USA Rare Earth, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is intended to help the reader understand our results of operations and financial condition. It should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes included in Part I, Item 1, “Financial Statements (Unaudited),” in this Quarterly Report on Form 10-Q (the “Notes”). The following discussion may contain forward-looking statements. Forward-looking statements are not guarantees of performance. Although we believe these forward-looking statements are reasonable when made, we cannot assure you that we will achieve the plans or expectations referenced in our forward-looking statements. Our actual results and the timing of events may differ materially from those expressed or implied as a result of various factors, including those set forth in the sections titled “ Risk Factors ” and “ Cautionary Note Regarding Forward-Looking Statements .” Overview We are building a leading global rare earth value chain, from mine to magnet and beyond. We intend to secure, reshore, and grow the materials intelligence and production technologies required to stand up a resilient rare earth industry. This advanced industrial operating system should strengthen supply-chain security for the national defense, manufacturing and technology of the United States (“U.S.”) and its allies. Our plan is to build an integrated platform to encompass the entire rare earth value chain: extraction and separation of rare earth oxides; conversion of oxides into metals, alloys and strip-cast; and production of sintered neodymium-iron-boron (“NdFeB”) permanent magnets, which we also refer to as neo magnets. This capability should address the supply-chain vulnerabilities created by China’s current dominance of rare earth processing, and metal and magnet manufacturing. Factors Affecting Comparability of Results During 2025, we completed two transactions that materially affect the comparability of the results discussed below. On March 13, 2025, we consummated our business combination with USA Rare Earth, LLC and became a publicly traded company listed on Nasdaq under the symbol “USAR.” On November 18, 2025, we acquired Less Common Metals Ltd. (“Less Common Metals”), a rare earth metal and alloy manufacturer based in Cheshire, United Kingdom. As a result, the three and six months ended June 30, 2026 reflect Less Common Metals’ operations, while the prior-year period reflects none. All of our revenue for the three and six months ended June 30, 2026 is attributable to Less Common Metals. Accordingly, revenue, gross loss, and operating expenses for the three and six months ended June 30, 2026 are not comparable with the corresponding line items for the three and six months ended June 30, 2025. For a complete description of both transactions, refer to Note 2 , “ Merger Transaction and Acquisition , ” in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10‑K for the fiscal year ended December 31, 2025 (the “2025 Annual Report”) filed with the Securities and Exchange Commission ( “ SEC ” ) on March 30, 2026 . Recent Developments, Key Trends, Opportunities and Uncertainties We are an early-stage company with a limited operating history and intend to grow our global value chain through capital and operational expenditures, as well as through strategic initiatives. These investments may exceed our revenues over the next several years. Our revenues for the three and six months ended June 30, 2026 were derived solely from our metal-making operations following the acquisition of Less Common Metals in 2025, and we have not yet generated revenues from our neo magnet manufacturing or mineral production. We incurred a net loss of $80.0 million for the six months ended June 30, 2026. Our historical results are not indicative of our future results, and our ability to generate sufficient revenue to achieve profitability will depend largely on the successful development and scaling of our integrated mine-to-magnet platform and our global value chain. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 27 Table of Contents Proposed Investment in Carester SAS On April 9, 2026, we entered into a binding letter of intent, and subsequently on July 23, 2026, we entered into a definitive agreement to acquire a 13.6% equity interest in Carester SAS (“Carester”), the parent company of Caremag SAS (“Caremag”), for cash and equity consideration amounting to approximately $45.7 million. The proposed consideration consists of €28.3 million in cash, or approximately $32.4 million, and equity consideration of €11.7 million, or approximately $13.3 million, payable in shares of our common stock, in each case subject to customary adjustments, including the potential substitution of cash in lieu of our common stock. As of June 30, 2026, the transaction had not closed. We expect to close the investment in the third quarter of 2026, subject to customary closing conditions and regulatory approvals. This transaction is part of a broader initiative, in partnership with Carester, the Government of France and InfraVia, to