Rare earths - an evaluation of current and future supply

1. Rare earths -an evaluation of current and future supply Judith Chegwidden Roskill Information Services Ltd.

2. 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

3. 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

4. USGS assessment of world reserves Source: US Geological Survey, January 2010

5. 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

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

7. Overview of supply

8. At least 95% of all rare earths currently originate from China Source: Roskill data, Company communications, CREIC

9. 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

10. Preliminary evaluation of components of supply in 2009 (t REO) Source: Roskill, Company reports

11. Chinese supply from the viewpoint of the rest of the world

12. 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

13. Comparison of mine and separation quotas and estimated production in China 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

14. Total export quota fell by 40% in 2010 Source: Chinese Ministry of Commerce website Notes: 1-In 2008 quotas were allocated for 10months (second tranche was effectively for 4 months) so there was alignment with a calendar year 2-Adjusted for 12 month allocation for comparative purposes

15. Impact of quotas and other measures on exports of cerium compounds • 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

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

17. 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 Atlas 1: Including intermediate compounds

18. Trends in rare earth prices (outside China)

19. 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 Japan 1: including intermediate compounds

20. How have rare earth prices performed in relation to other commodities where China dominates global supply? Source: Global Trade Atlas, Roskill

21. How have rare earth prices performed in relation to the IMF Commodity Price Index- Metals? Source: IMF, Global Trade Atlas, Roskill

22. Existing and potential supply from the Rest of the World

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

24. Composition of new deposits also vary – which will meet the requirements of the market going forward? Source: Company data 1: Ore, rather than the normally quoted mineral

25. 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 Rare earth operations under development – Lynas Corp

26. 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 Rare earth operations under development – Molycorp Minerals LLC

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

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

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

30. Over 200 rare earth projects identified by mid 2010 The search continues!

31. 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

32. Will production from the rest of the world plug the forecast supply gap? Source: Roskill

33. Roskill Information Services Ltd. Contact:Judith Chegwidden+44 20 8944 0066judith@roskill.co.uk.