Rare Earth Review - Libertas Partners LLP
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Rare Earth Review - Libertas Partners LLP

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Libertas Partners LLP provides a summary of the market for rare earth elements including mentions of several exploration andn development companies.

Libertas Partners LLP provides a summary of the market for rare earth elements including mentions of several exploration andn development companies.

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Rare Earth Review - Libertas Partners LLP Rare Earth Review - Libertas Partners LLP Document Transcript

  • 4th August 2010 Libertas Rare Earths Review Companies mentioned Is the hype justified? Molycorp (MCP-NYSE) Lynas Corporation (LYC-ASX) A fundamental growth story exists for a number of products made using Alkane Resources (ALK-ASX) rare earths. The increasing use of rare earth magnets is potentially very Arafura Resources (ARU-ASX) significant. Avalon Rare Metals (AVL-TSX) There are strategic reasons for investment. China has cornered the market Cache Exploration (CAY-TSX-V) and OECD Governments may encourage the development of non-Chinese deposits. Dacha Capital (DAC-TSX-V) Etruscan Resources (EET-TSX) However the industry is capital intensive, and the mineralogy and metallurgy of deposits is complex, now may be a good time to raise capital Globe Metals & Mining (GBE-ASX) owing to high levels of investor interest. Great Western Minerals (GWG- TSX-V) Uranium and thorium are added complications for a number of deposits. Greenland Minerals and Energy Greenland currently bans uranium mining, while monazite is a pariah for the (GGG-ASX) heavy minerals industry due to its thorium content. Hudson Resources (HUD-TSX-V) Ultimate returns may however disappoint as the industry is equity capital Kirrin Resources (KYM-TSX) intensive, and sales volumes and prices for the individual products may turn out lower than forecast. Matamec Exploration (MAT-TSX-V) Metallica Minerals (MLM-ASX) Rare metals include Rare Earth Elements (REEs) and a select group of Neo Material Technologies (NEM- similar specialty metals used in technology applications. The increasing use TSX) of rare earth magnets to miniaturise electric motors could transform the Peak Resources (PEK-ASX) wind power industry, as well as continue to find increasing applications in Pele Mountain Resources (GEM- the automobile industry. The outlook for Nickel Metal Hydride (NiMH) TSX-V) batteries, which are significant consumers of rare earths, is however more Quantum Rare Earth uncertain, while there are a number of other uses which might not Developments (QRE-TSX-V) necessarily be growth markets, but are of strategic and military interest. Quest Rare Minerals (QRM-TSX-V) The US Government is embarrassed that the Abrams tank has a navigation Rare Earth Metals (RA-TSX-V) system that is heavily dependent on Chinese samarium metal production. Rare Element Resources (RES- TSX-V) Lynas (LYC-ASX) and Molycorp (MCP-NYSE) are the two sector leaders and Stans Energy (RUU-TSX-V) may offer practical means of gaining exposure. Lynas is funded through to Tasman Metals (TSM-TSX-V) first production, but may struggle in the short term owing to a lack of Ucore Rare Metals (UCU-TSX-V) newsflow. The Molycorp IPO disappointed and the company faces a number of issues before and if 2012 production can be achieved. Neo Material Technologies (NEM-TSX) appears to be an interesting producer of end products, particularly rare earth magnets and alloys. It trades at a modest 9.2 times consensus 2010 earnings. The Canadian market appears to undervalue Great Western Minerals Research (GWG-TSX-V) integrated operations. The ability to climb the value added Roger Bade chain outside of China may become significant; they own 50% of the ten +44 (0)20 7569 9675 rdb@libertaspartnersllp.com most advanced rare earth mining, development, and exploration projects in the world. Please refer to important disclosures at the end of this report. For a US$1bn current world market for Rare Earth Elements, that is forecast to grow to $1.9bn by 2014, one can argue that the $3.6bn current market capitalisation of the listed stocks which offer exposure is excessive.
  • Sector Research – Rare Earths Review Contents Rare Earths 4 Introduction 4 Rare Metals, Rare Earth Elements (REEs), Rare Earth Oxides (REOs) 4 Supply, Demand and Price Development 6 Rare Earth Element Uses 6 Nickel Metal Hydride (NiMH) Batteries 6 Magnets 7 Wind Turbines 9 Phosphors 9 Polishing Powders 9 Fluid Catalytic Cracking (FCC) 10 Autocatalysts 10 Supply/Demand Balance 11 Rare Earth Elements in Greater Detail 11 Global Rare Earth Production 17 China’s Impact 19 Rare Earth Oxides Uses and Prices 20 China: Export Quota History 21 US Government Accountability Office (GAO) 23 Global Rare Earth Resource Base 25 Rare Earth Applications by Weight and Value 27 Global Rare Earth Consumption 2008 28 2014 Forecasts by Weight and Value 29 Mineralogy 32 Carbonatites 32 Bastnäsite [(REE) CO3 (F,OH)] 32 Monazite [(REE, Nd) PO4] 33 Nepheline Syenite 33 Apatite 33 Ancylite (Sr (REE) (CO3)2(OH) (H2O) 33 Baddeleyite (ZrO2) 34 Loparite (Ce,Na,Ca(Ti,Nb)O3) 34 Xenotime 34 Metallurgy 34 Demonstration plant 34 Process Flowsheet – Explained 35 Ion-Exchange Extraction 35 Solvent Extraction 36 Prices 36 Project Finance 38 Rare Earth Producers 39 Bayan Obo Rare Earth Mine China 39 Longnan Rare Earth Mine China 40 Potential Rare Earth Mines 41 2
  • 4th August 2010 Sector Research – Rare Earths Review Potential New Suppliers 43 The Ten Steps To Rare Earths Commercial Production 44 Listed Rare Earth Equities 45 Molycorp (MCP-NYSE) 46 Lynas Corporation (LYC-ASX) 49 Alkane Resources (ALK-ASX) 51 Arafura Resources (ARU-ASX) 53 Avalon Rare Metals (AVL-TSX) 55 Cache Exploration (CAY-TSX-V) 57 Dacha Capital (DAC-TSX-V) 57 Etruscan Resources (EET-TSX) 57 Globe Metals & Mining (GBE-ASX) 58 Great Western Minerals (GWG-TSX-V) 58 Greenland Minerals and Energy (GGG-ASX) 61 Hudson Resources (HUD-TSX-V) 64 Kirrin Resources (KYM-TSX) 65 Matamec Explorations (MAT-TSX-V) 65 Metallica Minerals (MLM-ASX) 66 Neo Material Technologies (NEM-TSX) 67 Peak Resources (PEK-ASX) 69 Pele Mountain Resources (GEM-TSX-V) 70 Quantum Rare Earth Developments (QRE-TSX-V) 71 Quest Rare Minerals (QRM-TSX-V) 71 Rare Earth Metals (RA-TSX-V) 72 Rare Element Resources (RES-TSX-V) 72 Stans Energy (RUU-TSX-V) 72 Stans Energy’s properties in Kyrgyzstan 73 Tasman Metals (TSM-TSX-V) 74 Ucore Rare Metals (UCU-TSX-V) 75 Unlisted Companies 77 Dong Pao 77 Frontier Minerals Limited 77 Montero Mining 77 Spectrum Mining 78 3
  • Sector Research – Rare Earths Review 4th August 2010 Rare Earths Introduction In this review we briefly introduce the Rare Earth Elements and we look at those rare earth markets that are important in driving demand. These include the nickel metal hydride battery, the magnet and the wind turbine motor markets. We introduce the individual elements, their properties and uses. We discuss China’s impact as a dominant producer and the recent US Government Accountability Office review that attempts to address this control. Before we introduce the Chinese producers, the listed non-Chinese hopeful producers, explorers and manufacturers, and the unlisted companies that may look to list on a public market, we look at the mineralogy of rare earth elements, the metallurgy of their extraction, we discover current prices and discuss the project finance opportunities and difficulties that exist. We shall discover that the mineralogy and metallurgical extraction of rare earth elements is complicated, while many projects may have environmental issues with the presence of uranium and more significantly thorium. It is clear that rare earth element grades need to be high in order to cover the considerable capital and operating costs of the extraction process. In addition producing concentrates for someone else to make the final extraction of rare earth elements is likely to be a fairly unrewarding exercise, as although demand is potentially high, there are only one or two players, all currently located in China. A lucrative market may develop for Lynas, Molycorp and possibly Great Western Minerals to buy concentrates from non-Chinese producers for onward processing, once their hydrometallurgical plants are up and running. As there are neither terminal markets, nor futures markets for Rare Earth Elements, and those markets which do exist are very shallow, project debt finance may be very difficult to secure. High capital cost projects funded solely by equity may not offer outstanding returns. Rare Metals, Rare Earth Elements (REEs), Rare Earth Oxides (REOs) Rare Metals include the unique elemental suite know as the Rare Earth Elements and a select group of speciality metals produced primarily for technology applications. Rare Earth Elements are most simply defined as those chemical elements ranging in atomic numbers between 57 and 71. These elements include lanthanum, from which rare earth metals get their collective name of lanthanides, through to lutetium. For reasons of chemical similarity, an additional metal, yttrium, is commonly found in rare earth deposits. Other collateral metals often found amongst REE deposits include uranium, thorium, beryllium, niobium, tantalum and zirconium. 4
