The Leading 'Defense Minerals' Project in North America

Contents

• Rare Earth Elements Are a Critical Defense Resource


• A North American Rare-Earth Leader


• BC's Wicheeda Project Has Perfect Location, Supportive Government


• Wicheeda Delivers Consistent Exploration Results


• Wicheeda's Excellent Economics


• Defense Successfully Navigates Challenging Markets


• Exploration Experts

The revolutionary Apollo mission put a man on the Moon in 1969.

The computer driving the Apollo spacecraft was fast... for its time.

It could make over 14,000 calculations per second.

Apple's latest iPhone is faster than that.

To be precise, 140 million times faster.

Needless to say, it's smaller as well.

But the great technological revolution that made this performance leap possible may run out of steam...

Because it relies on materials that could be in short supply...

To be precise, we're talking about a group of minerals called rare earth elements (or REEs).

They have specific qualities... that make electronics more efficient.

And smaller. The iPhone wouldn't be possible without rare earth elements.

One REE, lanthanum, makes colors on an iPhone screen pop. Two others, neodymium and dysprosium, help the device vibrate.

But rare earth elements are not only used in consumer electronics.

They are a strategic defense resource.

From night vision goggles to laser range finders... guidance systems, communications, and stealth technology... a modern army is helpless without rare earth elements.

Because in the 21st century, wars are hybrid. They involve technology.

And materials that make this technology possible.

But there is a problem.

The United States imports most of the rare earth elements it uses in its military applications.

It doesn't have a reliable domestic supply (it currently only has the Mountain Pass mine that ships its REE materials to China for separation and refining).

This is a vulnerability.

A potential enemy could just cut off the supply of these critical elements and the US military would be helpless.

It would be left without the technology that is strategically important for the country's defense capabilities.

This is why the US Army is funding domestic rare-earth projects and processing facilities.

It needs to make sure that the country's defense systems have the best and latest tech, which is only possible if there's an ample supply of these critical elements.

The US Army doesn't provide the exact numbers for reasons of national security, but Reuters reported that Army experts started looking for ways to ensure that the US military has sufficient local supply.

Why? Because most of the world's rare earth material comes from China. And the relationship between the US and that country hasn't been smooth, lately.

It may get worse. And it could happen even without a full-out confrontation.

If tensions build in Taiwan and the US becomes an indirect party in a military conflict, China could introduce export controls and cut the US off some of the most strategically important commodities...

...such as rare earth elements.

This is why the US Army and the White House are fast-tracking domestic REE production.

General Mike Minihan, head of the US Air Mobility Command, said that it's likely that the US and China will end up at war before 2025.

It's two years from now.

This means that in just two years, the United States would need to find an alternative source of all the critical elements it uses for its tech and military sectors.

It has no other choice.

This urgency creates an opportunity.

On the one hand, you have the United States military with essentially unlimited budgets.

On the other hand, you have a lagging supply of some of the most critical elements the US military needs.

(And as the demand for REEs grows, supply will not be likely to catch up. The REE market is likely to stay in a state of deficit until 2035.)

Soaring demand and slow supply growth bode well for the price of rare earth elements.

But the best way to invest in this unique situation, in our opinion, is by looking at companies that have advanced-stage projects in the US or its friendly nations, and that have the expertise and access to capital to push them towards production over the next 24 months.

One company that has all the necessary ingredients in place is Defense Metals Corp. (TSXV:DEFN, OTCQB:DFMTF, FSE:35D).

The rare-earth sector is in the spotlight.

An ETF tracking this space is up 24% since the beginning of the year .

But Defense Metals shows that select companies can potentially outperform the sector as a whole.

The company's shares are up 40% year-to-date.

This outperformance, however, tells us that there is something special about this company.

In short, it could be one of the premier players in the rare-earth sector.

In the future, it could potentially have the largest production profile both in North America and Australia.

The company targets about 10% of the current global rare-earth element production or an average of 25,000 tonnes of total rare-earth oxides (or TREO) annually over a potential 16-year mine life.

Ten per cent of the world's total REE output is a massive market share. And we believe that Defense's ambitious target could be realistic.

It can only achieve this target by quickly advancing its wholly-owned Wicheeda project to production.

