Michael Gray and Jake Savage of Agentis Capital wrote in a February 21 research note that they updated their discounted cash flow (DCF) model that uses an 8% discount rate for Defense Metals Corp.'s (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) fully-owned Wicheeda rare earth element project. The project is located on McLeod Lake Indian Band Tse'khene First Nation Territory in central British Columbia, Canada.
They said their revised assumptions and projected financial outputs are compared to their previous internal model and the preliminary economic assessment for Wicheeda published in 2021.
In the report, they noted that they expect Defense Metals' pre-feasibility study (PFS) for the Wicheeda project to differ from the 2021 preliminary economic assessment (PEA) by producing a high-margin rare earth carbonate product. The PEA proposed selling a mineral concentrate in one to four years to fund the construction of a hydrometallurgical plant to start in year five.
They wrote that their financial model included initial capital expenditures of US$752 million (US$368 million plus US$326 million of expansion capex) to build the mine, flotation plant, and hydromet plant. By processing the high-grade 2.8% TREO mineralization to make a carbonate precipitate in years one through eight, they noted that their model showed better margins of US$9.26 per kg of rare earth oxide (kgREO) (previously US$8.73/kgREO).
"Our modeled economics improved, yielding a post-tax US$805m NPV8% and 28.1% IRR with US$160mpa FCF (previously US$630m NPV8%, 25.5% IRR, US$137mpa FCF)," they said.
As stated in a September report, they reiterated that the economic potential of Defense Metals' rare earth project is supported by positive metallurgical test results. The company has conducted 218 flotation tests, including a large pilot plant trial that processed 26 tonnes of material. Initial mining is projected to produce a high-grade mineral concentrate over the first eight years, averaging 50% total rare earth oxide content at 80% recovery from the ore.
Among other factors, Gray and Savage pointed to the upcoming pre-feasibility study as a catalyst within the year. This pre-feasibility study is due in the second quarter of this year.
They said, "We have updated our model with revised assumptions based on technical studies completed since the 2021 PEA. We derive a US$845m NAV [the value of an entity's assets minus the value of its liabilities] (CA$4.20/sh; NAV up +21%) via our sum of parts 12mo corporate NAV, underpinned by our DCF8% model for the Wicheeda project that yields an after-tax NPV8% of US$805m and 28% IRR (LT price US$130/kgNdPr, 0.76FX)."
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