Canadian Co. Challenging China Sends Out Rare Earth Samples

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) announced it has sent samples of mixed rare earth carbonate (MREC) to two major rare earth element (REE) companies.

The samples, generated by SGS Canada Inc. in Ontario during last year's hydrometallurgical piloting test work on 26 tonnes of material taken from the company's Wicheeda REE project in British Columbia, "have now been sent to almost every REE separator in the world," the company noted in a release.

One analyst said the company is well-positioned to become a key North American supplier of the elements, which are needed for the transition to clean energy.

"Once the project commences commercial production, it is expected to produce about 25,000 tons of rare earth oxide annually, or roughly 10% of current global production," noted Noble Capital Markets analyst Mark Reichman in a February 14 research note.

China is responsible for two-thirds of current REE mine production and more than 85% of the refined output of REEs, a fact Western governments would like to change.

Noble rates the company Outperform with a CA$0.70 per share target price, a nearly 200% increase from Monday morning's price of CA$0.24 per share.

Noble rates the company Outperform with a CA$0.70 per share target price, a nearly 200% increase from Monday morning's price of CA$0.24 per share.

"For all of the interest in rare earths, we are surprised that Defense Metals trades at its current valuation, especially when one considers the Wicheeda project's significant advantages, project improvements, and de-risking during the last several years," Reichman wrote.

But China's "monopolistic grip" on the sector may be "starting to weaken," Mark Williams, a risk management expert and finance professor at Boston University's Questrom School of Business, told MarketWatch last week.

The Catalyst: New Economy Drives Rising Demand

REEs are used for purifying water, MRIs, fertilizers, weapons, scientific research, wind turbines, computers, and permanent magnet motors for 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."

Technical Analyst Clive Maund wrote on January 29 that it was "rather surprising that its stock is not already higher than it is."

But developing a new mine can take years, and China is already putting up some blocks to trading the minerals.

"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.

However, Miller told MarketWatch that China's dominance is beginning to be challenged. This could leave an opening for western REE projects like Defense Metals' wholly-owned Wicheeda.

Its "previous competitive advantage is lessening and under attack," Williams said, with "new discoveries, research, supply chain diversification, economics around environmental cost and recycling taking hold" in other countries.

Defense Metals Has Key Elements, Company Says

Defense Metals' MREC samples sent to the REE separator companies will further establish Wicheeda as a critically important source of REEs in North America, the company said.

Chief Executive Officer Craig Taylor said it has key elements needed for such a project, including location and logistics, mineralogy, significant potential mine life, and support of the local McLeod Lake Indian Band, which it entered into a special partnership and co-design agreement with last month.

"Wicheeda will play a key role in establishing North American REE supply chains; first and foremost, with respect to mining and hydrometallurgical processing, and ultimately with respect to the onshoring of downstream REE separation, refining, and metalizing capabilities," Taylor said. "Defense Metals is positioned as one of the very few North American REE companies having true ability to achieve this vision."

The samples shipped to the new REE companies were generated during the 2023 hydrometallurgical piloting test work performed on concentrate produced by earlier flotation pilot plant testing of a 26-tonne bulk sample from Wicheeda.

A Growing Resource

Defense Metals recently announced that the preliminary feasibility study (PFS) for Wicheeda was on track for the second quarter of 2024.

The company said metallurgical work for the PFS has been completed, and multiple bench-scale flotation and flotation pilot plant tests produced a high-grade mineral concentrate containing 50% total rare earth oxide (TREO) with an 80% recovery rate, which will be included in the PFS for the first eight years of mine-life.

Technical Analyst Clive Maund wrote on January 29 that it was "rather surprising that its stock is not already higher than it is."

"The company is advancing a major rare earth metals resource that is situated in North America toward production at a time when demand looks set to ramp up . . . due to the proliferation of various military conflicts around the world as supplies from the world's biggest producer of rare earth metals — China — are at risk of being choked off and possibly halted completely," wrote Maund, who rated the stock an Immediate Strong Buy for all timeframes.

"It is not regarded as being an unduly speculative investment," Maund wrote.

The company has drilled 58 core holes totaling more than 12,000 meters to define the deposit and provide the metallurgical test samples. This has led to measured and indicated resources of 34.2 million tonnes, averaging 2.02% TREO, including 17.8 million tonnes of high-grade dolomite carbonatite averaging 2.92% TREO, the company said. It also found 11.1 million tonnes, averaging 1.02% TREO inferred resources.

This represents a 260% increase over the Defense Metals initial 2019 mineral resource estimate and a conversion to (measured and indicated) of 101% of the prior 2021 mineral resource estimate, the company noted.

Ownership and Share Structure

About 5% of the company's stock is owned by insiders, including Director Andrew S. Burgess, who owns 1.5%, and CEO Taylor, who owns 0.97%, 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$62.07 million with 258.62 million shares outstanding and 248.44 million free-floating. It trades in a 52-week range of CA$0.35 and CA$0.15.

Important Disclosures:

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.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Defense Metals Corp.
3. Steve Sobek wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an employee.
4.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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