  • 4th August 2010 Sector Research – Rare Earths Review The Rare Earth Elements possess varying ionic radii, which produce different properties, and have therefore been broadly classified into two groups: Heavy Rare Earth Elements (HREE) and Light Rare Earth Elements (LREE). Light REEs, or the ceric sub-group, makeup the first seven elements of the lanthanide series. They are; Lanthanum (La, atomic number 57), Cerium (Ce, 58), Praseodymium (Pr, 59), Neodymium (Nd, 60), Promethium (Pm, 61) and Samarium (Sm, 62). Heavy REE's, which typically have high monetary value relative to other REE's, are the following higher atomic numbered elements from the lanthanide series; Europium (Eu, atomic number 63), Gadolinium (Gd, 64), Terbium (Tb, 65), Dysprosium (Dy, 66), Holmium (Ho, 67), Erbium (Er, 68), Thulium (Tm, 69), Ytterbium (Yb, 70) and Lutetium (Lu, 71). Historically the term 'rare earths' has been applied to the lanthanide group of elements, which range from lanthanum (atomic number 57), to lutetium (atomic number 71), plus yttrium (atomic number 39), which has similar properties. The National Instrument (NI) 43-101 and Joint Ore Reserves Committee (JORC) definition of Light Rare Earth Elements (LREE) and Heavy Rare Earth Elements (HREE) is based on the electron configuration of the rare earths and is as follows: ” The LREE are defined as lanthanum (Z=57) through gadolinium (Z=64). This is based on the fact that starting with lanthanum, which has no 4f electrons, clockwise spinning electron are added for each lanthanide until gadolinium. Gadolinium has seven clockwise spinning 4f electrons, which creates a very stable, half-filled electron shell. The LREE also have in common increasing unpaired electrons, from 0 to 7. The HREE are defined as terbium (Z=65) through lutetium (Z=71) and also yttrium (Z=39). This is based on the fact that starting with terbium, counter-clockwise spinning electrons are added for each lanthanide until lutetium. All of the HREE therefore differ from the first eight lanthanides in that they have paired electrons. All of the lanthanides have from 0 to 7 unpaired electrons. The defining split at the LREE gadolinium, which has both a stable half-filled 4f shell and 7 unpaired electrons, the following HREE, beginning with terbium, have decreasing unpaired electrons. Terbium has 6 unpaired electrons with the addition of one counter-clockwise electron which creates one electron pair. The number of unpaired electrons then decreases through lutetium, which has no unpaired electrons and a full stable 4f shell with 14 electrons and 7 "paired up" electrons. Yttrium is included in the HREE group based on its similar ionic radius and similar chemical properties. In its trivalent state, which is similar to the other REE, yttrium has an ionic radium of 90 picometers, while holmium has a trivalent ionic radius of 90.1 picometers. Scandium is also trivalent, however, its other properties are not similar enough to classify it as either a LREE or HREE. “To avoid confusion this definition should be used in all descriptions of the REE and should be applied as the standard for 43-101 and JORC compliant deposit evaluations." 5
  • Sector Research – Rare Earths Review 4th August 2010 Supply, Demand and Price Development Source: Lynas Corporation. Rare Earth Element Uses Nickel Metal Hydride (NiMH) Batteries The Rare Earth Elements required for NiMH batteries are lanthanum and, to a lesser extent, cerium, selected owing to their hydrogen storage properties. To limit purification costs to economic levels, residual traces of less common Rare Earths are often tolerated. In fact many NiMH applications use battery-grade mischmetal, (containing typically 27% lanthanum, 52% cerium, 16% neodymium, and 5% praseodymium), rather than the pure lanthanum and cerium metals. Research indicates that removing the neodymium content does not influence the storage capacity; hence it is removed wherever possible. A Hybrid Electric Vehicle (HEV) combines a conventional internal combustion engine (ICE) propulsion system with an electric propulsion system. The presence of the electric power train is intended to achieve either better fuel economy than a conventional vehicle, or better performance. A Plug-in Hybrid Electric Vehicle (PHEV), also known as a plug-in hybrid, is a hybrid electric vehicle with rechargeable batteries that can be restored to full charge by connecting a plug to an external electrical power source. A PHEV shares the characteristics of both a conventional hybrid electric vehicle, having an electric motor and an internal combustion engine; and of an all-electric vehicle, also having a plug to connect to the electrical grid. PHEVs have a much larger all-electric ranges as compared to conventional gasoline-electric hybrids, 6
  • 4th August 2010 Sector Research – Rare Earths Review Hybrid electric vehicles represent more than half the usage of NIMH batteries (57%). There is currently a great deal of debate surrounding the relative merits of NiMH batteries compared to lithium-ion (Li-ion) batteries: Toyota’s Prius uses NiMH batteries but other manufacturers, such as Renault, plan to use Li-ion batteries for their forthcoming electric cars. According to Oakdene Hollins, Toyota remains committed to the NiMH battery for its conventional hybrids, citing NiMH’s ease of management, low cost and durability to last the lifetime of the vehicle, although Li-ion will be the battery used for its PHEV Prius due for commercial sale in 2011. Toyota expects almost universal adoption of Li-ion for all EVs and PHEVs. The consultants Roskill’s view is that NiMH batteries will remain the No.1 choice for HEV applications until 2012-13 by which time Li-ion battery technology may have matured. This view is also shared by Deutsche Bank who forecast the market share of Li-ion batteries rising to 70% of the hybrid market between 2015 and 2020, although Deutsche Bank still expects NiMH to account for 70% of the market in 2015. Toyota Motor’s (7303 JP) decision to invest US$50m in private US electric motor developer Tesla Motors might hasten the demise of NiMH batteries. The Tesla Roadster, the company's first vehicle, is the first production automobile to use lithium-ion cells and the first production electric vehicle with a range greater than 200 miles (320 km) per charge. The outlook for NiMH battery demand is important for many rare earth projects. Returns may be negatively affected, particularly for those projects that could produce significant quantities of lanthanum and cerium, if the mischmetal market falls out of bed. This may be of significance in relation to the forthcoming IPO of Molycorp Minerals who own the Mountain Pass rare earth project in California, USA. Magnets The use of rare earths as magnets in electrical motors is likely to become the major driver for growth for the whole rare earths industry. Electric motors use electrical energy to produce mechanical energy, typically through the interaction of magnetic fields and current-carrying conductors. The reverse process, producing electrical energy from mechanical energy, is accomplished by a generator or dynamo. At the heart of all electric motors is a magnet. In alternating current motors, the alternating current produces the magnetic field, whilst in direct current a permanent magnet is used. Permanent magnets can also be used in alternating current motors Rare-earth magnets are strong permanent magnets made from alloys of rare earth elements. Developed in the 1970s and 80s, rare-earth magnets are the strongest type of permanent magnets made, substantially stronger than ferrite or alnico magnets. The magnetic field typically produced by rare-earth magnets can be in excess of 1.4 tesla, whereas ferrite or ceramic magnets typically exhibit fields of 0.5 to 1.0 tesla. The tesla (T) is the SI derived unit of the magnetic field B, which is also known as the magnetic flux density or magnetic induction. One 7
  • Sector Research – Rare Earths Review 4th August 2010 tesla is equal to one Weber per square metre, while a particle passing through a magnetic field of 1 tesla at 12 metres per second carrying a charge of 1 coulomb experiences a force of 1 Newton. One tesla is also equivalent to 10,000 gauss. There are two types of rare earth magnets, neodymium and samarium-cobalt magnets. Rare earth magnets are extremely brittle and vulnerable to corrosion, so they are usually plated or coated to protect them from breaking and chipping. Samarium-cobalt magnets (chemical formula: SmCo5), the first family of rare earth magnets invented, are used less than neodymium magnets because of their higher cost and weaker magnetic field strength. However, samarium-cobalt has a higher so-called Curie temperature, creating a niche for these magnets in applications where high field strength is needed at high operating temperatures. They are highly resistant to oxidation, but sintered samarium-cobalt magnets are brittle and prone to chipping and cracking and may fracture when subjected to thermal shock. The size of the samarium cobalt magnet industry worldwide is approximately 1,000 tonnes of alloy. Neodymium magnets, invented in the 1980s, are the strongest and most affordable type of rare earth magnet. Neodymium alloy (Nd2Fe14B), also called NIB, NdFeB or Neo is made of neodymium, iron and boron. Neodymium magnets are typically used in most computer hard drives and a variety of audio speakers. They have the highest magnetic field strength, but are inferior to samarium-cobalt in resistance to oxidation and Curie temperature. Use of protective surface treatments such as gold, nickel, zinc and tin plating and epoxy resin coating can provide corrosion protection where required. Originally, the high cost of these magnets limited their use to applications requiring compactness together with high field strength. Both raw materials and patent licences were expensive. Beginning in the 1990s, NIB magnets have become steadily less expensive, and the low cost has inspired new uses such as children’s magnetic building toys. Their greater strength allows smaller and lighter magnets to be used for a given application. This is particularly useful in the automotive and wind power industries. Electric motors made with NIB magnets are half the weight of traditional ferrite motors, having found many applications in electric seats, windows and mirrors, in the starter motor and alternator, whilst replacing hydraulic systems for steering, significantly reduces weight and power consumption. In hybrid motors, neodymium, praseodymium, dysprosium and terbium form an important component of the electric motor and generator. A typical hybrid car has 2.0 kg of rare earths in the electric motor and generator, in addition to a further 12.0 kg in the NiMH battery. High power NIB magnets are used in computer disk drives, and in mobile phones, and IPods™, etc. 8
