rare earths - an evaluation of current and future supply

Approachable. Independent. Expert.

Roskill

Rare earths -an evaluation of current and

future supply

Judith ChegwiddenRoskill Information Services Ltd.


Roskill

The statements in this presentation represent the considered views of Roskill Information Services Ltd. It includes certain statements that may be deemed "forward-looking statements." All statements in this presentation, other than statements of historical facts, that address future market developments, government actions and events, are forward-looking statements. Although Roskill Information Services Ltd. believes the outcomes expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements include new rare earth applications, the development of economic rare earth substitutes and general economic, market or business conditions.

While Roskill Information Services Ltd. has made every reasonable effort to ensure the veracity of the information presented it cannot expressly guarantee the accuracy and reliability of the estimates, forecasts and conclusions contained herein. Accordingly, the statements in the presentation should be used for general guidance only.

Disclaimer


Roskill

Rare earth reserves and resources

Overview of current supply

• Historical perspective

• The view of supply from the non-Chinese consumer

A brief review of historical price trends outside China

Existing and potential supply from the rest of the world

• Overview of current R-O-W supply

• Review of key rare earth projects under development

• Limiting factors

Roskill forecast of supply from the R-O-W to 2015

Outline


Roskill

USGS assessment of world reserves

Source: US Geological Survey, January 2010

World reserves of rare earths (excluding yttrium) 2007 (Mt REO)

Country Reserves

Brazil 0.05

China 36.00

Commonwealth of Independent States 19.00

USA 13.00

Australia 5.40

India 3.10

Malaysia 0.03

Others (incl. Canada) 22.00

World Total 99.00


Roskill

USGS assumptions

• Monazite is readily available as a by-product of mineral sands mining

• The cost of separating monazite is minimal so likely to be major source of rare earths in the future

• The use of thorium in nuclear power is likely to constitute a growing part of future power generation

Roskill commentary

• The use of thorium in nuclear generation is not likely to occur on a significant scale for at least 15 years

• At current prices there is little incentive for mineral sands companies to separate monazite – particularly if the cost of storing

thorium is factored in

• By-product monazite is a source of light rare earths – which are abundant in many other deposits

• It is unlikely that there will be extensive exploitation of by-product monazite for rare earths and thorium in the next decade

• However, there are adequate reserves of rare earth minerals in other forms to meet expected world demand over the next

decade

Commentary on reserve calculations

Source: Roskill data


Roskill

Deposits vary greatly - matching the ratio in the natural occurrence of REOs to the demands of the market is key consideration

Rare earth content of major source minerals (% total REO)

Basnaesite Ion adsorption clays Monazite Loparite

Baiyun OboInner

Mongolia

Mountain PassUSA

Xunwu Jiangxi

LognanJiangxi

Mount Weld Guangdong LovozerskyRussia

La2O3 23.0 33.2 43.4 1.8 25.5 23.0 28.0

CeO2 50.0 49.1 2.4 0.4 46.7 42.7 57.5

Pr6O11 6.2 4.3 9.0 0.7 5.3 4.1 3.8

Nd2O3 18.5 12.0 31.7 3.0 18.5 17.0 8.8

Eu2O3 0.2 0.1 0.5 0.1 0.4 0.1 0.1

Tb4O7 0.1 trace trace 1.3 0.1 0.7 0.1

Dy2O3 0.1 trace trace 6.7 0.1 0.8 0.1

Y2O3 trace 0.1 8.0 65.0 0.3 2.4 trace


Roskill

Overview of supply


Roskill

At least 95% of all rare earths currently originate from China

Source: Roskill data, Company communications, CREIC

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

China ROW


Roskill

China

• 124,800t REO in chemical concentrates

• Mainly from bastnaesite from Baotou and ion adsorption clay from southern provinces

• Circa 15,000-20,000t REO from “unofficial” sources

Russia

• 2,470t REO in chemical concentrates from mine output

India

• 50t REO in chemical concentrates from tailings

USA

• 1,700t REO in chemical concentrates from stockpiled ore arising form mining in the 1990s

Others

• Small amounts of monazite and xenotime from south east Asia

Components of rare earth supply in 2008

Source: CREIC, Roskill data


Roskill

Preliminary evaluation of components of supply in 2009 (t REO)

