1. Kevin Ng RARE EARTH MINERALS INDUSTRY

2. WHAT ARE RARE EARTHS? Rare Earth Elements (REEs) are 17 elements within the periodic table which, contrary to their name, are more abundant than many other minerals (gold, copper, silver, etc.) Reason they are “rare” is because it is difficult to find concentrations that are economically exploitable The process at which rare earth typically reaches the market includes: Mining Separation Refining Alloying Manufacturing

3. Current world demand for rare earth elements is estimated at 136,000 tons per year

4. RARE EARTH MINERALS INDUSTRY DEFINITION Firms in this industry engage in the acquisition, exploration, development, and extraction of rare earth elements (REEs) outside of China. These companies are expected to produce rare earth alloys within the next decade or have already begun production. These products are critical materials to clean-energy technologies, high-technology applications, critical defense applications, and everyday electronic household items ranging from cameras to cell phones. Molycorp Inc. (NYSE: MCP) Quest Rare Minerals Ltd. (NYSEAMEX: QRM) Rare Element Resources Ltd. (NYSEAMEX: REE) Avalon Rare Metals (NYSEAMEX: AVL) Tasman Metals Ltd. (NYSEAMEX: TAS) Lynas Corporation Ltd. (ASX: LYC)

5. INDUSTRY BREAKDOWN Rare Earth Without China $2.8B (.001%) Global Rare Earth 84.6B (.0421%) Industrial Metals & Minerals $38,566.6B (19.219%) Basic Materials $200,663.2B (100%) Molycorp Minerals: 42402 Tons (42%) Avalon Rare Metals: 9296 Tons (9%) Quest Rare Minerals: 12120 Tons (12%) Tasman Metals: 5000 Tons (5%) Lynas Corporation: 22000 Tons (22%) Rare Element Resources 100000 Tons (10%) Total Production Capacit y: 100818 Tons

7. OVERALL DRIVERS Share price appreciation will occur if the metallurgical and financial complexities from bringing a REE operation into production succeeds. Many of the rare earth companies outside China are still missing the knowledge to effectively convert rare earth deposits into alloys and oxides. A report profiled 20 REE companies and showed the YTD returns and cash balances. Average return was about -30% but many of the companies have ample cash balances and indicates financial sustainability. Careful cash management is crucial as they aim for specific goals in a tough market. Key component to the industry is cost management, however, since there are no filings for the majority of these companies, it is not possible to analyze the effectiveness of operations.

8. TRENDS

9. CHINA’S CHANGING ROLE

10. *Note: Measured in Tons

11. CHINA’S INDUSTRY MONOPOLY Controls 23% of global rare earth deposits but accounts for 96% of production Recently launched a physical trading platform for rare earth metals as a part of its efforts to regulate sector and strengthen pricing power made up by Inner Mongolia Baotau Steel Rare-Earth Group Quotas and taxes are pushing up rare earth prices abroad, giving Chinese manufacturers in China an unfair advantage. In 2010, China used its monopoly in a diplomatic stand-off with Japan when it cut off Japans industry from several of the most essential elements used in high- tech products Rare Earth ElementPrice in China ($/ton)Price in Global Markets ($/ton) Lanathanum$5000Up to $50000 Neodymium$40000$80000

12. CHANGING ROLE OF CHINA China has been reducing export quotas every year since 2006, reaching up to 72% in order to save reserves to feed growing domestic market China is expected to become an importer of some of the materials as early as 2014 Consumption of rare earths will grow at least 10% a year according to a vice president of China’s biggest rare earth mining company China has 23 mines and 99 smelting companies. 1/3 of mines and ½ of smelting companies will fail to meet new standards that China’s government is imposing on production capacity. (20k tons for mines, 5k tons for smelters). This means that due to new government regulations, production will be cut by at least 1/3.

