USA Rare Earth (NASDAQ: USAR) occupies a unique position within the global mining industry.
Currently, China dominates the rare-earth market. The country controls around 94% of global rare-earth magnet production and 91% of rare-earth magnet refining. Rare-earth magnets are critical components in many industrial and household applications, including electric motors, wind turbines, hard drives, medical devices, and aerospace and military applications.
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China’s dominance in both mining and refining has pushed the U.S. government to secure domestic supply. In response, the U.S. has heavily funded USA Rare Earth through grants, loans, and even a direct equity stake.
From a macro perspective, USA Rare Earth promises to become the world’s most complete, vertically integrated “mine-to-magnet” supplier outside China. The company isn’t just focused on mining. It has also assembled processing and refining assets that allow it to control the entire supply chain for rare-earth magnets.
After spiking to more than $31 per share last year, USA Rare Earth shares have corrected sharply, with current prices hovering around $8. That grants the company a market cap of just under $3 billion.
This could be an opportunity to buy low for a unique company with strong government backing. But after the company reported earnings on Nov. 9, I was left with one major concern that could keep me on the sidelines for the rest of the year.
Here’s my biggest concern with USA Rare Earth stock today
To become a vertically integrated supplier of rare-earth magnets, USA Rare Earth has had to conduct a variety of acquisitions.
Last year, the company acquired Indian Ocean Rare Metals for $100 million in cash plus 6.74 million shares of common stock. The purchase gave USA Rare Earth access to alloy-processing capabilities — a necessary component of becoming a truly vertically integrated supplier. Six months later, the firm agreed to purchase Texas Mineral Resources, mainly to gain full ownership over that company’s Round Top Heavy Rare Earth Project in Texas. This was an all-stock acquisition, with a deal price of around $73 million.
The following month, USA Rare Earth made its biggest acquisition yet: the $2.8 billion buyout of Serra Verde Group, which operates a rare-earth mine and processing facility in Brazil. The deal price was funded with $300 million in cash and the issuance of 126.8 million shares.