build an integrated value chain platform for rare earth processing, metal and alloy production and magnet making in Lacq, France. If the investment is completed, the platform will unite the technological expertise, process innovation, and production capacity of our manufacturing operations and those of Carester with the goal of accelerating development and strengthening our capabilities across the rare earth value chain. In parallel, USA Rare Earth, through Less Common Metals – Europe, is developing a 3,750 metric tons per year (“MTPA”) metal and alloy production facility at the same location. We believe the partnership will create one of Europe’s most complete rare earth industrial ecosystems. The proposed transaction is further subject to, among other things, the negotiation and execution of definitive agreements, receipt of applicable regulatory approvals, and the satisfaction of customary closing conditions and there can be no assurance that the transaction will be completed. Proposed Acquisition of SVRE Holdings Ltd. On April 19, 2026, we entered into a definitive agreement to acquire 100% of SVRE Holdings Ltd., the parent company of Serra Verde Group (“Serra Verde”), for a proposed consideration of approximately $2.83 billion, consisting of $300.0 million in cash and 126.8 million shares of our common stock, subject to customary adjustments. Serra Verde operates the Pela Ema rare earths project in Brazil and is currently in commercial production. The Pela Ema mine is unique as the only mine outside Asia currently capable of supplying all four magnetic REEs at scale, neodymium, praseodymium, dysprosium and terbium, together with other vital REEs, such as yttrium. This transformative acquisition, if completed, will create what we believe will be the only fully integrated mine-to-magnet platform outside China, with active capabilities across mining, processing, separation, metallization and magnet making across three continents. Serra Verde's strategic importance is further evidenced by its 15-year offtake agreement with a special purpose vehicle capitalized by the U.S. Government, which features contractual price floors covering 100% of Serra Verde's Phase 1 production of neodymium, praseodymium, dysprosium and terbium. We believe this acquisition strengthens our U.S. and allied government relationships and provides multiple embedded growth opportunities, including a potential Phase 2 doubling of Pela Ema’s production capacity. The transaction also adds significant leadership depth through the expected appointment of Thrasyvoulos Moraitis and Sir Mick Davis to our Board upon closing, with Mr. Moraitis initially serving as President of the combined company, and Chief Executive Officer (“CEO”) of the combined company after our current CEO retires on October 1, 2026. On July 24, 2026, we filed a proxy statement on Schedule 14A with the SEC seeking shareholder approval of the Serra Verde acquisition at a special stockholder meeting scheduled for August 28, 2026. The transaction remains subject to customary closing conditions, including shareholder approval, receipt of applicable regulatory approvals, and the absence of material adverse effects. There can be no assurance that the transaction will be completed. The transaction is subject to customary closing conditions, including receipt of shareholder approval and applicable regulatory approvals, and there can be no assurance that it will be completed. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 28 Table of Contents Texas Semiconductor Innovation Fund On May 11, 2026, we entered into a grant agreement with the Office of the Governor of the State of Texas (the “OOG”) pursuant to the Texas Semiconductor Innovation Fund (“TSIF”) (the “TSIF Grant Agreement”), Grant No. TSIF 26-016P. Under the grant agreement, the OOG has agreed to reimburse us for certain allowable costs directly allocable to the Round Top Project, up to a maximum amount of $14.2 million. The TSIF Grant Agreement proceeds are intended to support the development of Round Top Mountain as a domestic source of heavy rare earth elements and select technology metals, including dysprosium, hafnium, terbium, and other elements essential for high-performance permanent magnets used in the aerospace, defense, semiconductors, data center, physical AI, energy, mobility, healthcare, and numerous industrial sectors. The TSIF Grant Agreement grant funds are disbursed on a cost reimbursement basis only, and payment is dependent upon our strict compliance with the terms and conditions of the TSIF Grant Agreement, including applicable reporting, audit, and performance requirements. The TSIF Grant Agreement terminates upon the completion of the grant project, on December 31, 2028, or upon the depletion of grant funds, whichever occurs first. U.S. Department of Energy On May 21, 2026, we were selected by the U.S. Department of Energy (the “Dept. of Energy”) to receive up to $19.3 million in funding under the “Critical Materials Innovation, Efficiency and Alternatives” program to support development