The news flow for Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) has generally been very positive since the Spring, and so it is obviously paradoxical that its stock price has accelerated to the downside despite this. We will now briefly set out this news flow, and as we approach the present, the reason for this paradox will become apparent.
We start with the April 3 news release that Defense Metals hires HCF for Wicheeda financing review, the purpose of which is to to conduct a strategic financing review for the company's wholly-owned Wicheeda rare earth element (REE) project located in British Columbia, Canada.
A few weeks later, evidently impressed by Defense Metals' Wicheeda Project, Guy de Selliers de Moranville, president and co-founder of HCF, joined the board of directors of Defense Metals. Then, towards the end of April, the company announced that UCORE QUALIFIES WICHEEDA MIXED RARE EARTH CARBONATE FOR RAPIDSX TECHNOLOGY PROCESSING AT COMMERCIAL-SCALE FACILITIES, which is a major step towards getting the company's product commercially processed.
At the end of May the distinguished and experienced Suzanne Rich Folsom was appointed a director of the company. On June 20 Guy de Selliers advanced to become Chairman of the Board of Directors.
Mr. de Selliers stated: "Having reviewed the Wicheeda project and compared it to many others and engaging with the Defense Metals team, I am confident that the Wicheeda REE project possesses the essential qualities needed to emerge as North America's next rare-earth mine."
On July 10 it emerged that DEFENSE METALS' WICHEEDA RARE EARTH ELEMENT PROJECT CONSIDERED AS KEY BY THE GOVERNMENT OF BRITISH COLUMBIA.
On July 29, Defence Metals announced Management Changes that included Mr de Selliers advancing again to become executive chair of the board. Then, on August 6, the company announced a sizeable private placement pitched at 16 cents per unit, which was later pulled because the share price continued to tumble.
In light of all this good news, apart from the last item, why did the share price continue to drop and drop?
Now we come to it. Only about a week ago, on August 26 came the news that Defense Metals Corp. chief executive officer Craig Taylor and director Len Clough have resigned, effective immediately. Since markets do not like uncertainty they got rattled by the CEO and a director leaving like that, but now that this news is out and thus discounted a big drag factor on the stock has been removed and all the good news that was detailed above should now come to the fore and the funding operation that was earlier pulled was re-introduced as a mínimum $2.5 convertible bridge financing that can be upsized to $4 million and the fact that this funding is being enthusiastically greeted by senior management with Mr de Selliers intending to subscribe for a $1 million of the notes and others such as RCF Opportunities Fund II LP indicating that it intends to subscribe for notes in the principal amount of $500,000 is a testament to the positive outlook for the company. The offering is planned to be completed this month.
Turning now to the stock charts we see that Defense Metals' stock has been on the defens-ive all this year to date for the fundamental reason set out above and we will now proceed to see what the charts have to say about it.
Starting with the latest 7-month chart we can see that it has been trending lower since February with the downtrend gradually accelerating at first before gathering pace to the downside in July but last week it dropped even more sharply into a high-volume selling climax which, given the pivotal news just out is thought to mark the final low and a turning point. The deeply oversold condition shown by the MACD indicator and the now large gap that has opened with the falling 200-day moving average above make a significant snapback rally likely very soon, that, given recent developments, should mark the start of a sustained improvement.
The 3-year chart is interesting as it shows us that the latest sharp drop has brought it down to a long-term support level and also close to the lower boundary of the wide provisional downtrend shown (whose boundaries may later need adjusting) and it also makes clear that Defense Metals has, in the past at least, had a habit of making sharp spikes higher that are followed by lengthy downtrend reactions.
If it does this again it will make rapid gains in a short space of time.
Lastly, the 7-year chart enables us to see that this year's accelerating decline has brought it back to an important support level at cyclical lows close to the 2019 – 2020 lows, which is clearly a good point for it to turn higher.
The conclusion is that anyone holding Defense Metals should stay long and it is rated an Immediate Strong Buy.
Defense Metals' website.
Defense Metals Corp. (DEFN:TSX.V; DFMTF:OTCQB; 35D:FSE) closed at CA0.105, US$0.077, on September 2, 2024.
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- Clive Maund: I determined which companies would be included in this article based on my research and understanding of the sector.
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The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be construed as a recommendation or solicitation to buy and sell securities.
