Washington's $1.6B Endorsement Turns USA Rare Earth Into a Force

The United States government has moved from passive observer to active participant in the race for critical minerals. In the final week of January, the Department of Commerce announced a $1.6 billion financing package for USA Rare Earth Inc. (NASDAQ: USAR) (USAR). In a historic shift for industrial sector policy, the deal includes the government taking a direct equity stake in the company.

The announcement triggered an immediate, sharp division in the rare-earth sector. Shares of the newly validated challenger, USA Rare Earth, rose over 20% in intraday trading before settling at $26.72, a 7.87% gain by the close. Conversely, MP Materials Corp. (NYSE: MP), the only scaled producer of rare earths in North America, saw its shares slide 8.95% to $63.35 as investors rotated capital toward the new government-backed favorite.

This investment does more than just fund a mine; it creates a moat around the domestic supply chain backed by the U.S. Treasury. It de-risks the capital-intensive development of critical minerals and positions USAR as a top geopolitical play alongside the established leader, MP Materials.

$3.1 Billion: Bridging the Valley of Death

Mining is a notoriously tricky business for public companies. Developers often face a valley of death, the treacherous period between discovering minerals and actually selling them. During this phase, companies burn through cash to build infrastructure without generating any revenue. Monday’s announcement effectively bridges that gap for USA Rare Earth, removing the bankruptcy risk that often plagues junior miners.

The government's $1.6 billion package is structurally unique. It consists of a $1.3 billion senior secured loan and $277 million in federal grants. Crucially, the agreement includes a provision for the U.S. government to acquire approximately 16.1 million shares and 17.6 million warrants, giving the American taxpayer a roughly 10% ownership stake in the company.

Investors received a second signal of confidence alongside the government news. USAR simultaneously announced it has secured an additional $1.5 billion in private capital through a Private Investment in Public Equity (PIPE) transaction. This deal was anchored by Inflection Point, bringing the total liquidity injection to over $3.1 billion.

This funding fully finances the company’s mine-to-magnet strategy. The capital will expedite two primary assets:

• The Round Top Project (Texas): Commercial production has been accelerated to late 2028.
• The Stillwater Magnet Plant (Oklahoma): Commissioning of Line 1a is currently underway in Q1 2026, with an immediate capacity target of 1,200 metric tons per year.

While MP Materials dominates the market for Light Rare Earths (NdPr) used in electric vehicles and wind turbines, the government chose USAR for a different strategic reason: Heavy Rare Earths. USAR’s Round Top deposit contains dysprosium and terbium. 

These heavy minerals are mandatory for high-temperature applications. Standard magnets lose their magnetism at high heat; magnets doped with dysprosium do not. This makes them essential for military hardware like F-35 fighter jets and missile guidance systems. With China currently controlling nearly 100% of the heavy rare earth supply, the government’s equity stake confirms USAR is the chosen entity to close this specific national security vulnerability.

The Incumbent’s Dilemma: Is MP Materials Now a Buy?

While USAR celebrated, MP Materials faced significant selling pressure. Despite being the established leader with operational mines and a market capitalization of approximately $11.2 billion, MP stock fell nearly 9%.

Market analysts attribute this decline to sector rotation rather than a fundamental flaw in MP’s business. For the past several years, MP Materials has been the only viable public equity vehicle for investors seeking exposure to the North American rare-earth supply chain.

With the government’s massive validation of USA Rare Earth, capital flowed from the safe, established play (MP) to the high-growth play (USAR). Investors sold the winner to buy the new opportunity.

However, MP Materials remains the operational backbone of the sector. In its Q3 2025 earnings, the company reported revenue of $53.55 million, beating analyst expectations.

Furthermore, MP holds its own government backing, having previously secured a $400 million investment from the Department of Defense and a price-floor guarantee for its products. This price floor protects MP’s margins against market volatility, a safety net that USAR does not yet have in operation.

Investors should note one cautionary point regarding sentiment. Regulatory filings indicate that CEO James Litinsky and CFO Ryan Corbett sold shares in late 2025 and January 2026. While insider selling often occurs for tax or personal liquidity reasons, sales executed during a period of high government support can signal to the market that leadership lacks conviction in near-term price appreciation.

Despite the insider activity, MP Materials presents a potential value opportunity. Trading at around $63, the stock is now well below its average analyst price target of $78.91. For investors, this pullback represents a discounted entry point into a company that is already producing metal and generating revenue, unlike the pre-revenue USAR. MP’s Independence Facility is producing metal today, and its magnet production commercial ramp-up is expected to continue in 2026. While USAR sells the dream of 2028, MP is delivering the reality of 2026.

A Duopoly of National Champions

The United States is creating a bifurcated rare-earth market. On one side stands MP Materials, the industrial champion providing the light rare earths necessary for the high-volume electric vehicle economy. On the other hand, stands USA Rare Earth, the strategic champion providing the heavy rare earths critical for national defense.

The $1.6 billion check signed by the Department of Commerce validates the entire sector. By taking an equity stake, the government has signaled that failure is not an option for domestic supply chains. The moat protecting these companies is now backed by the full faith and credit of the United States.

Investors will look to the next set of data points to confirm this trajectory. USA Rare Earth is expected to report Q4 earnings on February 5, 2026, during which the market will look for updates on the Stillwater plant's commissioning. MP Materials follows with its report on February 19, 2026, where investors will look for proof that the company has returned to profitability as predicted. For the first time, investors have two distinct, government-backed options to play the critical mineral supercycle.

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