13. HOW DOES THIS AFFECT PRICE?

14. Based off shortages and 2011 prices, that is approximately $1 billion of unearned revenue.

15. ECONOMIC RECOVERY AND GROWTH

16. Potentially permanently high metals prices as billions of global citizens urbanize and improve lifestyles BRIC (Brazil, Russia, India, and China) is still growing at an average of 5.8% since 2011 while MIST (Mexico, Indonesia, South Korea, and Turkey) has an average annual GDP growth of 5.6% Emerging economies typically need more materials due to infrastructural projects which account for more than 52% of the uses of REEs

17. ADVENT OF GREEN TECHNOLOGY

18. Demand for rare earths will increase 500,000 tons (to 636,000 tons or a CAGR of 21.3%) by 2020 as big projects in green technology and hybrid cars are expected to rise A single wind turbine requires 1-2 tons of neodymium. Wind energy has grown exponential in the last decade with an average increase of 29.7% a year. According to research done by MIT released earlier this year, demand for neodymium could increase as much as 700% in the next quarter century. Dysprosium is a critical component of electric car engines and the demand could increase by 2,600 times in the coming 25 years according to the same study by MIT. At 2016, the demand for dysprosium alone is estimated to be 1600 tonnes or approximately $3.25B market annually. The global electric vehicle market should grow to 2.7M cars by 2015

19. COMPARABLE COMPANIES ANALYSIS Company NameTickerStage in DevelopmentMarket Cap (M)% of 52-Wk HighEPSResources (tons) Production Capacity (tons) MolycorpMCPProduction by Q4122018.86%-0.011,840,00042,402 Quest Rare MineralsQRMPreliminary Economic Analysis82.2224.02%-0.051,147,08212,120 Rare Element ResourcesREEPreliminary Economic Analysis177.541.76%-0.78398,86010,000 Avalon Rare MetalsAVLPreliminary Feasibility Study184.737.68%-0.113,057,0009,296 Tasman MetalsTASResearch & Development68.3645.11%-0.16326,7005,000 Lynas CorpLYCConstruction110034.78%-0.051,183,40022,000 Median181.10.362321053-0.08116524111060 Average472.130.337035441-0.19132550716803 Maximum12200.451149425-0.01305700042402 Minimum68.360.188627852-0.783267005000

20. RISKS European debt crisis could delay economic recovery and stifle investments in technology Toshiba recently developed a new magnet that doesn’t need dysprosium, Toshiba used heat-treatment technology to improve magnetic force of a samarium-cobalt magnet, capable of being applied to automobiles, intends to mass produce by the end of the year. Environmental effects are severe: “Every ton of rare earth produced generates approximately 8.5 kilograms (18.7 lbs) of fluorine and 13 kilograms (28.7 lbs) of dust; and using concentrated sulfuric acid high temperature calcination techniques to produce approximately one ton of calcined rare earth ore generates 9,600 to 12,000 cubic meters (339,021 to 423,776 cubic feet) of waste gas containing dust concentrate, hydrofluoric acid, sulfur dioxide, and sulfuric acid, approximately 75 cubic meters (2,649 cubic feet) of acidic wastewater plus about one ton of radioactive waste residue (containing water).” – Chinese Society of Rare Earths

21. CONCLUSION: FAVORABLE BUT NOT FITTING General trends prove extremely favorable to rare earth companies in the future including increased demand due to China’s changing role, economic recovery and growth, and increase in green technologies Lack of financial information makes investing in rare earth companies purely a speculative move and therefore not in the interests of the club Forecasting supply and demand in REEs are difficult when considering the enormous sums put into R&D and intellectual property development Recommendation: Potential buy on Molycorp but only after production in Q4 is released and exceeds expectations. There is a definite need in the market to be filled, but it cannot yet be determined how that need will be filled (whether it be through a new supplier in place of China or just developing newer technology which does not need REEs) or who will be the one filling it.

22. SOURCES http://www.getbuckyballs.com/rare-earth-metals-magnet-balls/ http://www.businessinsider.com/will-your-rees-suffer-molycorp-contagion-chris-berry-advises- patience-2012-8 http://www.businessinsider.com/will-your-rees-suffer-molycorp-contagion-chris-berry-advises- patience-2012-8 http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heat- resistant.htm http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heat- resistant.htm http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heat- resistant.htm http://phys.org/news/2012-08-toshiba-dysprosium-free-samarium-cobalt-magnet-heat- resistant.htm http://www.proactiveinvestors.com/companies/news/33250/rare-element-reports-community- relations-activities-33250.html http://www.proactiveinvestors.com/companies/news/33250/rare-element-reports-community- relations-activities-33250.html http://geology.com/usgs/ree-geology/ http://english.alarabiya.net/articles/2012/03/19/201667.html http://www.smartplanet.com/blog/smart-takes/the-morning-briefing-rare-earths/28452 http://www.slideshare.net/Tehama/technology-minerals-the-rare-earths-race-is-on-april-2011