"Hard outside China," a single sentence causes the U.S. government to cut $1.6 billion.

Ask AI · Could political ties raise compliance concerns for investment?

【By Guanjinzhe, Observer Network】 

Amid anxiety over the country’s heavy reliance on rare earth resources, the Trump administration has resorted to high-risk, highly controversial aggressive investment tactics in an attempt to break China’s dominant position in the field of scarce strategic metals, thereby building a domestic supply chain for key minerals. However, the UK media has recently found that the companies receiving government funding are facing severe tests in three areas: technological maturity, financial health, and political transparency. 

According to a report by the Financial Times on the 30th, the United States is spending tens of billions of dollars, betting on unverified players in the rare earth sector. Taking USA Rare Earth as an example, this company is set to receive $1.6 billion in funding from the Trump administration. It plans to carry out rare earth mining and high-end permanent magnet manufacturing in the United States. But this company has not only suffered losses for years with no prospect of profitability, and neither of its two main business segments has managed to advance commercialization and ramp up production. 

The report also points out that many of the target companies backed by the government are often financially linked to personnel in the Trump administration’s core inner circle, prompting strong doubts among Democratic members of Congress about the compliance of the collaborations and project approvals. 

 	Recently announced U.S. government mineral transactions    

The Financial Times reports that the agreement with USA Rare Earth is one of a series of deals the Trump administration reached over the past year, with the core goal of accelerating the establishment of a domestic secure supply chain for key minerals such as rare earths. But multiple industry experts have questioned the ability of the government-selected companies to fulfill their commitments. One executive said bluntly that start-ups like USA Rare Earth do not yet have the capability to “solve the current problem,” meaning they cannot quickly achieve industrialization and on-the-ground rollout. 

USA Rare Earth is located at the Round Top mine site in the town of Sierra Blanca, Texas. It has never carried out commercial-scale extraction. Although the mine site’s proven reserves cover 15 of the 17 rare earth elements, the actual extractable reserves for each metal remain unclear to date. 

The company, founded in 2019, has also not yet completed a final feasibility study. This key step is intended to assess whether the metals in the ore body are actually recoverable and whether they hold economic value for extraction. 

In addition, the Round Top mine site has been shelved for decades. Industry assessments generally conclude that its rare earth grade is too low—because the amount of rare-earth metal per unit of ore is insufficient, it would directly raise mining costs and technical difficulty. David Merriman, research director of Project Blue, said bluntly, “Compared with many rare earth projects under development, the grade at the Round Top mine site is very low. That’s not a secret.” 

This February, the U.S. Center for Strategic and International Studies (CSIS) also described the mine’s grade as “abnormally low,” noting that this could severely constrain the project’s commercial viability. The institution also emphasized that another major challenge is that the mineral composition at the mine site is “mixed.” USA Rare Earth’s own preliminary economic assessment report from 2019 also shows that half of the mine’s projected sales revenue is not expected to come from rare earths, but rather from non-rare-earth minerals such as uranium, hafnium, and lithium. Extracting multiple categories of minerals simultaneously would further significantly increase the complexity of metallurgical processes and raise capital expenditures. 

USA Rare Earth tried to argue that its 2019 assessment report no longer reflects its current development plans; but earlier this January, its CEO Barbara Humpton confirmed to analysts that hafnium resources remain the core variable for improving the Round Top mine site’s economic returns. 

According to reports, the company plans to start commercial-scale mining in 2028 and has drafted an “accelerated” plan to build a “full supply chain from mine to permanent magnet” that breaks away from China’s system. Its plan uses leaching methods to extract rare earths. The British Geological Survey told the Financial Times that this approach might be able to address the problem of low-grade ore deposits. USA Rare Earth also added that test results show that a substantial quantity of heavy rare earths can be recovered. 

But with so much uncertainty, how did a company like this manage to secure a massive government financing agreement in the United States? The article discloses a key detail: Joel Fetter, managing director of the lobbying firm Clark Street Associates, which participated throughout this transaction, said that USA Rare Earth developed a specialized production plan for scarce heavy rare earths beyond China—this is the core reason the U.S. government decided to inject funds into it. 

Fetter also mentioned that USA Rare Earth’s CEO Humpton had preliminary discussions with U.S. Commerce Secretary Lutnick, after which the two sides’ agreement was “finalized within just a few months.” 

Reports say that Lutnick previously led an investment bank that is now operated by his family. Last year, it helped USA Rare Earth complete its initial public offering through a special purpose acquisition company (SPAC) and also participated in the company’s $1.5 billion targeted financing in January this year. It was this financing that satisfied a prerequisite condition for the government’s approval of preemptive funds. 

The association between USA Rare Earth and Lutnick has triggered vigilance among some Democratic lawmakers, who said they have “serious concerns” about the deal. This February, multiple senators—including Elizabeth Warren—sent a letter to Lutnick accusing the related collaboration of providing benefits to his direct relatives and former employing institution. 

USA Rare Earth declined to comment on the matter. The U.S. Department of Commerce argued that Lutnick “fully complied with the terms of his ethical agreement,” and that the investment bank was not involved in this government transaction. 

A White House spokesperson also responded with official boilerplate: “Ensuring American national security and economic security by securing key supply chains by bringing them back is President Trump’s top priority. The only core basis for leading this work is to safeguard the fundamental interests of the American people—there are no other special interest demands.” 

However, this explanation is obviously not convincing, and it also cannot account for another point of doubt: another company, Vulcan Elements, which received government funding support as well, also appears to have behind it investment involvement from a venture capital firm under small Donald Trump. 

The report shows that Vulcan Elements and its partner ReElement Technologies jointly won a $1.4 billion government collaboration agreement last year. 

Besides the interest ties, the relevant companies also face severe financial problems. In its quarterly earnings report in November last year, the parent company of ReElement Technologies, American Resources Corporation, acknowledged that there is significant uncertainty about the company’s ability to continue as a going concern. The earnings report specifically noted that although management is pushing hard to secure financing to stabilize operations, the subsequent R&D costs of ReElement Technologies under its umbrella still cannot be determined. 

In response to the disputes over the earnings report, both companies denied the relevant statements but refused to provide further details. Mark Jensen, CEO of ReElement Technologies, argued that in recent years the company has cumulatively secured $220 million in financing and credit lines. But public financial filings show that the company’s latest reported cash balance is only $2.1 million. 

In addition, both companies are facing lawsuits. The bond trustee for the West Virginia Economic Development Authority, UMB Bank, sued American Resources Corporation and related enterprises including ReElement Technologies starting last year, seeking repayment of a $45 million financing default owed in 2023. 

The lawsuit alleges that these companies “transferred millions of dollars of public bond proceeds out of the state to profit through a series of fraudulent transfers.” The implicated companies deny the accusations in full and filed a counterclaim for breach of contract. The case is scheduled to be heard in September 2027. 

**This article is an exclusive submission by Observer Network. Without authorization, it may not be republished.**