First featured in these pages roughly 18 months back in the $0.15 range, it’s been a crazy ride for Defense Metals shareholders.
- 80.34 million shares outstanding
- $17.68M market cap based on its recent $0.22 close
- Corporate presentation
After tagging a high of $0.75 earlier this year, the shares have fallen back to a level that may represent solid price support.
The green energy revolution isn’t going away and REEs are a critical component in the production of nearly every electric vehicle (EV) that rolls off the assembly line floor (>80% of EVs produced globally utilize permanent magnet-based motors).
It’s not just EVs—demand stems from every corner of the tech arena; everything from night vision goggles to the control rods in nuclear reactors.
For those new to this report, the Company’s flagship Wicheeda REE Project boasts 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.
This is high-grade rock.
Based on rough internal projections, Wicheeda’s current resource represents a (potential) 20-year mine life.
“Two specific rare earth minerals Monazite and Synchysite/Parasite-Bastnaesite are contained in approximately equal proportions.”
The values highlighted on the map below demonstrate the high-grade nature of this strategically located deposit.
Note the fat intervals tagged outside the main resource block where recent drilling supports the potential to expand the resource in multiple directions (inc depth).
“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.”
This 1,708-hectare project, located along a well-maintained forestry road in the mining-friendly region of Prince George, B.C., is surrounded by all the infrastructure a burgeoning resource development company could ever want or need.
The Company’s news archives and pitch deck are a good place to start your due diligence if you’re new here. Note the strategic partners’ the Company has engaged in recent months – Welsbach Holdings, SGS Canada, SRK Consulting, as well as some strategic advisors with interesting resumes (Brendan Jephcott from Golden Dragon Capital is another advisor that stands out).
A March 9th Highballer report on the subject—Defense Metals (DEFN.V) continues to de-risk its high-grade REE deposit in mining-friendly B.C. PLUS a Q & A with CEO Craig Taylor—might also offer insight.
A recent (major) push along the development curve
On August 10th, the Company dropped the following headline…
Here, the Company announced the execution of a non-binding Memorandum of Understanding (MOU) with Sinosteel Equipment & Engineering, a subsidiary of Sinosteel Corporation.
This MOU opens the door to information sharing, beneficiation testwork, concentrator design research, and an investigation into an on-site (large-scale) pilot plant to assess the economic and technical feasibility of a full-on mine development scenario.
If everything plays out by the numbers—if a positive PEA (due to drop in Q4 of this year) leads to a positive PFS (H2 of 2022)—this connection will open the door to project financing.
Having established 18 foreign subsidiaries worldwide, Sinosteel is a big name in the mineral (processing) arena.
From the Sino’s website:
Sinosteel is mainly engaged in developing and processing of metallurgical mineral resources, trading and logistics of metallurgical raw materials and products, and related engineering technical service and equipment manufacture. It is a large multi-national enterprise with clear-defined core businesses that integrate resources development, trade & logistics, engineering project and science & technology, equipment manufacturing and specialized service, providing comprehensive auxiliary service for steel industry and other strategic emerging industries.
The following (mostly verbatim) was pulled from the guts of this August 10th press release (note my bracketed commentary):
Pursuant to the MOU, areas of cooperation between the Parties are as follows:
- Defense Metals will share Wicheeda project information with Sinosteel MECC including but not limited to:
- Mine development,
- Permitting and licenses,
- Transport logistics,
- Project financing,
- Cash cost analysis, and
- Situational updates where Sinosteel MECC will share with DEFN its experience in the rare earth industry relating to beneficiation, Engineering Procurement Construction (“EPC“), EPC financing, and other general knowledge including pricing, costs, and other relevant matters in the rare earth elements industry.
- Defense Metals will provide Sinosteel MECC with a representative mineralization sample to carry out beneficiation testwork with the objective of compiling research to design a concentrator suitable for handling Wicheeda feed material. The testwork results will be used in conjunction with the ongoing Preliminary Economic Assessment to optimize a future design for the project (Editor’s note: the Wicheeda PEA is expected in Q4 of 2020).
- Wicheeda’s rare earth sample will total approximately 200kg and will be sent to Sinosteel MECC as soon as practicable – subject to obtaining any necessary government permits and approvals (Editors note: Defense does not anticipate any bureaucratic snags in the shipment of this sample containing 100% Wicheeda ore).
- It is anticipated the testwork will take approximately 4.5 months and cost US$200,000.
- After receiving the testwork results, both parties will assess and discuss how to best design a concentrator suitable for Wicheeda feed material.
- The proposed pilot plant will consist of both a beneficiation and hydrometallurgical process to produce bulk samples of rare earth concentrate, mixed rare earth carbonate, and high-purity rare earth oxides (Editor’s note: it’ll be interesting to see how Sinosteel’s results compare with those of SGS Canada’s—the Chinese may have a secret sauce).