  • 4th August 2010 Sector Research – Rare Earths Review Wind Turbines According to Lynas, wind turbine generator technology is moving to permanent magnets for larger turbines, particularly those sited offshore. Demand of 400 units represented 2% of the market in 2008, but this is forecast by Lynas to grow to 4,300 units per annum in 2020, which will represent 16% of the market. As each 3.0 MW permanent magnet turbine uses 1.0 tonne of neodymium this could represent a significant demand growth story. It has been suggested that the Chinese have a target of producing 120 Giga Watts (GW) of power from wind turbines by 2020. This could require a doubling of their requirement for magnetic rare earth materials. Source: Avalon Rare Metals. The above photograph details one of the advantages of Neo (rare earth) magnets, namely both size and weight savings. Imagine this in the head of a wind turbine (the “nacelle”) which contains about 3 tonnes of rare earth magnets, compared to the 6 tonne iron predecessor. The new General Electric (GE-NYSE) wind turbine uses a 90 tonne generator with a 20 foot ring of permanent neodymium magnets to eliminate the need for a gearbox, reducing breakage and energy loss. At the same time the nacelle is lighter, allowing a higher tower and less substantial foundations. Phosphors A traditional use of rare earths is to provide colour phosphors in television screens. As new cathode ray tube, plasma screen and liquid crystal displays (LCDs) have developed, their use in phosphors has been maintained. The ability of europium, terbium and yttrium to emit red, green and white light respectively is used in modern compact fluorescent bulbs, while the alternative Light Emitting Diode (LED) technology also uses rare earth phosphors. Polishing Powders A further traditional use is as a polishing powder used in the manufacture of television and computer screens, in addition to the production of precision optical and electronic components. 9
  • Sector Research – Rare Earths Review 4th August 2010 Fluid Catalytic Cracking (FCC) Rare earths particularly lanthanum, is used in oil refining Fluid Catalytic Cracking catalysts. Autocatalysts Rare earths, mainly cerium are used in gasoline autocatalysts; they improve performance, increase thermal stability, extend durability and reduce precious metals consumption. Nitrogen oxide traps under development also use rare earths, while rare earth compounds added to diesel fuel allows diesel soot to be trapped in a filter. Rare earths allow this soot to be burnt at lower temperatures, thereby regenerating the filter. Source: Lynas Corporation. 10
  • 4th August 2010 Sector Research – Rare Earths Review Supply/Demand Balance Source: Lynas Corporation. Rare Earth Elements in Greater Detail The rare earth elements do not fit well into the periodic table. Therefore they are usually separated from the main groupings. Source: Lynas Corporation. The term rare earth is disingenuous as they are neither rare nor earths. The rare earths are apparently more plentiful than silver and some elements (lanthanum, cerium, neodymium and yttrium) are more common than lead. Together rare earth elements represent approximately a sixth of all known elements in the 11
  • Sector Research – Rare Earths Review 4th August 2010 earth's crust (promethium is the exception as it does not occur naturally). As these elements are of uncommon mineable concentrations and the individual elements are difficult to separate, their selling prices are relatively high. Monazite and bastnäsite are the two principal commercial sources of Rare Earth Elements. Most Rare Earth Oxides have sharp absorption bands within the visible, ultraviolet and near infrared. This property, associated with the electronic structure gives beautiful pastel colours to many of the rare earth minerals. Lanthanum (Symbol La, Atomic number 57) is one of the most reactive of the rare-earth metals being the prototype for the lanthanide series. It is silvery white, malleable, ductile and so soft it can be cut with a knife. Lanthanum oxidises rapidly when exposed to the atmosphere. Cold water attacks lanthanum slowly, and hot water is much more vigorous in its attack. The metal reacts directly with elemental carbon, nitrogen, boron, selenium, silicon, phosphorus, sulphur and with halogens. Lanthanum is found in rare earth minerals such as cerite, monazite, allanite and bastnäsite. Monazite and bastnäsite are the principal ores in which lanthanum occurs in percentages of up to 25% and 38% respectively. Some uses of rare earth compounds containing lanthanum are as follows; lighting applications especially in motion picture studio lighting and projection. (Approx. 25% of the rare earth compounds are consumed in this application); Energy Conservation, hydrogen sponge alloys containing lanthanum take up to 400 times their own volume of hydrogen gas. (This process is reversible). When the alloys takes up gas, heat energy is released; Lanthanum oxide (La203) improves the alkali resistance of glass; Lanthanum is also used in making special optical glasses and in fluid cracking catalysts; while in addition it is also a component of mischmetal used for making lighter flints. Cerium (Ce,58) is the most abundant of the rare earth metals. It is found in the following minerals: allanite (also known as orthite), monazite, bastnäsite, cerite and samarskite. Monazite and bastnäsite are the more important known sources of cerium. Cerium is the second most reactive metal in the lanthanide series, Europium being the most reactive. Cerium decomposes slowly in cold water and rapidly in hot water. Alkali solutions and both dilute and concentrated acids attack the metal rapidly. In pure form the metal is likely to ignite if struck. Once struck, tiny pieces of cerium are knocked off and once airborne they burst into flame reacting quickly with oxygen. Some uses of cerium are as follows; it is a key part of the three-way automotive catalytic converter which reduces nitrogen oxides, carbon monoxide and oxidises un-burned hydrocarbons; the oxide is an important constituent of incandescent gas mantels; cerium compounds are used to stain glass yellow; it is used in organic synthesis, permanent magnets and carbon-arc lighting especially for the motion picture industry (in combination with other REEs); ceric sulphate is used extensively as a volumetric oxidising agent in quantitative analysis; other compounds are used as a catalyst in petroleum refining; it has a number of metallurgical and nuclear applications; it is also used for phosphors and polishing powders. 12
  • 4th August 2010 Sector Research – Rare Earths Review Praseodymium (Pr, 59) is soft, silvery, malleable and ductile. It develops a green oxide coating that falls off when exposed to air, and like other REM, it should be kept under a light mineral oil or sealed in plastic. It can be prepared by several different methods, such as by calcium reduction of the anhydrous chloride of fluoride. Praseodymium uses are as follows: it assists in the effort to get to within one, one thousandths of a degree of absolute zero which is -273 degrees C (it forms a component of the cooling coils which are used to get the temperature down); it is used in welders' goggles where it helps filter out harmful types of light harmful to the human eye); and it is also used in mischmetal (used in making lighters). Neodymium (Nd, 60) metal has a bright silvery metallic lustre. It is one of the more reactive rare earth metals and quickly tarnishes in air forming an oxide that spalls off and exposes the metal to further oxidation. To prevent this from occurring, neodymium should be kept under light mineral oil or sealed in a plastic material. Some of neodymium's uses are as follows: in hybrid/electric vehicles neodymium is used to manufacture magnets which have high magnetic strength, but lower weight. These can be used in electric motors to produce higher power and torque with much lower weight. Neodymium magnets are used in the miniaturisation of hard disk drives used in many electronic devices; and in lasers to provide blue light. Promethium (Pm, 61) is highly radioactive, it is not found in nature, and is produced from the decay of other radioactive elements. It is a soft beta emitter (although no gamma rays are emitted), while x-rays can be generated when beta particles are impinged on elements of high atomic number. Promethium salts luminesce in the dark with a pale blue or greenish glow due to their radioactivity. Uses for promethium are as follows; a beta ray emitting source for thickness gauges; it is absorbed by a phosphor to produce light for signs or signals that require dependable operation; it can be used to convert light into an electric current; a portable x-ray source; a heat source to provide auxiliary power for space probes and satellites; in the manufacture of miniature nuclear batteries and in measuring devices. Samarium (Sm, 62) is found along with other members of the rare earth elements in many minerals including the common sources, monazite and bastnäsite. It occurs in monazite to the extent of 2.8%. While mischmetal containing 1% of samarium metal has long been used, samarium has not been isolated in relatively pure form until recently. Ion-exchange and solvent extraction techniques have recently simplified separation of the rare earths from one another. More recently, electrochemical deposition, which uses an electrolytic solution of lithium citrate and a mercury electrode, is said to be a simple and highly specific way to separate the rare earths. Samarium metal can be produced by reducing the oxide with lanthanum. Samarium has a bright silver lustre and is reasonably stable in air. Three crystal modifications of the metal exist with transformations at 734 and 922 degrees Celsius. The metal ignites in air at approximately 150 degrees Celsius. The sulphide has excellent high temperature stability and good thermoelectric 13
