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Shares jump as US backs $1.6 billion USA Rare Earth Funding

Shares jump as US backs $1.6 billion USA Rare Earth Funding
Shares jump as US backs $1.6 billion USA Rare Earth Funding

USA Rare Earth announced on Monday that Trump's administration will support a $1.6billion debt-and equity funding package for it to build a Texas magnet and mine facility to supply the defense and high tech sectors.

Over the weekend, it was reported that the U.S. Department of Commerce had taken a 10% stake of USA Rare Earth in Oklahoma as part of an effort to?boost the production of critical materials and reduce reliance on the market leader China.

USA Rare Earth shares grew 15% on Monday to $28.42.

Rare earths are a grouping of 17 minor elements and magnets made of them can be found in many products including cell phones and fighter jets. They also appear in electric vehicles, medical kits, and even medical equipment.

USA Rare Earth is developing a mine with Texas Mineral Resources in Sierra Blanca (Texas) that will be open by 2028. The company has a magnet production plant in Stillwater (Oklahoma) that is scheduled to open later this year.

After taking stakes in MP Materials and Lithium Americas, Trilogy Metals is the latest investment to strengthen Washington's crucial minerals presence.

DETAILS OF THE DEAL

USA Rare Earth?said that it received a letter indicating $277 million of proposed federal funding, and $1.3 billion for a proposed senior secured loans under the CHIPS Act.

Last year, it was reported that this was happening.

Repurposed for funding minerals-related project.

The deal excludes a price guarantee or a price floor that had been offered to MP Materials last year in a similar transaction.

MP received a guaranteed price of $110 for each kilogram of light rare earths that it sells. Executives said that USA Rare Earth would need to purchase light rare earths from the market, and they assume it will pay $125 a kilogram.

USA Rare Earth issuing 16.1 million shares of stock and approximately 17.6 million warrants.

The company also raised $1.5 billion in private equity investment (PIPE), anchored by Inflection Point. Under this, it will issue 69,8 million shares for $21.50 per share.

Inflection Point, a company with a specific purpose for acquisitions, helped USA Rare Earth to go public in the past year. Michael Blitzer, the chairman of each company, is a renowned businessman.

Total investment of $3.1 billion, including the PIPE agreement and the government's proposed investment.

Costs for the mine, magnet facilities?and other related projects will be around $4.1 billion. USA Rare Earth would still need an additional $600,000,000 to cover the cash and investments that were announced on Monday.

The company has not yet lined up customers and is instead aiming to become a "safety-stock" that supplies niche products when needed. Executives believe this will result in a higher margin approach.

On a conference call with investors, CEO Barbara Humpton said: "What is the cost of not having anything? That is what drives our early sales strategy."

Last month, a senior Trump official stated that the administration is

Planning more "historic" deals with the U.S. Mining sector

. (Reporting from Ernest Scheyder, Shashwat Chandhu and Vallari Srivastava, in Bengaluru, and editing by Devika Syamnath and Shilpa Majumdar, and Alexander Smith).

(source: Reuters)