Defense Metals – The Canadian Company Taking on China’s Rare Earth Monopoly

Defense Metals - F35

Rare Earth Element and Uranium Mining Company Defense Metals Corp. (DEFN:TSXV) has Massive Upside Potential due to Advanced Military Technology and Emerging Markets

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The explosion of new technologies, both military and commercial, create huge growth opportunity for companies capable of providing the required resources, like Defense Metals Corp.

Emerging technologies are the reason this report is so urgent and the unique opportunity for Defense Metals Corp. (DEFN:TSXV) is so timely.  

The Rare Earth Element market is growing steadily, and is poised to breakout as production and manufacturing increases over the next decade. Without them economies suffer and countries would be unable to produce much of the military hardware and equipment required for national defense. In most case there are no substitutes.

Rare Earth Elements (REE)

To understand the Rare Earth Element market it’s important to know their use cases. For the defense sector, Rare Earth Elements are used to create high-strength aircraft engines, optical lasers, night vision capable lenses, rechargeable batteries and much more.

Among the military applications of rare earth elements are:

  • Radar and sonar used to prevent collisions, for surveillance and navigational aids. The Patriot Missile Air Defense System employs radio frequency circulators to magnetically control the flow of electronic signals in the radar and missiles. Rare earths required: gadolinium, samarium, yttrium.
  • Communications and displays required by soldiers, sailors and airmen to see analog and digital data. Examples are lasers that help line-of-sight communication links in satellite and ground-based systems; old and new computer monitors; and avionics terminals. Rare earths required: dysprosium, erbium, europium, neodymium, praseodymium, terbium and yttrium.
  • Lasers employed on vehicle-mounted systems like tanks and armored vehicles. They can identify enemy targets up to 22 miles. According to DefenseMediaNetwork, “The laser-equipped computer main gun sight on the Abrams M1A/2 tank combines a Raytheon rangefinder and integrated designator targeting system used to obtain a high-probability first hit.” Rare earths required:  europium, neodymium, terbium and yttrium.
  • Precision-guided munitions (PGMs) take in a number of missile classes including cruise, anti-ship (ASM) and surface-to-air (SAM), as well as bunker busters. The heat-seeking AIM-9 Sidewinder missile has four fins on its fuselage that use rare-earth magnets to control its flight trajectory. Rare earths required: dysprosium, neodymium, praseodymium, samarium and terbium.
  • Guidance and control systems that steer missiles and bombs towards their targets. Rare earths required: terbium, dysprosium, samarium, praseodymium and neodymium.
  • Electronic warfare refers to a range of equipment that includes high-capacity power sources, storage batteries and electronic jamming devices. Rare earths required: yttrium-iron-garnet.
  • Electric motors that require permanent magnets, of which the US Military is an important buyer. New equipment requiring powerful permanent magnets in the next generation of electric motors will include the US Navy’s Zumwalt DDG 1000 guided military destroyer, hub-mounted electric traction drives and integrated starter generators. Rare earths required: terbium, dysprosium, samarium, praseodymium and neodymium.
  • Jet engines. The rare earth element erbium is added to vanadium to make it more malleable for use in vanadium-infused steel that goes into jet engines. While not specifically a rare earth element, the rare element rhenium is alloyed with molybdenum and tungsten. The F-22 Raptor and the F-35 Lightning II stealth fighter reportedly use 6% rhenium in their engines. The electrical systems in aircraft employ samarium-cobalt permanent magnets to generate power.

 

Rare Earth - Defense Applications

One of the most important applications is Magnets.

Military and aerospace magnets are designed for extreme environments. Magnets using Rare Earth Elements are used in actuators to control guidance systems for airborne smart missiles. They are also used in aerospace applications for aircraft components and airstrip maintenance equipment.

Neodymium & praseodymium are also used in permanent magnets, found in electric vehicles and hard disk drives, for example. Samarium-cobalt magnets resist corrosion and can operate at high temperatures. Dysprosium is added to neodymium-iron-boron magnets in high-heat applications.

  • The neodymium-iron-boron magnet is the most powerful type of permanent magnet ever created. In 2017 the neodymium-iron-boron magnet market was worth US$11.3 billion.
  • Neodymium (Nd) and praseodymium (Pr), are the two rare earth elements which form the majority of rare earth permanent magnets.
  • One of the more important uses for Dysprosium (Dy) is in neodymium‐iron‐ boron (Neo) permanent magnets to improve the magnets’ high temperature performance.
  • Magnets are the main growth driver in REE demand. The magnets segment of the REE markets also delivers most of the value.

Commercial applications for Rare Earth Elements are also on the rise thanks, in part, to the emergence of the Electric Vehicle industry. Countries are pledging to ban conventional engines by as early as 2025 which will create huge demand for Electric vehicles and more importantly the resources required to build them.