  • Sector Research – Rare Earths Review 4th August 2010 efficiencies, while samarium changes oxidation stages very easily. Some uses for samarium are as follows; it is a neutron absorber with many uses in nuclear power stations; it is used in carbon arc lighting in the motion picture industry (along with other rare earths); as a permanent magnet material it has the highest resistance to demagnetisation of any known material (SmCo5 is used); as an optical glass, it absorbs the infrared; in optical lasers, it is used to dope calcium fluoride crystals; it is used for the dehydration and dehydrogenation of ethyl alcohol. Compounds of the metal act as sensitisers for phosphors excited in the infrared; while the oxide exhibits catalytic properties. Europium (Eu, 63) metal was not isolated until recent years and is now prepared by mixing europium oxide with a 10% excess of lanthanum metal and heating the mixture in a tantalum crucible under high vacuum. The element is collected as a silvery white metallic deposit on the walls of the crucible. As with other rare earth metals (with the exception of lanthanum), europium ignites in air at about 150 to 180 degrees Celsius. Europium is about as hard as lead and is quite ductile and is the most reactive of the rare earth metals; it quickly oxidises in air. It resembles calcium in its reaction to water. Bastnäsite and monazite are the principal ores containing europium. Europium has been identified by spectroscopy in the sun and certain stars. Some known uses for europium are as follows; europium oxide is now widely used as a phosphor activator as europium activated yttrium vanadate in television screens; europium doped plastic is used in lasers; it is used in the ceramics industry and it has nuclear applications. With the development of ion-exchange and solvent extraction techniques, the availability and the prices of Gadolinium (Gd, 64) and the other rare earth metals have greatly improved. Gadolinium can be prepared by the reduction of the anhydrous fluoride with metallic calcium. Gadolinium is silvery white, has a metallic lustre and is malleable and ductile (like other related rare earth metals). At room temperature, gadolinium crystallises in the hexagonal phase, close packed alpha form. Upon heating to 1,235 degrees Celsius, alpha gadolinium transforms into the beta form (which has a body centred cubic structure). The metal is relatively stable in dry air, but tarnishes in moist air. It forms a loosely adhering oxide film which falls off and exposes more surfaces to oxidation. The metal reacts slowly with water and is soluble in dilute acid. Gadolinium has the highest thermal neutron capture cross-section of any known element (49,000 barns). Some known uses for gadolinium using this and other properties are as follows: in Magnetic Resolution Imaging (MRI) gadolinium changes the way water molecules react in the human body when scanned allowing the contrast between healthy and non healthy tissue to be seen; gadolinium yttrium garnets are used in microwave applications; gadolinium compounds are used as phosphors in colour televisions; gadolinium’s unusual superconductive properties improve the workability and resistance of iron and chromium and related alloys to high temperatures and oxidation (as little as 1% gadolinium is needed); gadolinium metal is ferromagnetic, it is unique in that it has a high magnetic movement and for its special Curie temperature (above which ferromagnetism vanishes), lying at room temperature. Therefore it can be used as a magnetic component that can sense hot and cold. 14
  • 4th August 2010 Sector Research – Rare Earths Review Terbium (Tb, 65) has only been isolated only in recent years with the development of ion exchange techniques for separating the rare earth elements. As with other rare earth metals, terbium can be produced by reducing the anhydrous chloride or fluoride, with calcium metal in a tantalum crucible. Calcium and tantalum impurities can be removed by vacuum re-melting. Other methods of isolation are also possible. Terbium is reasonably stable in air, and is a silver grey metal which is malleable, ductile and soft enough to be cut with a knife. Two crystal modifications exist with a transformation temperature of 1,289 degrees Celsius. The oxide is a chocolate or dark maroon colour. Some known uses of terbium are as follows; solid state devices use sodium terbium borate; the oxide has potential application as an activator for green phosphors used in colour television tubes; and in combination with zirconium dioxide it is used as a crystal stabiliser of fuel cells which operate at elevated temperatures. Dysprosium (Dy, 66) occurs along with other rare earths in a variety of minerals such as: xenotime, fergusonite, gadolinite, euxenite, polycrase and blomstrandine. Monazite and bastnäsite are the most important sources. Dysprosium can be prepared by reduction of the trifluoride with calcium. The metal has a metallic bright silver lustre. Dysprosium is relatively stable in air temperature but is readily attacked and dissolved by dilute and concentrated acids to produce hydrogen. The metal is soft enough to be cut with a knife and can be machined without sparking if overheating is avoided. Small amounts of impurities can greatly affect its physical properties. Dysprosium is very reactive and therefore is stored in oil. Its thermal neutron absorption cross section and high melting point suggest metallurgical uses in nuclear control applications for alloying with special stainless steels. Some known uses for dysprosium are as follows; dysprosium along with neodymium is used in the production of the world's strongest permanent magnets. The magnets have high magnetic strength, coupled with low weight. Such magnets are used in the electronic motors used in Hybrid Electric Vehicles (HEV) to produce higher power and torque with much lower size and weight; miniaturisation of hard disk drives and many electronic devises also use these magnets; owing to its ability to capture neutrons it is used in nuclear fuel rods where it modulates the temperature progression of a nuclear reaction is getting; dysprosium oxide-nickel cement can be used in cooling nuclear reactor rods. The cement absorbs neutrons readily without swelling or contracting under prolonged neutron bombardment; in combination with other rare earths and vanadium, dysprosium has been used for laser materials. Holmium (Ho, 67) occurs in gadolinite, monazite and in other rare earth minerals. It has been isolated by the reduction of its anhydrous chloride or fluoride with calcium metal. Pure holmium has a metallic to bright silver lustre. It is relatively soft and malleable, it is able to stay dry in room temperature, but it rapidly oxidises in moist air and at elevated temperatures. Holmium metal has unusual magnetic properties, and has the highest magnetic moment of any known element in the periodic table. It has the greatest number of impaired electrons and these are what give rise to magnetism. Therefore, holmium has many uses in magnetic materials. Very few other uses have been found for the element. It also finds uses in ceramics and lasers. 15
  • Sector Research – Rare Earths Review 4th August 2010 Erbium (Er, 68) metal is soft and malleable and has a bright, silvery, metallic lustre. As with other rare earth metals, it's properties depend, to a certain extent, on the impurities present. The metal is fairly stable in air and does not oxidise as rapidly as some of the other metals. Erbium finds uses as a photographic filter, it is apparently very good at blocking certain nuclear fissile products; erbium tri-chloride is used in jewellery and sunglasses; erbium salts are used in welding goggles in conjunction with other rare earths. Thulium (Tm, 69) is the least abundant of the rare earth elements, and is very difficult to separate from the other elements because of its similar size. It can be isolated by reduction of the oxide with lanthanum metal or by calcium reduction in a closed container. The element is silver grey, soft, malleable and ductile. It can be cut with a knife. Due to the difficulty of separation it is very expensive and rarely used. Chemists are however beginning to find uses for it and these should increase in time. The few known uses for thulium are as follows; the isotope 169 Tm bombarded in a nuclear reactor can be used as a radiation source in portable X-ray equipment; while the isotope 171 Tm is potentially useful as an energy source; natural thulium also has possible use in ferries (ceramic magnetic materials) used in microwave equipment and it can be used for doping fibre lasers. Ytterbium (Yb, 70) occurs along with other rare earths in a number of rare minerals. It is commercially recovered principally from monazite sand, which contains about 0.03%. Ion-exchange and