Defense Metals Corp (TSX-V:DEFN) ticks a number of boxes for us right now: location in a tier one mining jurisdiction, rare earth metals, and funded last year to the tune of C$5m. On top of that, it has zero debt.
Rare earth metals is a hot market right now, and likely to get hotter. Defense Metals Corp has acquired 100% of the Wicheeda rare earth project, which is located near Prince George in British Columbia. It has completed a positive Preliminary Economic Assessment which has established significantly increased resources, and is in the process of building its technical team.
Why mine rare earth metals?
Rare earth metals are used across a broad range of critical industries, including power generation, medicine, agriculture, computing and the automotive space. Demand for these is not going away any time soon.
On top of this China currently has a very tight grip on the production, mineral upgrade, cracking and separation processes for rare earth metals. It produces 140,000 tonnes alone, compared with #2 producer the US, at 38,000 tonnes. But even US miners rely on China for cracking and separation.
| Mining & Mineral Upgrade | Cracking | Separation | ||
|---|---|---|---|---|
| Production /tonnes |
Country | Ore Concentration | Mixed Chemical Concentration |
Separate Oxides |
| 140,000 | China | China | China | China |
| 38,000 | USA | USA | China | China |
| 30,000 | Myanmar | Myanmar | Myanmar, China | China |
| 25,000 | WICHEEDA | (projected) | ||
| 17,000 | Australia | Australia | Malaysia | Malaysia, China |
| 3,000 | India | India | India | India |
| 2,700 | Russia | Russia | Estonia | Estonia |
| 4,000 | Madagascar | Madagascar | China | China |
| 2,000 | Thailand | Thailand | Thailand | Thailand |
| 1,000 | Brazil | Brazil | Brazil | Brazil |
| 1,000 | Vietnam | Vietnam | Vietnam | Vietnam |
| 500 | Burundi | Burundi | China | China |
Wicheeda project could have real scale
Defense Metals Corp is bullish on the possible output that could be achieved from from its Wicheeda project, and output that could rank it higher than the REO output of Australia, which stands at 17,000.
A big, non-China, rare earth metals project that comes online in a jurisdiction like Canada would be gold dust for investors. We are already facing massive demand for rare earth metals from the automotive sector, and that is just likely to increase over time.
A typical electric vehicle uses between one and three kilos of neodymium-iron-boron magnets (aka NdFeB) in standard drivetrain motors. These magnets are in 93% of all electric vehicles, including those currently being manufactured by the likes of Tesla, General Motors and Ford. It is estimated that every 10m new EVs coming off the production line with require approx 10,000 tonnes of additional neodymium, which is about 20% of the current – global – supply.
Prices for rare earth metals are predictably on the rise: they started to stage a recovery from a 2016 price slump towards the end of 2019. Some rare earth metals – e.g. neodymium which we discussed above – have increased over 60% in 2021 alone. Praseodymium is up 104% in 2021.
Wicheeda Project Key Metrics (PEA results)
- Pre-tax NPV @8% – C$761m
- Post-tax NPV@ 8% – C$517m
- Payback period – 5 years
- Initial capex – C$440m
- Average annual production – 25,423 tonnes
- Mine life – 16 years
Wicheeda is in an excellent location for a rare earth metals mine. It is strategically positioned along a major forestry service road, which in turn connects to British Columbia’s Highway 97. It also benefits from the proximity of a major hydroelectric power line, a major gas pipeline and is also close to the national rail network.
Indicated resources at Wicheeda are in the region of 5m tonnes, averaging 2.95% total rare earth oxide (TREO). Inferred resources are 29.4m tonnes, averaging 1.83% TREO. This is with a cut-off grade of 0.5% TREO.
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Defense Metals is currently way below the market cap of some comparable projects. At around C$32m it is much cheaper than the likes of Rare Element Resources [OTC:REEMF] and Ionic Rare Earths ]ASX:IXR]. Scope for growth in this area of mining is immense. Obviously much depends on the quality of the minerals that Defense Metals is able to access at Wicheeda, but the likes of Lynas Rare Earths [ASX:LYC] and MP Materials NYSE:MP are now trading at multiple billions in terms of market cap.
