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Co. Challenging China on Rare Earths Starts Next Phase of Exploration

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This company has started Phase 2 of its infrastructure and open-pit geotechnical drilling at its rare earth element (REE) project in British Columbia. Find out why one analyst thinks it's an excellent time for exposure to these elements important to defense, electronics, and electric vehicles (EVs).

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) announced it has started Phase 2 of its infrastructure and open-pit geotechnical drilling at its Wicheeda rare earth element (REE) project in British Columbia.

Just last month, the company announced what one analyst called a "significant upgrade" to its Mineral Resource Estimate (MRE) for the project, increasing the total rare earth oxide (TREO) by 17%, or a 31% tonnage increase, compared to an MRE in 2021.

Two drilling rigs, sonic and core drills, are operating at Wicheeda, focusing on overburden and bedrock characterization and the east highwall of the proposed open pit.

"This work will provide critical inputs for the ongoing PFS study (preliminary feasibility study), and in the case of exploration targets, have the potential to expand resources," Chief Executive Officer Craig Taylor said. "The company's technical teams and principal engineering contractors continue to push forward, keeping us on track for a planned PFS completion by the end of Q2 2024."

Mark Reichman of Noble Capital Markets kept his Outperform rating on the stock with a target price of CA$0.70 per share. It stood at CA$0.195 on Wednesday morning.

The MRE comprised a 6.4 million tonne Measured Mineral Resource, averaging 2.86% TREO; a 27.8 million tonne Indicated Mineral Resource, averaging 1.84% TREO; and an 11.1 million tonne Inferred Mineral Resource, averaging 1.02% TREO.

The results are reported at a cut-off grade of 0.5% TREO within a conceptual open pit shell, the company said.

"In the months ahead, we expect more information regarding the project's process flowsheet to reinforce the project's commercial value," analyst Mark Reichman of Noble Capital Markets wrote in an updated research note after the MRE was released. "We think the current price is an excellent entry point for investors seeking exposure to one of North America's advanced REE projects."

Reichman kept his Outperform rating on the stock with a target price of CA$0.70 per share. It stood at CA$0.195 on Wednesday morning.

Work to Take Four to Six Weeks

The second phase of the exploration is expected to take four to six weeks, the company said, with results to follow. The work is being completed by SRK Consulting (Canada) Inc., one of the consultants for the PFS, and APEX Geoscience Ltd.

SRK's geotechnical engineering investigation will look at waste rock, tailings, the contact water pond, and site infrastructure.

This morning, Technical Analyst Clive Maund sent out a Buy alert on the company.

Also being assessed are tailings alternatives and geochemical characterization of the site to support mine planning and waste management and to develop preliminary water chemistry predictions for the main mine.

"In pit geotechnical core drilling will progress from current drilling on the east highwall, followed by south, north, and west pit walls," Defense Metals said in a release. "Drilling into the south pit wall is expected to collar in REE mineralized dolomite carbonatite."

Geotechnical core drilling of the west pit wall was being co-purposed with the testing of a high-priority ground radiometric geophysical anomaly with the potential to represent an undiscovered carbonatite body, the company said.

The Catalyst: 'A Globally Significant Producer'

Wicheeda has "the potential to be a globally significant producer" of REEs, Reichman noted.

"The project has several competitive advantages, including a mining-friendly location, well-developed infrastructure, and a strong technical team," Reichman wrote on September 13. "Wicheeda is well positioned to take a leading role in the North American and Global REE supply chain."

Right now, China accounts for about 60% of REE current mine production and more than 85% of the refined output of REEs.

The elements are in high demand as the economy attempts to go green. They are used for purifying water, MRIs, fertilizers, weapons, scientific research, wind turbines, computers, and permanent magnet motors for electric vehicles (EVs).

A recent decision by China to restrict the export of two metals critical to superconductor production, gallium and germanium, has officials in the West worried. While these metals are not being sought by Defense at Wicheeda, company officials said it's possible China may eventually target the REEs the company wants to provide for wind turbines and EVs.

Demand to 'Expand Rapidly'

The global market for the elements 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." 

Once it reaches commercial production, Wicheeda is expected to produce more than 25,000 tonnes of rare earth oxide annually, Reichman wrote.

"It all begins with developing a world-class deposit that contains high-quality ore," Reichman wrote. "We think Defense Metals is well positioned to benefit from growing demand for rare earths for use in electric vehicle batteries, metal alloys, and advanced technology applications."

Streetwise Ownership Overview*

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE)

*Share Structure as of 7/14/2023

Technical Analyst Clive Maund wrote last summer that although the stock's "price hasn't moved — yet," he expected that to change.

This morning, Maund sent out a Buy alert on the company, saying, "After a long and grueling decline for much of this year, it is viewed as way oversold and is down at a cyclical low at strong long-term support with downside momentum easing and the recent volume pattern bullish and Accumulation line positive relative to price."

Ownership and Share Structure

About 5% of the company's stock is owned by insiders, including Director Andrew S. Burgess with 1.63% or 4.18 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$49.88 million with 255.78 million shares outstanding and 212.98 million free floating. It trades in a 52-week range of CA$0.39 and CA$0.185.

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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 independent contractor.
  4. The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.

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Disclosures for Noble Capital Markets, Defense Metals Corp., September 13, 2023

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ANALYST CREDENTIALS, PROFESSIONAL DESIGNATIONS, AND EXPERIENCE 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. Named WSJ 'Best on the Street' Analyst and Forbes/StarMine's "Best Brokerage Analyst." FINRA licenses 7, 24, 63, 87.

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