of a pilot-scale rare earth element separations project. The total project value is approximately $50.5 million, including $19.3 million in the Dept. of Energy funding and $31.2 million in the non-Dept. of Energy funding. Final award terms, project scope, budget, and timeline are subject to negotiation with the Dept. of Energy. As of June 30, 2026, we had not received funding or executed a final award agreement. Selection for award negotiations does not constitute a binding commitment of federal funding. Any award is subject to successful completion of negotiations with the Dept. of Energy and the execution of a definitive funding agreement. U.S. Department of Commerce On June 3, 2026, we entered into a Direct Funding Agreement (“DFA”) of $277.0 million and a Loan Guarantee Agreement (“LGA”) of $1.30 billion with the U.S. Department of Commerce (the “Dept. of Commerce”). We issued 16.1 million shares valued at $451.4 million and a warrant to acquire 17.6 million shares with an exercise price of $17.17 initially valued at $430.9 million as conditions precedent. As of June 30, 2026, no disbursements or advances had been received; initial funding is subject to milestone approval. See Note 13, “Government Grants – U.S. Department of Commerce CHIPS Act Awards,” of the Notes for additional information regarding the Dept. of Commerce agreements. Acquisition of Texas Mineral Resources Corp. On March 4, 2026, we entered into a definitive Agreement and Plan of Merger with Texas Mineral Resources Corp. (“TMRC”). On August 7, 2026, we closed the acquisition of TMRC, to which we acquired 100% of the outstanding shares of TMRC. The transaction is valued at approximately $73.9 million based on the closing price of the Company’s common stock on August 7, 2026. The aggregate merger consideration consists of approximately 3.8 million shares of our common stock, with cash paid in lieu of fractional shares. See Note 4, “Variable Interest Entity,” of the Notes for additional information regarding the TMRC acquisition. Subsequent to the closing, we will be the sole operator and 100% economic beneficiary of the “Round Top Project,” which consists of our operations and rights related to Round Top Mountain and the Round Top Mountain HREE metals deposit (the “Round Top Deposit”). The transaction secures full ownership control of the Round Top Project, and streamline operations, governance and decision-making. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 29 Table of Contents Second Quarter 2026 Business Highlights Less Common Metals Yttrium Metal Production On April 15, 2026, we announced the first commercial production of 2N–2N5 (99%–99.5% purity) yttrium metal through our wholly-owned subsidiary, Less Common Metals, at its facility in Cheshire, United Kingdom. This milestone positions us among a limited number of commercial-grade yttrium metal producers outside China. Yttrium production advances our integrated value chain strategy and supports aerospace, defense, and advanced manufacturing customers requiring reliable supply sources outside China. Blacksburg Magnet Manufacturing Facility On June 2, 2026, the Company announced the selection of Cherokee County, South Carolina, as the site of a new magnet manufacturing and refined metals operation in Bailey Industrial Park, Blacksburg, South Carolina (the “Blacksburg Facility”). The state-of-the-art facility is expected to produce 6,400 metric tons per annum (tpa) of sintered neodymium-iron-boron (NdFeB) rare earth magnets and 5,000 tpa of strip-cast metals and alloys. When combined with the planned expansion of our Stillwater Facility, total domestic capacity is expected to reach approximately 10,000 tpa of NdFeB magnets and 10,000 tpa of strip-cast metals and alloys. Engineering work and equipment procurement are underway, with site work anticipated to commence in the coming months and commissioning targeted to begin in 2028. Wheat Ridge Hydrometallurgical Facility On June 15, 2026, we commenced operations of our hydrometallurgical demonstration facility in Wheat Ridge, Colorado (the “Wheat Ridge Facility”), to validate processing flowsheets for feedstocks from the Round Top Project, third-party sources, and rare earth magnet scrap (swarf) recycling. Initial production results are expected to support development of the Round Top Definitive Feasibility Study. Wheat Ridge Magnet Swarf Recycling Production On July 14, 2026, we announced that our Wheat Ridge Facility, produced commercial-grade dysprosium oxide and neodymium-praseodymium oxide samples from recycled swarf sourced from our magnet manufacturing facility at Stillwater, Oklahoma (the “Stillwater Facility”). The oxides are expected to be sent to Less Common Metals for qualification and conversion into rare earth metals and strip cast for supply to our magnet manufacturing facilities. This production validates our magnet swarf recycling flowsheet and positions us as one of the few Western producers capable of separating commercial-grade heavy rare earth oxides outside Asia. Results of Operations A discussion