- DEFN will assess the cost value assigned to the EPC contract and will inform Sinosteel MECC as the proposed pilot plant progresses.
- If additional related infrastructure is required for the pilot plant project, DEFN will apply it to the EPC contract.
- Sinosteel MECC, as the general contractor, will be responsible for the design, procurement of equipment, construction, installation, commissioning, training, and other works of the pilot plant following general EPC terms.
- It is envisioned the pilot plant will be fully constructed in modules in China before being transported and installed at Wicheeda (image below).
- Both parties agree to enter into discussions regarding Sinosteel MECC providing or sourcing EPC financing solutions for developing the pilot plant such as:
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- Flexible financing solutions supported by Sinosteel MECC but based on conditions to the satisfaction of Sinosteel MECC, and,
- Assisting DEFN to find proper investors from China or other countries.
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Some may raise concerns that this MOU involves a Chinese company. Nonsense. Having dominated the global REE processing arena for the better part of three decades, the Chinese are at the cutting edge of REE extraction, separation, and refinement technology.
Personally, if it were up to me and multiple options were open on both sides of the pond, I’d want the Chinese in my corner—assembling a large-scale REE pilot plant is an extremely complex undertaking.
SinoSteel constructed Northern Minerals‘ heavy rare earth pilot plant project in Australia.
They call this a pilot plant, but it’s more like a mid-sized facility (Capacity = 60,000 tonnes per annum raw ore where the final product includes 1,110 tons of mixed REE carbonate concentrate).
The dimensions of what may ultimately unfold at Wicheeda are dependant on a number of factors, including a PEA that is currently in the works. The Company envisions building the pilot plant on-site, or 50 kilometers to the west at Bear Lake. They’ll likely produce a concentrate and ship said concentrate overseas… or to Mountain Pass (the processing options on North American soil are shockingly limited, despite the critical minerals designation and surging global demand).
On one (online) message board I frequent, investors expressed concerns over shipment delays of Wicheeda REE concentrate samples to several overseas smelting and separator operators for evaluation.
Yes, it’s been several months, and the samples are still on Cdn soil. But people need to remember that gov’t agencies inside Canada haven’t exactly been on the dagger edge of efficiency of late—C-19 shutdowns n all.
From my own personal experience in dealing with these bureaus, things get bogged down from the get-go… from the moment I need to be walked through a task requiring more than a few basic steps. For the most part, gov’t personnel has been operating out of their homes over their cell phones—not the most efficient means to conduct business.
The delay in sending off these samples was a simple miscommunication between the Company and the gov’t agency. A supplementary list of questions—“very simplistic questions”—was supposed to have been sent to the Company weeks back to greenlight the shipping process, but for whatever reason, it was not received until very recently. Management is filling in the required blanks and the concentrate samples should be on their way directly.
Commenting on this August 10th MOU
Craig Taylor, Defense Metals CEO:
“Defense Metals is pleased to announce a landmark MOU with Sinosteel MECC a major player in the global mining industry and looks forward to updating shareholders with further information as project development talks continue between the two companies.”
Brendan Jephcott, Director of Golden Dragon Capital Ltd. and advisory to Defense Metals:
“Sinosteel MECC has a long commercial history and has completed more than 400 major metallurgical projects for the Chinese government and built many of the largest international projects ever undertaken by People’s Republic of China.”
Final thought
Regarding current exploration work at Wicheeda—a drill campaign designed primarily for category conversions along with a number of well-placed stepout holes to test mineralization to the north and at depth—a July 16th press release stated the following:
The Defense Metals technical team, subject to its own internal review, is currently in the process of finalizing drill site locations designed to build on the successes of the 2019 campaign. The 2021 Wicheeda drill program comprising a minimum of 2,000 metres and up to 5,000 metres will focus on expanding the zone REE mineralized dolomite-carbonatite to the north, in addition to further delineating existing inferred resources within the central and northwestern areas of the deposit (see Defense Metals news release dated May 26, 2021).
An updated resource estimate, a necessary input for the planned PFS, should drop in Q1 of 2022.
Despite the market’s languid response to this August 10th press release, I believe Sinosteel’s involvement adds heaps of validity to the Wicheeda project.
END
—Greg Nolan
Full disclosure: Defense Metals has come on as a Highballer client so I am (obviously) biased over here. The commentary/views expressed above should not be interpreted as investment advice. I am not a registered broker or financial advisor. Conduct your own due diligence and consult an investment advisor before laying your hard-earned money down. Though I do not currently hold a position in Defense Metals, I plan to establish a position beginning early next week.
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