Defense Metals - Commercial Applications

This is great news for investors who understand the value and highly critical nature of rare earth elements to developed economies, and their military. The value of these crucial elements will begin to skyrocket as demand increases day by day with the need for more advanced technologies.

To really grasp the magnitude of how valuable Rare Earth Elements are, one only has to take a look at the companies whose business relies on them;

DEFN Logos

Major producers for the world’s Militaries like Lockheed Martin (NYSE: LMT), General Dynamics (NYSE: GD) & BAE Systems (LSE: BA);
Commercial Aerospace companies like Boeing (NYSE:BA), Airbus (EPA: AIR) & United Technologies Corporation (NYSE: UTX);
Electric Vehicle Manufacturers like Tesla (NASDAQ: TSLA), Volkswagen Group (GR: VOW) & Nissan Motor Co. (TYO: 7201);
Consumer Electronics like Apple (NASDAQ: AAPL), Samsung (LSE: SMSN) & Sony (NYSE: SNE)

Volkswagen Group, the second largest car manufacturer in the world has made its intentions for the future of automotive production clear. The German automaker giant has just upped its bet on electric vehicles by overhauling its Salzitter plant to focus on production processes for battery cells for the new generation of cars, which the company plans to also start producing soon.

VW - Factory

Source: Volkswagen – Getting started with e-mobility: in 2019 the series production of stators and rotors for the MEB platform will begin

With all the resources focused on building vehicles of the future, the demand for the materials used to build them is going to skyrocket.

So where are the Rare Earth Elements that make all these emerging technologies coming from??

China’s Monopoly

China mines and processes the vast majority all of Rare Earth Elements in the world.

World REE Production

China supplied nearly 60% of the $234 million worth of REEs imported into America in 2017 according to the US International Trade Commission – five times more than the next largest exporters, France and Japan.

The U.S. is making moves to change their reliance on Chinese exports. The 2019 National Defense Authorization Act prohibits the Department of Defense from acquiring rare earth magnets – along with certain tungsten, tantalum and molybdenum products – from China, Russia, Iran and North Korea.

This is creates a huge demand hole for North American Rare Earth Elements; great news for Defense Metals Corp.

Another high value market in 2019 is being overlooked by most investors; Uranium. The spot uranium price has risen from an April 2018 low of $20.25 a pound, to the current $28.75/lb. The rising spot rice has strongly correlated with growing strength in uranium equities. Uranium was the best metal performer of 2018.

Uranium Spot Price vs Equity Performance

There are principally four reasons why the uranium price will continue to climb:

  • The growing need for nuclear power and reactors.
  • The drop in uranium supply due to mine closures and existing mines running out of ore. A supply deficit of at least 57 million pounds is predicted.
  • More buying on the spot market from producers needing to fulfill existing contracts, and new uranium funds and holding companies.
  • Uncovered uranium demand (utilities’ requirements for U3O8, the nuclear fuel, that is not covered by contracts) is projected to increase by up to 54 million pounds by 2020.

 

Defense Metals recently announced that it has appointed Dale Wallster to its technical advisory board. Mr. Wallster is a geologist and prospector with 35 years experience in North American mineral deposit exploration, with a focus on the targeting and discovery of unconformity-related uranium deposits in Saskatchewan’s Athabasca Basin. He was president and founder of Roughrider Uranium Corp., a company acquired by Hathor Exploration Ltd. in 2006 for its strategically located uranium properties in the Athabasca basin. Mr. Wallster, and his team, are widely credited in the mineral exploration sector for the discovery of the Hathor’s Roughrider deposit. In January, 2012, Hathor became a wholly owned subsidiary of Rio Tinto as part of a $650-million acquisition.

Another huge advantage Defense Metals has is their multiple properties; The Rare Earth Elements project at Wicheeda Lake and the Uranium projects, Geiger and Klaproth, located in the eastern part of the Athabasca Basin in northern Saskatchewan.

Wicheeda Lake, BC

Defense Metals’ flagship project is the Wicheeda Lake property, located 80 kilometers northwest of Prince George, a major population and logistics hub in north-central British Columbia. Mining and forestry are important local industries employing thousands of skilled tradespeople.

The Wicheeda Lake deposit is situated alongside a major forestry service road that is connected to Highway 97, the main artery running through northern BC. Mining infrastructure is nearby – a CN rail line, a natural gas pipeline and hydroelectric power line runs through the village of Bear Lake, where the forestry access road connects with Highway 97.

The rare earth minerals bastnasite and monazite, containing the REEs, are disseminated fairly uniformly throughout the property.

Historical drilling – twelve holes intersected the mineralized carbonatite body over core lengths from 56m to 148m long and found consistent REE mineralization over large widths starting from surface, 721 assays resulted in a non-compliant NI 43-101-inferred resource estimate of 11.2 million tonnes grading 1.95% Light Rare Earth Elements at a 1% cutoff (LREE = Ce + La + Nd).

