blacksburg, South Carolina. Once it becomes operational, the facility will aim to produce 6,400 metric tons of magnets and 5,000 metric tons of alloy annually. It will be a crucial part of management's larger goal of 10,000 metric tons per annum of domestic magnet capacity by 2029.
Which investment matters more for USA Rare Earth?
Western nations urgently need to diversify their supply of rare-earth elements and permanent magnets used in many modern technologies, and USA Rare Earth will play a key role in helping them do so. The U.S. government has already committed $1.6 billion to help the company scale up, underscoring the urgency of securing these crucial materials.
As for its investments, the $2.8 billion Serra Verde acquisition is crucial to helping USA Rare Earth secure the much-needed feedstock for permanent magnets. Without it, the company would have to wait years for its Round Top project to come online.
Looking ahead, USA Rare Earth will have its hands full integrating Serra Verde, scaling its manufacturing capabilities, and developing its Round Top project. If it succeeds, USA Rare Earth could become a top domestic producer of these important permanent magnets, but investors should brace for volatility along the way.
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.