When you consider rare earth elements, or REEs, what’s truly rare is the investor that can understand how to value the exploration companies that discovery of them. Otherwise, how is it a company like Defense Metals (TSXV:DEFN), with current resource of 19 million tonnes of 3% Lite Rare Earth Oxide (LREO, see *resource below) in mining friendly BC, has a market capitalization of under CAD $25 million, while sitting on a REE resource with an in-situ value of arguably multi-billions of dollars?
There’s no question the future need for a secure supply of these elements will continue on a global scale ‘to infinity and beyond’. These elements are the critical components to electric vehicles (EV’s), wind turbines, military technology including aircrafts, medical imaging and smart phones—the future of technology. Consider that every single EV, whether produced by Tesla, Ford or Hyunda requires over 2 pounds of rare earths; each direct-drive wind turbine helping to power the green revolution requires over 400 pounds of it; an F-35 Lightning II military aircraft requires at least 920 pounds of REEs for its armament and avionics.
You may not realize it but what your world needs more of now—and a lot more in the years to come—is neodymium and praseodymium (NdPr). These two rare earth elements are critical in the production of green energy technologies such as high strength, light weight, rare earth magnets used in electric vehicles, defense/military applications, high tech consumer electronics and others (see chart). NdPr based magnets, are found in 93% of all EV motors. Even though the pandemic has dented auto sales, demand for these magnets in electric vehicles shot up by 35% last year alone to 6,600 tonnes ), Adamas Intelligence says. The forecasted NdFeB magnet consumption is expected to at least triple from less than 80,000 tonnes in approaching 300,000 tonnes by 2035. Short term demand is expected to reach 100,000 tonnes by 2022 according to research by Welsbach Holdings.
So where are these rare earth elements coming from? Put bluntly, China.
China monopolizes the market for supply and consumption of the three key stages of processing: concentrate, carbonate and the finished product, oxidized. China accounted for 63%, more than 130,000 tonnes, of the REE mine production in 2019, but what’s more disturbing is that China controls 85% of the worldwide production of oxide concentrates, and 90% of the global supply of refined rare earth metals, alloys and permanent magnets.
If Biden administration is committed to making America’s electricity production carbon free by 2035, the US is going to need vast quantities of REE to achieve that. Meanwhile MP Materials Corp’s Mountain Pass mine in California is the only US rare earths mine, and even that facility relies on Chinese processors.
Getting back to Defense Metals, its Wicheeda Critical Rare Earth Element (REE) property is located close to infrastructure about 80 kilometres northeast of Prince George. *The Wicheeda project has an indicated mineral resources of 4,890,000 tonnes averaging 3.02% light rare earth elements LREO and inferred mineral resources of 12,100,000 tonnes averaging 2.90% LREO. The company is maintaining a ‘market agnostic’ approach is advancing supply chain agreement for concentrate and potential carbonates with Sino Steel in China as well as the Canadian and US governments and military .
Meanwhile, NYSE listed MP Materials Corp, now has a market capitalization of US $6 billion, a 240% increase since its debut on the NYSE in November 2020. In its Q2 2021 report, “revenues more than doubled year-over-year to $73.1M; up +22% sequentially, Strong sales volumes were in-line with record production levels – Growing NdPr demand drove +137% YoY increase in realized price.”
MP’s Mountain Pass, hosted in monzanite, has its ore is recovered from an open-pit surface mine and separated from overburden waste. Considered one of the richest deposits of rare earths in the world, Mountain Pass has approximately 12 million tonnes at nearly 8%. Hard to compare apples to oranges, but these metrics should at least shed some light on the upside of Defense Metals.
As commented by market observer, Bob Moriarty last year:
Get Breaking Stock Alerts
“The June 2019 43-101 Wicheeda study showed 11.37 million tonnes at an average grade of 1.96%. One percent LREOs is worth about $121 USD/tonne. If you accept $121//tonne being the value of 1% LREOs and you do the math, you will realize their old 43-101 showed a gross metal brilliant drill results, is less than 1/10th of 1% of that. I’d call that pretty cheap.”
Besides Mountain Pass, Defense Metals’ Wicheeda , hosted in Bastnaesite is the only other rare earth facility in North America that can produce high grade rare earth concentrate. The company is has 1,200 kilos producted by SGS Labs for evaluation for 7 potential offtake agreements. It’s these types of agreements that can catapult the company to new valuation level.
Consider that last year the Defense Metals nearly double its resource at Wicheeda from 12 million tonnes of approximately 2% LREO in 2019, to its current 19 million tonnes of 3% LREO (*see resource above). Loaded up with $4M in cash the company is now in the midst of a 5,000 metre drill program to expand the deposit and further delineate existing resources. Drill cost in the area of about Cdn $400/meter, and the company expects its 5,000-meter program to cost about $2 million, so the drill program is fully funded, as is the work for an upcoming Preliminary Economic Assessment (PEA) expected to be completed by the fourth quarter of 2021.Meanwhile, the upcoming drill program is designed upgrade the current resource to indicated and measured which provide a higher level of confidence for the prefeasibility studies the company expects to undertake in 2022.The company initiated the PEA work with SRK Consulting, one of the world’s leading experts in Rare Earth economic studies and also completed the PEA work for Mountain Pass. A common scenario as that domestic rare earth producers provide either a concentrate or a carbonate to the Chinese who have the lock-down on the oxide-producing technology.
Meanwhile there is a strong support at the federal level for investment in domestic rare earth metals with the Joint Action Plan between Canada and the US. A Democrat in the US House of Representative introduced legislation on extending tax credits to companies that domestically produce rare earth magnets, a sector currently dominated by China. Defense Metal’s plan at Wicheeda is to produce rare earths involved in Defense applications: namely Nyodemium, Praseodymium, Cerium and Lanthanum.
On August 10 the company announced a collaboration with China-based Sinosteel Corporation, consisting of “information sharing, beneficiation testwork and potential concentrator design research cooperation, and an investigation into the establishment of an on-site large-scale pilot plant at the Wicheeda Rare Earth Property to assess the economic and technical feasibility of full-scale mine development.”
Prior that, in May of this year, the company announced that ongoing pre-pilot hydrometallurgical test work utilizing high-grade rare earth element (REE) mineral concentrate produced by the company’s highly successful 26-tonne flotation pilot-plant, yielded a mineral concentrate averaging 7.4% NdPr oxide (neodymium-praseodymium).In the coming months, investors can look forward to a steady stream of catalysts including drill-results and forthcoming development and supply chain announcements. The company is currently in offtake discussions with five processing companies in North America Europe and Asia.
DEFN has about 80 million shares outstanding (113 million fully diluted) trading in the lowly $0.25 range and consider that its management hold about 10% of the company. It’s last funding of $5 million Cdn, was closed last May at a price of $0.32, so the current price is at a discount to its most recent financing. The company now has about $4 million cash and just announced the commencement up to 5,000 metres of diamond drilling designed to expand the deposit and further delineate existing resources. Now seems like a rare opportunity to jump into an undervalued asset, but time and demand is sure to close the perception/reality gap in the months/years ahead.
Legal Disclaimer/Disclosure: The content contained in this article is a paid publication. No information contained within should be construed as investment advice to buy or sell any mentioned securities. The author’s opinion does not necessarily reflect that of Financial Press. Associates of Financial Press may own shares of the companies mentioned in this article. A licensed financial advisor should be consulted prior to making any investment decision.