(Remember that the clock to a potential war between the US and China, where the United States gets most of its REEs, is ticking...)

If Wicheeda becomes a mine (which we think it has a good chance of doing), Defense will become a major REE player.

This is why it represents an opportunity now.

Let's take a closer look at it.

Defense owns the Wicheeda project, located in British Columbia, Canada.

It is easily accessible by road. It has access to rail transportation and power infrastructure.

On top of that, there is a deep-sea port nearby. The Port of Prince Rupert is 500 km (311 miles) away. It's accessible by both rail and road.

That's exactly what a mining company would need to supply the US Army with rare-earth oxides.

The project lies just 80 km (50 miles) away from Prince George, a town in British Columbia with a population of about 74,000. Prince George is a mining center with an abundant and skilled workforce.

Wicheeda has power transmission lines close nearby, as well as a gas pipeline and a rail line.

It's covered both on the transportation and the energy sides. If Wicheeda becomes a mine, it should benefit from decrease costs to build out its energy infrastructure.

But when the company does need to build its production facilities (which we see as likely), permitting shouldn't be much of an issue.

There are two reasons for that.

First, British Columbia is a traditionally mining-friendly jurisdiction. In the prestigious Fraser Institute Survey of Mining Companies, BC was ranked 16th out of 84 jurisdictions reviewed.

Second, Wicheeda is a rare-earth project. These materials are in high demand. They are critical for the "clean transition" and the military.

Nobody wants coal anymore. Oil and gas projects would not get a lot of government support either.

But elements like REEs... it's a different story.

Justin Trudeau, Canada's Prime Minister, has recently visited an REE processing plant. He said that "[...] the world is looking to Canada because Canada has incredible amounts of critical minerals and rare earth elements that the world needs."

The Canadian government may fast-track the permitting process to make sure that the company can start producing these strategically important materials as soon as possible.

This would mean that reaching the production stage might even happen earlier than the company expects.

Regardless of how much the government helps it, however, Defense has been making excellent progress in getting the project to its next stage.

The company has just wrapped up its 18-hole, 5,510-meter (or ~18,000-foot) 2022 drilling campaign.

And the last hole drilled delivered the best results.

Hole WI22-79 hit a high-grade interval of 3.66% of total rare-earth oxide (or TREO) over 138 meters (452.8 feet). And the interval starts at the surface. This means that there is high-grade mineralization that is immediately available for mining. Defense will not need to move tons of waste material to get to it.

Earlier, Defense drilled a deep 360-meter (1,181-foot) hole number WI22-72 that delivered such intervals as 2.56% TREO over 122 meters (400.3 feet). Within that interval, the company had a higher-grade mineralized zone averaging 3.02% TREO over 55 meters (180.4 feet).

It was the deepest test of the Wicheeda deposit, and high-grade mineralization started right at the surface.

WI22-72 was an infill hole. It means that it was drilled between other holes to confirm the consistency of the mineralization. And the results were encouraging.

Wicheeda has NI43-101-compliant Indicated resources of 5 million tonnes averaging 2.95% TREO and an additional Inferred resource of 29.5 million tonnes averaging 1.83% TREO.

These resources lie within an optimized pit shell. In other words, they are located in the area that the company plans to turn into an open-pit mining operation.

Which is the company's ultimate goal. The company's presentation on its website provides its plans and roadmap forward.

In the meantime, however, Defense is working to advance its understanding of Wicheeda so it can prepare a pre-feasibility study (or PFS).

It is a detailed economic assessment of the project. Eventually, the company is looking to complete the final feasibility study in 2025.

Based on that study, it could be able to seek permits and financing for the project and, if everything goes well, start building the mine.

But there are already preliminary economic data suggesting that Wicheeda has great economic potential . The company indicated it plans to advance further from the Preliminary Economic Assessment report and complete a preliminary feasibility study on the Wicheeda REE project.

In 2022, the company filed a preliminary economic assessment (or PEA) for Wicheeda.

The project's estimated value is about US$397 million on a post-tax basis according to the PEA. This means that taxes were excluded from the income that the project could generate. It is a more conservative estimate of the project value than the one that doesn't exclude taxes.

Its internal rate of return (or IRR) is 18%, and the payback period is five years.

Its total net revenue could amount to US$4 billion, and the project's operating margin could reach 60%.

