USA Rare Earth: A Texas-Sized Gamble

Now, I’ve seen a good many bubbles rise and burst in my time – land schemes in Florida, silver mines in Nevada, and more recently, these here “tech” contraptions. But this venture with USA Rare Earth… well, it’s a peculiar sort of speculation, ain’t it? Seems everybody’s fixated on these rare earth elements – seventeen fancy names for metals that are harder to find than an honest politician. They claim these bits of earth are crucial for everything from your telegraph to, I reckon, weapons of war. And wouldn’t you know it, the Chinese have got a grip on most of ’em. That’s enough to give any patriotic soul the jitters.

So, the government, bless its heart, decided we needed a domestic supply. A grand idea, of course. They’ve sunk a considerable sum into USA Rare Earth (USAR 2.19%), a company that, as of yet, hasn’t actually dug anything up. It’s all promise and potential, like a politician’s pledge during election season. They’re aiming to pull 40,000 metric tons of this stuff outta the Texas ground by 2030. A mighty ambition, I say. Mighty.

Now, here’s where the tale gets a bit tangled. The government didn’t just hand over cash, no sir. They handed over shares – sixteen million of ’em, plus warrants for another seventeen million. That’s a heap of stock. It ensures the company won’t likely fold up overnight, which is reassuring. But it also means your slice of the pie gets smaller, diluted, if you happen to be a shareholder. They then went a-begging for another $1.5 billion from private investors, adding even more shares to the mix. It’s like pouring water into a bucket already overflowing.

All told, they could end up with 75% more shares outstanding. That means your existing shares are worth a good deal less, almost 43% less, than they were before. It’s a simple matter of arithmetic, though some folks on Wall Street seem to have trouble with such basic sums. The market, being a fickle beast, hasn’t taken kindly to this dilution. The stock’s fallen more than 25% since the announcements.

Shares of USA Rare Earth Have Taken a Dive

Now, don’t misunderstand me. A government backstop is a comfort, no doubt. But the government ain’t running a charity. They’re interested in national security, not maximizing shareholder profits. They’ll do what’s best for the country, and that might not be what’s best for your pocketbook. The market’s figuring that out, and it’s voting with its dollars.

Folks might be tempted to “buy the dip,” as they say. But hold your horses. Even after the decline, USA Rare Earth is valued at $4.2 billion. And remember, they haven’t sold a single ounce of this rare earth yet. They reckon they’ll start digging things up at their Round Top deposit in Texas by late 2028. That’s a long time to wait for a return on your investment, and a lot can go wrong in the meantime.

Buying this stock now is a gamble, pure and simple. What if the government changes its mind? What if they hit unexpected snags in the mining process? What if they can’t meet their production targets? These are not idle questions, mind you. These are the sort of things that keep a seasoned investor up at night.

The dilution pretty much wipes out any potential value from the recent price drop. That’s my considered opinion. Therefore, I’d advise a fella to sell. There are safer pastures to graze in, and a good investor knows when to cut his losses. This one smells a bit like fool’s gold, if you ask me. A heap of promise, but precious little substance… at least for now.

2026-02-17 19:13

Shares of USA Rare Earth Have Taken a Dive

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