China 120,000

Russia 2,500

USA 2,400

India 25

Total 124,925

Source: Roskill, Company reports


Roskill

Chinese supply from the viewpoint of the rest of the world


Roskill

Positive impact on supply:

• Reserves >25Mt REO

• Excess secondary processing capacity

• Access to relatively low cost processing chemicals

• Heavy investment in research and technology

Negative impact on supply of REO and RE metals to R-O-W

• Finite heavy rare earth resources (15-20 year mine life)

• Increasingly rigorous environment legislation

• Policies to encourage downstream processing

• No new exploration and mining licences until 2011 (at the earliest)

• Tighter mining and export quotas

• Export taxes

Facets of Chinese supply


Roskill

Comparison of mine and separation quotas and estimated production in China

Year

NDRC/MIIT concentrate

Quotas

Estimated mine output (1)

NDRC/MIITseparation

quotas

Estimated separation output

2007 131,780 120,800 118,700 126,000

2008 129,178 124,800 118,700 135,300

2009 119,500 120,000 110,700 129,400

2010 89,200 120,000f 86,000 125,000f

Source: CREIC, NDRC/MIIT, Roskill Note: (1): Includes estimate for illegal mining

f: forecast MLR = Ministry of Land & Resources NDRC = National Development & Reform Commission MIIT = Ministry of Industry and Information Technology


Roskill

Total export quota fell by 40% in 2010

History of Chinese export quotas (t REO)

Domestic rare earth quotas Total including Foreign JV quota

Phase 1 Phase 2 Total Change

2004 n/a n/a 48,040 - 65,609

2005 n/a n/a 48,040 0% 65,609

2006 n/a n/a 45,752 -5% 61,821

2007 19,600 23,973 43,573 -5% 59,643

2008 22,780 11,3761 37,1892 -15% 53,141

2009 15,043 18,257 33,300 -10% 50,145

2010 16,304 7,976 24,280 -27% 30,258

Source: Chinese Ministry of Commerce websiteNotes: 1-In 2008 quotas were allocated for 10months (second tranche was effectively for 4 months) so there was alignment with a calendar year2-Adjusted for 12 month allocation for comparative purposes


Roskill

Impact of quotas and other measures on exports of cerium compounds

Exports of cerium compounds, 2001-2009 (t gross weight)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Cerium Oxide Cerium Carbonate Cerium Compounds, Nes

• Exports of cerium carbonate are mainly destined for France, Japan and the USA – where further processing takes place

• Exports of cerium oxide and other cerium compounds have declined – partly because of the relocation of polishing powder manufacture to China

Source: Global Trade Atlas


Roskill

Impact of quotas and other measures on exports of compounds of “other” rare earths

Exports of “other” rare earth compounds, 2001-2009 (t gross weight)

0

5000

10000

15000

20000

25000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Rare earth oxides other than of cerium Rare earth chlorides

Rare earth fluorides other than of cerium Rare earth carbonates

• Exports of lower value chlorides, carbonates and fluorides declined or remained flat in the last decade

• Exports of higher value rare earth oxides continued to increase until 2008.

• The main markets for other REOs are Japan and the USA

Source: Global Trade Atlas


Roskill

Decline in Japanese imports of rare earth compound and metals since 2007 – replaced by imports of processed materials?

• Overwhelmingly dependent on supply from China

– 99% of lanthanum oxide sourced from China

– 89% of cerium oxide.

– 90% of yttrium oxide

Source: Global Trade Atlas1: Including intermediate compounds

Japan: Imports of rare earth compounds and metals, 2006-2009 (gross weight)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2006 2007 2008 2009

Cerium oxide Cerium compounds Rare earth metals Rare earth compounds1 Lanthanum oxide Yttrium oxide


Roskill

Trends in rare earth prices (outside China)


Roskill

Tightening supply and increasing demand in 2007/8 had a marked impact on the Japanese import value of rare earths used in magnets and phosphors

Source: Roskill’s Letter from Japan1: including intermediate compounds

Japan: Average value of rare earth compounds and metals, 2001-2009, Yen/kg

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Yttrium oxide Cerium oxide Cerium compounds

Lanthanum oxide Rare earth metals Other rare earth compounds1


Roskill

How have rare earth prices performed in relation to other commodities where China dominates global supply?

