USA Rare Earth raises $1.5B as government backing fuels mine-to-magnet push
Combined $3.1B financing package positions company as key player in domestic critical minerals supply chain
USA Rare Earth announced the closing of a $1.5 billion private investment in public equity financing on Wednesday, completing a massive capital raise that combines with U.S. government funding to create a $3.1 billion war chest for developing a domestic rare earth supply chain. The stock fell 4.4% to $25.18 following the announcement, as investors reacted to the dilutive effects of the transaction despite the strategic benefits of the financing.
The PIPE financing, anchored by Inflection Point and backed by additional strategic investors, involved the issuance of approximately 69.8 million shares at $21.50 per share, according to the company's press release. The deal complements a previously announced $1.6 billion financing package from the U.S. Commerce Department under the CHIPS and Science Act, which includes a government stake of approximately 10% in the company.
The combined funding positions USA Rare Earth as a central player in U.S. efforts to reduce dependence on foreign sources of critical minerals, particularly rare earth elements that are essential for electric vehicles, wind turbines, defense systems, and advanced electronics. China currently controls roughly 90% of global rare earth processing capacity, a vulnerability that has prompted both the Trump and Biden administrations to prioritize domestic supply chain development.
"This transaction represents a transformational milestone for USA Rare Earth and the broader U.S. critical minerals industry," the company stated in its announcement, noting that the proceeds will accelerate the build-out of its mine-to-magnet value chain. The strategy encompasses everything from raw material extraction to high-performance permanent magnet production, all within the United States.
The company's primary assets include the Round Top heavy rare earth deposit in Sierra Blanca, Texas, which is projected to commence commercial production in late 2028, and a magnet manufacturing facility in Stillwater, Oklahoma, which is expected to begin commercial operations in 2026. The Oklahoma plant will initially produce 5,000 tonnes of rare earth magnets annually, with capacity planned to double to 10,000 tonnes by 2029.
Despite the stock's decline following the PIPE announcement, analysts maintain an optimistic outlook on the company's long-term prospects. USA Rare Earth currently holds an average price target of $37.20 across coverage from five buy-rated analysts, suggesting significant upside from current levels, according to market data. The company's market capitalization stands at approximately $3.7 billion.
The government's $1.6 billion investment, which includes $277 million in federal funding and a $1.3 billion senior secured loan through the CHIPS Act, underscores the strategic importance of developing domestic rare earth capabilities. The deal marks one of the largest government investments in the critical minerals sector and represents a significant shift from previous U.S. policy that relied primarily on foreign imports.
Investor concerns about dilution appear to reflect near-term trading dynamics rather than fundamental skepticism about the company's strategic positioning. The PIPE was priced at a 14.6% discount to the January 28 closing price of $25.18, a common practice in large private placements that provides investors with an attractive entry point while ensuring the issuer receives the full proceeds.
USA Rare Earth's vertical integration strategy distinguishes it from competitors that focus exclusively on mining or processing. The company aims to combine domestic feedstock from Round Top with advanced processing technologies, recycling capabilities, and an expanding European industrial footprint. This end-to-end approach could provide margin advantages and supply chain security that pure-play competitors cannot match.
The rare earth market is experiencing growing demand from multiple sectors, including renewable energy, electric vehicles, consumer electronics, and defense applications. The global rare earth magnet market is projected to grow at a compound annual rate of approximately 9% through 2030, driven by electrification trends and national security considerations in the United States, Europe, and Japan.
USA Rare Earth's rapid capital raise and government backing accelerate the timeline for challenging China's dominance in rare earth processing. The company's ability to execute on its mine-to-magnet strategy will be closely watched by investors, government officials, and competitors in the critical minerals space. The Oklahoma magnet facility's planned 2026 launch will represent a crucial test of the company's technical capabilities and operational expertise.