Changing the Fate of REEs in the West

Source: Streetwise Reports   02/23/2022

Currently China has a virtual stranglehold on rare earth elements, but this Canadian company is getting ready to capitalize on the downstream value of processing the REEs it’s mining.

Purifying water with electrodialysis. Diagnosing ailments with MRIs. Feeding more people using better fertilizers. Reducing emissions with wind turbines and electric vehicles.

These technologies all have the potential to improve life on Earth. And all of them require on a reliable supply of rare earth elements (REEs). But rare earth elements are … rare, in that they are hard to get and in high demand.

What Country Has the Most Rare Earth Elements?

With 60% of the global mine production of REEs centered in China, the supply chain to North America and other regions is far from assured, as China accounts for more than 85% of the processing capacity.

Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) is banking that its 100%-owned Wicheeda Project in British Columbia, Canada, will help correct that imbalance.

Wicheeda yielded a robust 2021 PEA (preliminary economic assessment) that demonstrated an after-tax net present value (NPV@8%) of CA$517 million. The project’s 43-101 technical report shows a 5 million-tonne indicated resource at 2.95% TREO (total rare earth oxide) and 29.5 million-tonne inferred resource, averaging 1.83% TREO calculated from 4,000 meters of drilling.

Streetwise caught up with recently appointed Defense Metals’ President Dr. Luisa Moreno, who is a physics engineer with a PhD in materials science and mechanics. Moreno notes that the PEA does not include results from an additional 5,300-meter drill program completed in 2021. “We are confident that this will increase our measured and indicated resource,” said Moreno. The significant upside to REE spot prices and forecast demand are additional positive indicators for the company and the REE sector as a whole.

REEs From China a ‘Ticking Time Bomb’

The U.S. government has taken notice of the imbalance of access to the elements and on Tuesday announced a $35 million Department of Defense grant being given to MP Materials Corp. (MP:NYSE) to separate and process REEs at its facility in Mountain Pass, Calif. MP Materials will also announce another $700 million investment to create more than 350 jobs in the permanent magnet sector by 2024.

Rare earth minerals are often used in weapons research and in the F-35 jet and precision guided munitions, and they are also used to make permanent magnet motors for electric vehicles that would be key to convert the Pentagon’s non-tactical vehicle fleet to zero emissions, Reuters said.

Having most REEs sourced from China is a “ticking time bomb,” said Bob Moriarty of 321Gold.

“If the governments of Canada and the U.S. don’t get their act together, the lack of domestically sourced REE will destroy … EV manufacturing in the West. Action needs to take place soon.”

— Bob Moriarty, 321Gold

“You could say China has a stranglehold on REE, just as they did with microchips,” Moriarty said. “If the governments of Canada and the U.S. don’t get their act together, the lack of domestically sourced REE will destroy … EV manufacturing in the West. Action needs to take place soon.”

Defense Metals said it projects it will produce 25,000 tonnes of rare earth oxides per year at Wicheeda, or about 10% of the world’s current production.

With the U.S. officially rejoining the Paris environmental agreement, an editorial by The Hill called for a “Marshall Plan-scale initiative” for critical minerals.

“We need greater interagency collaboration in Washington, expanded education about the procurement of ‘tech metals’ to achieve the 21st century’s green industrial revolution and, ultimately, greater investment from policy makers to ensure that industry doers can make the dream a reality,” the editorial said.

Are REEs a Good Investment?

Moreno notes that of the more than 200 minerals known to contain REEs, only a handful are currently known to be economically viable from a processing standpoint. Two of those—monazite and bastnaesite — are notably rich in REE, and figure dominantly at Wicheeda.

Defense Metals also has an edge in processing. First is the quality of the ore it plans to mine.  The average grade of the ore at Wicheeda is 2.33% TREO. “Because we have coarse grained REE minerals with high REE metal content, we can upgrade through direct floatation to about 40% TREO,” Moreno said. “Other REE deposits of similar grade are upgradable only to 10% or 15% TREO. This give us the advantage of being able to process our ore at much lower cost than others.”

Second is an MOU Defense Metals signed in August 2021 with Sinosteel, a leading Chinese REE processor. Byron King, who follows the REE sector closely (and is a Defense Metals shareholder) explained that “While we all recognize the importance of breaking free of China’s dominance in the REE sector—both mining and processing—we also have to recognize that China is where the expertise lives. If you want to learn to dance, you need to hire a dancing teacher. Sinosteel can be that teacher for Defense Metals.”

Moreno is even bolder: “Our goal is to gradually become a vertically integrated REE purveyor, from mining to processing, separating and, potentially, delivering the actual metal. This will allow us to retain more of the value of the commodity we bring out of the ground.”

The strategy of getting as far down into the upstream is essential, King said. “The end users of these REEs have very specific requirements. Filling those needs starts at the mouth of the mine, but it is crucial to take the rock and turn it into the highest-value material you can get.”

Defense Metals’ recent addition of John Goode, P.Eng., to its Advisory Board deepens the firm’s processing acumen. “John has already contributed significantly to metallurgical process development at Wicheeda, and we expect him to continue to bring his considerable expertise to bear in adding value to the project as we advance toward a pre-feasibility study,” Moreno said. Goode’s substantial processing expertise ranges from work done in Canada and the U.S., to China, Australia, and Russia.

Wicheeda Primed to Deliver More Catalysts

Wicheeda, located 80 kilometers from Prince George, British Columbia, benefits from ample infrastructure. Highways, logging roads, gas and electrical lines facilitate operations. Nearby air, rail and seaport connections provide transport options. “All of these factors are in our favor, compared to other REE projects in locations farther to the north, like Québec and the Northwest Territories,” Moreno said. Finally, it is in a friendly mining jurisdiction, with a skilled workforce at hand.

That workforce will be kept busy with a redoubling of drilling efforts, both in-field and expansionary, that Defense Metals has planned for 2022. The firm also is waiting for assay results from the 29-hole drilling program over 5,340-meters that were not included in the PEA. Those results are anticipated in early 2022.

Defense Metals’ market cap is about $40 million. It has about 161 million shares outstanding, or about 200 million with warrants and options. About 5% of the company is owned by management and insiders.

Disclosures

1) Diane Fraser 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 and members of her household are paid by the following companies mentioned in this article: None. Her company has a financial relationship with the following companies referred to in this article: None.

2) Byron King’s disclosures: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Defense Metals; shares were purchased on the open market. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. I am not offering personal investment advice in any manner, to anyone.

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