Rheinmetall, Defense Metals, Lynas - Time is running out!

Defense Metals - The best for last

China has the upper hand in rare earth metals, which are existential for climate change and the defense industry, and has a dominant market position of over 90% in the entire value chain involving mining and processing a rare earth concentrate, smelting and separating rare earth oxides, and refining to produce rare earth metals. In light of the energy war between the West and Russia, policymakers are trying to accelerate the shift to renewable energy. In the process, demand for rare earth metals is once again soaring, as the critical raw material is needed for strong permanent magnets in electric motors and wind turbines. Neodymium-iron-boron magnets, the strongest permanent magnets on earth, are just as important for the defense industry. They are installed in many military weapons systems, such as satellite and stealth technologies and unmanned vehicles.

Aside from the Mountain Pass mine in the US and the Australian mines of Lynas and Iluka Resources, few properties of note are currently in production or could start production in the next few years. One bright spot is the 4,244-ha Wicheeda project, which is 100% owned by Canadian mining company Defense Metals. In addition to first-class infrastructure - the mine is located about 80km northeast of the town of Prince George, a mining hub in British Columbia, Canada, and is strategically located on a major forestry road that connects to a highway - the most notable feature is the same metallurgy seen at Mountain Pass. Economic metallurgy requires that the minerals and the rare earths they contain are chemically and physically such that they can be easily removed by inexpensive processing techniques. Wicheeda has bastnäsite and monazite, which are the cheapest rare earths to process. The last economic calculation PEA published resulted in an after-tax NPV of CAD 517 million.

Recently, Defense Metals released rare earth element assay results from the last two core holes totaling 295m drilled in 2022. These assay results are from two geotechnical exploration core holes. The final hole, drilled in the central area of the Wicheeda deposit and into the eastern pit wall, intersected an upper high-grade mineralized dolomite carbonatite zone from surface with 3.66% TREO over 138m and a lower zone with 0.50% TREO over 43m.

Luisa Moreno, President and Director of Defense Metals, expressed her excitement regarding the results, "The economic significance of the Wicheeda SEE project is underscored by the fact that the final hole returned the best drill intercepts of the 2022 drilling campaign. Since the release of our positive Preliminary Economic Assessment ("PEA") based on drilling completed by the end of 2019, the last two years of exploration at Wicheeda have focused on resource expansion, delineation and detailed geotechnical pit slope drilling, putting us on an informed path towards a Preliminary Feasibility Study (PFS). As critical minerals, and rare earths in particular, become more focused due to the rapidly occurring transition to e-vehicles, Defense Metals looks forward to advancing the social-ecological, metallurgical, engineering, and geotechnical aspects of the Wicheeda 2023 SEE project."

The market capitalization of Defense Metals is currently CAD 59.26 million. The price showed strong momentum after completing a bottoming phase and is quoted at CAD 0.29. A prominent buy signal will be generated if the 2022 high at CAD 0.36 is exceeded.

Rheinmetall AG - Ammunition for takeover

Due to the discussions about the delivery of Leopard tanks to Ukraine, the defence company has increasingly come into the focus of investors in recent weeks. As we reported in a detailed update, the share price of the Düsseldorf-based company reached a new all-time high of EUR 232.00 in the short term. This could not be maintained or extended due to the now-published news about a capital measure, which set the price back to a low of EUR 209.10. The next support line is at EUR 201.50 in the short term. On the upside, a new buy signal would, of course, be generated if the annual high is exceeded.

In the long term, the trend of rearmament will likely continue to be played out, so any setbacks are more likely to represent entry prices due to the strong momentum. After all, since the invasion of Russia, armament shares, which were classified as socially harmful not long ago, are even considered a sustainable financial investment, making it easier for Rheinmetall to obtain the funds it needs for expansion via the capital market. Thus, the Company intends to issue unsubordinated and unsecured convertible bonds and aims for a total nominal amount of EUR 1.00 billion. The Company plans to use the net proceeds from the issuance to finance a substantial portion of the intended acquisition of Expal Systems SA to ensure strategic flexibility with respect to the financing of internal and external growth initiatives and for general corporate purposes. In addition, the remainder is to be financed with cash and bank loans. The price for Spanish ammunition manufacturer Expal Systems is expected to be EUR 1.2 billion.

Lynas Rare Earths - Strong demand

One of the few major producers of rare earth metals in the Western world is the Australian company Lynas. It operates the Mount Weld mine in Western Australia and a processing plant in Kuantan, Malaysia. It produces high-grade separated rare earths for export to manufacturing markets in Asia, Europe and the United States.

With strong demand in light of climate change, decarbonization and increasing demand from the defense industry, the Company reported a 14.8% increase in sales for the second quarter. That included further growth in demand for neodymium and praseodymium, which are used to produce permanent magnets that power electric motors. The world's largest producer of rare earth metals outside China disclosed in a company release that sales rose to AUD 232.7 million in the three months that ended December 31, up from AUD 202.7 million in the same period a year earlier.

The Australians achieved an average selling price of AUD 62.5 per kg for its product range, compared with AUD 54 per kg last year. Quarterly NdPr production totaled 1,508 rare earth oxide tons compared with 1,359 a year earlier. Mine production also improved quarter-on-quarter following the clean-up of the water supply disruption at its plant in Malaysia.

Rare earth metals are existential to both the green energy and defense industries. Defense Metals and Lynas are expected to benefit from rising demand. Rheinmetall's technologies are also currently in demand, so the trend should remain intact.