Key Points
The U.S. is investing heavily to build domestic rare-earth element mining and processing capabilities.
MP Materials has a first-mover advantage, as it owns the Mountain Pass mine in California.
USA Rare Earth is building out its supply chain and has a market capitalization roughly half that of MP Materials.
The United States is looking to break China's stronghold on rare-earth mining and processing. MP Materials (NYSE: MP) and USA Rare Earth (NASDAQ: USAR) are two publicly traded companies with government support to build a domestically controlled "mine-to-magnet" supply chain.
MP Materials, which already owns the Mountain Pass mine in California, is a leader in the space and has a market capitalization of around $6.7 billion. USA Rare Earth's market cap is roughly half that size at $3.3 billion.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »
For USA Rare Earth to reach MP Materials' market cap by 2030, its stock would have to more than double from here, turning a $5,000 investment into over $10,150. Here's what has to go right for USA Rare Earth to achieve this.
Image source: Getty Images.
USA Rare Earth is investing heavily in its mine-to-magnet supply chain
Unlike MP Materials, which owns the largest rare-earth mine in North America, USA Rare Earth is building its entire supply chain from scratch. As part of establishing its mine-to-magnet supply chain, the company has invested heavily to acquire Serra Verde, which gives it upstream mining assets and the only large-scale rare-earth mine outside China that contains all four critical magnet minerals.
On top of that, the company has acquired downstream assets, including Less Common Metals, which gives it a specialist in turning rare earth into high-grade metals and alloys. The company is also expanding its permanent magnet production capabilities in Oklahoma and building a new facility in South Carolina.
What must go right for USA Rare Earth stock to deliver
For USA Rare Earth to deliver strong returns for investors, it must successfully integrate its acquisitions while scaling its processing and manufacturing capabilities.
With Serra Verde and its Round Top Project in Texas, USA Rare Earth has an opportunity to become a leading domestic supplier of heavy rare-earth elements (HREEs), a capability MP Materials currently lacks.
That said, developing and integrating all of these assets is no easy feat, making USA Rare Earth a higher-risk stock to play the build-out of the U.S. mine-to-magnet supply chain.
Courtney Carlsen has positions in MP Materials and USA Rare Earth. The Motley Fool has positions in and recommends MP Materials. The Motley Fool has a disclosure policy.