USA Rare Earth (NASDAQ: USAR) recently made a splash by acquiring Serre Verde Group, a company that will help it expand its rare-earth mining and production capabilities. The move comes as the United States continues to diversify its supply chain away from China, which controls 90% of rare-earth processing, according to research from The Motley Fool.
Following the April 20 announcement, USA Rare Earth stock jumped 13% in a day. But is it time for investors to bet on the rare-earth stock? Here’s what investors need to know about USA Rare Earth and what this recent acquisition means for the company.
In recent years, the U.S. has taken steps to de-risk its supply chain away from non-Chinese sources of heavy rare-earth elements and critical minerals. As global trade tensions heat up, China has leveraged its strong position as the world’s primary processor of rare-earth elements to implement export controls, using its dominance in the clean energy supply chain for leverage.
By acquiring Serra Verde, USA Rare Earth accelerates its mission to build an independent rare-earth supply chain.
USA Rare Earth (USAR +4.89%) recently made a splash by acquiring Serre Verde Group, a company that will help it expand its rare-earth mining and production capabilities. The move comes as the United States continues to diversify its supply chain away from China, which controls 90% of rare-earth processing, according to research from The Motley Fool.
Following the April 20 announcement, USA Rare Earth stock jumped 13% in a day. But is it time for investors to bet on the rare-earth stock? Here’s what investors need to know about USA Rare Earth and what this recent acquisition means for the company.
USA Rare Earth
Today’s Change
(4.89%) $1.07
Current Price
$22.93
USA Rare Earth’s acquisition sharply accelerates its production timeline
In recent years, the U.S. has taken steps to de-risk its supply chain away from non-Chinese sources of heavy rare-earth elements and critical minerals. As global trade tensions heat up, China has leveraged its strong position as the world’s primary processor of rare-earth elements to implement export controls, using its dominance in the clean energy supply chain for leverage.
That’s where USA Rare Earth comes into the picture. The company is building a vertically integrated, mine-to-magnet operation that utilizes Western sources for mining and processing.
By acquiring Serra Verde Group for $2.8 billion, USA Rare Earth gains a scaled producer outside of Asia that delivers all four critical magnetic rare-earth elements: Neodymium, Praseodymium, Terbium, and Dysprosium. The acquisition was funded with $300 million in cash and 127 million in newly issued shares.
Image source: Getty Images.
The acquisition gives USA Rare Earth control of the Pela Ema mine in Brazil, which is projected to produce around 6,400 metric tons of total rare-earth oxide (TREO) per year. This move allows the company to supply the specific rare-earth oxide feedstocks required by its subsidiary, Less Common Metals, to produce high-purity alloys. These alloys are the essential precursor materials for its permanent magnet manufacturing facility in Stillwater, Oklahoma.
The move helps accelerate USA Rare Earth’s timeline to generate earnings, as it expects Serra Verde to contribute $550 million to $650 million in annualized run-rate earnings before interest, taxes, depreciation, and amortization (EBITDA) by the end of 2027. The combined company targets approximately $1.8 billion EBITDA by the end of 2030.
The move de-risks USA Rare Earth’s supply chain
USA Rare Earth CEO Barbara Humpton called the acquisition “a transformational step in delivering on our ambition to build a global champion and the partner of choice in rare earth elements, oxides, metals, and magnets.”
The move makes USA Rare Earth more attractive because it provides immediate cash flow and a secure source of heavy rare-earth feedstock, enabling the company to scale its Oklahoma magnet production while awaiting the 2028 completion of its Round Top mine in Texas.
For investors looking to bet on the revitalization of U.S. rare-earth supply chains, USA Rare Earth is an attractive choice. That said, it still faces execution risk as it incorporates its acquisitions while scaling up its processing facility in Oklahoma, so if you do decide to invest, keep it small and part of a well-diversified portfolio.