regarding our financial condition and results of operations for the three and six months ended June 30, 2026, compared to the three and six months ended June 30, 2025, is presented below. Our operating revenues and gross margins have been derived solely from our acquisition of Less Common Metals on November 18, 2025, and the parent company had no operating revenues or gross margin prior to November 18, 2025. We currently rely on equity and other external financing to fund our business plans, including our Stillwater Facility; mineral exploration, evaluation, and development activities at the Round Top Project (collectively, “R&D” costs); selling, general and administrative (“SG&A”) expenses; interest expense; and other operating costs. Accordingly, we expect to incur operating losses until we achieve profitable commercial operations at our Stillwater Facility, the Round Top Project, and/or our Less Common Metals – Europe manufacturing facility located in Lacq, France. Table of Contents Revenue, Gross Profit and Gross Margin The following table sets forth our revenue, cost of sales, gross loss and gross margin for the period indicated. Three Months Ended June 30, 2026 Six Months Ended June 30, 2026 (In thousands, except for percentage) Revenue $ 5,821 $ 11,519 Cost of revenue 7,404 12,996 Gross loss $ (1,583) $ (1,477) Gross margin (27.2) % (12.8) % Comparison of the three months ended June 30, 2026 and 2025 Revenue was $5.8 million for the three months ended June 30, 2026, all generated by Less Common Metals, which was acquired in November 2025. Cost of revenue for Q2’2026 was $7.4 million, resulting in a gross loss of $1.6 million and a negative gross margin of 27.2%. The gross loss reflects substantially increased raw material costs in Q2’2026 that were not fully offset by increases in selling prices. Additionally, we recorded in Q2’2026 inventory adjustments. Comparison of the six months ended June 30, 2026 and 2025 Revenue was $11.5 million for six months ended June 30, 2026, all generated by Less Common Metals. Cost of revenue for the first half of 2026 was $13.0 million, resulting in a gross loss of $1.5 million and a negative gross margin of 12.8%. The first half of 2026 results reflect significant variation between quarters. Q1’2026 achieved a gross margin of 1.9%, while Q2'2026 recorded a gross loss with a negative gross margin of 27.2%. The Q2’2026 deterioration was driven by higher raw material costs which increased substantially in Q2’2026 over Q1’2026; however, selling price increases partially offset this cost inflation. The gross margin decline was further compounded by inventory adjustments. Concentration of Revenue Revenue Attributable to Primary Geographical Markets Three Months Ended June 30, 2026 Six Months Ended June 30, 2026 (In thousands) United States $ 1,742 $ 2,702 Europe 3,982 8,501 Asia 97 316 Total revenue $ 5,821 $ 11,519 USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 31 Table of Contents Operating Expenses The following table sets forth our results of operations and the amount of change between the periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results. Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 2026 2025 (In thousands, except for percentages) Operating expenses Selling, general and administrative $ 32,607 $ 6,227 $ 26,380 423.6% $ 53,782 $ 13,256 $ 40,526 305.7% Research and development 10,768 2,577 8,191 317.9% 25,017 4,266 20,751 486.4% Amortization of intangible assets 1,356 — 1,356 NM 2,713 — 2,713 NM Total operating expenses $ 44,731 $ 8,804 $ 35,927 408.1% $ 81,512 $ 17,522 $ 63,990 365.2% NM Not meaningful. Comparison of the three months ended June 30, 2026 and 2025 Selling, general and administrative. The increase in SG&A expenses of $26.4 million was primarily due to an increase in consulting and legal costs of $9.9 million and $6.1 million, respectively, related to business acquisitions and completion of the Dept. of Commerce’s DFA and LGA, an increase in stock-based compensation and employee compensation and benefits of $5.1 million and $4.1 million, respectively, associated with increased headcount as we expanded our organizational infrastructure, and other costs of $1.2 million. Research and development . The increase in R&D expenses of $8.2 million was primarily due to an increase in development costs of $2.6 million, facility costs of $2.4 million, employee compensation, benefits and stock-based compensation of $1.6 million related to an increase in headcount, and other costs of $1.6 million. Amortization of intangible assets increased by $1.4 million due to intangible assets acquired in connection with the acquisition of Less Common Metals. Comparison of the six months ended June 30, 2026 and 2025 Selling, general and administrative. SG&A expenses increased by $40.5 million, primarily due to higher legal and consulting costs of $11.1 million and $9.1 million, respectively, related to merger and acquisition activities, and completion of the Dept. of Commerce’s DFA and LGA, and an increase in stock‑based compensation and