solvent extraction techniques developed in recent years have greatly simplified the separation of the rare earths from one another. Ytterbium is a silvery and lustrous metal that is very soft and reacts very rapidly with oxygen. Even though the element is fairly stable, it should be kept in closed containers to protect it from air and moisture. Ytterbium is readily attacked and dissolved by dilute and concentrated mineral acids and reacts slowly with water. Ytterbium is the least abundant amongst the rare earths. Its chemistry is the least understood therefore it is not used often, but it does have some possible uses; ytterbium metal may be used in improving the grain refinement, strength and other mechanical properties of stainless steel; it also has a use in the measurement of pressure within nuclear explosions; it also has specialist metallurgical uses. Lutetium (Lu, 71) occurs in very small amounts in nearly all minerals containing yttrium and is present in monazite to the extent of about 0.003%, which is the commercial source. The pure metal has been isolated only in recent years and is one of the most difficult to prepare. It can be prepared by the reduction of the anhydrous LuCl3 or LuF3 by an alkaline earth metal. The metal is silvery white and relatively stable in air. The isotope 176 Lu occurs naturally (2.6%) with the isotope 175 Lu (97.4%), although it is radioactive. Some known uses for lutetium are as follows; stable lutetium nuclides, which emit pure beta radiation after thermal neutron activation, can be used as catalysts in crackling, alkylation, hydrogenation and polymerisation; it can also be used as a single crystal scintillator. As mentioned yttrium (Y, 39) is often considered to be a rare earth and is often present in rare earth deposits. It is actually a transition metal, but is chemically similar to the lanthanides. The most important use of yttrium is in making 16
  • 4th August 2010 Sector Research – Rare Earths Review phosphors such as the red ones used in television cathode ray tube displays and in Light Emitting Diodes (LEDs). Other uses include the production of electrodes, electrolytes, electronic filters, lasers, superconductors, various medical applications and as traces in various materials to enhance their properties. Yttrium has replaced thorium in the manufacture of gas mantles. Yttrium is an important component of xenotime type rare earth deposits, and can comprise 60% of the rare earth component. This compares to the up to 3% of rare earth’s that make up bastnäsite and monazite rare earth deposits. Scandium (Sc, 21) is another transition metal, which is in the same periodic group as yttrium. It is sometimes classed as a rare earth, and can occur in rare earth deposits. A main source is the Bayan Obo rare earth mine in China. Scandium’s chemical properties are closer to magnesium (Mg, 12) rather than Yttrium. The main use for scandium is as an alloy of aluminium in the aerospace industry, but it is also used to make high-intensity discharge lamps. Global Rare Earth Production Source: Kaiser Bottom Fish. 17
  • Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Source: Kaiser Bottom Fish. The annual REO production chart above shows how during the past 25 years Chinese REO production has gradually displaced production from the rest of the world, with the United States the biggest loser as a result of shutting down the Mountain Pass mine in 2002. 18
  • 4th August 2010 Sector Research – Rare Earths Review China’s Impact Nearly 100% of the global supply of Rare Earth Elements, high power Neodymium Iron Boron (NdFeB) magnets and all intermediate magnet materials are controlled by, produced in, or manufactured from materials sourced exclusively out of China. Consequently, all Rare Earth dependant technologies are completely reliant on Chinese sourced Rare Earth materials for their production. No technically viable alternatives to these Rare Earth materials are currently known for these applications. Without continued export of Chinese Rare Earth materials, there would be no means to manufacture these technologies outside of China. Both production of Rare Earth materials in China and export of those materials outside of China are strictly controlled by government imposed quotas. Molycorp’s (Figure 1 below) simplified representation of the flow of Rare Earth materials (from the mine to magnet production and beyond), is that as applied to Neodymium-Iron-Boron (NIB or NdFeB) magnets for Hybrid Electric Vehicles (HEVs). Source: Molycorp. 19
  • Sector Research – Rare Earths Review 4th August 2010 In addition to controlling production of greater than 97% all Rare Earth Elements on a world-wide basis (including those relied upon by all NdFeB magnet producers outside China), China is also the world’s leading consumer of Rare Earth materials on a global basis, currently consuming approximately 60% of production and rising rapidly. Some leading experts project that by 2012, China’s internal consumption of critical Rare Earth materials will rise to meet or exceed their production. At the same time, global requirements for Rare Earth materials outside of China are expected to grow dramatically, fuelled primarily by continued development and deployment of emerging Green Energy technologies such as Hybrid Vehicles, PHEVs, Energy Efficient Lighting and Wind Power. Thus global shortages of these materials may be seen as early as 2010, with shortages becoming severe by 2012. The implications of this trend are both obvious and disconcerting. Rare Earth Oxides Uses and Prices Source: Ucore Rare Metals. The Chinese government clearly recognises the strategic nature of its Rare Earth deposits and is actively taking steps to ensure the longevity and security of its Rare Earth resources for its own domestic consumption. This is illustrated by the fact that while Chinese production of Rare Earth materials is increasing annually, government issued export quotas are also decreasing annually, thus protecting the flow of materials for rising internal consumption while at the same time 20
  • 4th August 2010 Sector Research – Rare Earths Review reducing the amount of material exported to supply the needs of the rest of the world. Chinese export quotas have decreased each year for the last eight years. More recently, China has announced that export quotas for the first half of 2009 are being reduced by approximately 34% over the same period last year. In addition to reductions in export quotas, official Chinese exports are subject to 15-25% export taxes, while Value Added Tax (VAT) rebates on exports have been withdrawn. In terms of Chinese production, no new rare earth mining licences are being issued and environmental legislation is being enforced. This may curtail production at a number of the highly polluting southern clay operations in China. China: Export Quota History Source: IMCOA and www.terramagnetica.com The Ministry of Commerce of the People’s Republic of China has released 7,976 tonnes (t) of approved Rare Earths export quota for the second half of 2010. This includes export quota for both foreign-invested firms (1,768 tonnes) and local firms (6,208 tonnes). The total export quota for 2010 (30,259 tonnes) is 40% less than the total export quota for 2009 (50,145 tonnes). In addition, the export quota for the second half of 2010 (7,976 tonnes) is 72% less than the export quota for the second half of 2009 (28,417 tonnes). Below is a table setting out the Chinese Rare Earths export quota for foreign-invested firms and local firms for the last two years. 21
  • Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Used in electric car motors and wind turbines, neodymium and other Rare Earth Metals are at the epicentre of the race between wealthy and emerging nations to create green technologies, while poorer countries appear to be relegated to spectator status. Molycorp reports that José Luis Giordano, associate professor of engineering at the University of Talca in Chile, stated in an interview that there is a battle between the United States, China and Japan over neodymium, samarium and praseodymium with regards to ceramic superconductors, and for alternatives to these materials, still in the experimental stages. In the early 1990s, Chinese rare earth materials produced at low cost, like neodymium, became abundant on the mining market, and prices fell from US$12,000 per tonne (/t) in 1992 to $7,430/t in 1996. As a result of China’s influence, the market volume jumped from 40,000 t to 125,000 t annually in a few short years. In 2006 nearly the entire world production of these minerals— 130,000 t came from China. But in recent years, China has reduced its exports in order to feed its own industries. That trend pushed up international neodymium prices to $60 per kilogramme in 2007. Independent consultant Jack Lifton, who specialises in supplies of nonferrous strategic metals, said a US-China trade dispute over neodymium production could be looming just over the horizon. In a January 2010 presentation to US lawmakers, Mark Smith, director of Molycorp, acknowledged that limited manufacturing capacity had created a gap and that although the United States has the knowledge; it has lost the necessary infrastructure. The history of business development around neodymium shows how China has imposed its conditions. In 1982, the US-based General Motors (GM), Sumitomo Special Metals and the Chinese Academy of Sciences invented a magnet made from neodymium, boron and iron. In 1986 they put it on the market through a new division of GM known as Magnequench. The Chinese companies China National Nonferrous Metals, San Huan and Sextant MQI Equity Holdings bought Magnequench in September 1995. Neo Material Technologies (NEM-TSX) then arose from the 1997 merger of Canada’s AMR with Magnequench. The new company is based in Canada, with production centres in China and Thailand. Chinese shareholding in Neo Material Technologies has subsequently been sold 22
