USA Rare Earth Adds Yttrium Metal Capability as $2 Billion Acquisition Spree Faces Brazilian Government Scrutiny
J.P. Morgan Natural Resources Conference, June 23, 2026
USA Rare Earth has emerged as the sole producer of yttrium metal outside of China while navigating political headwinds around its pending $2.8 billion acquisition of Serra Verde, according to CFO William Steele at the J.P. Morgan Natural Resources Conference. The company has raised approximately $2 billion in equity capital and completed five strategic transactions over the past 14 months, positioning itself across the entire rare earth value chain from mining through magnet production.
Brazil Transaction Under Political Pressure But Structurally Insulated
The Serra Verde acquisition is drawing attention from the Brazilian government ahead of fall elections, though Steele downplayed the structural risk. The asset is currently owned by a holding company outside Brazil, with two-thirds owned by American private equity funds and one-third by a British family office backed by Sir Mick Davis. "Because this entity is owned outside of Brazil, there's actually no transaction happening in Brazil. So there's no change of control," Steele explained. "What that means structurally is that the Brazilian government technically does not have jurisdiction over the mechanics of the transaction."
The mine represents a critical piece of USA Rare Earth's upstream strategy as one of only three producing rare earth mines outside China and the only one producing heavy rare earths. It is fully financed by the Development Finance Corporation and the Department of War into full production, with 100% offtake secured through a special purpose vehicle backed by the U.S. government and Goldman Sachs. The transaction is expected to close this summer and will immediately generate cash flow and debt capacity.
Recent Chinese Export Ban Validates Investment Thesis
China's decision to name USA Rare Earth alongside another U.S.-based rare earth company in new export restrictions proves the strategic rationale for the entire buildout, according to Steele. "It proves the case," he stated. "The first question we normally get from investors is, do you think China is just going to reduce restrictions and we're going to go back to 2010? And our point is that we believe that there is going to be and there needs to be a bifurcated market going forward, given the fact that China dominates well in excess of 90% of the market, in fact, up to 99% of certain rare earths."
Rare earths contribute approximately $10 trillion to the U.S. economy, making Chinese control an unacceptable national security risk in management's view. The export restrictions followed similar measures that began last year but have now expanded to specifically target U.S. companies attempting to build alternative supply chains.
Domestic Magnet Capacity Still Far Below Demand Despite Competitive Additions
Energy Fuels' acquisition of VAC announced the morning of the conference adds to a growing list of domestic magnet announcements, but Steele sees ample room for multiple players. U.S. demand for rare earth magnets sits at approximately 50,000 metric tons annually, with European demand between 40,000 and 50,000 metric tons. The market is expected to more than double over the next decade. USA Rare Earth has announced 10,000 metric tons by 2029-2030, MP Materials has announced 10,000 metric tons, VAC is targeting 2,000 to 3,000 metric tons initially, with Noveon at 2,000 and Vulcan also developing capacity.
"All told, if all five of these facilities get up and running, there might be somewhere between 30,000 to 50,000 metric tons of magnet serving a 100,000 metric ton market over time," Steele noted. He emphasized that magnets are complex parts with different producers likely to specialize in block magnets versus small complex parts with advanced coatings, allowing for differentiation across competitors.
Industrial Automation and Data Centers Emerging as Major Demand Drivers
While aerospace and defense represent the obvious growth driver at roughly 10% of current industry demand, Steele highlighted industrial automation as the sleeper category. Industrial automation is projected to grow 45-fold, requiring massive volumes of industrial motors and corresponding magnets. Data centers present another significant opportunity, with each facility cycling through 20,000 to 40,000 drives monthly, each containing magnets for both the drive itself and cooling systems.
The current market breakdown shows industrial motors at 30% to 40%, mobility including EVs and heavy equipment at 30% to 40%, aerospace and defense at 10%, windmills at 7% to 9%, and health care at 10% to 15%. On humanoid robots, Steele took a measured approach to Elon Musk's projection of one billion units, suggesting even 100 million would represent substantial magnet demand.
Ukraine's use of approximately four million drones annually for its conflict contrasts sharply with U.S. plans for just 100,000 to 200,000 units, pointing to a need for millions of drones and corresponding magnets as the U.S. military adjusts its procurement. USA Rare Earth is currently working with drone companies, semiconductor companies, industrial motor companies, mobility companies, and heavy equipment companies across the demand spectrum.
Round Top Heavy Rare Earth Project Targets Year-End Definitive Feasibility Study
USA Rare Earth plans to complete the definitive feasibility study for its Round Top deposit by year-end, with the S-K 1300 technical report to be published early next year. The purely heavy rare earth deposit will produce dysprosium, terbium, and gadolinium, along with gallium, yttrium, hafnium, and zirconium, all commanding prices well above $200 per kilogram. "We will not produce lights or any products that are sub-economic at that facility," Steele emphasized.
