USA Rare Earth shares advance 13% on deal for Brazilian rare earths miner

Shares of USA Rare Earth, a mid-cap rare earths producer, surged more than 13% on Monday. The company announced the acquisition of Serra Verde Group, the only large-scale producer of all four magnetic rare earth elements outside Asia, a move that will make it a global leader in the industry. “This is the deal that has been anticipated for years,” Noble Capital Markets wrote. Against this backdrop, Wedbush Securities has issued a "buy" call on USA Rare Earth shares.

USA Rare Earth shares jumped more than 13% on the Nasdaq on Monday to $22.58 per share. That marks their highest level since early February.

Investors were reacting to the company’s announcement of the acquisition of Serra Verde Group, owner of the Pela Ema rare earth mining and processing operation in Brazil.

The deal is valued at approximately $2.6 billion. Of that, $300 million will be paid in cash, with the remainder being made up in newly issued shares. The parties expect to close the transaction in the third quarter, subject to regulatory approvals.

Brazil-based Serra Verde is the only large-scale producer outside Asia of all four magnetic rare earth elements: neodymium (Nd), praseodymium (Pr), dysprosium (Dy), and terbium (Tb). These materials are used to manufacture permanent magnets that power electric vehicle motors, wind turbines, defense systems, and advanced electronics, Noble noted.

China accounts for about 90% of global processed rare earth output, Reuters writes. Beijing is “holding the world captive” through its control over exports of these materials, Trump has claimed. The deal between USA Rare Earth and Serra Verde represents a “direct challenge to that dominance,” Noble said.

“USA Rare Earth is now the global champion in rare earths,” said CEO Barbara Humpton on a Monday call with analysts, as cited by Fortune. “We’re going to be a major supplier to all the other players in the industry … helping the whole industry scale,” she added.

On the same day, Serra Verde said it had signed a 15-year agreement to supply 100% of its production to a special purpose vehicle capitalized by various US government agencies and private capital sources, with guaranteed minimum floor prices for each of the four magnetic rare earth elements.

“That government-backed revenue floor substantially de-risks the asset and signals how seriously Washington views rare earth supply chain security as a national priority,” Noble wrote.

If market prices exceed those minimum levels, both USA Rare Earth and the SPV will share the upside, Reuters noted. The agency also recalled that last year the US government set a price floor for another domestic rare earth producer, MP Materials. That agreement included a provision under which the government would compensate MP Materials if prices fell below a certain level. USA Rare Earth did not receive such an arrangement, Reuters wrote.

Following the deal, Wedbush initiated coverage of USA Rare Earth shares with a “buy” rating, according to Yahoo Finance data. The analysts set a target price of $29 per share, implying 28% upside from the latest close.

In total, the stock has six ratings from Wall Street analysts, all of them “buy.” The average target price of $33.20 per share implies 47% upside.

Since the beginning of the year, USA Rare Earth shares have surged nearly 90%.