An REE supply crunch and an undervalued development play—Defense Metals (DEFN.V)

Defense Metals (DEFN.V) is our go-to Rare Earth Element (REE) development play. It’s a strategic wager on an ever-looming supply crunch, one precipitated by Chinese domination of the REE refining market.

Defense is flying so low, so far below the market’s radar…

… its current sub-$10M market cap might best be looked upon as laughable.

If you’re unclear as to what REEs are, and why they’re so damn important, my take eight months back might help clue you in:

REEs are everywhere.

They’re in the satellites orbiting our planet. They’re in electric vehicles (EVs) hogging our passing lanes. They’re in your pocket right now “keeping your Candy Crush scores updated.”

Their properties are so unique, so unequaled, there’s no replacing them, and we’d likely be right-screwed without them.

With every article I trot out on the subject, I try coming up with a newer, shinier way of pounding home just how critical REEs are to this modern world.

This was my reasoning back in May:

Hailed as the “vitamins of chemistry”, they exhibit a broad range of electronic, optical, and magnetic properties. Referring back to a previous Guru offering on the subject, ‘they make our TV screens glow brighter, our batteries last longer, our electronic gadgets more mesmerizing (sigh), our electric motors, generators, and appliances more efficient. They can even make our paper money less prone to forgery.

They are an essential ingredient in everything from night vision camera lenses, to medical imagining technologies, to control rods in nuclear reactors.’

In a world that is turning increasingly green, the electric vehicle (EV) industry is the primary driver for REE demand—electric motors, generators, catalytic converters, component sensors, LCD screens… even the polishing powder for the windshields and mirrors.

The fundamentals

Defense Metals is pushing its wholly-owned Wicheeda REE project further along the development curve… aggressively.

This 1,708-hectare chunk of REE-rich terra firma is located in the mining-friendly region of Prince George, B.C.

It’s easily accessed by a well-maintained forestry road…

… and all the necessary infrastructure a mining company could ever want is but a chip shot away.

This Whicheeda resource is high-grade:

4,890,000 tonnes averaging 3.02% LREO (Light Rare Earth Oxide) in the Indicated category, and 12,100,000 tonnes averaging 2.90% LREO counted as Inferred.

And it’s a deposit that is open for expansion—these reported pounds-in-the-ground are not the end of the resource story.

If you examine the above map closely, you’ll observe that a 2019 drill program tagged mineralization well outside of the main deposit area in multiple directions, including depth (all 13 holes from said program are plotted here).

The following November (2019) headline marked some of the extraordinary grades/widths encountered during this drilling campaign:

Defense Metals Drills 4.43% Light Rare Earth Oxide Over 83 Metres the Highest Grade Drill Intercept to Date at Wicheeda Rare Earth Element Deposit

Metallurgy? Glad you asked. It doesn’t get much better than what Defense has demonstrated thus far.

Recent developments

Defense Metals dropped the following headline last week:

Defense Metals Announces Additional Positive Flotation Pilot Plant Results

Since the company kicked the pilot plant into gear on June 11, 2020, a total of 20 processing runs have been completed.

The entirety of the Wicheeda bulk sample—some 30 tonnes—has now been processed at SGS Canada’s metallurgical test facility in Lakefield, Ontario.

Mass balance assays for an additional five pilot plant runs completed since the previously reported results on August 4, 2020, are as follows:

• 26 tonnes of bulk sample feed were processed over 178 hours of operation;
• Approximately 1,200 kgs of high-grade REE flotation concentrate was produced (dry weight at ~15% moisture content);
• Processing concentrate grades ranged from 45.4% up to 56.7% (avg 51.6%) LREO (light rare earth oxide expressed as the sum of light rare earth elements – Ce2O3+La2O3+Nd2O3+Pr2O3);
• Process recoveries ranged from 53.8% up to 81.5% (avg 72.4%) LREO;
• Low average 6.4% mass yield to concentrate.

Scaled-up flotation pilot plant results to date compare very favourably, and with respect to concentrated grade exceed, benchmark locked-cycle flotation tests that produced a high grade 48.7% LREO flotation concentrate at 85.7% LREO recovery (See Defense Metals News Release dated October 23, 2019). The results demonstrate progressive LREO recovery improvement with successive tests conducted under varying process conditions designed to improve the circuit stability and metallurgical performance.

The final 5 (five) pilot plant runs, each having a duration of approximately 12 hours of continuous operation, included three tests (PP-15C, PP-16A, and PP-16C) conducted at reduced conditioning temperature. The results of these lower operating temperature tests returned comparable concentrate grade and recoveries to earlier higher temperature tests. Defense Metals believe the results are significant in that they demonstrate opportunities for potential future process-cost savings due to reduced energy input requirements.

Craig Taylor, Defense Metals CEO:

“With the processing of the remaining bulk sample feed now complete we continue to be extremely pleased with the results, which we believe demonstrate the viability of large-scale bulk sample flotation processing of Wicheeda REE Deposit material. We now look forward to beginning the data analysis phase of the work that will in part examine opportunities for further improvement of the already very successful Wicheeda metallurgical flowsheet. We expect to release the final results and a summary of all the testwork in the coming months.”

Getting back to the REE supply farce, on July 27th, Lynas Corp (LYC.AX) inked a deal with the US Department of Defense, one where the Pentagon will fund initial design work for a heavy rare earth separation facility in Texas.

This REE refining facility will be built in Texas… to process material from an REE deposit 16,600 kilometers away, in Western Australia (Lynas’ flagship Mount Weld deposit).

With China’s grip on the global REE refining market, this stratagem exemplifies just how precarious the REE supply chain truly is.

You gotta wonder who else might be in the crosshairs of the Pentagon.

If Defense Metals doesn’t strike you as an intriguing speculation, especially at its current sub-$10M valuation, look closer.

END

—Greg Nolan

Full disclosure: Defense Metals is an Equity Guru marketing client. We own the stock.