USA Rare Earth completes merger with Brazil's Serra Verde

USA Rare Earth, Inc., the Oklahoma-based rare earth and permanent magnet producer, said this week that it has completed its combination with Serra Verde Group, the Brazilian company that operates the only scaled rare earth mine outside Asia able to produce all four heavy rare earth elements used in the strongest magnets. The closing, effective September 3, caps a deal first struck in April and creates what the company's executives call the first fully integrated "mine to magnet" rare earth supply chain outside China, spanning operations in the United States, Brazil, the United Kingdom and France.

The numbers

Under terms detailed in a filing with the Securities and Exchange Commission, USA Rare Earth paid 300 million dollars in cash plus roughly 126.8 million newly issued shares of its common stock to Serra Verde's shareholders, warrant holders and other stakeholders, including the U.S. International Development Finance Corporation, which had backed the Brazilian miner. When the deal was announced in April, the stock-and-cash package carried an implied value of about 2.8 billion dollars.

Serra Verde's Pela Ema mine and processing complex in Goias state, Brazil, entered commercial production of rare earth oxides in January 2024 and is completing a commissioning program the company expects will lift output to roughly 4,000 tonnes a year of total rare earth oxide by the end of 2026. A second-stage expansion already under construction targets 6,400 tonnes a year, with commissioning expected within 12 months, and the companies say the deposit has the potential to eventually double that run rate over a mine life measured in decades.

USA Rare Earth shares, which trade on the Nasdaq under the ticker USAR, closed last week near 17.60 dollars, giving the combined company a market value of roughly 4.4 billion dollars on about 245 million shares outstanding — down sharply from a 52-week high near 44 dollars reached earlier this year as investor enthusiasm for rare-earth plays has cooled from its peak even as the underlying deal has advanced.

A federally backed bet against China

The merger closes alongside a wave of U.S. government support for the combined company. A shelf registration statement filed with the SEC the day after closing shows the U.S. Department of Commerce received about 16.1 million USA Rare Earth shares and a warrant for a further 17.6 million shares at 17.17 dollars each, in exchange for direct funding and loan guarantees tied to the company's domestic magnet-making buildout. That financing traces back to a definitive agreement with the Commerce Department's CHIPS Program Office, announced in June, that unlocked up to 1.6 billion dollars in federal incentives and loan support, including 277 million dollars in direct awards and up to 1.3 billion dollars in guaranteed financing through the Federal Financing Bank, in exchange for an equity stake the government now holds directly in the company.

Washington's interest reflects how central rare earths have become to trade tensions with Beijing. China supplies roughly 90 percent of the world's processed rare earth output and has repeatedly used export licensing as leverage in its dispute with the United States over technology and defense-related trade. In June, China's Commerce Ministry added USA Rare Earth itself, along with rival MP Materials and eight other American firms, to an export control list barring anyone from supplying them with Chinese-origin dual-use goods — a largely symbolic move, analysts said at the time, since both companies had already been working to cut Chinese inputs from their supply chains.

Leadership changes hands

The transaction brings a management shuffle. Thras Moraitis, who led Serra Verde, has joined USA Rare Earth's board and taken the newly created role of president; he is set to become chief executive on October 1, succeeding Barbara Humpton, who is retiring. Sir Mick Davis, Serra Verde's chairman and the former chief executive of mining group Xstrata, is also joining the USA Rare Earth board, bringing decades of experience running large-scale mining operations to a company whose Stillwater, Oklahoma, magnet facility is still ramping toward full commercial output.

"Today marks a significant milestone for USA Rare Earth, and I am pleased to welcome the Serra Verde team to our platform," said Barbara Humpton, the outgoing chief executive. Thras Moraitis, who becomes chief executive next month, called the deal "the culmination of a 15-year journey to build a scaled, sustainable source" of heavy rare earths outside Asia.

Who is affected

The combination touches several groups beyond the two companies' shareholders:

• Defense contractors, automakers and electronics makers that rely on neodymium-iron-boron magnets for weapons systems, electric motors and wind turbines gain a second Western-aligned supplier alongside MP Materials, potentially easing a bottleneck that has driven up magnet-metal prices this year.
• Workers at USA Rare Earth's Stillwater, Oklahoma, magnet plant, where more than 100 employees are ramping up commercial production lines, now sit inside a larger, better-capitalized company with a guaranteed supply of upstream heavy rare earth material from Brazil.
• U.S. taxpayers have new direct exposure through the Commerce Department's equity stake and the Federal Financing Bank's loan guarantee, meaning the government's return is now tied to the combined company's execution.
• Existing USA Rare Earth shareholders were diluted by the roughly 127 million new shares issued to Serra Verde stakeholders and the additional shares issued to the Commerce Department, even as the deal gives the company a broader resource base.

What happens next

USA Rare Earth said Serra Verde's second production stage is expected to be commissioned within the next year, while the Stillwater magnet lines continue ramping toward their own capacity targets. Executives have framed the combination as a step toward a self-sufficient, non-Chinese rare-earth and magnet supply chain that Washington has been trying to seed for several years through direct grants, loan guarantees and equity stakes rather than tariffs alone. Trade press coverage has noted that the government's growing equity position in critical-minerals companies marks a departure from the arm's-length role Washington traditionally played in the sector.

Investors will get their first look at the combined company's financials when USA Rare Earth reports third-quarter results later this year, a report that will show for the first time Serra Verde's Brazilian production and revenue consolidated onto the U.S. company's books. Analysts are likely to focus on whether the Pela Ema expansion stays on schedule and whether the government-backed special-purpose vehicle set up to fund Serra Verde's offtake — upsized to 1.55 billion dollars in August — is fully deployed as planned.