Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) has finished its diamond drilling campaign for the 2022 season and released results from a core hole at its Wicheeda rare earth element (REE) deposit in British Columbia.
Hole WI22-69, in the northern area of the deposit, intersected a broad zone of mineralized dolomite carbonatite averaging 2.14% total rare earth oxide (TREO) over 221 meters, including an interval of 3.52% TREO over 111 meters.
Data from drilling this year and in 2021 will be incorporated in a preliminary feasibility (PFS) study for the 100%-company owned site.
“We think Defense Metals is well positioned to benefit from growing demand for rare earths used in electric vehicle batteries, metal alloys, and advanced technology applications,” wrote Noble Capital Markets Senior Research Analyst Mark Reichman in an updated note.
“Results to date from the 2022 drilling season have been outstanding and are expected to contribute greatly toward upgrading resource categories in support of the preliminary feasibility study.”
Reichman rated the stock Outperform with a target of CA$0.90.
A total of 5,500 meters of diamond drilling was completed this year over 18 holes, including five pit slope geotechnical and hydrogeologic holes totaling 1,150 meters, the company said. Assays for 11 more holes totaling more than 3,000 meters are still expected.
Analyst Michael Gray of Agentis Capital recently initiated coverage on the company, saying Wicheeda was well-located with access to key infrastructure and “could become a globally significant producer” of REEs.
Results from another core hole, W122-70, were released last month. Drilling there intersected 2.5% total TREO over 113 meters.
Work is expected to begin on the PFS this quarter, with completion coming by the fourth quarter of 2023.
“In addition to significant potential to expand the resource and extend the mine life beyond 19 years, we expect grade enhancement and the meaningful conversion of inferred to indicated and potentially measured,” Reichman wrote.
Analyst Michael Gray of Agentis Capital recently initiated coverage on the company, saying Wicheeda was well-located with access to key infrastructure and “could become a globally significant producer” of REEs. He set a 12-month valuation of CA$3.50 for the stock.
“DEFN is a best-of-breed North American REE developer that is well-positioned to its leverage growing global REE demand and government support to become part of a North American REE critical metals supply chain,” Gray wrote.
The Catalyst
Analysts say it’s a great time to invest in REEs. They are in high demand in the new green economy for purifying water, MRIs, fertilizers, weapons, research, wind turbines, computers, and permanent magnet motors for electric vehicles (EVs).
Defense Metals hopes to produce as much as 10% of the world’s light REEs to compete with China, which has about 85% of the world’s REE processing capacity. Political issues between the United States, China, and Taiwan put that vital supply at risk, as well as pressure from within China itself.
“The assay results released thus far have been outstanding and are expected to contribute greatly toward upgrading resource categories in support of the preliminary feasibility study,” Noble Capital Analyst Reichman wrote.
“China has so much demand … as their economy grows, as the population grows, as they go through their electrification, they are going to be producing more EVs than anyone,” Defense Metals Chief Executive Officer and Director Craig Taylor said. “Their internal demand is going to is going to really take a lot of that supply.”
More exploration and development of mines for these vital elements is needed outside of China, he said.
“Until the West gets processing plants in place, we’re still sort of relying on them,” Taylor said.
Realizing the importance of REEs, the U.S. government in February announced a US$35 million grant to MP Materials Corp. to process the elements at its California facility. The company has agreed to invest US$700 million to create more than 350 jobs in the permanent magnet sector by 2024.
Filling the REE Gap
Defense Metals’ drilling program at Wicheeda shows promise that the company could help fill the gap, analysts said.
“The assay results released thus far have been outstanding and are expected to contribute greatly toward upgrading resource categories in support of the preliminary feasibility study,” Reichman wrote.
A preliminary economic assessment (PEA) for Wicheeda in 2021 showed an after-tax net present value of CA$512 million. Its 43-101 technical report showed a 5 million tonne indicated resource at 2.95% total rare earth oxides (TREO) and a 29.5 million tonne inferred resource averaging 1.83% TREO.
The deepest hole drilled so far on the site at 395 meters, WI22-68, intersected 3.58% TREO over 124 meters, including 6.7% TREO over 18 meters and one 3-meter sample of 8.58% TREO.
In the northern area of the Wicheeda deposit, hole WI22-67 yielded 2.53% TREO over 106 meters, including the high-grade zone of 3.42% TREO over 59 meters. Another hole released earlier this month, WI22-63, returned 2.29% TREO over 39 meters, including 5.08% TREO over 9 meters.
Ownership, Analyst Coverage, and Share Structure
Three money managers — Marquest Asset Management, U.S. Global Investors, and Probity/Qwest Funds — own a small percentage of the company. The rest is retail.
Currently, the analyst covering Defense Metals Corp. include Reichman and Gray. Newsletter writers and also follow the stock. You can see all the analyst and newsletter coverage by clicking "See More Live Data" in the data box above.
Defense Metals has a market cap of CA$42.18 million with 183 million shares outstanding, 140.6 million of them free floating. It trades in a 52-week range of CA$0.36 and CA$0.17.
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