For my first article of the New Year in 2024, I wanted to bring you all something special – something worthy of the top spot. Not a deal that might be great some day if everything goes right, or a deal that has already climbed to the mountaintop, but one that has runs on the board and is as yet under-appreciated by the market despite having achieved everything management set out to do several years ago. I wanted to bring you a deal that’s has immense upside, has been largely de-risked, and is set for launch right now.
Added bonus: The neighbours ran to a $130 million market cap by telling people they might have what this company has.
“Respect the work.”
This is a phrase every resource investor should have posted above their trading monitor, every day, for the rest of their lives. It’s the one thing that separates the real resource companies that have a chance at being something, from the pretenders who will go out of their way NOT to advance their property, lest they ruin a good story.
Defense Metals (DEFN.V) has been doing the work for years.
They’ve advanced their Wicheeda rare earths project again and again, rolling through all the milestones you’d hope for on a property that they expect, some day soon, will evolve to production.
If you pay attention to DEFN, you already know what they are. Good crew, always advancing the story, never relying on hype or forward projection, or needing to ride in someone else’s slipstream. We introduced you to them three years back, and everything they said they were going to do back then, they’ve done since.
Resource pundit Tommy Humphreys has said of DEFN just this past month, “Defense has one of the best rare earths deposits out there. It’s in BC. Targeting 10% of global REO production. Great people.”
The Wicheeda is a gem. It’s a 100% owned, BC-based, high quality, open-pit rare earth asset at the pre-feasibility study stage (due in Q2), accessible by road, nearby rail, power, gas, and a major deep sea port. The company has $7m in the bank as of September, and as of August of this year had a resource estimate showing 27.8 million tonnes indicated, 11.1 million inferred.
But DEFN got halted for a bit this week, for nothing they had anything to do with.
One of their neighbours flew too close to the sun over the last month, and ended up with the regulators going through their trash. The unnamed company had run a massive promo campaign that talked as much about the Wicheeda as it did their own property, which sits next door, had a couple of drill holes on it more than a decade ago, and was purchased for $50k and 100,000 shares.
That company was forced to put out a statement that clarified they actually have nothing to do with Defense Metals, have done no work similar to what Defense has done, and that their property may not contain what Defense’s property definitely does.
The kicker here is, that unnamed company, on the back of RELENTLESS German promo and no actual work on the ground, drove its market cap up to $130 million in a month, basically by saying ‘we’re next door to Defense Metals.’
By comparison, Defense Metals, that shining light of rare earth potential they’re desperate to compare themselves to, has a market cap of just $50 million.
We won’t mention who that neighbouring crew is because Defense have asked us not to. They’re busy doing the real work of developing a rare earths play, and could do without being dragged into a BCSC drama not of their making. But one good thing came out of the situation, in that a lot of eyeballs are suddenly paying attention to DEFN. People who’d forgotten what they’re up to, or never knew, are suddenly looking at the Wicheeda and thinking, “Well what have we got here?”
The answer to that is, a lot.
If you’re a resource pointy head, you can skip ahead but, for the rest of you, time to go to Mining University, Parry style.
WHAT ARE RARE EARTHS?
Rare earth elements are a group of 17 chemically similar metals crucial in various high-tech industries. These elements, including scandium, yttrium, and the 15 lanthanides, are vital for manufacturing numerous modern technologies such as smartphones, electric vehicles, wind turbines, and military equipment. Despite their name, rare earths are relatively abundant in the Earth’s crust, but their extraction and processing are challenging, often causing significant environmental impacts. Their critical role in advanced technologies and limited supply sources, particularly with China’s dominance in the market, make them strategically important globally.
In short, if you can get at a lot of rare earths outside of China, and what you can access isn’t too tricky to process, you’re going to be very important, very quickly.
WHAT HAVE DEFENSE METALS GOT?
That there is a Mineral Resource Estimate, and for those unfamiliar with the term, it outlines the best estimates of what lies beneath the ground on a property, in terms of scale and grade.
- Inferred Resources: These are estimated on the basis of geological evidence and assumed but not verified geological and grade continuity; they are the least confident category of mineral resources but provide some educated guesswork on what may lie within.
- Indicated Resources: These resources are estimated with a higher level of confidence than inferred, based on detailed exploration, sampling, and testing, showing reasonable prospects for economic extraction.
- Measured Resources: These represent the highest confidence category of resource (but not reserve) estimates, determined through detailed and comprehensive exploration, sampling, and testing, showing a high degree of geological certainty and possibility of economic viability.
A mineral resource estimate is a document prepared by a third party that goes through all the work that’s been done on a property and gives all concerned – management, regulators, bankers, and investors – a sense of future prospects. The more work that’s done, the better that MRE will be, and the more bankable the company becomes.
In this instance, the company’s most recent NI 43-101 report shows there’s 6.4 million tonnes of measured resources and another 27.8 million tonnes of indicated resources, close to surface, and that the grades are decent, means the money, time, effort, and work done on the Wicheeda to this point has been a tremendous success. DEFN has de-risked the property exactly as you’d hope (so far), but some risk remains.
HOW CAN THEY ACCESS IT?
