Agentis Capital initiated coverage on Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) "with a high conviction that the company is a best-of-breed North American rare earth elements (REE) developer that is well-positioned to leverage growing global REE demand and government support to become part of a North American REE critical metals supply chain," reported analyst Michael Gray in an October 3, 2022 research note.
With a current share price of about CA$0.26, Defense Metals is trading at a discount to its North American and Australian developer peers, noted Gray. In comparison, Agentis values the mining company much higher, at CA$3.50 per share. The difference between the two stock prices implies significant potential returns for investors.
Many Attractive Attributes
Defense Metals is a compelling investment for numerous other reasons, according to Gray, who presented them in his report.
The company is developing a light REE project at a time when such materials are in demand, and continued industry growth is expected.
Gray, after visiting the Wicheeda site three months ago, described the property as "a logistical dream," boasting a "favorable site layout for mine design."
A mineral resource estimate has already been done for the project, Wicheeda, the Indicated and Inferred resources of which are "at critical mass," at 34,500,000 tons (34.5 Mt) of 2% total rare earth oxide (TREO). Resources in the Indicated category are 5 Mt of 2.95% TREO, including 0.41% neodymium and praseodymium, the main metals used to make permanent magnets.
A preliminary economic assessment (PEA) of Wicheeda, prepared in late 2021, outlines a bulk mineable open pit mine with high grades. The 1.8 Mt per annum production scenario defines a 16-year life of mine yielding 25,400 tons of rare earth oxide (REO) per year, "the largest average production profile of hardrock REO developers," Gray wrote. In terms of economics, the project would generate an after-tax net present value discounted at 8% of CA$517 million and an internal rate of return of 18%, using a price of $100 per kilogram of neodymium-praseodymium.
Gray, after visiting the Wicheeda site three months ago, described the property as "a logistical dream," boasting a "favorable site layout for mine design." Located in McLeod Lake First Nations territory in British Columbia, the project is road accessible and close to critical infrastructure, including rail and power. Further, Defense Metals and the McLeod Lake Indian Band have both signed a memo of understanding regarding Wicheeda.
In terms of metals recovery at the project, already the flowsheet for use of the caustic crack method outlined in the PEA is solid, Gray noted, showing 87% recovery of REO from concentrate. However, it also could be optimized; metallurgical testing indicates the acid bake hydrometallurgical method could yield 5% higher recoveries at lower costs.
Another key point, Gray wrote, is Defense Metals has a solid management team, featuring a collectively diverse REE technical and industry skill set, which can make the company successful. They include CEO Craig Taylor, who, before heading Defense Metals, was a director of Advantage Lithium Corp. and, previously, a director for Patriot One Technologies. Dr. Luisa Morena, the president and director, is a former REE analyst. John Goode, the head of metallurgy, is a global REE metallurgical engineering expert.
Defense Metals' executive team and directors own about 5% of the company.
Catalysts on the Horizon
Numerous significant milestones are expected to occur in the near term, Gray indicated, which "will be important in driving Defense Metals' valuation over the next 12–18 months and beyond."
Coming up, in Q4/22 through Q1/23, are additional results from 2022 drilling. Construction of the pilot plant and the start of operations there should be done sometime in H1/23, as should the completion of an updated resource estimate. A prefeasibility study is expected to be done following that and released sometime between H2/23 and H1/24. Another possible catalyst is the transaction of an early offtake agreement with a strategic partner.
Given Defense Metals' catalyst-rich 12 months ahead and many attractive features, Agentis launched coverage on the rare earths company.
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Disclosures For Agentis Capital, Defense Metals Corp., October 3, 2022
This report has been prepared by Agentis Exempt Market Dealer Limited Partnership for general information purposes only. This report should not be considered a solicitation to purchase or sell securities, a recommendation to buy or sell securities or investment advice, and any opinions expressed herein are the views of the author as at the date of the report. This document does not take into account the particular investment objectives, financial situations or needs of individual recipients, or other issues which may exist for certain individual recipients. Recipients should rely on their own investigations and take their own professional advice before investment. Information contained in this report is derived from sources believed to be reliable, but its accuracy cannot be guaranteed.
In the United States this product is only intended for distribution to major institutional investors. Agentis Exempt Market Dealer Limited Partnership is registered as an exempt market dealer in British Columbia, Alberta, Ontario and Quebec. Agentis Exempt Market Dealer Limited Partnership and its affiliates and associates, and their respective partners, directors, officers, employees, representatives and family members may hold positions in, and may buy or sell securities of, the companies referred to in this report. Additionally, Agentis Exempt Market Dealer Limited Partnership and its affiliates and associates (collectively, “Agentis Capital”), may have in the past provided, and may in the future provide, financial advisory and other services to the companies referred to in this report and receive financial and other incentives from the companies as consideration for the provision of such services.
The Author/Analyst of the report will not purchase or sell any securities within 48 hours of publishing a report.
1. A member of Agentis Capital has visited/viewed material operations of the issuer
2. In the last 12 months, Agentis Capital has been retained under a service or advisory agreement by the issuer
3. In the last 12 months, Agentis Capital has received compensation for investment banking services
4. Agentis Capital or a member of the Agentis Capital team or household, has a long position in the shares and/or the options of the issuer
5. Agentis Capital or a member of the Agentis Capital team or household, has a short position in the shares and/or the options of the issuer
6. Agentis Capital or a member of the Agentis Capital team or household, own more than 1% of any class of common equity of the issuer
7. A member of the Agentis Capital team or household, serves as a Director or Officer or Advisory Board Member of the issuer
8. The Author/Primary Analyst owns a position of less than 1% of any class of common equity of the issuer
9. The Author/Primary Analyst owns more than 1% of any class of common equity of the issuer
