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In a recent speech, Treasury Secretary Janet Yellen described the U.S. as “enormously dependent” on China for rare earth metals.
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That warning from Secretary Yellen came as China-U.S. relations have become decidedly chilly, especially in the wake of Nancy Pelosi’s visit to Taiwan.
Current relations are at a point where it wouldn’t take much for China to begin retaliating economically, and refined rare earths, 85% of which come from China, are a likely lever in any dispute.
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This situation makes the Wicheeda REE resource in British Columbia, which is owned by Defense Metals (DEFN.V; DFMTF.OTC), extremely valuable.
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So far, the market has yet to recognize the value of what Defense has at Wicheeda, but that has the potential to change fast with even a slight escalation in U.S.-China tensions.
With a large, light REE resource that has favorable metallurgy, Wicheeda puts Defense Metals in the proverbial cat bird’s seat and ready to multiply in value on a moment’s notice.
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REEs have tons of essential applications in the modern economy, including smartphones, electric vehicle motors and computer hard drives.
But it’s the military applications of REEs that have the U.S. particularly nervous about its dependence on China for the specialty metals.
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The issue reared its head earlier this month when the Department of Defense halted acceptance of F-35 aircraft because of concerns about “specialty metals” sourcing.
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A typical F-35 uses 920 pounds of rare earth materials for sensors, power systems and magnets. REEs are also critical in night vision goggles, precision-guided missiles and drones.
Simply put, the ability of China to hamstring key defense systems used by the U.S. military is very real.
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North American REE Resources
Are Vital And In Demand
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That threat is going to put serious demand on North American sources of REEs.
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Right now, the only REE mine in North America is in California...and that project (Mountain Pass) ships all of its resource to China for processing.
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That fact explains why the Department of Defense and the Biden Administration are looking to finance onshore refining capacity in Texas and are supporting the mining effort at Mountain Pass.
In Canada, the country has included $3.8 billion in its budget (to be spent over eight years) to implement a critical minerals policy.
That’s money that Defense Metals could use to advance Wicheeda.
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Wicheeda: One Of The Largest
REE Resources In North America
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Wicheeda has an indicated resource of five million tonnes of 2.95% total rare-earth oxides (“TREO") and an inferred resource of 29.5 million tonnes of 1.83 TREO.
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That makes it second only to Mountain Pass as the largest REE resource in North America.
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A PEA on the project showed it to have an after-tax NPV, discounted at 8 percent, of C$517 million and an 18% IRR. And that’s using conservative metals prices.
At current metals prices, Wicheeda would be worth considerably more.
And it’s not just the size of Wicheeda’s resource that makes it special. It also has favorable metallurgy that recent tests show could allow for more than a 95% recovery rate.
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The Potential To Multiply In Value
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Important catalysts lie straight ahead for Defense Metals:
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• It starts with the drill results from a 4,000-meter program conducted on Wicheeda this year. Those are due out in the next several weeks.
• Then there’s the pilot plant that will start up soon on the project.
• And all this work will lead up to a prefeasibility study for Wicheeda that should hit the market in the first half of 2023.
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These pieces of news will help the Defense story along, without doubt, but it is the macro forces surrounding rare earths that make the company look like such a value at current trading levels.
Simply put, if the Cold War between China and the U.S. escalates and the United States’ supplies of critical REEs are put at risk, there’s going to be a mad scramble to secure REEs from friendly countries.
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In that environment, Defense Metals offers the obvious potential to multiply in value, as the next boom in REEs will officially have started.
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REE supplies are at risk, and this issue is about to become front and center. That’s why you’ll want to look into Defense Metals now — before there’s an investor stampede into the sector.
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