If REE prices increase over time, which we think is likely, these numbers could be even better-without any resource expansion.

Wicheeda's economics depend on a lot of factors, but the price of the underlying commodities is the key one. And, given the high demand and lagging supply, the price of rare earth elements could increase significantly from their current levels.

In addition to this leverage to the underlying commodity price, the project has another catalyst.

The reason is simple. The PEA was based on the 2021 resource estimate, which included 4,249 meters of drilling.

Since then, the company has drilled 10,000 meters more.

If all goes well, this additional drilling could expand the size of the project and increase its resource base or upgrade some of the Inferred resources to a higher-confidence Indicated category.

If that happens, the economics of the project will also change. We are encouraged based on the excellent drill results the company's 2022 campaign delivered.

This campaign both added some of the highest-grade drill results and provided the company's team with important data about future open pit slope (mine) design.

2022 was a challenging year for mining companies.

They depend on external financing to advance their projects. And higher interest rates, which were the main theme of 2022, made financing more challenging.

Investors became conservative. Amid market volatility and geopolitical crises, they switched to a "risk-off" mode and preferred safer investments.

Against this backdrop, not only did Defense successfully raise capital to advance its Wicheeda project, but it was also so popular with early-stage backers that its last offering was oversubscribed.

It means that investors wanted to give the company more money than it actually needed to accomplish its near-term goals.

It's an enviable place to be, given the state of the market. And it tells us that some investors have started to recognize the incredible potential of the company's 100%-owned project.

Defense closed a C$6-million (~US$4.5-million) private placement back in December.

On the date the financing closed, the company's market price was C$0.21.

Now, the price of the flow-through shares that investors purchased was C$0.28. It was 33% higher than the company's market price. The financing also included $0.22 units.

And the share purchase warrants Defense offered as part of the financing package are exercisable at C$0.32 per share. This price was over 50% higher than the company's last price on the day the financing closed.

Why did this happen? One explanation is that investors were excited about Defense's prospects. They wanted to purchase millions of its shares, but since Defense's market capitalization isn't very high, they were afraid that buying these shares in the open market would drive the company's price above C$0.28. So even though they paid more for the shares by buying them directly from Defense, they still estimated that there was a lot of upside potential in the company, even based on the higher price.

This is a vote of confidence from some of the earliest investors, which are considered "smart money" in the business.

They understand the potential of Wicheeda and the value that the company's team has created.

In the mining industry, specialization is key.

This is why we like the fact that Defense's CEO has experience in exploration. Mr. Craig Taylor, the company's CEO and Director was involved in the exploration side of the mining business for decades. The company also works with SGS and SRK on the Wicheeda REE Project. Both companies are well-respected in the mining sector.

And before the "green transition" trend began and EVs became as huge as they are right now, Mr. Taylor had focused on these promising sectors already.

Between 2007 and 2016, he was a director of Advantage Lithium Corp.

He was also involved with Clear Mountain Resources, now named Patriot One Technologies.

The company's team is growing, and the latest addition is John Robins. He took the role of a Strategic Advisor at Defense.

Mr. Robins was involved in several high-profile discoveries, such as the Coffee Gold deposit in Yukon and the Great Bear project in Ontario.

He was instrumental in over C$3 billion in mergers and acquisitions (M&A) activity in the mining sector. He was also involved in generating over C$1 billion in mineral exploration expenditures in Canada, Latin America, and Australia.

One of the largest transactions that Mr. Robins was involved in was the C$1.8 billion sale of Great Bear Resources to Kinross, a gold mining major.

The company's team is focused on exploration and development and has experience in high-profile deals in the mining space.

This is the combination of skills an exploration and development mining company needs. Exploration, expertise and capital markets.

And this is why we think that Defense is one of the best companies focused on rare earth elements trading in North America.

Given the company's progress and the catalysts that are driving the REE market, we urge you to pay special attention to Defense Metals Corp. (TSXV:DEFN, OTCQB:DFMTF, FSE:35D) right now.

The Company's website: www.defensemetals.com and its filings on www.sedar.com provide further information about the Company and its Wicheeda REE Project.

SEE DISCLAIMER, DISCLOSURE, AND FORWARD-LOOKING INFORMATION BELOW.

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