Key Points
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USA Rare Earth recently started construction on its mineral processing plant in South Carolina.
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The move represents a meaningful step toward achieving the company’s goal of being a vertically integrated provider of rare-earth metals and magnets.
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This could help the company win more government contracts.
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Last month, USA Rare Earth (NASDAQ: USAR) announced that it had started construction on its new rare-earth metal and manufacturing facility in Blacksburg, South Carolina. The $1.2 billion plant is expected to span roughly 800,000 square feet and represents a major step toward the company becoming a vertically integrated producer of rare-earth minerals and magnets.
Thanks to the company’s Texas mining location and acquisition of Brazil-based miner Serra Verde, USA Rare Earth’s mineral extraction capabilities are rapidly expanding. With the ground now broken on the company’s new refining facility, the company is taking big steps toward being a full-stack rare-earth minerals provider.
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Making vertically integrated rare-earth sourcing a reality
Building the capacity to source rare-earth minerals and magnets domestically is becoming increasingly important for the U.S., and USA Rare Earth is positioned to play an important role in the project. Rare-earth minerals and magnets are essential materials for missile defense systems, sensors, electric vehicles, and other technologies that are important for military applications and the broader economy.
China currently dominates the markets for both rare-earth mining and processing, and this gives it a powerful bargaining chip and leverage against competitors and adversaries. While the ban on the export of rare-earth materials to the U.S. that China introduced last year has been temporarily suspended as part of trade negotiations between the two countries, there’s a good chance that relations between the competing world powers will become increasingly adversarial over the next decade and beyond. China’s dominance in rare-earth materials presents a substantial national security and economic risk, and USA Rare Earth is aiming to address this critical supply chain weakness.
USA Rare Earth is currently set up to have the U.S. government as its core customer, and offering comprehensive sourcing should make the company more appealing for contracts because it reduces supply chain complexity and reduces the number of vendors that government agencies have to deal with and depend on. Being a vertically integrated provider will increase the company’s revenue and earnings potential.
If the company’s refining plants are run reasonably efficiently, USA Rare Earth will be able to sell usable rare-earth materials and magnets at superior margins compared to what it would get if it outsourced processing to a third party. Pairing extraction and processing capabilities should make the company more attractive as a government partner, give the company greater control of its scaling timelines, and improve its long-term earnings opportunities.
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Keith Noonan 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.