  • 4th August 2010 Sector Research – Rare Earths Review down. Commodity investor Pala Investments are now the largest shareholder with 19.7%. It should also be pointed out that state owned East China Mineral Exploration holds a 22.3 % stake in Australian rare earth explorer Arafura Resources (ARU- ASX). In addition, in May 2009, state owned China Non-Ferrous Metal Mining agreed to subscribe for 700 million new shares at A$0.36 per share of rare earth developer Lynas Corp (LYS-ASX), raising A$252m and offered Chinese bank finance to restart their project. Total capex of over A$500m was envisioned for this project at that time, US$286m to compete and commission the first phase to produce 10,500 tpa of REOs and US$80m for phase two which would bring production to 21,000 tpa of REOs. However in September 2010, this tie up was dropped as Australian Foreign Investment Review Board (FIRB) approval could not be achieved, with strategic considerations being cited. Lynas subsequently raised A$450m in a share placing with Australian based institutions. Lifton believes that China will not allow western nations to purchase neodymium for future delivery outside of their territories and not even for sales inside China if intended for export. This means the Asian nation could harden its strategy to acquire companies abroad and that the industrial powers and developing countries would have to seek other suppliers of green technologies. US Government Accountability Office (GAO) In April 2010, US lawmakers called for a hearing after a government report exposed potential “vulnerabilities” for the American military because of its extensive use of Chinese metals in smart bombs, night-vision goggles and radar. China controls 97% of production of materials known as rare earth oxides, giving it “market power” over the United States, the GAO said. According to Bloomberg, the Pentagon is studying how to increase domestic availability of Rare Earth Elements “through developing new sources, re- energizing previous domestic sources” and adding the material to the national stockpile program. The department’s report on the issue will be completed by September 2010 and will examine “how to better prepare for future vulnerabilities.” “China is a rapidly rising military and economic power and the fact is that they cornered the market on these rare earth metals that are essential for a lot of our advanced weapons systems as well as a lot of manufacturing in the United States,” Representative Mike Coffman, a Colorado Republican, who asked for the GAO report, said in an interview on Bloomberg Television. “We need to move aggressively on this issue now before it’s too late.” Shortages of some elements “already caused some kind of weapon system production delay,” the GAO said, citing a 2009 National Defence Stockpile report. Molycorp’s Mountain Pass mine in California was once the world’s dominant producer. It closed a separation plant in 1998 after regulatory scrutiny of its wastewater line and suspended mining in 2002, the GAO said. As mining lapsed, 23
  • Sector Research – Rare Earths Review 4th August 2010 so did companies that turned the ore into metals found throughout US weapons systems, the GAO said. Magnequench International Inc., (now owned by Neo Magnetic Technologies (NEM-TSX)) a maker of neodymium magnets, closed an Indiana plant in 2003 and moved equipment to China. By the end of 2005, magnet makers in Kentucky and Michigan also closed. “Government and industry officials told us that where rare earth materials are used in defence systems, the materials are responsible for the functionality of the component and would be difficult to replace without losing performance,” the GAO report said. It cited several specific weapons systems, including the M1A2 Abrams tank, which has a navigation system that uses samarium cobalt magnets with samarium metal from China; neodymium magnets from China in the Hybrid Electric Drive propulsion on the DDG-51 Navy destroyers built by Northrop Grumman Corp. and General Dynamics; and Lockheed Martin’s Aegis SPY-1 radar, also on DDG-51 destroyers, containing samarium cobalt magnets that will need to be replaced during its 35-year lifetime. Even if Molycorp does reopen Mountain Pass, the U.S. would still lack companies to process the metals, the GAO said. It may take two to five years to develop a pilot plant to refine oxides to metal, and foreign companies own patents over neodymium magnets that don’t expire until 2014, the report said. Rebuilding a U.S. rare earth supply chain may take up to 15 years, the GAO said, citing industry estimates. That is dependent on infrastructure investment, developing new technologies and acquiring patents, it said. Developing new U.S. sources of the metals may take “enormous investment and time,” Dan Slane, chairman of the Washington-based U.S.-China Economic and Security Review Commission, said “Time is of the essence because the situation is going to get worse” as China’s domestic consumption of the material rises, he said. Smith predicted that if the United States does not renew its capacities, in the best case it would become a source of raw materials for China’s production, and not a manufacturer itself of advanced clean technologies. So far there are no viable alternatives to the rare metals. Substitution of neodymium is possible in wind turbines. The rare metal reduces the weight of the magnet mechanism, which will be heavier using other metals. Heavier turbines need stronger foundations, which mean fortified concrete and higher resultant costs. Neodymium magnets have a magnetic force nine times stronger than conventional magnets. The most similar alternatives, but even more costly, are made from samarium and cobalt or from samarium, praseodymium, cobalt and iron. 24
  • 4th August 2010 Sector Research – Rare Earths Review Global Rare Earth Resource Base Source: Kaiser Bottom Fish. Source: Kaiser Bottom Fish. 25
  • Sector Research – Rare Earths Review 4th August 2010 Source: Kaiser Bottom Fish. The above charts have been constructed by Kaiser Bottom Fish by multiplying the Chinese production figures for individual rare earth oxides during 2007 by the average price of those oxides during 2007. The total amount is however less than the 120,000 tonnes Roskill estimated for 2007 production. If we define the heavy rare earth elements as yttrium and samarium through lutetium, the production content chart shows that the light rare earth oxides represent 93% of production by weight, with most of this supply coming from the Bayan Obo mine operated by Chinese state owned Baotou Iron and Steel, while only 7% is represented by the heavy rare earths which are produced mainly from the ion adsorption clay deposits in southern China. This often gives rise to the dismissive comment that future demand growth lies with the Light Rare Earth Elements (LREEs) and all this fuss about the Heavy Rare Earth Elements (HREEs) is much ado about nothing. The second chart, however, which distributes the production by value, reveals that the heavies represent a surprisingly high 40% of the estimated $1.0 billion production value in 2007. The next two charts break down the rare earth oxide production in 2008 by their applications both by weight and by value. This is apparently very complex information assembled by Dudley Kingsnorth's Industrial Minerals Company of Australia (IMCOA). What stands out is the high 31% of value represented by phosphors, which are only 7% of the weight. Phosphors are used to create colour in display and lighting systems and are made from heavy rare earths. 26
  • 4th August 2010 Sector Research – Rare Earths Review Rare Earth Applications by Weight and Value Source: Kaiser Bottom Fish, IMCOA. Source: Kaiser Bottom Fish, IMCOA. 27
  • Sector Research – Rare Earths Review 4th August 2010 Global Rare Earth Consumption 2008 Source: IMCOA, www.terramagnetica.com Source: Lynas Corporation. 28
  • 4th August 2010 Sector Research – Rare Earths Review 2014 Forecasts by Weight and Value Source: Kaiser Bottom Fish, IMCOA. Source: Kaiser Bottom Fish, IMCOA 29
  • Sector Research – Rare Earths Review 4th August 2010 Source: Lynas Corporation. Source: Lynas Corporation. 30
  • 4th August 2010 Sector Research – Rare Earths Review Source: Lynas Corporation. Kaiser Bottom Fish reports that IMCOA believes that REO demand will grow to 180,000 tonnes by 2014, and the above charts show which applications are expected to drive demand. The second chart applies the 2008 prices to the 2014 weight. When IMCOA published this forecast they apparently cautioned that it does not incorporate a "positive" outcome for the Copenhagen Climate Change forum that took place in December 2009. As we now know the talks accomplished little in terms of firm commitments with regard to carbon dioxide emission reduction goals. Kaiser Bottom Fish claims that this forecast is based on conservative assumptions about the extent that technologies driven by climate change concerns will be commercialised. In other words, if prices do not change, the annual market for rare earth oxides will grow to a value of US$2.0bn, if the world carries on without developing a major commitment to transforming its energy foundation. 31
