Here's Why USA Rare Earth Stock Surged, Again, Today
Key Points
The company could conceivably feed its production facility with materials from Venezuela, and receive investment from the U.S. government in the future.
The share price rises in recent days are driven by speculation.
Another day and another double-digit share price for USA Rare Earth (NASDAQ: USAR). The stock rose by as much as 11% by 2 p.m. today. There are two reasons behind the move today.
Venezuela
Ongoing speculation that events in Venezuela would lead to favorable trading relations with the U.S., and an opportunity for USA Rare Earth to procure rare-earth elements to feed its its Stillwater, Oklahoma magnet producing facility, As discussed previously, Venezuela is rich in rare earth elements, USA Rare Earth needs non-China sourced materials to produce magnets in Stillwater, and generate the earnings and cash flow to support development of the Round Top deposit in Texas starting in 2028. Consequently, if, and it's a big "if", it can do so, then its business model would be significantly derisked.
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China curbs rare-earth exports.
The fact is that the company and its peers, such as MP Materials, trade on speculation surrounding political developments related to China's dominant position in rare-earth materials and magnets. When trade tensions escalate on the matter, investors begin to factor in the possibility of government support and commercial investment by major companies seeking to secure a domestic supply of magnets.
Image source: Getty Images.
As such, the news that China has imposed export bans on rare-earth elements that could be used for military purposes to Japan (due to comments by the Japanese Prime Minister regarding Taiwan) is likely to strengthen the idea that support for USA Rare Earth is inevitable at some point. As MP Materials investors have discovered this year, that could lead to a sharp appreciation in the stock price. Something to consider, even if the recent moves in USA Rare Earth's stock price are driven by speculation.
Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.