Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) announced it has entered into a strategic equity partnership and co-design agreement with the McLeod Lake Indian Band (MLIB) for the company's Wicheeda rare earth elements (REE) project in British Columbia.
In a non-brokered private placement, MLIB has purchased 2.6 million common shares of Defense for CA$0.26 per share for a total of CA$665,027, which the company plans to use to advance Wicheeda. Defense hopes it can take on China in supplying the REEs needed for a cleaner economy.
In what one analyst is calling a "unique partnership," Defense and MLIB also have entered into a joint planning approach for decisions regarding design, technical, social, engineering, and environmental aspects of the project.
"Together, we are pioneering a new standard in collaborative project development, which is a true form of reconciliation," said MLIB Chief Harley Chingee. "We're proud to be a part of a project that will be a key contributor to global energy transition goals and one that will deliver long-term economic benefits to our community for generations to come."
China is responsible for two-thirds of current REE mine production and more than 85% of the refined output of REEs at Wicheeda. Defense Metals looks to produce as much as 1/10 of the world's needs for the elements when it hits full production.
More Details of Agreement
As part of the agreement, Defense and MLIB will "incorporate MLIB's interests and priorities in the planning and design of future feasibility studies and the environmental process and include MLIB involvement in certain technical studies related to the Wicheeda project," the company said in a release.
Josie Osborne, minister of energy, mines, and low carbon innovation for British Columbia, said the collaboration demonstrates how "early-stage consultation with First Nations can bring important projects to life in a way that benefits everyone."
"Partnerships like this play a pivotal role in shaping BC's natural resources future as we lay a concrete path toward achieving our net-zero goals through collaboration and advancing reconciliation," she said.
Defense said budgets and work plans will also be cooperatively developed.
Agreement Is 'Long-Term and Mutually Beneficial'
The company will also make an upfront payment to MLIB to fund the costs of participating in review activities and support MLIB members attending post-secondary education in a mining field.
"We're proud to partner with MLIB, and these strategic agreements exemplify a shared vision and commitment to realizing the full potential of the Wicheeda Project and the positive impact it will have on the global critical minerals transition," Defense Metals Chief Executive Officer Craig Taylor said. "Through both agreements, McLeod Lake Indian Band stands to reap mutual benefits from our combined efforts around the Wicheeda project."
Analyst Mark Reichman of Noble Capital Markets noted the "community benefits" of the "unique cooperative."
Analyst Mark Reichman of Noble Capital Markets noted the "community benefits" of the "unique cooperative."
"With this agreement, we think Defense Metals promotes a long-term and mutually beneficial relationship with the McLeod Lake Indian Band, which will also have a vested interest in the success of the Wicheeda rare earth project," wrote Reichman, who rated the stock Outperform with a CA$0.70 per share price target.
"In our view, the Wicheeda rare earth element project has several competitive advantages, including a mining-friendly location, an existing mineral resource with significant expansion potential, an open pit project with favorable metallurgy and well-developed nearby infrastructure, and a strong technical team," Reichman noted. "We think the codesign agreement represents a significant step forward in advancing the Wicheeda project."
The Catalyst: Deepening Divide With China
Rare earth elements are an important part of the shift to clean energy. They are used for purifying water, MRIs, fertilizers, weapons, scientific research, wind turbines, computers, and permanent magnet motors for EVs.
But developing a new mine can take years, and China has escalated the faceoff, saying it will standardize its REE industry. It already has put restrictions on the exports of some of the substances. In December, the communist country banned exporting technologies for processing REEs. Other restrictions by China have affected the export of some graphite products used in electric vehicle (EV) batteries and other elements important to the semiconductor industry.
"The country's government can single-handedly halt the output of REEs," the Canadian Mining Report wrote of 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.
The global market for REEs 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."
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Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE)
Defense also recently released a significant upgrade to the mineralization of the project with a new mineral resource estimate for Wicheeda. The updated MRE increased the total rare earth oxide (TREO) by 17%, or a 31% tonnage increase, compared to a prior MRE in 2021.
Reichman said the company was "on a positive trajectory going into 2024."
Ownership and Share Structure
About 5% of the company's stock is owned by insiders, including Director Andrew S. Burgess with 1.55% or 3.98 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$61.39 million with 255.78 million shares outstanding and 245.49 million free-floating. It trades in a 52-week range of CA$0.39 and CA$0.15.
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Senior Equity Analyst focusing on Basic Materials & Mining. 20 years of experience in equity research. BA in Business Administration from Westminster College. MBA with a Finance concentration from the University of Missouri. MA in International Affairs from Washington University in St. Louis.
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