  • Sector Research – Rare Earths Review 4th August 2010 Mineralogy The mineralogy of rare earths is complex; they occur in a number of exotic minerals often with esoteric names, so named either from type location or named after those who first discovered them. Carbonatites Carbonatites are rare alkaline intrusive or extrusive igneous rocks and are characterised with a composition of greater than 50% carbonate minerals. Some carbonatites are enriched in magnetite, apatite and rare earth elements. A specific type of hydrothermal alteration termed fenitisation is typically associated with carbonatite intrusions. This alteration assemblage produces a unique rock mineralogy termed a fenite after its type locality, the Fen complex in Norway. The Palabora complex in South Africa is the furthest advanced carbonatite mine and has been in operation since 1960. It is mainly mined by Palabora Mining (PAM-JSE-Rio Tinto (RIO) 57%, and Anglo American (AAL) 17%), and is a major copper, magnetite, phosphate rock (apatite) and vermiculite (a clay mineral used for insulation) producer. Palabora is not noted for its rare earth content, but has historical production of zirconia from baddeleyite. Lynas’ Mount Weld rare earth project in Western Australia is also a carbonatite, as are most of the projects being evaluated in Canada, Namibia and Malawi. By now we speculate that most carbonates worldwide would have been staked by Canadian juniors, just in case. Bastnäsite [(REE) CO3 (F,OH)] Bastnäsite is a mixed lanthanide fluoro-carbonate mineral that currently provides the bulk of the world's supply of the Light Rare Earth Elements (LREE). Although it is one of the more widespread rare earth containing minerals few deposits are of sufficient size to be of commercial significance. Currently, only two deposits in the world meet this criterion: Molycorp’s Mountain Pass deposit in California and the Baiyun Ebo deposit in Inner Mongolia, China. Bastnäsite is widely consumed as it is a major source of feed for downstream recovery of the individual Rare Earth Elements. It is also the key ingredient in a number of specialist polish products. High performing polish compounds made from bastnäsite can be used on optical glass, mirrors, telescopes, silicon microprocessors, hard disk drives and cameras. Bastnäsite can also be used in television faceplates and glass melts in light bulbs for ultraviolet shielding and de-colouring as well as for sulphur-getting in alloying agents. Another use of bastnäsite is in the production of a certain type of mischmetal (mixed metal) which results when the oxides in bastnäsite are converted to metal form. Mischmetal is used to make lighter flints and alloys for use in steel (cerium improves the physical properties of high-strength, low-alloy steels due to its affinity for oxygen and sulphur), batteries and magnets. 32
  • 4th August 2010 Sector Research – Rare Earths Review Monazite [(REE, Nd) PO4] Monazite is a reddish-brown phosphate mineral containing Rare Earth Elements and is an important source of thorium (Th), lanthanum (La) and cerium (Ce). Radioactive uranium and thorium often accompany monazite and monazite sand was for many years the main source of thorium used to manufacture gas mantles. Monazite was the only significant source of rare earth elements, until Mountain Pass bastnäsite began to be processed in 1965. Due to its high density, monazite is found concentrated in alluvial sands, and is associated with the other heavy mineral sands such as ilmenite and zircon. However monazite sands typically contain between 6-12% thorium oxide with variable amounts of uranium. Heavy mineral sands producers suffer severe restrictions if this radioactivity “contaminates” ilmenite or zircon. Hence for heavy mineral sands producers monazite has grown to become an unwelcome waste material, which in some cases has to be stored securely. Monazite sands are mainly composed of cerium, containing 45-48% cerium, about 24% lanthanum, about 17% neodymium and 5% praseodymium, with minor quantities of samarium, gadolinium and yttrium. Rock monazite from Steenkampskraal in South Africa was processed in the 1950s and early 1960s and became at that time the largest producer of rare earth elements. Great Western Minerals (GWG-TSX-V) is looking to reopen Steenkampskraal. Thorium and rare earth oxides can be separated from monazite by either heating with sulphuric acid or sodium hydroxide. In the acid process, the rare earths go into solution, while thorium is precipitated as a mud, while in the alkaline process the solid residue containing both rare earths and thorium has to be treated with hydrochloric acid. Here the rare earths report into solution with thorium dropping out as a solid residue. Nepheline Syenite Nepheline is a so-called feldspathoid, a silica undersaturated aluminosilicate. Syenite is a quartz poor (less than 5% silica) alkaline igneous rock. Nepheline syenite is a holocrystalline plutonic rock that is a syenite that contains nepheline, but more importantly also contains many other alkali minerals including rare earths. Apatite Apatite is a group of phosphate minerals. Hydroxyapatite (HA) is the major component of tooth enamel and bone. The major use of apatite is the manufacture of fertiliser. Occasionally it can contain significant rare earth elements such as that found at Hoidas Lake (Great Western Minerals (GWG- TSX-V)) in Canada. Levels of radioactivity in apatites tend to be very low, and this may be some advantage in rare earth mining. Ancylite (Sr (REE) (CO3)2(OH) (H2O) Ancylite is a rare hydrous strontium carbonate that contains cerium, lanthanum 33
  • Sector Research – Rare Earths Review 4th August 2010 and other rare earth elements. Baddeleyite (ZrO2) Baddeleyite is the main ore of zirconium oxide (Zirconia). It has a high specific gravity and can be associated with economic levels of rare earth oxides. Loparite (Ce,Na,Ca(Ti,Nb)O3) Loparite is a rare earth oxide that occurs in nepheline syenite. Xenotime Xenotime is a rare earth phosphate, mainly yttrium orthophosphate (YPO4). Dysprosium, erbium, terbium and ytterbium as well as thorium and uranium can be important secondary components, all replacing yttrium. Small tonnages of xenotime sand are recovered in Malaysia, and Neo Material Technologies (NEM-TSX) is hoping to produce rare earths from the tailings of Minsur’s (MINSURI1 PE) Pitinga tin mine in Brazil. Metallurgy As already noted the mineralogy of rare earth deposits can be complex, the metallurgy of extraction of the rare earth elements or their compounds from these various minerals can be even more complicated! Demonstration plant IMCOA claim that the demonstration plant is often the most important step to commercialisation. The aim is to demonstrate that the chosen metallurgical processes are technically and commercially viable through continuously operated plants that produce samples to future customer specification. A total rare earth oxide (TREO) grade by itself is meaningless, because the relative grade of the individual rare earths differs in each deposit, and even within different zones. The price of individual rare earth oxides is reported as US dollars per kilogramme ($/kg) and ranges from $3/kg to as high as $1,000/kg. To assess the monetary value of a TREO grade you need the individual rare earth oxide grades and their prices. All disclosures should include a table listing the individual grades as rare earth oxides. The contained value of rare earths in a tonne of rock is calculated by converting each rare earth oxide grade into kg per tonne, multiplying the kg/t by the price per kg, and adding up the contained value to get the total contained or gross rare earth value per tonne or “rock value” in industry jargon terms. The conceptual flowsheet for Greenland Minerals and Energy’s Kvanefjeld project is typical of the various extraction techniques required. 34
  • 4th August 2010 Sector Research – Rare Earths Review Process Flowsheet – Explained Source: Greenland Minerals and Energy. It is extremely important to understand that the “mineral” value of a rare earth deposit is simply a maximum value. The important number is the recoverable value, which can be substantially less than the in-situ value. The recoverable value will not be known until metallurgical studies have established the optimal recovery process. "Optimal" will be a balance between the percentage of each rare earth that will be recovered by a process, and the cost of that process. The economic value of a rare earth deposit will not be even roughly be known until it has completed the metallurgy stage of the exploration and development cycle. Ion-Exchange Extraction Ion–Exchange Extraction is an exchange of ions between two electrolytes or between an electrolyte solution and a complex. In most cases the term is used to denote the processes of purification, separation and decontamination of aqueous and other ion-containing solutions with solid so called ion-exchangers. Typical ion exchangers are ion-exchange resins, and are either cation exchangers that exchange positively charged ions (cations) or anion exchangers that exchange negatively charged ions (anions). Rare Earth Element separation by the so called ion-exchange lution process is achieved in two stages. Firstly the resin is saturated with singly charge cations 35
