Categories: Energy
Topics: General Energy

Defense Metals (TSX-V: DEFN) CEO Craig Taylor on the Importance of Rare Earths, Exposure to the Market, and the Potential for a Buyout

Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the president and CEO of Defense Metals, Mr. Craig Taylor. Craig, how are you this morning?

Craig Taylor: Good, Gerardo, how are you doing?

Gerardo Del Real: I am well. I am well. I have to share a personal story. Back in 2010, right around that time frame, I did exceptionally well with anything that attached the words “rare earth” to whatever the company name was before it was a rare earth company. I say that to say that I haven't seen as much excitement in the rare earth space, both in terms of exposure and the amount of capital that's flowing into this space, as I saw then, and I'm talking a decade.

And when I say that I had great success, there were names like Rare Element Resources that I bought into at 24 cents that eventually traded as high as $18, Quest Rare Minerals, 6 cents to $6. And it happened relatively quickly. You happen to have an asset that's got great infrastructure, a high rate of extraction, and a comp with Mountain Pass that it's not apples-to-apples, obviously, but there is a lot to like there when you compare the two. So before we get into any of that, tell us a little bit about your background in the company, and then let's dig into the details a bit if you don't mind.

Craig Taylor: Sure. Okay. The deposit is located 70 kilometers north of Prince George BC, and that's a real mining hub. It's central BC. There's gas and coal and mining. So the infrastructure is great to our deposit. We have road access. We have access to electricity, to water, railroads close by. So that's part of what separates us from the rest of the crowd in the rare earth space. Our capex is going to be very low moving forward. We are an NDPR deposit, which they are the critical elements in lightweight high-strength magnets. And as you know, those are instrumental in the EV market these days, which is growing exponentially.

Gerardo Del Real: Hence the name Defense Metals, because those metals also have a lot of implications when it deals with and as it relates to national security. We're talking the missiles and the planes and the satellites and things of that nature, correct?

Craig Taylor: Yes. And that's why this could be explosive like it was in 2010 because China occupies all of the production of rare earths, or 80% anyway. And it's really important for the US military to have control over these military components that they make. And right now that's not the case. China is threatening to cut off the US, like they did to Japan, which is why the market went crazy in 2010. So we're sort of braced for a similar tidal wave going forward.

Gerardo Del Real: I mentioned the high rate of extraction, and I think this is something that, assuming continued success, is going to really set you and your asset apart. There is a long lead time. If Gerardo was to decide tomorrow to capitalize on the new, hot, rare earth trend, which I think is only going to get hotter, and I wanted to put together a team that had a background and I went and found an asset, it would take me years on end and maybe even decades to get to the point where I could prove my asset to be extractable and to be extractable at a high rate. You're there now. Can we speak to that a bit?

Craig Taylor: Yeah. That's very important. We have worked extremely hard the last two years to move this company forward and to de-risk the asset. And if you look at our timeline, we've taken a 30-tonne bulk sample in January of 2019, gone through metallurgy, increased our resource, did a pilot plant, and now we're at the stage where we're going to be doing a PEA in the first quarter of next year. So that's an incredible amount of work in a short time span.

Gerardo Del Real: I mentioned Mountain Pass, and again, obviously I'm not saying that your asset and Mountain Pass are apples-to-apples because the market cap will tell you that. There's a lot of difference there, but there are also a lot of similarities and things to like. For those not familiar with Mountain Pass in the recent news, can you give us a bit of an overview of the capital and the people involved there and why that could be important for a company like Defense Metals?

Craig Taylor: Yeah. Mountain Pass is the only producing rare earth mine in North America. And they have recently voted on a merger with Fortress Acquisitions Corp, by which Fortress will be injecting half a billion dollars into Mountain Pass. And at the end of the transaction, Mountain Pass will be worth $1.5 billion, and that will allow them to do further processing on their mine site, which is second only to China. So it will be the only plant in North America that can turn their concentrate into oxide. And our similarities are that they are an NDPR deposit as well, very similar geological makeup, and our grades are not far off there. So we are an actual feed or perhaps competitor to Mountain Pass in the future.

Gerardo Del Real: You also could potentially be a takeout target. Because if you're a potential competitor, given your small market cap, I would imagine it would behoove a company to take a peek at you and see if it's accretive, right?

Craig Taylor: Absolutely. Absolutely, yes. And we've tried to contact them recently, and they're so tied up in this acquisition right now, they didn't have time to speak with us, but they said they would like to speak with us once the whole transaction is done. So that's definitely in the forefront of our minds.

Gerardo Del Real: And again, the backers there are some of the smartest money in the space, right? And frankly, some of the smartest venture capital money. I believe Chamath Palihapitiya is behind it, former exec, part of the original Facebook group, amongst others. So when I say there is capital and attention coming into the market, I am not talking tens of millions of dollars. I'm talking billions of dollars. Is that accurate, Craig?

Craig Taylor: Very, very. The DOD and the DOE sees the threat as well as the smart money that you've mentioned. So there will be injections from the government and from private equity going forward.

Gerardo Del Real: Walk me through what the next couple of months look like for Defense Metals.

Craig Taylor: Okay. We have successfully finished our pilot plant. We have produced 1200 kilos of high grade concentrate. And so currently, we're looking at offtake agreements with several partners out of Japan, out of North America and Canada. So that will establish us as a buyable offtake partner for the likes of Toshiba, battery component manufacturers, magnet component manufacturers. So that's a big step for us.

And then the first quarter of next year, as I mentioned, we'll be doing our PEA. We've done an internal scoping study, and our numbers came out to be very favorable. And that's what propelled us to work towards our PEA, which will be done, I am hoping, by February of next year.

Gerardo Del Real: Excellent. Can you walk me through the share structure and the current market cap a bit? I think fully diluted, you have just shy of 80 million shares outstanding. Is that correct?

Craig Taylor: Yeah, that's right. That's including warrants and options. Shares are just over 50 million. Insiders hold about 10%, and our market cap is currently, in US dollars, about seven-and-a-half million. So a very low market cap for what we have, and we're trying to get the message out there now and improve on that. And that's sort of the purpose of our call today, just to tell people our story. Since we've done all this work, it's time for us to open ourselves up to the market.

Gerardo Del Real: Well, again, I think the sector, once again, will be explosive to the upside. I think you've positioned yourself well. I encourage everyone to go to defensemetals.com to take a peek at the corporate presentation and the vast amount of work that's been done here recently. And Craig, I'm looking forward to having you back on as soon as the company checks milestones.

Craig Taylor: Great. I appreciate it. I am too.

Gerardo Del Real: Thanks a lot, Craig. Appreciate your time.

Craig Taylor: Okay. Okay. Talk soon. Take care.