The resource is close to the surface, which means it can be mined using an open pit, rather than needing to dig deep underground via expensive shafts.
The image to the right is a cross-section of what that looks like, with drill holes noted, and is ample evidence of that ‘work being done’ I was referencing earlier.
A lot of resource explorers prefer not to drop a drill in the ground, lest it ruin a good story. The real ones pound the drills out and show their work relentlessly, like this.
HOW CAN THEY MOVE IT?
Once DEFN has the resource out of the ground, the next question they’ll face is how to get it off the property. This isn’t always easy as often mines happen far from civilization. Transport adds cost, especially if one has to build roads and fly things in and out.
Again, Wicheeda delivers in that it has road access and nearby highway, rail, deep sea shipping port, and a potential processing facility not far way. The good folks over in Saskatchewan are putting up to $100 million into building a processing plant that may turn out to be useful for DEFN and others.
HOW CAN THEY PROCESS IT?
Admittedly, processing rare earths can be tricky and expensive, even to the point where it can become uneconomic or environmentally damaging to do so.
Thankfully, the Wicheeda deposit is particularly promising for mining light rare earth elements that contain beneficial types of minerals (like monazite, bastnaesite, parisite, and synchysite) in large, well-formed crystals, making them easier to process and extract.
DEFN stated that its recent test results shows the Wicheeda feedstock can be crushed, ground, and floated to produce a rare earth flotation product with similar or better recoveries and grades to top global producers. Says CEO Craig Taylor, “Our project has many favorable conditions for success: mineralogy, metallurgy, infrastructure, and community collaboration further supporting a path to production.”
De-risk. De-risk. De-risk.
WHATS THE BEST WAY FORWARD?
To get there, the next step on a junior miner’s journey is the Pre-Feasibility Study, or PFS.
A PFS is an initial evaluation that identifies promising plans and eliminates less attractive ones, focusing on a project’s technical, regulatory, environmental, economic, and financial aspects. It’s a cost-effective way to decide whether a project is worth a more detailed study, considering potential revenue, regulatory impacts, financial viability, environmental and social effects, revenue and cost potential, and associated risks.
In layman’s terms, they gather all the technical information, including metallurgical data, economic data, environmental data, the grades, the Mineral Resource Estimate, and have folks who assess mining potential for a living go through it all and suggest the most likely best way forward, so the company can THEN do a bankable Feasibility Study.
If this seems like a lot of engineering and paperwork, it is. That’s the point. Getting things right at this stage can be the difference between going into produchundreds of millions needed to go to production, and save years from the timeline.
Measure twice, cut once.
But getting through the PFS isn’t easy. Here’s the work DEFN had to do to move forward:
Highlights of the 2023 Wicheeda REE Project infrastructure geotechnical programs include:
- 16 helicopter and track sonic overburden geotechnical drill holes totalling 225.5 metres;
- 20 excavated overburden geotechnical test pits totalling 76.8 metres;
- 6 diamond drill holes totalling 1,182 metres within the Wicheeda REE deposit pit shell; inclusive of 4 open pit geochemical drill holes totalling 920 metres, and in pit exploration holes totalling 262 metres;
- Shipment of a 2,700 kg metallurgical sample, collected from drill core, to SGS Lakefield, Ontario for continued flotation and hydrometallurgical optimization test-work;
- Initiation of humidity cell testwork on 17 samples, and 250 kg sample selection for on-site kinetic leach (barrel) testing of samples representative of anticipated mine waste rock to assess metal leaching and acid rock drainage potential in support of environmental assessment.
The geotechnical work was completed by SRK Consulting (Canada) Inc. with the support of APEX Geoscience Ltd.
A necessary and often overlooked component to advancing a mineral resource project is establishing First Nations support, and DEFN currently has that with ongoing discussion and agreements with the McLeod Lake Indian Band.
Respect the work, right?
WHO’S GOING TO BUY THE END PRODUCT?
That’s a question we’ll have to wait for an answer to, but what’s interesting is the company recently announced it’s having samples delivered to potential buyers right now.
SGS Canada, the group who received the 2,700 kg sample mentioned above, has shipped samples of mixed rare earth oxide and carbonate from Wicheeda to major processors and traders in Europe, Asia, and North America. These samples, created during 2023’s hydrometallurgical tests on a 26-tonne bulk sample, aim to demonstrate the high quality of REE products from Wicheeda and positions the deposit as a key future North American REE source. The varied sample specifications cater to the unique requirements of potential future partners, marking a significant step towards establishing strategic relationships in the industry.
WHAT’S NEXT?
For mine, there are two reasons to at the very least put DEFN on your watchlist.
- $130 million worth of investor interested market cap was sent to the wrong place on the back of someone else’s promo about what DEFN has achieved already, what it has in the ground, and the reputation it has built as a meaningful rare earths play with production potential, and I have to think a lot of that market cap will find its way to the real thing in time.
- RESPECT THE WORK.
— Chris Parry
FULL DISCLOSURE: Defense Metals is an Equity.Guru marketing client. Do your own due diligence and always talk to a financial advisor before making any investment.
Investment information for a new generation, Chris Parry