Megatrends Driving Rare Earth Metals Supply Deficit
Megatrends in electric vehicles, green energy, advanced electronic devices and industrial materials are disrupting conventional supply systems.
These technologies need small amounts of oddball metals called “rare earths”.
In industry, they use these metals to create permanent magnets used in everything from hard drives and generators to headphones, transducers, sensors.
Praseodymium magnesium alloys create high-strength materials used in aircraft engines. Cerium is used in vehicle catalytic converters. Lanthanum is a critical component in camera, telescope, and night vision lenses.
And while there’s a need for all these rare earth metals, the demand for two in particular will explode in the next couple of years.
Neodymium and praseodymium — often referred to as NdPr — will be critical for electric vehicles (EVs). According to Adamas Intelligence:
“…upwards of 80% of all EVs projected to use permanent magnet synchronous motors (PMSMs) in the years ahead, the rapid rise in EV sales will fuel a 350% increase in demand for rare earths used in EV traction motors between 2018 and 2025, and a further 127% increase in demand between 2025 and 2030, according to the forecast.”
The electric vehicle market around the world will drive massive demand for these metals.
And governments are legislating that demand.
By 2030, India, Ireland, Netherlands, Slovenia, Norway and Scotland will either ban internal combustion engine (ICE) sales or mandate the sale of EVs. By 2040, France, UK, Sri Lanka. And Sweden aims to do it by 2045.
In China, 25% of new car sales will be EVs by 2025 and 50% by 2035. This is the world’s largest car market.
As demand for the technologies explodes, so does demand for these unusual metals. And today, China owns most of that supply.
Right now, about 85% of the high-value rare earth metals come from China. And the prices of those metals have CTyrocketed. In the past year, the price of neodymium rose 74% to about $44 per pound. Praseodymium is up 17% to $37 per pound.
Demand for these metals will be “astronomical” in the 2030’s according to Adamas Intelligence:
If the global industry continues to operate myopically—preparing, anticipating and investing only for a three to five-year outlook—the rate of demand growth for magnet rare earths will soon reach “escape velocity”; a point at which annual demand growth becomes so great (i.e. >6,000 tonnes per annum) that it is simply implausible for the already-lagging supply-side to catch up and keep up.
To avoid this fate and seize the enormous opportunity ahead, a flood of investment is imminently needed to develop new sources of supply and downstream value chains to convert that supply into metals, alloys, magnets and other materials used by high-tech industries globally.
That means there’s a huge financial incentive for the mining industry to find and develop projects that can feed that looming shortage.
And that’s where Defense Metals (TSX-V: DEFN)(OTC: DFMTF) has a lead on its competition.
Defense Metals Corp. trades in Canada under the symbol “DEFN” on the TSX Venture Exchange, in the United States under “DFMTF” on the OTCQB, and in Germany on the Frankfurt Exchange under “35D”.
The Wicheeda REE project has indicated mineral resources of 4,890,000 tonnes averaging 3.02% LREO (Light Rare Earth Elements) and inferred mineral resources of 12,100,000 tonnes averaging 2.90% LREO.
Defense Metals is an approximately C$35 million market cap rare-earth exploration company.
It has the option to acquire 100% of the 1,708 hectare Wicheeda Rare Earth Element Property located near Prince George, British Columbia, Canada and looks to be on track to complete on that option and fully own this project. The deposit host rock is carbonatite, which are outstanding exploration targets. They are the main source for niobium and rare earth elements. Its excellent mineralogy and grade make Wicheeda a very attractive light rare earth deposit.
Geologically, the property is situated in the Foreland Belt and within the Rocky Mountain Trench, a major continental geologic feature. The Foreland Belt contains part of a large alkaline igneous province, stretching from the Canadian Cordillera to the southwestern United States, which includes several carbonatite and alkaline intrusive complexes hosting the Aley (niobium), Rock Canyon (REE), and Wicheeda (REE) deposits.
The project boasts several attractive qualities in addition to its geology. It’s easy to access by all-weather gravel roads. It is near infrastructure, including power transmission lines, the CN railway and major highways. And it’s close to an experienced workforce.
The Wicheeda project has indicated mineral resources of 4,890,000 tonnes averaging 3.02% LREO (Light Rare Earth Oxides) and inferred mineral resources of 12,100,000 tonnes averaging 2.90% LREO.
