1. US Magnet Materials Association The US Magnet Materials Story Past-Present-Future

2. What do Magnets do? Move and direct Electrons Provide Magnetizing & Mechanical forces Electromagnets - need electrical current – Coil & “soft magnetic materials” – Normal copper & superconductor Permanent Magnets – no electrical current – “Hard magnetic materials”

3. Permanent Magnet Types & Strength Rare earths Max Energy Product (MGOe)

4. DOD Applications Inertial Guidance Electronic Warfare Microwave Communications (ship-shore, ground- space, space-ground) Motors (hydraulic systems, motion control) Generators (power for aircraft, ships) Space (actuators, electric propulsion) Nuclear reactors (pumps, control rod actuators)

5. DOD Platforms Missiles – Trident, Minuteman IV, Patriot, PAC III, Tomahawk Cruise Missiles, JDAM’s, Hellfire missiles, Harpoon Anti-ship Navy – Aegis radar, Virginia Submarines, CVN, DDX, LCS, UUV’s, support “all electric ship” technologies, Firefinder RADAR Army – M1A1 tanks, Bradley A3 and FIST, Paladin Howitzer, AH-64 Apache, Striker Humvee Air Force – F-15, F-16, F-18, B-52, Joint Strike Fighter – Unmanned Aerial Vehicles

6. China Dominates Magnet Materials WW Total Market Size $7.5B (2006)Projected $11B 2010 NdFeB magnets 75% (22% Japan) Rare Earth Oxide Ore production 94% (50% WW reserves) Rare Earth pure Metals nearly 100% Hard ferrites 85+ % Over ½ WW Alnico & SmCo production Japan, US, European producers close plants, move production CHINA

7. Magnet Sales Worldwide Market is growing due to automotive & more uses, miniaturization Chinese are main beneficiaries of growth China will increase share & dominance Data courtesy of Webmagnetics.com

8. Magnet Prices $/kg Worldwide China deflates price Artificial Chinese pricing makes US un-competitive Export subsidies provided Over capacity within China Critical Loss of Knowledge base Gross Chinese Patent Infringement Data courtesy of Webmagnetics.com

9. WW Rare Earth Oxide Production 1965-1985 US major production 1985-1990 China enters 1990-2000 China mines dominate 2002 Last US mine closes Source: US Geological Survey

10. China Rare Earth Metals Price Manipulation China overcapacity drives out all other producers Government sets export caps & price minimums China established $100/ton fine for violations to price minimums (14 July 2005) High risk for other producers to invest on added capacity Inability to purchase Nd metals reported Rare earth metal buybacks from customers mandated at sub market level China views downstream user implications of price increases having positive effects Neodymium metal Price History – 1989 $42/kg – 2003 $8/kg – 2006 $28/kg – 2007 $52/kg – 2008 $40/kg Sources: metal-pages.com, China Rare Earth Information Center

11. Recent Decline of US Magnet Industry 2002 Mountain Pass, CA rare earth mine suspends operations – world’s richest rare earth reserves – only one in US 2003 Magnequench closes plant and moves equipment to China – former GM subsidiary 2003 VAC closes Elizabethtown, KY operations 2004 China National Offshore Oil Corp attempts to purchase Unocal – owner of Molycorp and Mountain Pass rare earth mine 2005 Hitachi closes its Edmore, MI production facility – acquired from GE in 1990’s

12. Who survives in US Magnet Industry? Remaining US magnetic material producers: 3 Alnico magnet producers 1 Samarium Cobalt magnet producer 0 Neodymium Iron Boron magnet producers 2 Grain Oriented Electrical Steel (GOES) producers 0 Rare earth oxides or rare earth metals production 2 non-captive Ferrite producers If domestic magnet industry disappears, China will become a critical US defense supplier.

