Namibia Critical Metals - Unlocking Heavy Rare Earth Potential with Strategic Japanese Partnership

• Namibia Critical Metals is developing the Lofdal Heavy Rare Earth Project in Namibia, which is fully funded through a joint venture with JOGMEC, a Japanese government agency.
• The project focuses on dysprosium and terbium, two high-value heavy rare earth elements critical for permanent magnets.
• Recent exploration has significantly increased the resource estimate from 72,680 tons to 93,731 tons of contained total rare earths oxides (TREO), extending the potential mine life to about 20 years.
• A Preliminary Feasibility Study (PFS) is expected in October 2024, followed by a Definitive Feasibility Study (DFS).
• The company has a flexible joint venture agreement with JOGMEC, potentially allowing them to be carried through to production with a minimum 21% interest.

In an era where technological advancement and the transition to clean energy are paramount, the importance of rare earth elements cannot be overstated. These critical materials are essential components in everything from smartphones to electric vehicles and wind turbines. Among rare earth companies, Namibia Critical Metals (TSXV:NMI) stands out with its focus on heavy rare earths, particularly dysprosium and terbium, which are crucial for creating powerful permanent magnets used in various high-tech and green energy applications.

The Lofdal Heavy Rare Earth Project

Located in Namibia, the Lofdal Heavy Rare Earth Project is Nambia Critical MetaIs' flagship asset. What sets this project apart is its focus on dysprosium and terbium, two of the most valuable rare earth elements. These heavy rare earths are critical in producing high-strength permanent magnets, which are essential components in electric vehicles, wind turbines, and other high-tech applications.

CEO Darrin Campbell emphasizes the unique nature of their deposit:

"Our project is primarily a dysprosium terbium deposit, which is very different from most of the other light rare earth projects, which are NDPR (neodymium, praseodymium). The dysprosium and terbium, which make up about 85% of the basket of our project, are two of the highest value of all rare earths."

This focus on heavy rare earths positions the Lofdal project as a potentially significant player in the global rare earth supply chain, especially given the growing demand for these elements in green technologies.

Interview with President & CEO, Darrin Campbell

Resource Expansion & Project Advancement

One of the most compelling aspects of the Lofdal project is its recent resource expansion. Campbell notes:

"With the funding that JOGMEC has given us over the last three and a half years, we've increased the size of the dysprosium and terbium resource in this project dramatically to be a globally significant deposit."

The updated mineral resource estimate released in April 2024, following the completion of the 2023 infill drill campaign, showcases this growth:

• Increase from 4,503 tons of dysprosium oxide, and 693 tons of terbium oxide in the combined Measured and Indicated Resource categories, representing an increase of 11% and 12% compared to the previous Mineral Resource Statement
• 31% increase in contained Total Rare Earth Oxide (TREO) tonnage in the combined Measured and Indicated Resource categories from 72,680 tons to 93,731 tons
• Potential mine life extended to about 20 years
• Significant upside potential for further exploration and resource growth

This substantial increase in the resource base not only extends the mine's potential life but also enhances the project's economic viability and attractiveness to potential partners and investors.

Strategic Partnership with JOGMEC

A key strength of Namibia Critical Metals is its joint venture with JOGMEC (Japan Oil, Gas and Metals National Corporation), a Japanese government agency. This partnership provides several advantages:

• Funding: JOGMEC is funding the project's development, having invested $14 million to date out of a planned $20 million to earn a 50% interest.
• Technical Expertise: The partnership brings Japanese technical expertise to the project, particularly in processing and metallurgy.
• Market Access: JOGMEC's involvement potentially opens doors to Japanese industrial partners and end-users of rare earth products.
• Credibility: The backing of a major government agency lends significant credibility to the project.

Campbell explains the significance of this partnership:

"JOGMEC is our joint venture partner. They're earning at least 50% of the project with an option to go up to 74%. They are a government agency of Japan. They have an annual budget of about 12-13 billion USD, and their mandate is to secure supply of natural resources for Japanese industry."

This partnership structure provides Namibia Critical Metals with a unique position, potentially allowing them to advance the project to production with minimal dilution to shareholders.

Project Economics & Development Timeline

While detailed economics will be revealed in the upcoming Preliminary Feasibility Study (PFS), expected in October 2024, initial indications suggest a relatively low-cost project compared to many rare earth developments. The previous Preliminary Economic Assessment (PEA) estimated a capital expenditure of $207 million, with the upcoming PFS expected to show a figure around $250 million due to inflationary pressures.

Key upcoming milestones include:

• PFS release: Mid to late October 2024
• Definitive Feasibility Study (DFS): Expected 10 months after PFS
• Potential production decision: Within 3 months of DFS completion

These milestones provide clear catalysts for potential value creation and represent significant de-risking events for the project.

Market Dynamics & Pricing

The rare earth market has been volatile, with prices currently at 10-year lows. However, industry experts, including those at a recent rare earth industry conference in Japan, view these prices as unsustainable in the long term.

