Brazil probes $2.8B rare earths deal

Brazil’s antitrust watchdog has opened an investigation into USA Rare Earth’s (Nasdaq: USAR) proposed acquisition of its only rare earth producer, posing a regulatory hurdle to America’s critical minerals plans in Latin America’s largest market.

Last month, USAR announced that it would acquire Serra Verde Group, operator of the Pela Ema rare earth mine and associated processing facility in Goiás state, for a total of $2.8 billion. Included in the deal was a 15-year U.S. offtake agreement tied to Pela Ema’s production of four rare earth elements (neodymium, praseodymium, dysprosium and terbium) used in high-performance magnets.

On Monday, the Administrative Council for Economic Defense said it has started to review the transaction, including the offtake agreement. The agency, also known as Cade, is responsible for evaluating business combinations and finding potential competition issues. Should an issue be identified, it has the authority to implement mitigation measures or operational restrictions.

The agency said it was only a review at this point, while USAR didn’t comment on Tuesday. Its stock slid 2.5% to $25.64 in New York for a market capitalization of $5.6 billion as wider markets declined on higher inflation figures. 

Review

In this case, Cade will look to assess whether the USAR-Serra Verde combination constitutes a “concentration act” under Brazilian competition law. If so, it will determine whether the parties were required to notify the transaction or whether it should request a submission for antitrust analysis.

However, the agency stressed that the proceeding “does not necessarily mean that the acts must be notified or that there are competition issues.” In the end, the General Superintendence “may decide to close the case, to allow the transaction to be completed, or to open an administrative proceeding,” it added.

Pact

The proceeding comes amid efforts by the U.S. government to seal a critical minerals pact with Brazil, host to the second to China with the world’s largest volume of rare earth reserves. Despite having been in talks as early as January, the parties have yet to finalize an agreement. So far, the U.S. only has a memorandum of understanding at the regional level with the state of Goiás, focused on investments in Serra Verde.

Earlier this year, the Brazilian company closed a $565-million funding package with the U.S. International Development Finance Corporation (DFC), which will be used to upgrade operations at Pela Ema.

The rare earth mine, which only began commercial production only two years ago, is among the few capable of mass producing heavy rare earths outside China. According to Serra Verde, it is expected to account for half of the world’s ex-China production by next year.