13. Who survives in US Magnet Production? Remaining US permanent magnet producers: Alnico Magnets Thomas & Skinner – Indianapolis, IN – 170 employees Permanent Magnet Corporation – Indianapolis, IN – 50 employees Samarium Cobalt Electron Energy Corporation, – Landisville, PA – 100 employees If domestic magnet industry disappears, who will develop unique materials for mission specific DOD needs AND commercialize? Arnold Magnetic Technologies – Marengo, IL – 140 employees Hard Ferrites Hoosier Magnetics, Inc. (ferrite powder) – Ogdensburg, NY – 50 employees

14. Why do we need the Specialty Metals Clause? Vietnam War – Sony withheld cameras used to guide tactical missiles 1983 – Socialists in the Japanese Diet blocked the sale of ceramic packaging used in U.S. cruise missiles

15. Why do we need the Specialty Metals Clause? 2002 – Hellfire Missile production stopped during West Coast dock strike critical parts sourced in Japan were awaiting off-loading 2003 – JDAM bomb production stopped during Iraq war because Swatch Group refused to ship critical part disagreed w/ Bush Administration policy

16. What’s Changed Recently -- In General Terms 2007 – Specialty metals removed from the Berry Amendment (10 U.S.C. 2533a) and codified separately at 10 U.S.C. 2533b – Clarified application to high-performance magnets 2008 – Revised specialty metals clause exempts COTS (except for high-perf. magnets) includes a 2% de minimis rule (except for high-perf. magnets) Allows market basket approach to compliance – A contractor may certify that an appropriate percentage of material is of domestic origin.

17. Specialty Metals: Details of Enacted Changes 2007 Defense Authorization Bill – Exempts electronic components whose specialty metals content is de minimis in value compared to the overall value of the lowest level electronic component produced that contains such specialty metal. – Establishes a Strategic Materials Protection Board Shall determine need to provide a long term domestic supply of materials designated as critical to national security Results: Relief for key concerns Small electronic components (solders, resistors, etc.) Small hardware issues (nuts, bolts, fasteners, etc.) Specifies application only to military systems One time amnesty 16 November 2006 (with compliance plan)

18. Specialty Metals: Details of Enacted Changes 2008 Defense Authorization Bill – Expands the electronic components relief to give complete exemption – Criticality of the domestic high-performance magnet industry to national defense noted “The conferees note that high-performance magnets have been fully or partially excluded from some of the exceptions added by this section. The conferees intend in doing so to ensure that the Department continues to procure such magnets from domestic sources whenever possible and consistent with this section.” – Requirement that 100% of the high-performance magnets used in military specific weapon systems be procured from domestic sources.

19. Specialty Metals: Details of Enacted Changes 2008 Defense Authorization Bill – Commercial-Derivative Military Articles Weapon systems produced from a predominantly commercial platform Manufacturers must procure a majority of their high- performance magnet material from domestic sources. – Known as a “Market Basket” Requires a certification from the prime contractor that they procured a qualifying amount of metal from domestic high performance magnet makers. The greater of the equivalent of 120% of the weight of magnets used in military articles or 50% of the weight of all magnets used in both commercial and military articles.

20. Specialty Metals: Details of Enacted Changes 2008 Defense Authorization Bill De Minimis exception – Allows producers a 2% margin or error in compliance with the specialty metals clause – Does not apply to high performance magnet material

21. Strategic Materials Provision Applicability to Permanent Magnet Materials Hard (Permanent) Magnets Three general types: – Alnico – Rare Earth SmCo NdFeB – Hard Ferrites Soft Magnetic Materials Multiple types, including: – Powdered iron – Soft Ferrites – Electrical steel

22. USMMA SUMMARY US Magnet Materials Industry IS NOT DEAD 10 U.S.C. 2553b Applies to US magnet Industry Permanent Magnets are critical to Military Hardware and weapons systems US Defense needs domestic advanced, specialized magnet technology capabilities for unique mission needs

23. “There is oil in the Middle East. There are rare earths in China. We must take full advantage of this resource.” Deng Xiaoping, 1992

24. Points of Contact Ed Richardson – Thomas & Skinner – off (317) 418-0137 x 116 cell (317) 920-6170 - e-mail: erichardson@thomas-skinner.comerichardson@thomas-skinner.com Web www.thomas-skinner.com Peter Dent – Electron Energy Corp - off (717)459-1001 cell (610) 349-5525 - e-mail: pcd@electronenergy.compcd@electronenergy.com Web www.electronenergy.com