Most investors know that most stocks are only going to have average gains. Every now and then, though, a potential surface that looks like a potential game changer. In fact, it can turn even a relatively small investment into seven figures.
The risks associated with this kind of potential are, of course, enormous — and that’s the hurdle everyone sees America’s rare earth (NASDAQ: USAR ) It’s facing right now. The world needs what it has. However, the math may or may not feel risk-adjusted in the long run.
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As the name suggests, US Rare Earth is in the rare earth mineral business. Once its facility in Stillwater, Oklahoma begins operating sometime in the first half of this year, the pre-revenue company will be able to produce 5,000 tons of rare earth magnets annually, putting it in a business that US Rare Earth President Thayer Smith says is poised to triple in 10 years.
It’s not just a production center, though. In fact, the company’s most valuable asset is its property in West Texas – called Round Top – which is still being prepared for mining. While such speculation should be taken with a grain of salt (because no one will ever know for sure until the ground is actually dug up), some have suggested that there are tens of millions of tons of rare earth elements waiting to be mined at the site, as well as enough lithium hydroxide — used in electric vehicle batteries — to produce 20,000 tons per day.
Another miner, Texas Mineral Resources, has previously suggested that the resource could generate on the order of $400 million annually (at 2019 prices), translating to more than $8 billion in revenue over the mine’s expected useful life of 20 years. not bad.
Controversy? It will take at least a few more years and several hundred million dollars just to start production on the round top. In addition, while it is encouraging to know that the rare earth of the United States has access to liquidity if it is needed, the fact that it has been arranged by the federal government up to 1.3 billion dollars in debt-based financing and in the end another 1.5 billion dollars in private financing speaks about the costs that will be involved here.