Wicheeda Historical Drilling

The deposit, which is open in all directions, outcrops at surface on a hillside, allowing it to be mined as an open pit with a zero strip ratio. This means there should be no need to store or truck out waste rock, saving costs.

Metallurgy

The challenge of putting a rare earth deposit into concentrate production has always been complicated mineralogy means expensive metallurgy, a lack of infrastructure doubles down on your problems. Even more challenging is developing a hydrometallurgical plant to produce separate rare earth oxides.

Defense Metals Wicheeda Lake LREE deposit has simple straightforward mineralogy/metallurgy and an easy to follow, for us investors, development path to production of concentrate/ oxide through a series of well-thought-out steps.

A 2009 study was designed to discover the ease of making a rare earth concentrate from a composite rock sample taken from Wicheeda Lake carbonatite, based on three assay samples.

Bench-scale testing yielded more potentially recoverable rare earth elements than the resource estimates current REEs (lanthanum, cerium, neodymium and samarium) such as dysprosium, europium and praseodymium.

Wicheeda Lake REE Concentrate

“The result of the mineral concentration made on the Wicheeda sample is very encouraging,” wrote study author Anthony Mariano, PhD, a consulting minerals exploration geologist. Mariano noted he’s only seen a high-grade REE concentrate similar to the Wicheeda composite in China – where around 90% of the world’s rare earths are mined and processed.

“If exploration at Wicheeda Lake can substantiate a sufficient quantity of grade and tonnage of material similar to this it will be a very attractive potential source of LREE to the market place.” wrote Mariano.

Bench-scale flotation and hydrometallurgical testwork was done on Wicheeda Lake drill cores at a SGS Lakefield lab during 2010/2011. SGS successfully developed a flotation flow sheet that recovered 83 per cent of the rare earth oxide (REO) and produced a concentrate grading 42% REO. Subsequent hydrometallurgical testing in 2012 on a two-kilogram sample of the concentrate grading 39.7% TREO (total REO) produced an upgraded and purified precipitate that contained 71% TREO through a process of pre-leaching and roasting.

Scoping study

Rare Earths Supply & Demand 2010-2020

According to a 2012 scoping study, the Wicheeda deposit is suitable for open-pit mining. An initial 15-year production schedule was been estimated with a mill throughput of 2,000 tonnes per day.

An economic analysis from the scoping study found that a mixed rare earth concentrate could be produced selling for $5 a kilogram, resulting in a highly attractive project with a net present value of $336 million and an after-tax 15% internal rate of return.

However, considering the scoping study is now seven years old, that $5 a kilogram for the NPV is now likely to be higher, potentially much higher. After 2016 surging EV sales and a critical materials crisis for military applications, caused by the realization China controls virtually all REE production and refining, has combined to drive certain REE prices up.

 

Geiger & Klaproth

As mentioned Defense Metals is also engaged in uranium exploration. The company has acquired two properties, Geiger and Klaproth, located in the eastern part of the Athabasca Basin in northern Saskatchewan.

Defense Metals - Athabasca Basin

Often called “the Persian Gulf of uranium”, the Athabasca Basin is home to high-grade exploration plays, a handful of advanced projects and some prolific uranium mines. These include Cigar Lake, held jointly between Cameco, Areva (now Orano) and Tepco Resources, McArthur River and Rabbit Lake mines, both of which are currently on care and maintenance. The Athabasca Basin produces about 15% of world uranium supply.

The Basin is unique for its grades – at over 20 times global averages. Some deposits are over 100x the world average including Cameco’s Cigar Lake which contains an average 17.8% uranium.

Defense Metals_Klaproth_withclaims

Consisting of two claims totalling 2,310 acres, Geiger North and South is adjacent to the Wollaston-Mudjatik transition zone – a major crustal suture related to most of the major uranium deposits in the eastern Athabasca Basin. Notably, the project is just 35 km northwest of the McLean Lake mine and mill, in a relatively under-explored area of the Basin.

The Klaproth properties consist of two mineral claims totalling approximately 2,089 acres.

Both properties are surrounded by major mining and exploration companies, giving DEFN a strategic foothold in a proven uranium district.

For example ISO Energy’s Laroque East property is only a few miles north of a portion of Defense Metals’ claims. Geochemical results from the Hurricane Zone confirmed the presence of high-grade uranium, with 2.5 meters at 3.58% U3O8, within 8.5 meters at 1.26% U3O8.

The Verdict

It’s clear that both the Rare Earth & Uranium markets are going to crucial moving into the 3rd decade of this century. Driven by new technologies and the need to more efficient power sources to run them, the nations of the world will be fighting over the few producers of these precious resources. Those who get in early have a chance to ride the wave and capitalize on a potentially explosive sector of the commodities industry. Those who fail to take action will sit idle and watch as the market for these rare elements takes off without them.

 

 

This Editorial was produced in collaboration with Richard (Rick) Mills & www.aheadoftheheard.com

 

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