employee compensation and benefits of $9.4 million and $7.2 million, respectively, both associated with an increase in headcount as we expanded our organizational infrastructure. The increase was further driven by other costs of $3.7 million. Research and development. R&D expenses increased by $20.8 million, primarily due to higher development costs of $8.0 million and an increase in employee‑related costs of $5.3 million, reflecting higher headcount and stock‑based compensation. The increase was further driven by consulting costs of $2.7 million, facility and insurance costs of $3.1 million, and other costs of $1.7 million. Amortization of intangible assets increased by $2.7 million due to intangible assets acquired in connection with the acquisition of Less Common Metals. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 32 Table of Contents Three Months Ended June 30, Change Six Months Ended June 30, Change 2026 2025 2026 2025 (In thousands, except for percentages) Other income (expense), net Interest income $ 370 $ 765 $ (395) (52)% $ 472 $ 952 $ (480) (50)% Dividend income 14,581 — 14,581 NM 26,449 — 26,449 NM Grant income 240 — 240 NM 446 — 446 NM (Loss) gain on fair market value of financial instruments, net 22,418 (134,662) 157,080 (116.6)% (21,135) (74,362) 53,227 (71.6)% Interest expense and other expense, net (3,771) (12) (3,759) NM (4,364) (99) (4,265) NM Total other income (expense), net $ 33,838 $ (133,909) $ 167,747 (125.3)% $ 1,868 $ (73,509) $ 75,377 (102.5)% NM Not meaningful. Other (expense) income, net. • Dividend income increased by $14.6 million and $26.4 million for the three and six months ended June 30, 2026, respectively, over the comparable periods in the prior year, primarily due to returns on money market funds, such as our investments in a prime money market fund and a U.S. Government money market fund. • Grant income increased by $0.2 million and $0.4 million for the three and six months ended June 30, 2026, respectively, over the comparable periods in the prior year, reflecting grant revenue generated by Less Common Metals, which was acquired on November 18, 2025. Grant income for the current period includes only post‑acquisition activity, whereas the prior period did not include any grant income from this business. • (Loss) gain on fair market value of financial instruments, net reflected a loss of $157.1 million and $53.2 million for the three and six months ended June 30, 2026, respectively, over the comparable periods in the prior year, primarily driven by the following: ◦ Earnout Liability . The fair value loss on the earnout increased $17.0 million in Q2'2026 ($70.7 million versus $53.8 million in the prior year). Year-to-date, the earnout increased $106.8 million ($107.2 million in 2026 versus $0.4 million in the prior year). The earnout shares were fully vested during the six months ended June 30, 2026 and the earnout was no longer outstanding at the end of the period. ◦ Series A Warrants . Outstanding Series A Warrants generated a loss of $14.2 million in Q2’2026, an $11.5 million improvement versus the prior-year loss of $25.7 million, driven by our lower stock price at the quarter end. Year-to-date, Series A Warrant activity resulted in a loss of $21.3 million in 2026 versus $29.6 million in the prior year. ◦ Government Grant Warrant . We issued Government Grant Warrants under the Dept. of Commerce LGA in Q2’2026 with an initial fair value of $430.9 million. The warrant was remeasured to $323.5 million at June 30, 2026, resulting in a fair value gain of $107.4 million. The fair value methodology and assumptions and details of the Government Grant Warrants are detailed in Note 2, “Fair Value Measurements,” of the Notes. ◦ Other items . Remaining activity includes settlement of prior-period derivative liabilities and rounding differences account for the variance between the detailed instrument calculations and reported amounts. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 33 Table of Contents • Interest expense and other expense, net primarily reflects $4.5 million of liquidated damages recorded under the Registration Rights Agreement during the second quarter of 2026. The liquidated damages were triggered by the suspension of the Company’s Form S-1 (File No. 333-293172), originally filed on February 3, 2026, from March 30 through June 5, 2026. In addition, we incurred unrealized losses from our investment in a prime money market fund, and interest expense on the Barclays Bank PLC trade cycle loan facility previously entered into by Less Common Metals, which was repaid in full in the first quarter of 2026. These losses were partially offset by unrealized foreign exchange gains. Three Months Ended June 30, Six Months Ended June 30, 2026 2025 Change 2026 2025 Change (In thousands, except percentages and basis points) Loss before income taxes $ (12,476) $ (142,713) $ 130,237 (91.3)% $ (81,121) $ (91,031) $ 9,910 (10.9)% Benefit from income taxes (513) — (513) NM (1,090) — (1,090) NM Effective tax rate 1.3 % — % 130 bps NM Not meaningful. Benefit from