Rare Earths Co. Watches as China's Standoff With West Grows

China is upping the ante in its faceoff with the West over the strategic rare earths industry needed for the clean energy transition and advanced electronics, and one Canadian company is watching the developments closely.

The communist country said it would coordinate the exploration, development, utilization, and standardized management of the rare earth element (REE) industry, which it largely already controls.

"China has a head start, and that means we have to work a little harder and a little faster," U.S. Secretary of Commerce Gina Raimondo warned recently, according to The Washington Post. "They have the technology and sustained investment … to dominate the market for critical minerals. And we all know, if China were to point that new direction unfavorable to us, it can cause a great deal of pain, very quickly."

China accounts for as much as 70% of current REE mine production and more than 85% of the refined output of REEs.

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE)., which recently filed the National Instrument 43-101 technical report for its newest mineral resource estimate (MRE) at its Wicheeda REE project in British Columbia, hopes to produce as much as 10% of the world's REEs when it hits full production.

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." 

The Catalyst: 'We're in a Cold War'

China's announcement is the latest escalation between it and Western countries in the battle over the elements.

In October, Beijing announced that it would require permits for some graphite products, used in electric vehicle (EV) batteries, to protect national security. Last summer, China instituted export restrictions on gallium and germanium, important to the semiconductor industry, after President Joe Biden had barred the sale of some advanced chips and chip-making technology to China.

"We're in a cold war essentially on the trade front now," Jeff Green, a defense industry consultant and Washington lobbyist, told The Washington Post. "I think the U.S. government is responding in kind."

"We think the current price is an excellent entry point for investors seeking exposure to one of North America's advanced REE projects," Mark Reichman of Noble Capital Markets wrote.

REEs are in high demand as the economy shifts into greener territory. They are used for purifying water, MRIs, fertilizers, weapons, scientific research, wind turbines, computers, and permanent magnet motors for EVs.

But it can take years to develop a mine into production.

"This geopolitical conflict . . .  related to semiconductors that are essential for military, AI, telecommunications, and transportation technologies raises the emergency for the West to develop critical materials and supply chains," Defense Metals President Luisa Moreno told Streetwise Reports. "China is the largest producer of rare earths, and it can at any time impose broad 'export restrictions' in the same fashion is now imposing on gallium and germanium."

The violence and unrest in the Middle East show how critical it is for the West to find more sources of the minerals, Bob Moriarty of 321gold.com wrote.

"In an unstable world, it is vital to have control of the resources you need to maintain your economy," Moriarty wrote. "The world is in a conflict, and finding a reliable source of supply for critical minerals is far more important than price."

'An Excellent Entry Point'

The updated MRE increased the total rare earth oxide (TREO) by 17% at Wicheeda, 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.

Reichman rated the stock Outperform with a target price of CA$0.70 per share.

"In the months ahead, we expect more information regarding the project's process flowsheet to reinforce the project's commercial value," analyst Mark Reichman of Noble Capital Markets wrote following the MRE's release. "We think the current price is an excellent entry point for investors seeking exposure to one of North America's advanced REE projects."

Reichman rated the stock Outperform with a target price of CA$0.70 per share.

"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.

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$47.32 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$0.18.

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1. Defense Metals Corp. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
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3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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