USA Rare Earth Shares Tumble on Subsidy Setback

USA Rare Earth US91733P1075

Investors delivered a sharp verdict on USA Rare Earth, sending its stock price plunging after a competitor secured a major government award. The market reaction highlighted concerns over the company's position in the race for state funding and the financial challenges of its ambitious production timeline.

A steep sell-off occurred on December 15, with shares declining by 12%. This drop was triggered by the announcement that Korea Zinc would receive approximately $2 billion in federal funds to expand its zinc smelting operations within the United States. Market participants interpreted this allocation as a signal that other critical minerals companies, including USA Rare Earth, might be excluded from similar near-term government support. The broad-based selling pressure was evident in exceptionally high trading volume, which reached 9.08 million shares.

Ambitious Timeline Faces Operational and Financial Hurdles

The company continues to operate at a loss, as its projects remain in the development phase and are not yet generating revenue. For the third quarter of 2025, rising operational costs have further pressured margins. Despite these financial headwinds, management has announced an accelerated schedule for commercial production at its Round Top project in Texas, now targeting late 2028—two years earlier than previously planned.

This revised schedule introduces a potential strategic contradiction. The company's magnet manufacturing facility in Stillwater is slated to commence operations by early 2026. However, with Round Top's own rare earth ore production not starting until late 2028, USA Rare Earth could be reliant on foreign-sourced raw materials for a period of roughly two years. This reliance stands in contrast to its foundational promise of establishing a fully independent U.S. supply chain.

Valuation Implies Significant Future Execution

The equity's market valuation reflects a substantial degree of investor optimism. The stock trades at about 37.3 times its book value, a multiple far exceeding the mining sector's average of approximately 2.1x. This premium valuation essentially prices in the successful long-term build-out of the business. The analysis firm Zacks currently assigns the stock a "Hold" rating.

While a discounted cash flow analysis from Simply Wall St. suggests a potential intrinsic value of around $31.90 per share—indicating a possible undervaluation of 46.6%—this projection is entirely contingent on the company's future operational success. The recent price decline underscores a market that is recalibrating its expectations regarding both the timeline for and the scale of government subsidies within the sector.