The land package consists of 6 mineral claims covering an area of 17 square kilometers. It’s in a mining-friendly district, just 80 km northeast of the city of Prince George.
In late 2018, Defense Metals collected a 30 metric ton bulk sample at Wicheeda for metallurgical testing. Flotation pilot-plant processing of a 26-tonne bulk sample of Wicheeda REE material yielded a mineral concentrate averaging 7.4% NdPr oxide (neodymium-praseodymium). The company continues to work on optimization strategies for its recovery processes.
At the same time, the deposit continues to grow in size and quality. The company recently drilled 13 holes totaling 2,005 meters. The core holes helped define and expand the high-grade carbonatite target. In addition, the drilling demonstrated that the deposit is open to the north, with potential for further expansion. Intercepts in that drilling campaign included some of the highest grades found to date. In drill hole WI19-31 they encountered 4.43% LREO over 83 meters. That included a section that ran 5.47% LREO over 33 meters.
The company also completed LiDAR and color aerial photography surveys over the project to help identify structures and trends..
CEO Craig Taylor summarized the company’s current status:
“Defense Metals continues to advance the Wicheeda REE Project through completion of its highly successful 2020 updated mineral resource estimate, 26 tonne flotation pilot plant, and long-term baseline environmental mentoring programs. In addition, completion of high-resolution airborne LiDAR surveys allows for enhanced planning of critical project infrastructure as we look forward to the potential development of the Wicheeda REE Project. The Fortress Value Acquisition Corp.’s US$1.4 billion merger with MP Materials/Mountain Pass and listing on the NYSE has further added awareness to the REE industry and we anticipate that this sector will continue to attract the attention of investors, governments, and consumers all around the world.”
There is no question that Defense Metals’ Wicheeda deposit is one of the highest quality and most advanced light rare earth exploration project in North America.
For those interested in staking a position in an emerging commodity scarcity play, rare earth metals are the place to be. And Defense Metals leads the field with its Wicheeda REE Project. This is the junior to back in the REE space.
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Defense Metals (TSX-V: DEFN)(OTC: DFMTF), Mr. Craig Taylor. Craig, how are you today?
Craig Taylor: Good, Gerardo, how are you doing?
GDR: I am well. I have to share a personal story. Back in 2010, right around that time frame, I did exceptionally well with anything that attached the words “rare earth” to whatever the company name was before it was a rare earth company.
I say that to say that I haven't seen as much excitement in the rare earth space, both in terms of exposure and the amount of capital that's flowing into this space, as I saw then.
And when I say that I had great success, there were names like Rare Element Resources that I bought into at 24 cents that eventually traded as high as $18. Quest Rare Minerals, 6 cents to $6. And it happened relatively quickly.
You happen to have an asset that's got great infrastructure, a high rate of extraction, and a comp with Mountain Pass — that’s not apples-to-apples, obviously — but there is a lot to like there when you compare the two. So before we get into any of that, tell us a little bit about your background and the company, and then let's dig into the details a bit if you don't mind.
CT: Sure. Okay. The deposit is located 70 kilometers north of Prince George, British Columbia (BC) and that's a real mining hub. It's central BC. There's gas and coal and mining. So the infrastructure is great for our deposit. We have road access. We have access to electricity, to water, railroads close by. So that's part of what separates us from the rest of the crowd in the rare earth space. Our capex is going to be very low moving forward. We are a neodymium and praseodymium (NDPR) rare earth deposit, which are the critical elements in lightweight high-strength magnets. And as you know, those are instrumental in the electric vehicle (EV) market these days, which is growing exponentially.
GDR: Hence the name Defense Metals, because those metals also have a lot of implications when it deals with and as it relates to national security. We're talking the missiles and the planes and the satellites, and things of that nature, correct?
CT: Yes. And that's why this could be explosive like it was in 2010 because China occupies all of the production of rare earths, or 80% anyway. And it's really important for the US military to have control over these military components that they make. And right now that's not the case. China is threatening to cut off the US, like they did to Japan, which is why the market went crazy in 2010. So we're sort of brace for a similar tidal wave going forward.