income taxes . The increase of benefits from income taxes of $0.5 million and $1.1 million for the three and six months ended June 30, 2026, compared to the comparable periods of the prior year, respectively, was primarily attributable to the forecasted taxable activities of our Less Common Metals subsidiary following the acquisition on November 18, 2025. Effective tax rate. Our effective tax rate of 1.3% for the six months ended June 30, 2026, was affected by changes in valuation allowances, recurring permanent differences and discrete items that may occur in any given year, but are not necessarily consistent from year to year. Liquidity and Capital Resources Overview We are an early‑stage company with a limited operating history. Our 2026 revenues were derived solely from our metal-making operations following the acquisition of Less Common Metals on November 18, 2025, and we have not yet generated revenues from our neo magnet manufacturing or mineral production at the Stillwater Facility. As we expand our production capacity, we expect to incur significant operating expenses without generating sufficient revenues to cover these expenditures. We believe that our existing cash and cash equivalents will be sufficient to fund our planned near‑term operating and capital expenditure requirements for at least the next twelve months. However, our long‑term capital requirements, particularly those associated with the full development of the Round Top Project, the build‑out of the Stillwater Facility, the build-out of the Blacksburg Facility, and the build-out of the Less Common Metals – Europe manufacturing facility are expected to exceed our current resources, and we will require additional capital to fund these long‑term initiatives. We are evaluating opportunities to expand our rare earth magnet manufacturing capacity to support anticipated growth in demand across key sectors, including aerospace, defense, semiconductors, data center, physical AI, energy, mobility, healthcare, and numerous industrial sectors. As part of this process, we are assessing potential investments in additional production capabilities to enhance operational flexibility and support a more resilient and diversified manufacturing footprint. These assessments include both expansion of existing facilities and development of new manufacturing sites and take into account a range of factors, including workforce availability and our ability to attract and retain qualified personnel, access to transportation infrastructure, availability of reliable and cost-effective utilities (including electrical power and water), site suitability and scalability, regulatory considerations, and community and stakeholder support. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 34 Table of Contents We expect to incur significant future cash outflows related to strategic investments, acquisitions, and the continued development of our operating and manufacturing assets. These cash requirements may include consideration payable in connection with potential acquisitions or investments, transaction‑related costs, and capital expenditures associated with the development of the Round Top Project, the development of the Stillwater Facility, the development of the Blacksburg Facility, and the development of the Less Common Metals – Europe facility. The timing and amount of such expenditures will depend on the progression of these transactions and projects and the satisfaction of applicable conditions. We intend to pursue potential sources of financing to support these initiatives, including equity financings and debt financings. To meet certain milestones to obtain the funding awards and debt financing under the Dept. of Commerce DFA and LGA, respectively (the “Funding Agreements”), to reimburse us for our capital expenditures, and to execute on our current business plan, including the acquisition of Serra Verde and the expansion of facilities for our operations, we will be required to raise a significant amount of capital during 2027. Under the Funding Agreements, we are required to raise equity (which could include, at our option, up to $300.0 million of convertible loan notes) in the following amounts by the corresponding dates: • On or prior to March 31, 2027, we are required to raise an additional aggregate amount of equity equal to $375.0 million plus the total cash acquisition costs for the announced proposed acquisition of Serra Verde. • On or prior to December 31, 2027, we are required to raise an additional aggregate amount of equity equal to $875.0 million. Under the Funding Agreements, we are also required to establish a revolving credit facility in an aggregate principal amount not to exceed $250.0 million by June 30, 2027. In addition to the equity raise requirements described above, we are required to raise an aggregate amount of equity that is sufficient to satisfy the cash collateral required under such working capital facility. There can be no assurance that any government funding or other funding will be obtained, or as to the timing or amount