For most of the last year I have been predicting the start of a major market crash, long overdue, to take place starting in October. I got it totally wrong. The giant crash started weeks late but is now with us. Tax Loss Silly Season this year is going to be the biggest blood bath and greatest opportunity most of us will ever see. While it’s true that the clipto currencies and major markets will suffer the greatest losses, when the margin clerk is on the other line, investors sell everything they can get a bid on.
Green eyeshade wearing account clerks in the back office convinced management of every western auto manufacturer that the way to maximum profits was to adopt a system of “just in time” parts delivery. In theory the auto companies saved money because they weren’t paying interest on the money they tied up in keeping a healthy supply of spare parts. That theory actually didn’t make any sense in an environment of zero interest rates.
The big car companies have lost hundreds of billions in revenue this year for lack of ten-dollar memory chips. All made in China or Taiwan to save money. Single sourcing anything is a sure way of life biting you on the ass.
I have been writing about Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) for nearly three years. And here. And here. And here. The primary focus of Defense Metals is on their Wicheeda REE project located in British Columbia, Canada. While China mines and processes the bulk of Rare Earth Elements (REE) in the world, we are right back to that ticking time bomb of single sourcing critical elements. China’s share of production of REE needed for high performance magnets and other ultra high tech metals has actually been growing as production in the rest of the world has slowed to a crawl. China produced 85% of REE in 2019 and 90% of the finished products. You could say China has a stranglehold on REE just as they did with microchips. And the result will be similar.
Last week Defense Metals released a long awaited preliminary economic assessment (PEA) on the Wicheeda REE property. The numbers were good showing a NPV of $765 million pretax and after-tax NPV of $512 at an 8 percent discount rate. The after tax IRR is 16 percent and I highly suspect the company is sharpening their pencils in order to raise that number. The PEA envisions a nineteen-year mine life with an operating margin of a nice 65.2 percent.
Capex for the mine and mill is estimated at $461 million with a twenty to twenty-five percent contingency allowance. The 43-101 shows a five million tonne indicated resource showing a 2.95% TREO and a twenty-nine point five million tonne inferred resource averaging 1.83% TREO. During 2021 DEFN finished an additional 5,340-meter drill program in 29 holes. Those assays have not yet come back from the labs. DEFN expects those results will come out in early 2022.
Poor planning on the part of auto companies has costs them hundreds of billions in revenue. If the governments of Canada and the US don’t get their act together, the lack of domestically sources REE will destroy the EV manufacturing in the West. Action needs to take place soon.
I have participated in several private placements in DEFN and bought shares in the open market. I am biased. In addition they are advertisers so naturally I am biased. As always do your own due diligence.
Defense Metals Corp
DEFN-V $0.23 (Nov 26, 2021)
DFMTF - OTCQB 117 million shares
Defense Metals website
Bob Moriarty founded 321gold.com, with his late wife, Barbara Moriarty, more than 16 years ago. They later added 321energy.com to cover oil, natural gas, gasoline, coal, solar, wind and nuclear energy. Both sites feature articles, editorial opinions, pricing figures and updates on current events affecting both sectors. Previously, Moriarty was a Marine F-4B and O-1 pilot with more than 832 missions in Vietnam. He holds 14 international aviation records.
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