GDR: I mentioned the high rate of extraction, and I think this is something that, assuming continued success, is going to really set you and your asset apart. There is a long lead time. If I were to decide tomorrow to capitalize on the new, hot, rare earth trend, which I think is only going to get hotter, and I wanted to put together a team that had a background and I went and found an asset; It would take me years on end and maybe even decades to get to the point where I could prove my asset to be extractable — and to be extractable at a high rate. You're there now. Can we speak to that a bit?
CT: Yeah. That's very important. We have worked extremely hard the last two years to move this company forward and to de-risk the asset. And if you look at our timeline, we've taken a 30-tonne bulk sample in January of 2019, gone through metallurgy, increased our resource, did a pilot plant, and now we're at the stage where we're going to be doing a PEA in the first quarter of this year. So that's an incredible amount of work in a short time span.
GDR: I mentioned Mountain Pass, and again, obviously I'm not saying that your asset and Mountain Pass are apples-to-apples because the market cap will tell you that. There's a lot of difference there, but there are also a lot of similarities and things to like. For those not familiar with Mountain Pass and the recent news, can you give us a bit of an overview of the capital and the people involved there and why that could be important for a company like Defense Metals?
CT: Yeah. Mountain Pass is the only producing rare earth mine in North America. And they have recently voted on a merger with Fortress Acquisition Corp, by which Fortress will be injecting half a billion dollars into Mountain Pass. And at the end of the transaction, Mountain Pass will be worth $1.5 billion, and that will allow them to do further processing on their mine site, which is second only to China. So it will be the only plant in North America that can turn their concentrate into oxide. And our similarities are that they are an NDPR deposit as well, very similar geological makeup, and our grades are not far off theirs. So we are a natural feed or perhaps competitor to Mountain Pass in the future.
GDR: You also could potentially be a takeout target. Because if you're a potential competitor, given your small market cap, I would imagine it would behoove a company to take a peek at you and see if it's accretive, right?
CT: Absolutely. Absolutely, yes. And we've tried to contact them recently, and they're so tied up in this acquisition right now, they didn't have time to speak with us, but they said they would like to speak with us once the whole transaction is done. So that's definitely in the forefront of our minds.
GDR: And again, the backers there are some of the smartest money in the space, right? And frankly, some of the smartest venture capital money. I believe Chamath Palihapitiya is behind it, former exec, part of the original Facebook group, amongst others. So when I say there is capital and attention coming into the market, I am not talking tens of millions of dollars. I'm talking billions of dollars. Is that accurate, Craig?
CT: Very, very. The Department of Defense (DoD) and the Department of Energy (DoE) see the threat as well as the smart money that you've mentioned. So there will be injections from the government and from private equity going forward.
GDR: Walk me through what the next couple of months look like for Defense Metals.
CT: Okay. We have successfully finished our pilot plant. We have produced 1200 kilograms of high grade concentrate. And so currently, we're looking at offtake agreements with several partners out of Japan, out of North America and Canada. So that will establish us as a viable offtake partner for the likes of Toshiba, battery component manufacturers, magnet component manufacturers. So that's a big step for us.
And then the first quarter of this year, as I mentioned, we'll be doing our PEA. We've done an internal scoping study, and our numbers came out to be very favorable. And that's what propelled us to work towards our PEA.
GDR: Excellent. Can you walk me through the share structure and the current market cap a bit? I think fully diluted, you have just shy of 80 million shares outstanding. Is that correct?
CT: Yeah, that's right. That's including warrants and options. Shares are just over 50 million. Insiders hold about 10%, and our market cap is currently, in US dollars, about US$7.5 million. So a very low market cap for what we have, and we're trying to get the message out there now and improve on that. And that's sort of the purpose of our call today, just to tell people our story. Since we've done all this work, it's time for us to open ourselves up to the market.
GDR: Well, again, I think the sector, once again will be explosive to the upside. I think you've positioned yourself well. I encourage everyone to go to defensemetals.com to take a peek at the corporate presentation and the vast amount of work that's been done here recently. And Craig, I'm looking forward to having you back on as soon as the company checks milestones.
CT: Great. I appreciate it. I am too.
GDR: Thanks a lot, Craig. Appreciate your time.
CT: Okay. Talk soon. Take care.
Rare earths are currently caught up in a global critical metals supply chain race for independence. We're seeing a focus by governments around the world to establish a critical metals supply chain that is independent of China.