of any proceeds. Debt financings may impose additional operational limits on our business and increase our interest expense, and equity or equity-linked financings could result in additional dilution to our shareholders. Our ability to raise additional capital on acceptable terms is subject to market conditions, our operational progress, and our ability to satisfy applicable milestones and conditions, and there can be no assurance that such additional capital will be available on acceptable terms or at all. Sources and Uses of Cash Our primary sources of liquidity have consisted of equity financing. For the six months ended June 30, 2026, we had a net loss of $80.0 million, which included a non-cash fair value loss on financial instruments of $21.1 million. Net cash used in operating activities during the period was $75.3 million. As of June 30, 2026, we had $1.53 billion in unrestricted cash and cash equivalents. Outside of revenue generated from our metal-making operations in the United Kingdom, our operations in the U.S. have not yet generated revenues from neo-magnet manufacturing or critical mineral production, and we expect to continue to use cash in our consolidated operating activities for the foreseeable future as we invest in commercializing our integrated mine-to-magnet platform. Our primary near-term uses of cash include: • Stillwater Facility development – completing the qualification of sintered NdFeB permanent magnet production, procuring feedstock, and ramping toward initial commercial production; • Less Common Metals expansion – expanding the current manufacturing site in Cheshire, United Kingdom and expanding the Less Common Metals – Europe manufacturing site in Lacq, France. • Round Top Project advancement – funding the ongoing Preliminary Feasibility Study, constructing and operating the demonstration facility, and advancing toward a Definitive Feasibility Study and, ultimately, mine construction; a portion of these costs are expected to be funded through the TSIF Grant Agreement; USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 35 Table of Contents • Blacksburg Facility development – developing our new magnet manufacturing and refined metals operation in Bailey Industrial Park, Blacksburg; • SVRE Holdings Ltd. acquisition – completion of the acquisition of SVRE Holdings Ltd. strengthens our U.S. and allied government relationships and provides multiple embedded growth opportunities, including a potential Phase 2 doubling of Pela Ema’s production capacity; • Carester SAS – to build an integrated value chain platform for rare earth processing, metal and alloy production and magnet making in Lacq, France; • Texas Mineral Resources Corp. – to secure full ownership control of the Round Top Project, and streamline operations, governance and decision-making; and • General corporate and administrative expenses – supporting our growing operations, including personnel, legal, regulatory, and compliance costs. Acquisition of SVRE Holdings Ltd. The Serra Verde acquisition, when completed, would require payment of $300.0 million in cash consideration, representing a significant near-term cash obligation. In addition, we expect to incur approximately $16.6 million of employer payroll taxes related to the settlement of cash and equity incentive awards held by certain Serra Verde employees and other service providers. The remaining approximately $2.53 billion in consideration would be settled through the issuance of 126.8 million shares of our common stock, resulting in substantial dilution to existing stockholders. Investment in Carester SAS. The Carester investment, when completed, has an aggregate estimated value of €40.0 million, or approximately $45.7 million. Upon consummation of the transaction, the proposed investment would require a cash payment of €28.3 million, or approximately $32.4 million. The remaining consideration consists of equity consideration of €11.7 million, or approximately $13.3 million, to be settled through the issuance of shares of our common stock, subject to customary adjustments, including the potential substitution of cash in lieu of our common stock. Acquisition of Texas Mineral Resources Corp. The TMRC merger consideration consists solely of 3.8 million shares of our common stock and will not result in a material cash outlay. The transaction will result in dilution to our existing stockholders and we will bear transaction-related costs. U.S. Department of Energy Critical Materials Innovation, Efficiency and Alternatives Program . The Dept. of Energy grant provides reimbursement of up to a maximum amount of $19.3 million on certain allowable costs to support development of a pilot-scale rare earth element separations project. Final award terms, project scope, budget, and timeline are subject to negotiation with the Dept. of Energy. Any award is subject to successful completion of negotiations with the Dept. of Energy and the execution of a definitive funding agreement. Texas Semiconductor Innovation Fund . The TSIF Grant Agreement provides for reimbursement of certain allowable costs directly allocable to the Round Top Project up to a maximum amount of $14.2 million. The TSIF Grant Agreement grant funds are disbursed on a cost reimbursement basis only and are subject to our strict compliance with the terms and conditions of the TSIF Grant Agreement. Facility and Equipment Leases. We lease facilities and equipment under fixed noncancelable operating leases that expire on various dates through fiscal year 2032. See Note 5, “Commitments and Contingencies – Leases,” of the Notes for additional information related to our fixed noncancelable operating leases. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 36 Table of Contents Cash Flows Six Months Ended June 30, 2026 2025 Change (In thousands) Net cash used in operating activities $ (75,324) $ (18,238) $ (57,086) Net cash used in investing activities (108,388) (6,297) (102,091) Net cash provided by financing activities 1,419,331 129,565 1,289,766 Operating Activities. Net cash used in operating activities increased by $57.1 million compared to the comparable prior‑year period. The changes in non-cash adjustments were primarily driven by: • a $53.2 million non-cash loss related to the increase in the fair value of our Earnout Share conversion and Series A Warrant liabilities, partially offset by the fair value gain of the Government Grant Warrant liability; • a $9.7 million increase in stock‑based compensation; and • a $4.2 million increase in depreciation and amortization, due primarily to acquisition-related property and intangible assets. The change in operating assets and liabilities were primarily driven by: • an increase in accounts receivable and inventory, due primarily to the addition of Less Common Metals’ receivables and inventory balances following the acquisition of Less Common Metals on November 18, 2025; • an increase in prepaid and other assets, due primarily to prepaid rent and advanced payments to suppliers for future inventory deliveries; • an increase in accounts payable, due primarily to capital expenditures associated with the build-out of the Stillwater Facility and our development of the Round Top Project, and the timing of vendor payments; and • an increase in accrued expenses, due primarily to higher acquisition‑related legal and consulting costs and asset retirement obligation costs associated with the Less Common Metals leased property in Cheshire, United Kingdom. Investing Activities. Net cash used in investing activities increased by $102.1 million compared to the comparable prior-year period, due primarily to capital expenditures to build out our manufacturing process at our Stillwater Facility. Financing Activities. Net cash provided by financing activities increased by $1.29 billion compared to the comparable prior-year period, primarily due to proceeds from the $1.50 billion private investment in public equity financing, net of transaction costs, completed in January 2026, partially offset by the repayment of the Barclays Bank PLC trade cycle loan facility. Off-Balance Sheet Arrangements Other than as described in this Quarterly Report, we do not have any other off-balance sheet arrangements that have, or are reasonably likely to have, a material current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. See Note 5, “Commitments and Contingencies”, of the Notes. Purchase Obligations and Other Commitments In the normal course of business, we enter into purchase orders with vendors for manufacturing and research and development equipment and with suppliers for inventory used in the manufacture of our products. Capital equipment purchase orders are generally non-cancelable due to long lead times and generally relate to forecasted equipment needs for our Phase 1b and 2a manufacturing line expansions and facility construction, and research and development activities at RTMD. Inventory purchase orders are generally fulfilled within one year of the order date. USA Rare Earth, Inc. | Q2'2026 Quarterly Report (Form 10-Q) | 37 Table of Contents Critical Accounting Estimates Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP and require management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities and results of operations. Actual results could differ materially from these estimates. Significant estimates include goodwill and other intangible assets arising from business combinations, asset and liability valuations, including earnout and warrant liabilities, deferred taxes and related valuation allowances, and other fair value measurements. See Note 1, “Organization – Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in our 2025 Annual Report for a description of our critical and other significant accounting policies. Recent Accounting Pronouncements For a discussion of certain recent accounting pronouncements, see Note 1, “Organization – Significant Accounting Policies – Recently Issued Accounting Pronouncements Not Yet Adopted,” of the Notes. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not required under Regulation S-K for “smaller reporting companies”.