The key near-term milestone involves working through the flow sheet for the hydromet facility and gathering necessary data to support the DFS, with an internal checkpoint expected in the third quarter. The company is developing proof of concept for producing various oxide forms using its separation process. Round Top will have a dedicated separation line optimized specifically for its ore body, designed to achieve the lowest cost of separation for that particular feedstock.
Carester Partnership Provides Access to European Processing Technology
The investment in French processor Carester provides access to critical intellectual property and one of the very few processing capabilities outside China. Carester's founder Frederic Carencotte is considered the best-known heavy rare earth processor outside China. The company has developed a unique approach of working with a broad range of feedstock providers to process ore into similar intermediate products that can then be handled at Carester's facility, which must be radionucleide-free due to French regulations.
This contrasts with USA Rare Earth's U.S. separation lines, which are being optimized for specific feedstocks. The Round Top line is bespoke for that deposit, while the third-party MREC line is optimized for Latin American ionic clay deposits. A separate recycling line will process swarf from magnet making, with 15% to 25% of feedstock expected to come from recycled material. Access to Carester's technology provides optionality for global processing expansion as the industry scales.
Stillwater Magnet Facility in Commercial Testing Phase
USA Rare Earth commissioned Phase 1a of its Stillwater magnet facility this spring and is currently specking commercial-grade magnets for customers. The process involves providing lab samples for initial testing, then producing specific grades on commercial lines and iterating until reaching purchase order or supply agreement stage. The company is working with power tool customers, drone companies, automotive parts companies, aerospace and defense companies, and energy companies, with most products destined for motors or actuators.
Line 1b at Stillwater, adding another 600 metric tons to reach 1,200 metric tons total capacity, will come online in the first quarter of 2027. The real acceleration occurs with the Blacksburg facility, which will have equipment installed beginning in the first quarter of 2028 and commence commissioning in the second half of that year. Blacksburg will ultimately produce 6,400 metric tons of magnets, with Stillwater reaching 3,600 metric tons for combined domestic capacity of 10,000 metric tons. In Europe, the company is scaling approximately 3,750 metric tons per annum of strip cast capacity in southern France.
The company's vertical integration strategy involves each step of the value chain operating as an economically standalone business while also supporting internal needs. At the mine level, USA Rare Earth will sell products like gadolinium, gallium, and yttrium into the market. The metal business already services third-party customers for more than half its volume, while magnets will be 100% third-party sales.
Government Support Totals $2.7 Billion in Committed and Proposed Funding
USA Rare Earth has secured $1.6 billion from the Defense Production Act, $565 million in Development Finance Corporation support for Serra Verde, a $19.3 million grant from the Department of Energy, and $14.2 million from Texas incentives. The Carester investment from the French government should finalize within weeks, while French incentives for the southern France facility remain under intent rather than commitment. The company has $1.75 billion in cash on the balance sheet currently.
Total capital expenditure from the start of 2026 through 2030 is projected at approximately $4 billion. Beyond existing funding commitments, Serra Verde cash flow and associated debt capacity against a producing asset with government-backed offtake provides significant financing optionality. The company has raised $2 billion in equity over the past 14 months and indicated it would continue to be judicious in accessing the equity markets as needed.
Steele pointed to bipartisan support for additional policy measures, including the House Select Committee on China's proposed bill for magnet metal and production tax credits. "I think all the support is really important for an industry that is not only completely dominated by China, but is also heavily subsidized by China and also uses industrial practices which are far from adequate in the Western world," he stated. Project Vault legislation would allow companies to sell metal, magnets, or rare earth oxides into a government stockpile, while Western nations are discussing consortiums for price support and investment.
France and Japan are described as the most forward-leaning allied governments currently investing in rare earth industry development. The partnership with France on the southern facility represents the most concrete example of this cooperation, with the French government acting as both partner and potential funding source.
On execution risk, Steele acknowledged the challenge of hiring and retaining the right talent for what he characterized as hard work with high expectations. The company diversified manufacturing across Stillwater and Blacksburg specifically to access different talent pools without oversaturating any single market. The Wheat Ridge, Colorado lab developing the Round Top mine operates more like a Silicon Valley software shop than a traditional industrial facility, with staff working around the clock.
Beyond Round Top milestones, investors should watch for announcements of additional processing capabilities, new magnet grades and technologies, capacity additions across the value chain, and customer agreements where permissible. Some customers currently sourcing from China remain reluctant to publicly announce relationships with alternative suppliers, though others have been more willing to allow disclosure.