Source: Global Trade Atlas, Roskill

Index of FOB China unit values for selected commodities, where China is the predominant source of supply, 2001-2009

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

2001 2002 2003 2004 2005 2006 2007 2008 2009

Tungsten powder Acidspar Antimony oxide Natural Graphite

Cerium Oxide Cerium Carbonate Other rare earth oxides


Roskill

How have rare earth prices performed in relation to the IMF Commodity Price Index- Metals?

Source: IMF, Global Trade Atlas, Roskill

Comparison of REO prices (FOB China) and the IMF Commodity Price Index - Metals

0

100

200

300

400

500

600

2005 2006 2007 2008 2009

IMF La2O3 CeO2 Nd2O3 Eu2O3 Dy2O3


Roskill

Existing and potential supply from the Rest of the World


Roskill

Existing R-O-W producers accounted for less than 5% of supply in 2009

Company Location Ore type Capacity(tpy REO)

Notes

Molycorp Minerals Mountain Pass, CA Bastnaesite Current 2,000-3000 Currently processing ore from stockpile, main products are mixed rare earth oxides for FCC catalyst and didymium oxide, lanthanum compounds and SEG concentrate

Lovozersky Mining Company/Solikamsk Magnesium Works

Kamasurt Mine , Kola Peninsula, Russia

Solikamsk processing plant, Urals, Russia

Loparite, processed to yield rare earth carbonate, which is shipped to Estonia, Kazakhstan, Austria and China for further processing

Up to 4,400 High level of radioactivity in some zones of the mine

Indian Rare Earths Mineral sands from Orissa, Tamil Nadu and Kerala have in the past been processed at Udyogamandal, Kerala. Current output from stockpiles of Th rich residues

Monazite from extensive deposits of mineral sands

25-100 Plans for a new monazite processing plant but start-up has been delayed

IRE is under the control of the Department of Atomic Energy

Other Vietnam, Thailand, Malaysia Monazite 1,800-2,000 Monazite


Roskill

Composition of new deposits also vary – which will meet the requirements of the market going forward?

Rare earth content of ore at projects under development (% total REO)

Trachyte Apatite Alanite and apatite

Fergusonite1 Weathered monazite

Monazite Bastnaesite layer

Dubbo, Australia

NolansAustralia

Hoidas Lake, Canada

Nechalacho, Canada

Mount Weld Steenkrams-kraal

Bear Lodge

La2O3 19.5 20.0 19.8 16.3 25.1 21.7 29.3

CeO2 36.7 48.2 45.6 41.4 48.5 46.7 45.0

Pr6O11 4.0 5.9 5.8 4.8 5.3 5.0 4.8

Nd2O3 14.1 21.5 21.9 18.7 16.7 16.7 16.8

Eu2O3 0.1 0.4 0.6 0.4 0.6 0.1 0.4

Tb4O7 0.3 0.1 0.1 1.8 0.1 0.1 0.1

Dy2O3 2.0 0.3 0.4 0.7 0.2 0.6 0.2

Y2O3 15.8 … 1.3 7.4 0.3 5.0 …

Source: Company data1: Ore, rather than the normally quoted mineral


Roskill

Rare earth operations under development – Lynas Corp

Mount Weld deposit, W. Australia, and a processing plant in Gebeng, Malaysia

Capital raising in October 2009 raised A$450M which is being used to finance Phase 1 development, completing construction at Mount Weld and Gebeng

Concentrator will produce 35ktpy of concentrate grading 40% REO

Phase 1 plant at Gebeng has the capacity to produce 10,500tpy REO

Possible expansion to 21,000tpy REO

Start up planned for late 2011, full production by 2012

Four sales contracts in place – including with Rhodia, plus further letters of intent


Roskill

Rare earth operations under development – Molycorp Minerals LLC

Over 50 years of production history at Mountain Pass, California, USA Proven reserves 40,000t of REO contained in 0.48Mt ore at average grade

of 9.38% Probable reserves of 960,000t of REO in 13.8Mt ore at average grade of

8.2% Projected mine life of 30 years Mining scheduled to re-start at the end of 2010 Production of REOs at the rate of 19,050tpy by the end of 2012 Plans for conversion of REOs to metal and alloys and then magnet

manufacture Registered an S-1 in July 2010 preparatory to a public offering of stock

