Highlights
- Retail investors are speculating on USA Rare Earth without fully understanding the strategic nuances of rare earth market dynamics.
- The Department of Defense's $400 million contract with MP Materials is not a sector-wide price guarantee, but a strategic risk mitigation effort.
- Successful rare earth investment requires understanding the full supply chain ecosystem, not just betting on a single high-profile stock.
Retail investors chasing USA Rare Earth (USAR) this week may be confusing momentum with fundamentals. Fueled by speculation that USAR will land a DoD-backed deal like MP Materials, shares have soared—but let’s be clear: no such agreement exists.
The Department of Defense’s $400 million partnership is a tailored, 10-year contract with one company—MP Materials—not necessarily a sector-wide price floor. It could emerge as one, but we cannot be certain. As _Rare Earth Exchanges_™ (REEx) reported, the $110/kg NdPr benchmark only applies to MP’s output and only under DoD oversight.
That’s not necessarily a new market—it’s a strategic backstop designed to de-risk a single player in a risky geopolitical race. Now it could emerge into something bigger, but we’ll have to wait and see what unfolds.
Reuters’ (opens in a new tab) recent coverage positions as a “benchmark” and “new center of gravity,” while The Motley Fool (opens in a new tab) echoes retail optimism without educating readers on the full supply chain—from upstream mining to midstream separation to downstream magnet manufacturing. USA Rare Earth may someday fill a critical downstream role, but it's currently pre-revenue, unproven, and not covered by any federal floor or guaranteed offtake. Note that we have interviewed their CEO, and he certainly seems pragmatic and execution-minded, targeting at least in the short to intermediate run, small and mid-sized markets.
Meanwhile, MP still faces execution challenges, but the national rare earth treasure trove certainly has good problems compared to much of the pack—a possible concern. Washington may be building a magnet monopoly, not a resilient ecosystem. Suppose investors want to bet on the rare earth renaissance. In that case, they need to understand it will take multiple companies, coordinated infrastructure across multiple nations, and a full supply chain, not just one high-flying stock on a rumor rally.
The euphoric sense in the market today reminds some of us around then of the 2010 RE sector. That did not end well!
REI has talked this decade about prime movers in the RE sector with the old adage ‘to those who have will be given’. The strategic treatment of Lynas and in particular MP this week demonstrates that adage in the RE sector.
There are a few MOUs/LOIs with RE wannabees out there, but as to binding strategic support, nope most don’t have. We count 2-3 handfuls in the ROW (not including Shenghe’s Peak and VHM) with MP, Lynas, REEMF, Ucore, Noveon, E-VAC in the US. Then, we have private Torngat in CAD, NEO in the EU, Arafura, Iluka and ASM in AUS and Namibia CM in Africa. Also, not to forget the RE recyclers in Ionic Tech and HyProMag.
There is a lot of mining (trad/closed loop) and processing power represented in the names above alone.
GLTA – REI