Campbell notes:

"Hopefully, we're at or near the bottom. There's been a real disconnect between the typical demand-supply reactions of most commodities as it pertains to rare earths. The industry believes that's coming to an end soon, we hope, and we'll start to see an upward trajectory in rare earth prices."

This potential market turnaround could coincide with Lofdal's development timeline, positioning the company to potentially benefit from higher prices as it nears production.

Geopolitical Considerations & Supply Chain Diversification

China currently dominates the rare earth industry, controlling a significant portion of global production and processing capacity. This concentration has led to concerns about supply security among Western nations and Japan.

Namibia Critical Metals' project represents a potential diversification of the rare earth supply chain, particularly for heavy rare earths. JOGMEC's involvement underscores the strategic importance of developing non-Chinese sources of these critical materials.

Environmental & Social Considerations

Operating in Namibia provides several advantages:

• Stable Mining Jurisdiction: Namibia is known for its stable political environment and well-established mining regulations.
• Experience with Radioactive Materials: Namibia is the world's third-largest uranium exporter and has experience with the regulatory aspects of slightly radioactive materials, which is relevant for rare earth projects.
• Social License: The project includes a 5% stake held by historically disadvantaged Namibian groups, aligning with local empowerment initiatives.

Campbell describes Namibia as a fantastic jurisdiction to work in:

"We've been operating there for over 10 years, 12 years now. I've heard Namibia referred to as Africa for beginners. It's a wonderful location, sparsely populated, very mining-friendly, strong rule of law, and a well-established regulatory regime to work within."

Financial Structure & Shareholder Considerations

Namibia Critical Metals has a unique financial structure that provides significant optionality for shareholders:

• JOGMEC can earn up to 74% of the project
• Namibia Critical Metals has the option to maintain a 44% interest or be diluted to a minimum 21% carried interest
• 65% insider ownership suggests strong alignment with shareholder interests

This structure allows Namibia Critical Metals to potentially reach production with minimal further dilution to shareholders, a rare feature among junior mining companies.

The Investment Thesis for Namibia Critical Metals

• Focus on high-value heavy rare earths (dysprosium and terbium) critical for permanent magnets used in electric vehicles and wind turbines
• Significant resource expansion from 72,680 tons to 93,731 tons of contained TREO‍
• ‍Strategic partnership with JOGMEC providing funding and potential access to Japanese industrial partners
• Potential low-cost operation with a relatively small capital expenditure compared to other rare earth projects
• Unique financial structure allowing for minimal dilution to reach production
• Operating in Namibia, a stable and mining-friendly jurisdiction
• Upcoming catalysts including PFS (October 2024) and DFS (2025)
• Potential beneficiary of rare earth price recovery and increased focus on supply chain diversification
• High insider ownership (65%) suggesting strong alignment with shareholder interests

Namibia Critical Metals offers a compelling opportunity in the rare earth sector, focusing on critical heavy rare earths essential for green technologies. The company's Lofdal project has seen significant resource growth and benefits from a strategic partnership with JOGMEC, providing funding and potential market access. With upcoming milestones including a PFS and DFS, and operating in the stable jurisdiction of Namibia, Namibia Critical Metals is well-positioned to potentially benefit from increasing demand for heavy rare earths and efforts to diversify global supply chains. However, investors should carefully consider the volatile nature of rare earth markets and the inherent risks associated with developing mining projects. The company's unique financial structure and high insider ownership provide additional layers of interest for potential investors.

Macro Thematic Analysis

The rare earth elements (REE) sector is at a critical juncture, driven by the global push towards clean energy and advanced technologies. Heavy rare earths, particularly dysprosium and terbium, are essential components in permanent magnets used in electric vehicles, wind turbines, and other high-tech applications. This demand is expected to grow significantly in the coming decades as countries worldwide strive to meet their climate goals and transition to green energy.

However, the current REE supply chain is heavily concentrated in China, which controls about 80% of global production. This concentration has led to concerns about supply security and price volatility, prompting countries like Japan, the United States, and European nations to seek alternative sources.

Namibia Critical Metals' Lofdal project represents a potential solution to this supply chain challenge, offering a non-Chinese source of heavy rare earths. The involvement of JOGMEC, a Japanese government agency, underscores the strategic importance of diversifying REE supply chains.

The current low prices in the rare earth market present both a challenge and an opportunity. While they make it difficult for new projects to achieve profitability in the short term, they also create an entry point for investors looking to position themselves for a potential market recovery.

"I think now is a good time to hedge against what's expected to be rapidly rising rare earth prices over the next decade."

This statement from CEO Darrin Campbell encapsulates the long-term view necessary when considering investments in the REE sector. As global efforts to secure critical mineral supply chains intensify, projects like Lofdal that offer strategic resources in stable jurisdictions are likely to attract increasing attention from both investors and potential industrial partners.