USA Rare Earth boosts Western supply chain in $2.8B deal for Brazil producer

USA Rare Earth (Nasdaq: USAR) plans to acquire Brazilian rare earths producer Serra Verde Group for a total value of about $2.8 billion, a move that could position the new company among the few Western producers of heavy rare earths outside China. Shares surged.

The agreement, announced Monday, includes $300 million in cash and 126.849 million newly issued USA Rare Earth shares at $19.95 apiece, implying an equity value of $2.8 billion for Serra Verde. The company operates the Pela Ema project in Goiás state, Latin America’s only producing rare earths mine.

“The acquisition of Serra Verde represents a transformational step in delivering on our ambition to build a global champion and the partner of choice in rare earth elements, oxides, metals and magnets,” USA Rare Earth CEO Barbara Humpton said in a release.  

“By combining Serra Verde’s world-class operations and team with our processing, separation, metallization and magnet-making capabilities, we are advancing our goal of creating a fully integrated platform that will serve as a cornerstone of global rare earth supply security for decades to come.”

Heavy rare earth pipeline

The acquisition reveals how few fully integrated rare earth supply chains there are in the West and marks the start of a new one combining feedstock from Brazil with USA Rare Earth’s planned magnet manufacturing plant in Oklahoma. The Stillwater, Okla.-based company added a key step to its developing supply chain last October when it purchased rare earth magnet producer Less Common Metals of the United Kingdom.

USA Rare Earth also holds the Round Top project in Texas, which it aims to bring into production in late 2028. 

Shares of the company jumped more than 15% to $22.90 apiece on Monday morning in New York, for a market capitalization of about $4.9 billion. The stock has traded in a 12-month range of $8 to $43.98.

Pela Ema, which started commercial production in early 2024, is among the few operators outside China that produce the heavy rare earths dysprosium (Dy), terbium (Tb) and yttrium, critical for manufacturing permanent magnets used in wind turbines and defence applications.

Most other rare earths projects across the Western Hemisphere – including MP Materials’ (NYSE: MP) Mountain Pass operation in California, North America’s only rare earths mine – are dominated by light rare earths.

15-year offtake

The deal also includes a 15-year offtake agreement to supply a special purpose entity financed by U.S. government agencies and private sources with the four magnetic rare earths neodymium, praseodymium, Dy and Tb. The offtake would set unspecified minimum floor prices for the elements.

Serra Verde is expected to account for more than 50% of total heavy rare earth production outside China by 2027, with its stage one annual nameplate capacity reaching 6,400 tonnes of total rare earth oxides. A second stage expansion would bring significant growth potential, the company said. The mine has an estimated 25-year life.

It could achieve annualized EBITDA of $550 to $650 million by the end of next year, based on separated oxide sales.

“Today’s announcement is a strong endorsement of Serra Verde’s pre-eminent strategic importance on the global stage,” Serra Verde CEO Thras Moraitis said in a release. “Throughout Serra Verde’s 15-year journey, the company has been diligently focused on growing a responsible, sustainable supply of critical rare earth materials for the world’s future needs.”

Government funding tailwinds

The deal for Serra Verde also comes just over two months after it closed a $565-million funding package with the United States’ International Development Finance Corporation (DFC), a $100-million top up to the $465 million agreed with the DFC last November. The backing is aimed at operational upgrades for Pela Ema.

Unlike the hard rock-hosted rare earths at Mountain Pass, those at Pela Ema occur in large, soft and near-surface ionic clays that don’t require drilling or blasting to access. Many of those characteristics are shared with Meteoric Resources’ (ASX: MEI) Caldeira project in neighbouring Minas Gerais state, the largest ionic adsorption clay rare earths deposit outside China.

Both projects were cited in an analysis last October from BMI which said Brazil is emerging as “Latin America’s rare earth powerhouse” due to its huge reserves, advanced projects, strong government and foreign investment and international partnerships.