(possibly in August?) Plan to raise US$420.7M to fund modernisation and expansion plans


Roskill

Rare earth operations under development – Japanese investments in potential producers of REEs

Sumitomo/Kazatomprom• SARECO JV plans to build refinery to treat Y-rich uranium ore tailings, uranium ores and

rare earth concentrates to produce REOs and RE metals

• Output could be 3,000tpy REO by 2011 rising to a possible 15,000tpy REO by 2015

• However – still the subject of a feasibility study

Toyota/Sojitz/Govt. of Vietnam• Dong Pao consists of number of ore bodies with a total reserve of ~9.7Mt REO. The most

prospective deposit contains 0.65Mt REO

• Scheduled to produce 2-3,00tpy REO by 2013, rising to 5,000tpy

• Mine life of around 20 years

Mitsubishi/Neo Material Technologies• Undertaking research to extract HREEs from tailings at Mineracao Taboca’s Sn, Ta and Nb

mine at Pitinga, Brazil

• Tailings reported to contain 8.5% REO – with a high grade of Dy


Roskill

The search for heavy rare earths – but at what cost?

Alkane Resources• Proposed production of HREEs as by-product of zirconium production at Dubbo, NSW,

Australia

• 1,200-1,200t REO (yttrium rich) could be produced by 2011/12 with potentail to expand to 3,000tpy.

• Undertaking definitive feasibility study

Avalon Rare Metals Inc• Nechalacho deposit rich in HREEs in NWT, Canada, low ore grade overall (176Mt at 1.43%

REO) but high ratio of heavies

• Construction could start in 2013 resulting in production of 5,000tpy REO by 2015, rising to 10,000tpy REO. Capital costs could be up to US$890M for mine, mill and metallurgical plant

Quest Rare Metals • Strange Lake and others in Quebec/Labrador, Canada. High proportion of HREEs in

Strange Lake deposit

Ucore• Bokan-Dotson Ridge project, Alaska. Comprehensive suite of HREEs

Matamec• Kipawa deposit in Quebec, Canada contains 3 major types of REE mineralisation (eudialyte,

yittrio-titanite, and britholite), including LREEs, HREEs and Y


Roskill

The majority of deposits are rich in LREEs - projects where feasibility studies are underway include:

Rareco, Steenkramskaal, South Africa - reopening and reequipping underground mine, undertaking pre-feasibility study, mining permits received

Arafura, Nolan’s project, Australia. Bankable feasibility study underway. Targeting production of10,000tpy REO by 2013 but no decision as yet on site for processing plant

Great Western Minerals Group, Hoidas Lake, Canada – prefeasibility underway, could produce 3-5,000tpy by 2014. Relatively small resource

Rare Element Resources, Bear Lodge, Wyoming, USA – inferred resource of 17.5Mt at 3.46% REO. Feasibility study scheduled to start in Q3, 2011

Stans Energy Corp, studying feasibility of reopening Kutessay ll Mine , Kyrgyz Republic, and utilising processing plant at Orlovka (50:50 LREEs and HREEs)


Roskill

The search continues!

Over 200 rare earth projects identified by mid 2010


Roskill

But commercial considerations are key:

Rare earths are not commodities – in many cases they are customer specific

Most of the rare earth projects that have emerged in the west are single project

companies (debt has to be non-recourse project funded)

Developing a rare earth mine and processing plant is capital intensive (>US$30,000/t

capacity, probably more for HREE mine)

History shows that the development time can be very long (10-15 years)

Limited technical expertise on mining, cracking and separating outside China

Percentage REO content is only half the story – REO distribution and amenable

mineralogy are important

Most deposits contain radioactive material that has to be contained and stored

Projects that rely on shipping low grade concentrate over 100s of km are going to be

costly


Roskill

Will production from the rest of the world plug the forecast supply gap?

Source: Roskill

Rest of the World: Mine production of REOs, 2004-2015 (t)

0

10,000

20,000

30,000

40,000

50,000

60,000

2004 2005 2006 2007 2008 2009 2010f 2011f 2012f 2013f 2014f 2015f

ROW supply


Roskill

Roskill Information Services Ltd.

Contact:Judith Chegwidden+44 20 8944 0066

[email protected].

rare earths - an evaluation of current and future supply

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