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 However, Davidson noted the prices used in the PEA are outdated; now, they are at least 20% higher.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."
|Want to be the first to know about interesting Critical Metals investment ideas? Sign up to receive the FREE Streetwise Reports' newsletter.
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.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Defense Metals Corp. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. 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., a company mentioned in this article.
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.
Paradigm’s disclosure policies and research distribution procedures can be found on our website at www.paradigmcap.com. Paradigm Capital Inc. research is available on Bloomberg, CapitalIQ, FactSet and Thomson Reuters or at www.paradigmcap.com. Issued by Paradigm Capital Inc.
About Paradigm Capital Inc. Paradigm Capital Inc. (PCI) is a research-driven, independent, institutional equity investment dealer focused on sectors and companies that have attractive longterm secular growth prospects. PCI’s research is available on our website at www.paradigmcap.com. Please speak to your Sales or Trading Representative if you require access to the website. The analyst (and associate) certify that the views expressed in this report accurately reflect their personal views about the subject securities or issuers. No part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendations expressed in this research report. Analysts are compensated through a combined base salary and bonus payout system. The bonus payout is determined by revenues generated directly or indirectly from various departments including Investment Banking, based on a system that includes the following criteria: reports generated, timeliness, performance of recommendations, knowledge of industry, quality of research and investment guidance and client feedback. Analysts are not directly compensated for specific Investment Banking transactions. The opinions, estimates and projections contained herein are those of PCI as of the date hereof and are subject to change without notice. PCI makes every effort to ensure that the contents herein have been compiled or derived from sources believed reliable and contain information and opinions, which are accurate and complete. However, PCI makes no representation or warranty, express or implied, in respect thereof, and takes no responsibility for any errors and omissions that may be contained herein and accepts no liability whatsoever for any loss arising from any use of or reliance on this research report or its contents. Information may be available to PCI, which is not reflected herein. This research report is not to be construed as an offer to sell or solicitation for or an offer to buy any securities. PCI, its affiliates and/or their respective officers, directors or employees may from time to time acquire, hold or sell securities mentioned herein as principal or agent. PCI may act as financial advisor and/or underwriter for certain of the corporations mentioned herein and may receive remuneration for same. PCI is a member of The Toronto Stock Exchange, The TSX Venture Exchange and The Investment Industry Regulatory Organization of Canada (IIROC). Any products or services mentioned on this website are made available only in accordance with local law (including applicable securities laws) and only where they may be lawfully offered for sale. PCI will not open accounts except in jurisdictions in which it is registered. To U.S. Residents: This report was prepared by PCI which is not subject to U.S. rules with regard to the preparation of research reports and the independence of analysts. PCI U.S. , affiliate of PCI, accepts responsibility for the contents herein, subject to the terms as set out above. Any U.S. person wishing to effect transactions in any security discussed herein should do so through PCI U.S.