Rare Earth Co. on Track for Important Feasibility Study in Q2

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) announced that the preliminary feasibility study (PFS) for its Wicheeda rare earth elements (REE) project in British Columbia is on track for the second quarter of 2024.

The company said the 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 core of the story is that 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 Catalyst: A Trade 'Cold War'

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.

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 10% of the world's needs for the elements when it hits full production.

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

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."

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.

PFS Tasks Well Underway

Defense Metals said its planned acid bake process will deliver about 90% TREO extraction from mineral concentrates, bench-scale, and hydrometallurgical pilot plant test work shows.

The PFS plant flowsheets and field-based geotechnical, geochemical, and environmental test work required for the study has been completed, and lab-based studies are in progress, the company said.

Other PFS tasks are well underway, including open pit mine design, tailings storage trade-off studies, and economic evaluation and cashflow modeling.

"Continuing positive results from our technical studies suggest that our wholly owned Wicheeda REE Project has the potential to become the next producer of rare earth elements in North America, accounting for a significant amount of the rare earths needed for the western world's future magnet metal production," said Defense Metals Chief Executive Officer Craig Taylor. "We look forward to completing and filing the PFS for the Wicheeda REE Project in Q2-2024 and, subject to financing, moving directly into our feasibility study."

Analyst Mark Reichman of Noble Capital Markets rated the stock Outperform with a CA$0.70 per share price target.

The company said 11 mixed rare earth precipitate samples from the hydrometallurgical test work have been sent to potential partners, processors, or end-users.

Defense Metals also 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 said in a release.

Analyst: Stock Could Do More, 'a Lot More'

On the five-year chart for the company, Maund noted that despite a spike in early 2021, the price has "essentially been rangebound through this period."

But there was something different about the recent rally, which kicked off with a large gap move out of the preceding downtrend that was accompanied by the strongest upside volume for at least five years, driving the Accumulation line strongly higher.

"This action implies that it is going to do more — probably a lot more — than simply rally up to the resistance level shown at the upper boundary of the broad trading range," Maund wrote.

Defense also recently entered into a strategic equity partnership and co-design agreement with the McLeod Lake Indian Band (MLIB) for Wicheeda, giving MLIB involvement in planning and design.

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.

Ownership and Share Structure

About 5% of the company's stock is owned by insiders, including Director Andrew S. Burgess with 1.5% and CEO Taylor with 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$57.55 million with 258.62 million shares outstanding and 248.44 million free-floating. It trades in a 52-week range of CA$0.385 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.
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