Baird initiates on new U.S. rare-earth player as investors seek China alternatives

Ben Kallo at Baird has initiated coverage of Ramaco Resources with a “buy” rating, arguing that the company’s discovery of a large rare earth deposit positions it to play a key role in reducing U.S. dependence on China for critical minerals. The coal miner is developing what will become the country’s first new rare earth mine in more than seven decades. The stock has surged nearly 350% year to date, and Baird expects further upside as the government extends support to domestic producers.

Kallo values Ramaco at 13 times projected EBITDA, which he estimates will reach $444 million by 2030. He set a target price of $63 per share, implying 28% upside from current levels. The analyst expects it will take several years for the company to ramp up output at its Brook Mine in Wyoming, which contains significant deposits of heavy rare earth elements. “It will take several years for Ramaco Resources to ramp operations at the Brook Mine, and 2030 will likely be the first year of smooth, full run-rate production,” Kallo wrote in a note cited by Barron's.

The initiation follows growing investor interest in U.S. producers after China’s threats to restrict rare earth exports. Beijing dominates the global supply chain, processing about 85% of rare earth materials worldwide, and the hunt for alternative suppliers is on, Barron's writes. That dominance has prompted the U.S. Defense Department to fund MP Materials, the largest rare earth producer in the Western Hemisphere, to ensure long-term security of supply.

Kallo wrote, "every indication we have received from third-party media outlets and company checks leads us to believe that more critical mineral deals between the U.S. [government] and developers are near... We see it as likely that [Ramaco] will receive some form of government support."

Ramaco Resources was long known as a metallurgical coal producer for the steel industry, but its core business has been under pressure due to overproduction in China, according to CNBC reporting. In 2023, the company discovered that its Brook Mine in Wyoming sits atop a large deposit of rare earth oxides. Independent consultants estimated reserves at up to 1.7 million metric tons. The Brook Mine will be the first new rare earth mining project in the U.S. in more than seventy years.

Construction of a pilot processing facility began in June, with operations expected to start next year. The plant will run for about a year to determine the parameters of a full-scale industrial facility, construction of which could begin as early as late 2026. Ramaco has not yet disclosed total project costs. Chief Executive Officer Randall Atkins said the company plans to fund development primarily through coal sales, lowering the overall cost base of rare earth extraction. He estimates the mine could produce about 1,400 metric tons annually once commercial production begins.

The Brook Mine “has the potential to help address what is an acute national strategic supply shortfall of precisely the rare earths and critical minerals which we happen to possess,” Atkins told analysts on the company’s first-quarter earnings call. “From a national security standpoint, we will never need to ship our ores to China or any other country for processing.”

Ramaco shares closed at $49 apiece on October 16, up from less than $34 per share at the beginning of the month, before China announced new export restrictions. The stock has climbed nearly 350% year to date but fell 5.3% on Friday, October 17.

According to FactSet data cited by Barron’s, Ramaco is covered by seven analysts, all of whom rate the stock a “buy.” The average target price is roughly in line with current levels, though Kallo’s $63 per share target is the highest on Wall Street.

At present, the only operational rare earth mining and processing site in the U.S. is Mountain Pass in California, owned by MP Materials. The Pentagon invested $35 million in the company to build a new processing facility. That deal, which includes a price floor for key products, has sent MP shares soaring more than 430% year to date, Barron's writes.

Kallo also covers MP Materials, assigning a “buy” rating and an $80 per share target price, which values the stock at 23 times projected 2030 EBITDA.

The AI translation of this story was reviewed by a human editor.