Why Shares of USA Rare Earth Are Skyrocketing Today

Ending the week on a bullish note, USA Rare Earth (USAR 16.29%) stock is soaring yet again today, while the S&P 500 (^GSPC 0.35%) and Dow Jones Industrial Average (^DJI 1.07%) are merely inching moderately higher.

As of 10:55 a.m. ET, shares of USA Rare Earth are up 22.6%.

Management teases a new partner

Speaking with CNBC on Thursday, Barbara Humpton, USA Rare Earth's CEO, reported that the company was in “close communication” with the White House. For investors, this sparks the hope that the U.S. government will seek an equity investment in the company as it has with other mining companies such as one that the Trump administration made with rare earths peer MP Materials in July and one with Lithium Americas that it announced this week.

Humpton further suggested that the potential for a partnership with the U.S. government is not out of the question, even with the deal According to The Fly, Humpton stated, “This is a field where it will not be a zero-sum game.”

Over the summer, MP Materials announced that the Department of Defense would invest $400 million in the company, representing a 15% equity stake, as the Trump administration seeks to shore up the nation's supply of rare earth elements.

Is USA Rare Earth a buy on the speculation of a new partnership?

With the Trump administration's growing interest in supporting domestic production of minerals critical to the nation's security, it's unsurprising that the company is in talks with the White House. Potential investors should recognize, however, that there are numerous risks to the company that transcend an equity investment from the government.

USA Rare Earth is currently not generating revenue, and there's no certainty that the company will succeed in its development of its rare earth magnet production facility in Oklahoma. At this point, therefore, only investors with substantial risk tolerance should consider a position in this mining stock.