The recent Fortress and MP Materials merger is a clear indication that this is likely a trend that will accelerate. That merger's going to be instrumental in providing extraction facilities in North America.
Defense Metals (TSX-V: DEFN)(OTC: DFMTF) is aiming to be the first public company other than MP Materials to have a rare earth hydrometallurgical pilot plant.
And the valuations aren’t even close. For tiny Defense Metals to be valued anywhere close to MP Materials it would need to rise more than 400X in share price.
It’s still early days of course, and Defense Metals is nowhere near as advanced making it significantly higher risk.
But it is second out of the gate. And there is a lot of potential upside at hand for those investors willing to take an early look.
To learn more, be sure to check out the Defense Metals’ (TSX-V: DEFN)(OTC: DFMTF) website here.
— Resource Stock Digest Research
Scientific and Technical Information
The scientific and technical information contained in this document has been reviewed and approved by Kristopher J. Raffle, P.Geo. (BC) Principal and Consultant of APEX Geoscience Ltd. of Edmonton, AB, a director of Defense Metals and a “Qualified Person” as defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
National Instrument 43-101 Technical Report on the Wicheeda Property, British Columbia, effective June 27, 2020 and prepared by APEX Geoscience Ltd. (Steven J. Nicholls, B.A. Sc., MAIG and Kristopher J. Raffle, B.Sc., P.Geo) is available under Defense Metals’ profile on SEDAR (www.sedar.com).
Technical and scientific and other disclosures in this article can be found at www.defensemetals.com and at www.sedar.com.
This document includes certain statements that constitute “forward-looking information or statements” within the meaning of applicable securities law, including without limitation, Defense Metals’ expectations for its deposit, plans for its project, completion of a PEA, completing option to acquire Wicheeda project, as well as other statements relating to the technical, financial and business prospects of Defense Metals and other matters. Readers are cautioned that forward-looking statements are not guarantees of future performance or events and, accordingly are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty of such statements. Forward-looking statements address future events and conditions and are necessarily based upon a number of estimates and assumptions. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. Forward-looking statements are subject to a variety of risks and uncertainties, which could cause actual events, level of activity, performance or results to differ materially from those reflected in the forward-looking statements, including, without limitation: (i) risks related to rare earth elements, and other commodity price fluctuations; (ii) risks and uncertainties relating to the interpretation of exploration results; (iii) risks related to the inherent uncertainty of exploration and cost estimates and the potential for unexpected costs and expenses; (iv) that resource exploration and development is a speculative business; (v) that Defense Metals may lose or abandon its property interests or may fail to receive necessary licences and permits; (vi) that environmental laws and regulations may become more onerous; (vii) that Defense Metals may not be able to raise additional funds when necessary; (viii) the possibility that future exploration, development or mining results will not be consistent with Defense Metals expectations; (ix) exploration and development risks, including risks related to accidents, equipment breakdowns, labour disputes or other unanticipated difficulties with or interruptions in exploration and development; (x) competition; (xi) the potential for delays in exploration or development activities or the completion of geologic reports or studies; (xii) the uncertainty of profitability based upon Defense Metals history of losses; (xiii) risks related to environmental regulation and liability; (xiv) risks associated with failure to maintain community acceptance, agreements and permissions (generally referred to as “social licence”), including local First Nations; (xv) risks relating to obtaining and maintaining all necessary government permits, approvals and authorizations relating to the continued exploration and development of Defense Metals projects; (xvi) risks related to the outcome of legal actions; (xvii) political and regulatory risks associated with mining and exploration; (xix) risks related to current global financial conditions; and (xx) other risks and uncertainties related to Defense Metals prospects, properties and business strategy. These risks, as well as others, could cause actual results and events to vary significantly. Factors that could cause actual results to differ materially from those in forward looking statements include, but are not limited to, continued availability of capital and financing and general economic, market or business conditions, the loss of key directors, employees, advisors or consultants, adverse weather conditions, increase in costs, equipment failures, government regulations and policies, litigation, decrease in the price of REE, the impact of Covid-19 or other viruses and diseases on the Company’s ability to operate, failure of counterparties to perform their contractual obligations and fees charged by service providers. Investors are cautioned that forward-looking statements are not guarantees of future performance or events and, accordingly are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty of such statements.