By Charles Pitts
DENVER : USA Rare Earth (NASDAQ: USAR) has successfully produced commercial-grade dysprosium oxide and neodymium-praseodymium (NdPr) oxide from recycled magnet scrap at its hydrometallurgical facility in Wheat Ridge, Colorado. This milestone marks a significant step in the company’s efforts to establish a domestic, circular supply chain for critical minerals essential to high-performance magnets used in aerospace, defense, and electric vehicles (EVs).
The achievement comes on the heels of a massive federal backing, with the company recently securing a funding package of up to $1.6 billion under the CHIPS and Science Act. The successful separation of heavy rare earths like dysprosium from recycled “swarf”: fine scrap generated during the magnet manufacturing process: validates the company’s proprietary recycling flowsheets and underscores its capability to produce high-purity materials outside of traditional Chinese-dominated supply routes.
Validating the “Swarf” Recycling Loop
The raw material for the production run was sourced from USA Rare Earth’s magnet manufacturing plant in Stillwater, Oklahoma. During the precision machining and finishing of neodymium-iron-boron (NdFeB) magnets, a fine metallic residue known as swarf is produced. Traditionally, this material is difficult to process and often sold back into global markets where it is recycled overseas.
By processing this swarf at the Wheat Ridge facility, USA Rare Earth has demonstrated a closed-loop system. The facility utilized multi-stage solvent extraction circuits to separate the metallic waste back into its constituent high-purity oxides. According to company executives, recycling this manufacturing scrap could eventually supply up to 30% of the company’s total magnetic rare earth oxide feedstock requirements.
“This is a fundamental shift in how we view manufacturing waste,” noted a technical advisor involved in the project. “We aren’t just making magnets; we are capturing the value of every gram of material that passes through our facilities. Producing commercial-grade dysprosium from scrap is a technically demanding process that few Western companies have mastered at this scale.”
The Wheat Ridge Technical Milestone
The Wheat Ridge facility serves as the company’s central hub for hydrometallurgical demonstration and process optimization. It is designed to handle three distinct types of feedstock in parallel: ore from the company’s Round Top heavy rare earth deposit in Texas, third-party mixed rare earth carbonates (including those from international partners like Serra Verde in Brazil), and recycled NdFeB magnet swarf.
Dysprosium is a heavy rare earth element (HREE) that is particularly difficult to isolate. It is essential for enhancing the high-temperature performance and coercivity of permanent magnets. Without dysprosium, the magnets used in EV traction motors and defense systems would lose their magnetic properties under the intense heat generated during operation.
The successful production at Wheat Ridge confirms that the facility’s solvent extraction (SX) circuits can achieve the purity levels required for commercial applications. The produced oxides are expected to be shipped to Less Common Metals (LCM), USA Rare Earth’s UK-based subsidiary, where they will be converted into rare earth metals and strip-cast products. These metals will then return to the United States to serve as the primary feedstock for the Stillwater magnet plant, completing the “mine-to-magnet” value chain.
CHIPS Act Funding Accelerates Scale-Up
The announcement follows the finalization of definitive agreements with the U.S. Department of Commerce for up to $1.6 billion in support under the CHIPS and Science Act. This financial package is a cornerstone of the Biden-Harris administration’s strategy to reduce reliance on foreign adversaries for critical minerals.
The funding includes:
- $277 million in direct federal grants to support the construction and scaling of processing and manufacturing facilities.
- Up to $1.3 billion in senior secured loan capacity to provide the necessary liquidity for large-scale industrial build-outs.
When combined with private capital, USA Rare Earth expects to deploy approximately $3.5 billion to execute its midstream and downstream business plan. This capital is contingent on reaching specific project milestones, of which the successful production of dysprosium from scrap is a critical early-stage marker.
The company’s broader strategy aligns with recent federal moves to break the monopoly on critical minerals, ensuring that the United States has the internal capacity to process and manufacture the high-tech components necessary for the energy transition.
Geopolitical and Market Context
For decades, China has maintained a near-total monopoly on the separation and refining of heavy rare earths. While several Western projects have succeeded in mining rare earth ores, the midstream “separation” phase: where mixed concentrates are split into individual high-purity oxides: has remained a significant bottleneck.
The ability to produce dysprosium oxide domestically is a strategic imperative. As the global demand for EVs and renewable energy infrastructure grows, the market for permanent magnets is projected to expand significantly through 2030. Industry analysts suggest that the market for NdFeB magnets could see a compound annual growth rate (CAGR) of over 8%, with heavy rare earths like dysprosium and terbium facing the tightest supply constraints.
Other companies are also racing to fill this gap. Recent developments in the sector include Lindian Resources’ progress in Malawi and Viridis Mining’s ionic clay projects in Brazil. However, USA Rare Earth’s focus on the entire value chain: from recycling and mining to finished magnet production: sets it apart in the North American landscape.
2026 Outlook and Path to Commercialization
USA Rare Earth is targeting the third quarter of 2026 for its first full-scale commercial production of separated rare earth oxides. The Wheat Ridge facility will continue to refine its processes throughout 2025, using the data gathered from the current swarf recycling campaign to optimize the larger-scale units currently under construction.
The integration with Less Common Metals (LCM) provides a unique advantage. LCM is one of the very few commercial-scale producers of rare earth metals and alloys outside of Asia. By controlling the conversion from oxide to metal, USA Rare Earth can ensure that the final magnets produced in Oklahoma meet the rigorous specifications required by aerospace and defense contractors.
As the company moves toward its 2026 production targets, the focus remains on operational reliability and environmental, social, and governance (ESG) standards. The use of recycled feedstock not only provides a hedge against potential supply shocks but also reduces the environmental footprint associated with primary mining.
“We are moving from the laboratory to the industrial floor,” said a spokesperson for the company. “The production of commercial-grade dysprosium from scrap isn’t just a technical win; it’s a validation that the circular economy in critical minerals is viable, profitable, and essential for national security.”
Investors and industry observers are closely watching the progress at Wheat Ridge as a bellwether for the domestic rare earths supply chain. With the federal government’s $1.6 billion commitment now in place, the pressure is on to scale these operations and meet the rising demand for the “vitamins of modern industry.”
For more updates on the mining technology and critical minerals sectors, stay tuned to Skillings Mining Intelligence.
