Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) gained additional research coverage, this time from Paradigm Capital, which initiated on it with a Speculative Buy rating and a CA$1.25 per share target price, one of the investment firm's senior analysts, David Davidson, reported in an April 18 research note.
Given the rare earth company's current share price is about CA$0.28, the potential rate of return for investors, dividend included, is an estimated 346%, Davidson noted. Further, Defense Metals "is being grossly undervalued by the market" but is expected to change in the near future.
"We expect that with an updated resource and a prefeasibility study, it could be re-rated to something approaching 50% of Arafura's current valuation within a 12- to 18-month time frame," wrote the analyst.
Davidson presented the highlights of this investment story.
New Resource Estimate Imminent
Defense Metals has advanced its flagship Wicheeda project, in east-central British Columbia, through extensive drilling, metallurgical work, and geological modeling and is now in the process of updating the mineral resource estimate. Its completion is on the horizon, expected in Q2/23.
"With the additional drilling completed in 2022, not only should we see the resources increase, but also rare earth element (REE) grade domains should be much better defined," wrote Davidson.
The most recent mineral resource estimate, prepared in 2021 and used for the preliminary economic assessment (PEA), comprises an Indicated and Inferred resource of 34,500,000 tons of 1.99% total rare earth oxides (TREO), Davidson relayed.
The PEA outlined an operation producing a TREO concentrate for the first four years, then a TREO precipitate for 12 years. The project was estimated to have an after-tax net present value discounted at 8% of US$397 million and an internal rate of return of 18%. However, Davidson noted the prices used in the PEA are outdated; now, they are at least 20% higher.
Since the PEA, Defense Metals drilled another 10,000 meters and had extensive metallurgical test work done, the results of which will be included in the upcoming resource update. Most of the resources in the update are expected to be in the Measured and Indicated category.
"We expect to see the total resource increased by at least another 10–15% and a modest improvement in overall grade," commented Davidson.
At the Prefeasibility Study Stage
Next, the Canadian critical metals company will conduct a prefeasibility study of Wicheeda, expected to be done by early 2024. In preparation, it contracted SRK Consulting to start geotechnical studies on the project as well as the construction of a hydrometallurgical pilot plant.
"The Wicheeda deposit is one of the more advanced light rare earth element projects in North America," wrote Davidson.
First in Line To Start Production
North America is home to a single-producing RE mine, Mountain Pass, in California. Of the pre-production RE projects on the continent, Wicheeda is the furthest advanced and the best located, Davidson purported. Also, he noted, "With the push to sourcing more critical elements domestically, Defense Metals is well positioned to take advantage of this opportunity." These factors afford the company "high strategic value."
Davidson added, "We expect that several downstream players in the space are watching developments closely."
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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures for Paradigm Capital, Defense Metals Corp., April 18, 2023
Paradigm Capital Inc. expects to receive or intends to seek compensation for investment banking services from the subject companies in the next 3 months.
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