The era of “hands-off” industrial policy is officially dead.
USA Rare Earth (USAR) shares jumped 15% on Monday after the Trump administration confirmed a massive $1.6 billion funding package to back the company’s mine in Texas and magnet plant in Oklahoma. Crucially, the Department of Commerce isn’t just lending money—it is taking a 10% equity stake in the company.
💰 THE CAPITAL STACK: The deal structure creates a war chest of ~$3.1 billion to counter Chinese dominance:
- Government: $277M grant + $1.3B loan (via repurposed CHIPS Act funds). In return, the US Gov gets ~16M shares and warrants.
- Private Capital: A $1.5B PIPE anchored by Inflection Point.
- The Goal: Fund a $4.1B vertically integrated operation (Mine + Magnets) slated to open by 2028.
🛡️ THE “SAFETY STOCK” STRATEGY: Unlike peer MP Materials, USA Rare Earth did not receive a government price floor. Instead, CEO Barbara Humpton is playing a different game:
- No Pre-Contracts: The company aims to act as “safety stock” for the market, supplying niche products on demand rather than locking in low-margin volume.
- The Rationale: As Humpton put it: “The key question everybody has to ask is, ‘What would be the cost of having access to nothing?'” — betting that desperate defense/tech buyers will pay a premium for guaranteed US supply.
💡 ANALYST TAKEAWAY: This is the fourth major intervention by Washington (following MP, Lithium Americas, Trilogy), but the 10% direct equity stake signals an escalation. The US Government is effectively acting as a Venture Capitalist for national security. By repurposing CHIPS Act funding for mining, the administration is acknowledging that semiconductor sovereignty is impossible without the rare earth magnets that power the machines.
👇 Mining & Defense Pros: Is the “Safety Stock” model a brilliant premium play, or too risky without guaranteed offtake agreements?