Amid rising tensions with China, the United States is taking decisive steps to secure its domestic rare earth supply chain with a significant $1.6 billion boost to USA Rare Earth. This investment signals a strong commitment from the U.S. government to reduce its reliance on foreign sources, particularly China, for these critical minerals.
Rare earth elements are a group of 17 minerals essential for manufacturing a wide range of products, from electronics and military equipment to electric vehicles and renewable energy technologies. China currently dominates the global rare earth market, controlling approximately 98% of rare earth processing. This concentration has raised concerns in the U.S. about supply chain vulnerabilities and potential national security risks. A 2024 RAND Corporation study warned that a 90-day disruption in rare earth supply from China could shut down production lines for 78% of US defense contractors.
The U.S. government's $1.6 billion investment in USA Rare Earth aims to address these concerns by supporting the development of a domestic mine-to-magnet supply chain. The agreement involves the U.S. government acquiring a 10% stake in USA Rare Earth, receiving 16.1 million shares and warrants to purchase an additional 17.6 million shares, priced at $17.17 per share. In addition to the equity stake, the government will provide $1.3 billion in debt financing through a Department of Commerce finance facility created under the CHIPS and Science Act. This substantial investment will support USA Rare Earth's efforts to develop a mine in Sierra Blanca, Texas, slated to open by 2028, and a magnet manufacturing facility in Stillwater, Oklahoma, expected to launch later this year. USA Rare Earth is also planning to raise approximately $1 billion in private funding.
USA Rare Earth is focused on building a domestic supply chain to ensure customers have dependable access to neodymium magnets and reduce reliance on foreign sources of rare earth elements. The company's strategy includes the acquisition of Less Common Metals (LCM), a UK-based manufacturer of specialized rare-earth metals, to secure feedstock for its Stillwater facility. USA Rare Earth's Round Top project in Texas is considered the richest heavy rare-earth, gallium, and beryllium deposit in the U.S.
The U.S. government's investment in USA Rare Earth is part of a broader effort to secure critical mineral supply chains. This includes similar deals with MP Materials, Lithium Americas, and Trilogy Metals. These actions align with the U.S. government's goal of onshoring critical and strategic minerals essential to U.S. national security and the semiconductor supply chain. The U.S. aims to increase its self-sufficiency rate, which is currently below 15%, by focusing federal investment and support on rare earth-related companies.
While the U.S. is taking steps to bolster its domestic rare earth supply chain, challenges remain. China's dominance in processing and refining rare earths poses a significant hurdle. Building credible, non-Chinese separation, refining, and magnet manufacturing capacity at scale is crucial for the U.S. to achieve long-term rare earth security. Despite these challenges, the U.S. government's $1.6 billion investment in USA Rare Earth represents a significant step towards reducing reliance on China and securing a stable domestic supply of these critical minerals.
