USA Rare Earth said on Monday that the Trump administration would back a $1.6-billion debt-and-equity funding package to help it build a Texas mine and magnet facility to supply the defense and high-tech sectors.

Reuters reported over the weekend that the US Department of Commerce was taking a 10% stake in Oklahoma-based USA Rare Earth as part of a push to boost production of the critical materials and cut reliance on market leader China.

USA Rare Earth's shares rose 15% to $28.42 on Monday.

Rare earths, a group of 17 minor elements, and the magnets made from them are used in a broad range of products, including cell phones, fighter jets, electric vehicles and medical kit.

USA Rare Earth has been developing a mine in Sierra Blanca, Texas, with Texas Mineral Resources, that is slated to open by 2028. It has a magnet manufacturing plant in Stillwater, Oklahoma, which is expected to launch later this year.

The investment is the latest to deepen Washington's critical minerals presence, after taking stakes in MP Materials, Lithium Americas and Trilogy Metals.

DEAL DETAILS

USA Rare Earth said it received a letter of intent for the deal outlining $277-million in proposed federal funding and $1.3-billion in a proposed senior secured loan under the CHIPS Act.

Reuters reported last year that this was being repurposed to fund minerals-related projects.

The deal does not include a government price floor or price guarantee, which had been extended to MP Materials in a similar investment last year.

MP was guaranteed a price for the light rare earths it sells of $110 per kilogram. USA Rare Earth will need to buy light rare earths on the market and is assuming it will pay $125 per kilogram, executives said.

USA Rare Earth will issue 16.1-million shares and roughly 17.6-million warrants to the Commerce Department.

The company has also raised a private investment in public equity (PIPE) for $1.5-billion, anchored by Inflection Point, under which it will issue 69.8-million shares at $21.50 each.

Inflection Point is a special purpose acquisition company that helped USA Rare Earth go public last year. Michael Blitzer is the chairman of both companies.

The PIPE deal, along with the proposed government investment, would bring the total amount to $3.1-billion.

The cost for the mine, magnet facility and related projects would be about $4.1-billion. With cash on hand and the investments announced on Monday, that would leave USA Rare Earth needing an additional $600-million, which executives on Monday said would likely be met through a stock raise.

The company does not yet have customers lined up and instead is aiming to be a "safety stock" that supplies customers its niche products as needed, which executives said they believe will be a higher-margin approach.

"The key question everybody has to ask is, 'What would be the cost of having access to nothing?,' and that is what's driving our early sales strategy," CEO Barbara Humpton told investors on a Monday conference call.

A senior Trump official said last month the administration was planning more "historic deals" with the U.S. mining sector.