Interview with Defense Metals
Milestones, ESG as an USP and the new openness of policy toward rare earths outside China - Defense Metals provides backgrounds
time to read: 7 minutes | The interview was conducted by Nico Popp on February 23rd, 2021 in Vancouver (CAN).
CEO | Defense Metals
605-815 Hornby St., V6Z 1T9 Vancouver (CAN)
+1 (778) 994 8072
Table of contents:
Advanced rare earth project in Canada
news|financial: "With the Wicheeda rare earths project, you maintain a promising property in the Canadian district of British Columbia. What milestones can the project look back on?"
Within the past few years, we have doubled our resource and thus also the value of our deposit. The Wicheeda rare earths project stands for metallurgical results at a unique level. This has been demonstrated by the results of our flotation and hydromet work confirmed by recognized laboratories.
news|financial: "Please give an outlook for the coming months. How does this fit with the expectation of many investors who already see the project in production?"
Defense is developing Wicheeda at a rapid pace with plans for a preliminary feasibility study in the first half of 2021. We have run 1200 kilograms of our high-grade concentrate through a pilot hydromet separation plant with outstanding results. We are also planning a drilling program in the summer to further upgrade and increase the size of our deposit.
news|financial: "You mention it. The results of your pre-pilot hydrometallurgical tests have been interpreted very positively by the market. Can you explain in simple terms what these results mean for Defense?"
"[...] Recovery rates of more than 90% rare earths are another piece of the puzzle on the way to the economic viability of our project. [...]" Craig Taylor, CEO, Defense Metals
The results indicate potentially commercially viable conditions. High concentrations are critical to the progress of any rare earth project. Within the past two years, we have completed and most recently fed our flotation pilot plant with flotation concentrate. The results have convinced both us and the market: recovery rates of more than 90% rare earths are another piece of the puzzle on the way to the economic viability of our project. Our next goals are the preliminary feasibility study and the completion of the hydrometallurgical pilot plant. Thanks to the recently completed test work, we were able to gain important insights into the framework conditions as well as the refining process. This will help us to optimize our refining process and reduce associated risks.
Rare earths in Canada and politics
news|financial: "A promising project is one thing, successfully developing such a project is another. What do you expect from the Canadian Critical Minerals and Materials Alliance, of which you are a founding member? Does your concern fall on the ears of politicians?"
You could say that! We have already secured a small funding grant from public funds and just recently received two calls regarding the development of our Hydromet pilot plant from the government, which wants to be involved in further development. Governments in Canada and around the world are committed to ensuring a secure supply chain for rare earths, and Defense is the frontrunner in Canada for successful rare earth metallurgy.
What does ESG mean to Defense Metals?
news|financial: "With your initiative, you want to ensure that important supply chains for rare earths, which are essential for renewable energy and other future technologies, are secured and exist outside of China. Why is independence from China so important, especially for rare earths?"
"[...] China is now responsible for 80% of the rare earths mined. [...]" Craig Taylor, CEO, Defense Metals
Quite simply, if we are to enjoy high-tech components, electric vehicles and clean, sustainable energy, secure supply chains are essential. With China's growing economy and commitment to domestic production of electric vehicles, the country will become an importer of rare earths rather than an exporter in the not-too-distant future. China is capable of consuming more rare earths than it produces and then there will be nothing left for the rest of the world, as China is now responsible for 80% of the rare earths mined. This is a scary reality for industry in Western countries!
ESG as a USP
news|financial: "In recent months, there have been repeated media reports accusing Chinese rare earth producers of inadequate environmental standards and dubious treatment of personnel. Does this give a Canadian producer that consistently implements ESG criteria a unique selling point, or is it only production costs that count in the end?"
I think China is making efforts to improve its environmental performance, but I doubt it will ever meet Western standards. I think it is inevitable that many of the comforts of our lifestyle will become more expensive if, at the same time, we want to place great emphasis on clean sources of raw materials. This is also a political decision.
ESG in the entire value chain
news|financial: "People who buy electric cars or solar panels today are increasingly aware that sustainability should encompass the entire value chain. How can the necessary transparency be created for this?"
"[...] There is no denying that the trend is clearly moving in the direction of sustainability. [...]" Craig Taylor, CEO, Defense Metals
We are already seeing a development in the industry today that is moving in this direction. Modern technologies, such as blockchain, are predestined to make supply chains transparent. Ultimately, however, it is up to governments to push these developments and insist on compliance with standards. However, there is no denying that the trend is clearly moving in the direction of sustainability. Professional investors in particular have embraced this issue and are already incorporating it into their decisions. This in itself is causing a change in the industry.
Rare earths in the defense industry
news|financial: "Defense Metals has connotations of the defense industry in its name alone. How important are rare earths to the defense industry? Given the ESG trend, wouldn't it be appropriate for Defense Metals to move away from the defense theme?"
It is impossible to ignore the defense issue. Each year, the U.S. spends about 1.2 trillion. USD on defense - at the same time China controls key components of defense production in the form of rare earths. When the U.S.'s fiercest rival plays such a dominant role in the international arena, something should be done urgently from the U.S. perspective. Already in the past, China has threatened to cut off companies, such as Haliburton or Lockheed Martin, from access to rare earths. This shows that China has long used rare earths as a weapon. It is therefore highly likely that the U.S. will respond by securing its own supply of rare earths. For Defense Metals, this is a great opportunity. Incidentally, I don't believe that sustainability and the use of raw materials for the defense industry have to be mutually exclusive. You can supply rare earths to the defense industry and still produce according to high environmental and social standards. Compared to today's conditions in many rare earth mines, most of which are located in China, that would already be a big step forward.
Financing options for Defense Metals
news|financial: "The last time your Company received new funding was at the end of December through the exercise of warrants. Since then, the share price has increased significantly. Is there interest from investors to take a stake in the company? Do you have financing needs?"
At the moment, our balance sheet is stronger than ever and we are continuously receiving funds from warrants. If we were to go to the capital markets, it would definitely not be for a large amount, as our pilot and drilling costs are low and we expect government subsidies.
news|financial: "In the U.S., a mega IPO of USA Rare Earth is on the horizon. The company could end up being valued at up to $1 billion. Where do you see Defense Metals in comparison?"
"[...] The IPO of USA Rare Earth is an extremely positive signal for the industry and draws attention to us as well. [...]" Craig Taylor, CEO, Defense Metals
As CEO of Defense Metals, it's not my place to value other companies. However, the IPO of USA Rare Earth is an extremely positive signal for the industry and draws attention to us as well. Whenever there are different valuations in the market, market mechanisms ensure that valuations converge. Talking to independent analysts over the past few weeks, I have gained the impression that the market could value Defense Metals in a similar way to USA Rare Earth at present.
Positive framework conditions and the company's own strength - looking to the future
news|financial: "We have now talked a lot about the unique selling points of your project due to its location in Canada and its attractiveness for investors. What market forecasts do you rely on when you estimate the market for rare earths?"
There are various analysts and also some experts who have been following rare earths for many years. At present, there is much to suggest that the upswing in rare earths is not a flash in the pan and will continue, unlike in 2010. The reason lies in the global trend towards green technologies. China's dominant market position has also led to a change in political thinking. This should additionally favor mining projects such as that of Defense Metals. Regardless of the rare earth market, those projects that can score with low costs will ultimately prevail. Our Wicheeda rare earth project shines with a unique infrastructure. This will be the key to our being able to report lower costs compared with competitors. Coupled with the expected long-term supply shortage of rare earths, this is a good environment for Defense Metals shareholders.
news|financial: "Thank you very much for talking to us."