Analyst Update: Analyst Mark Reichman of Noble Capital Markets called Defense Metals Corp.'s (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) updated Mineral Resource Estimate a "significant upgrade" in an updated research note Wednesday.
"In the months ahead, we expect more information regarding the project's process flowsheet to reinforce the project's commercial value," Reichman wrote. "We think the current price is an excellent entry point for investors seeking exposure to one of North America's advanced REE projects."
Reichman kept his Outperform rating on the stock with a target price of CA$0.70 per share.
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Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) has announced an updated Mineral Resource Estimate (MRE) for Wicheeda rare earth element (REE) project in British Columbia, increasing the total rare earth oxide (TREO) by 17%, or a 31% tonnage increase, compared to a prior MRE in 2021.
The MRE comprised a 6.4 million tonne Measured Mineral Resource, averaging 2.86% TREO; a 27.8 million tonne Indicated Mineral Resource, averaging 1.84% TREO; and an 11.1 million tonne Inferred Mineral Resource, averaging 1.02% TREO.
The results are reported at a cut-off grade of 0.5% TREO within a conceptual open pit shell, the company said.
"With over 10,000 meters of additional drilling completed since the 2021 mineral resource, we have now converted 100% of that resource to the measured and indicated categories, in addition to growing the overall resource by 17%," Defense Metals Chief Executive Officer Craig Taylor said.
The company is "well on its way" toward completing the study, Mark Reichman, research analyst at Noble Capital Markets, wrote even before the MRE update.
"Importantly, we believe the upgrading of resources now demonstrates that we have established the tonnage and grades necessary to carry forward into our ongoing preliminary feasibility study."
The company is "well on its way" toward completing the study, Mark Reichman, research analyst at Noble Capital Markets, wrote even before the MRE update.
"Defense Metals is advancing toward what we believe will be a compelling preliminary feasibility study (PFS) in the first half of 2024," Reichman wrote. He has rated the stock Outperform with a CA$0.70 per share price target.
The Catalyst: MRE is a 'Significant Upgrade'
The MRE's Total Measured and Indicated Mineral Resources were 34.2 million tonnes, averaging 2.02% TREO. The company said it's a significant upgrade, representing a conversion of 101% OF THE 2021 MRE.
Paradigm Capital senior analyst David Davidson also wrote in a research note that he had expected "positive surprises" from the MRE.
In addition to representing the 17% increase in TREO on a contained metal basis, the new MRE was a 31% tonnage increase over 2021.
The Measured and Indicated resources include 17.8 million tonnes of dolomite carbonatite averaging 2.92% TREO, Defense said.
The 2023 MRE, which has an effective date of August 28, is based on an updated geological model that incorporates an additional 10,350 meters of drilling data from 45 holes drilled in 2021 and 2022. It was prepared by APEX Geoscience Ltd. and will be filed on SEDAR within 45 days, the company said.
Taking on China's Dominance
China accounts for about 60% of REE current mine production and more than 85% of the refined output of REEs.
REEs are in high demand as the economy attempts to turn green. They are used for purifying water, MRIs, fertilizers, weapons, scientific research, wind turbines, computers, and permanent magnet motors for electric vehicles (EVs).
"The heavy volume driving this advance and the soaring Accumulation line resulting from this is very bullish," Technical Analyst Clive Maund noted.
China recently decided to restrict the export of two metals critical to superconductor production: gallium and germanium.
While these metals are not being sought by Defense at Wicheeda, company officials said it's possible China may eventually target the REEs the company wants to provide for wind turbines and EVs.
The global market for the elements is expected to grow from US$2.6 billion in 2020 to US$5.5 billion in 2028, according to a report by Fortune Business Insights.
"The rising demand for consumer durables such as tablets, laptops, and smartphones (are some) of the factors driving the consumption of rare earth elements," the report said. "The demand for these elements in developing economies is estimated to expand rapidly."
Previously Unknown Anomalies Found
Recently, the company also announced it had identified new anomalies at Wicheeda that may be previously unknown mineralized carbonatite located largely within the current mineral resource pit shells.
Two previously unknown linear radiometric anomalies were found, each about 40 meters in width and extending about 250 meters northwest from the main body of the Wicheeda deposit.
"The radiometric surveys were initially designed to assist our geologic mapping teams, and it came as a surprise when we identified new anomalies under cover having a similar geophysical expression to known drilled and outcropping rare earth mineralization," said Defense Metals Director and Qualified Person Kristopher Raffle. "After reviewing the geophysical data in the context of our updated Wicheeda 3D geological model, we recognized the potential for undiscovered near-surface, east-dipping carbonatite bodies."
The company said several resource definition drill holes undercut the southern half of the eastern anomaly at 150 meters vertical depth. Hole WI21-39 intersected relatively higher-grade carbonatite at depth, returning 2.91% TREO over 45 meters from a depth of 69 meters downhole.
The majority of the eastern and the entirety of the western anomaly remained untested by core drilling. The company plans to test the western geophysical anomaly during fall 2023 as part of an expanded program of 915 meters of pit geotechnical drilling in four holes, with more holes possible depending on the results.
'Positive Surprises'
Paradigm Capital senior analyst David Davidson also wrote in a research note that he had expected "positive surprises" from the MRE.
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Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE)
"We expect to see the total resource increased by at least another 10–15% and a modest improvement in overall grade," he wrote.
Technical Analyst Clive Maund wrote on July 19 that although the stock's "price hasn't moved — yet," he expected that to change.
"The heavy volume driving this advance and the soaring Accumulation line resulting from this is very bullish," Maund noted.
Ownership and Share Structure
About 5% of the company's stock is owned by insiders, including Director Andrew S. Burgess with 1.63% or 4.18 million shares, and CEO Taylor with 0.98% or 2.5 million shares, according to Reuters.
About 11% of the company is owned by institutional entities, including RCF Opportunities Fund II LP, with 10%, the company said. The rest, 84%, is retail.
Defense Metals has a market cap of CA$49.88 million with 255.78 million shares outstanding, and 212.98 million free floating. It trades in a 52-week range of CA$0.39 and CA$0.185.
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