  • Sector Research – Rare Earths Review 4th August 2010 such as ammonium ion or the hydrogen ion. A solution of mixed rare earth ions accompanied by strong acid anions is added to the ion-exchange column. When the Rare Earth ion encounters the cation containing resin, it replaces three singly charged cations and these along with the strong acid anion will flow through the column in solution and out the bottom. Rare Earth Element ion-exchange has generally been superseded by solvent extraction, but neodymium can be extracted by the organic compound di- (2- ethyl-hexyl) phosphoric acid into hexane by an ion exchange mechanism. Solvent Extraction Solvent Extraction or liquid-liquid extraction is a method to separate compounds based on their relative solubilities in two different immiscible (non-mixing) liquids. In solvent extraction, a distribution ratio is often quoted as a measure of the extractability of the solutions. The distribution ratio (D) is equal to the concentration of a solute in the organic phase divided by its concentration in the aqueous phase. Depending on the system, the distribution ratio can be a function of temperature, the concentration of chemical species in the system, and a large number of other parameters. The separation factor is one distribution ratio divided by another; it is a measure of the ability of the system to separate two solutes. Solvent extraction has evolved as the most used separation process for rare earths, but many extraction stages are needed. In the multistage processes, the aqueous raffinate from one extraction unit is fed to the next unit as the aqueous feed, while the organic phase is moved in the opposite direction. Hence, in this way, even if the separation between two metals in each stage is small, the overall system can have a higher decontamination factor. Prices Rare Earth Product Prices in US$ Rare Earth Product 2010A 2014F 2020F 2030F Lanthanum oxide 7.5 6.0 7.0 10.0 Cerium oxide 4.0 2.5 2.5 3.0 Praseodymium oxide 22.5 30.0 40.0 60.0 Neodymium oxide 22.5 30.0 40.0 60.0 Samarium oxide 4.5 4.5 5.0 8.0 Europium oxide 475.0 600.0 750.0 1,000.0 Gadolinium oxide 7.0 8.0 10.0 15.0 Terbium oxide 500.0 650.0 850.0 1,200.0 Dysprosium oxide 120.0 155.0 200.0 250.0 Yttrium oxide 20.0 27.5 35.0 50.0 Source: Molycorp prospectus, IMCOA and Roskill. 36
  • 4th August 2010 Sector Research – Rare Earths Review 37
  • Sector Research – Rare Earths Review 4th August 2010 Source: www.metal-pages.com Project Finance While the above prices and price projections are of value, on should appreciate one that rare earth prices and trades are by appointment only There is no terminal only. market price, nor spot price, nor futures market. This has implications for or project funding, as well as equity for exploration and evaluation; there remains the distinct possibility that more equity will be required for any project development. development Although the facility was withdrawn as a result of the credi crunch, Lynas credit Corporation (LYC-ASX) did demonstrate the possibility of obtaining project oration finance with its $125m deal with HVB Group, now part of Unicredit Bank (UCG- , IM). This debt was apparently arranged on the back of signed customer contracts, which offered a floor price for rare earth elements, with zero caps on offered prices. The bank used a 30% discount on the Mount Weld basket case to gain comfort. It should of course be noted that Lynas has not attempted to reactivate this funding, should it be available, phase 1 of their production plan is now being funded solely with equity contributions. It has been suggested that Molycorp is looking to raise US$100m in debt finance, but this is not immediately apparent in their April 2010 IPO prospectus. With significant capital costs for rare earth projects, particularly those that enter significant into downstream processing, capital availability may become a limiting factor. 38
  • 4th August 2010 Sector Research – Rare Earths Review Rare Earth Producers Bayan Obo Rare Earth Mine China Source: Kaiser Bottom Fish. Source: Kaiser Bottom Fish. 39
  • Sector Research – Rare Earths Review 4th August 2010 The Kaiser Bottom Fish analysis of the relative proportions of rare earth production from Bayan Obo indicates that although it is primarily a cerium producer (50% of TREO’s by weight), lanthanum (23%), neodymium (19%) and praseodymium (6%), are also significant in terms of volume. In terms of revenues, neodymium is believed to be most important (44% of revenue per tonne), but cerium (15%), praseodymium (15%), lanthanum (10%) and europium (8%) are also important. Of course this analysis doesn’t take into account mineral processing costs, and hence the contribution to profitability could be significantly different. Longnan Rare Earth Mine China Source: Kaiser Bottom Fish. 40
  • 4th August 2010 Sector Research – Rare Earths Review As can be seen in the Kaiser Bottom Fish analysis, although Longnan is primarily an yttrium producer (65% by weight), gadolinium (7%), dysprosium (7%), erbium (5%), samarium (3%), and thulium (3%) are also significant. In terms of estimated revenues, terbium (27% of revenues), yttrium (22%) dysprosium (20%), erbium (10%), and lutetium (8%) are important. Again this calculation doesn’t take into account mineral processing costs, so the profitability split may be significantly different. Potential Rare Earth Mines Source: Lynas Corporation. 41
  • Sector Research – Rare Earths Review 4th August 2010 REO Content Comparison Source: Great Western Mines Group (GWMG). Blue highlighted properties are owned by GWMG. Rare Earth Oxide Compositions by Weight Deep Benjamin Hoidas Sands Steenkampskraal Douglas River Oxide River SK, CA UT, South Africa SK, CA NB, CA US (%) (%) (%) (%) (%) Cerium Oxide CeO2 46.62 41.73 46.67 31.81 0.05 Neodymium Oxide Nd203 20.57 14.28 16.67 17.62 0.07 Lanthanum Oxide La203 20.44 22.30 21.67 12.88 0.01 Praseodymium Oxide Pr6011 5.97 4.34 5.00 4.40 0.00 Samarium Oxide Sm203 2.71 2.44 2.50 3.61 0.00 Gadolinium Oxide Gd203 1.24 2.06 1.67 3.99 0.00 Yttrium Oxide Y203 1.17 8.90 5.00 17.81 80.37 Europium Oxide Eu203 0.54 0.30 0.08 0.22 0.29 Dysprosium Oxide Dy203 0.35 1.41 0.67 3.22 11.83 Erbium Oxide Er203 0.24 0.76 0.08 1.68 3.64 Terbium Oxide Tb407 0.11 0.28 0.08 0.58 2.03 Ytterbium Oxide Yb203 0.05 0.72 0.07 1.18 1.57 Holmium Oxide Ho203 0.00 0.27 0.05 0.63 0.00 Thulium Oxide Tm203 0.00 0.11 0.07 0.22 0.00 100.0 100.0 100.0 100.0 100.0 Not (1) TREO Contained Resources t 95,000 av. 29,066 Not av. Not av. (2) Value REO (US$/Kg) 17.74 20.09 15.33 28.09 48.89 Not Total In-situ Value 1,685,000,000 av. 446,000,000 Not av. Not av. (1) Non NI 43-101 compliant estimate except Hoidas shown at 0% REE cutoff (2) Asian Metal as at April 9, 2010 Source: Great Western Metals. 42
  • 4th August 2010 Sector Research – Rare Earths Review Potential New Suppliers Source: IMCOA, and www.terramagnetica.com. Note this analysis doesn’t include Great Western Metal’s Steenkampskraal project. 43
  • Sector Research – Rare Earths Review 4th August 2010 The Ten Steps to Rare Earths Commercial Production Source: IMCOA, and www.terramagnetica.com. Note this table doesn’t include Great Western Metal’s Steenkampskraal project. Notes: Mountain Pass-Molycorp (MCP-NYSE) Mt Weld-Lynas Corporation (LYC-ASX) Nolans Bore-Arafura Resources (ARU-ASX) Zandkopsdrift-Frontier Minerals Limited (Private) Nechalacho-Avalon Rare Metals (AVL-TSX) Hoidas Lake- Great Western Minerals (GWG-TSX-V) Bear Lodge-Rare Element Resources (RES-TSX-V) Kangankunde-Lynas Corporation (LYC-ASX) Dong Pao-Japanese consortium Steenkampskraal-Great Western Minerals (GWG-TSX-V) 44
  • 4th August 2010 Sector Research – Rare Earths Review Listed Rare Earth Equities Source: Kaiser Bottom Fish. 45
  • Sector Research – Rare Earths Review 4th August 2010 Molycorp (MCP-NYSE) Molycorp Inc., owner of the world’s largest non-Chinese deposit of rare earth metals, declined in its first two days of trading after chopping the size of its initial public offering by 18 percent. Molycorp sold 28.13m shares at US$14 each, raising $394m before expenses after its underwriters failed to attract enough buyers at $15 to $17 apiece, according to Bloomberg data. The mining company’s owners purchased about 8.9 percent of the shares in the IPO. In spite of the share price fall the company is still capitalised at around $1bn. As at end December 2009 shareholders’ equity totalled $74.6m. The prospectus currently on Edgar is dated 16th April 2010. http://www.sec.gov/Archives/edgar/data/1489137/000095012310035593/d704 69sv1.htm Production of rare earth elements commenced at Mountain Pass in California, USA in 1952. In 1965 the development of red phosphors for colour television creates large demand for europium oxide; hence a europium recovery plant was built. In 1977, the operation was acquired by Union Oil Company of California (UNOCAL), and in 1981 separation plants to produce samarium oxide and other heavy rare earths commenced. By 1990, the expanded facilities produce about 40% of global rare earth supply. In 1998, separation activity was suspended due to wastewater disposal problems, and in 2002 the mine and mill closed. In 2005 UNOCAL was acquired by Chevron, while in 2008 the business was sold to the current private owners. In 2009 processing of stockpiled bastnäsite concentrate begins, while the company plans to mine fresh ore in 2011, post their recently announced initial public offering. The company was owned pre-IPO by Resource Capital Funds, Pegasus Capital Advisors, Traxys North America and various other investors including the company’s CEO Mark A. Smith. Goldman Sachs was until recently a shareholder but sold its stake to other shareholders. The company’s prospectus did not appear to clarify the reason for this sale. The world’s two largest reserves of Rare Earth materials outside of China are in Mountain Pass, California and Mount Weld, Australia. Neither of these deposits is currently in production. Lynas Corporation (LYC-ASX) (the current owners of the Mount Weld deposit), has begun development of a mine and concentration plant in Australia and a processing facility in Malaysia. Lynas has not announced plans to produce Neodymium Iron Boron (NdFeB) magnets or intermediate materials but this formed an integral part of Molycorp’s plans post IPO. Molycorp plans to restart mining operations and complete an extensive modernisation and expansion of the related processing facility. Molycorp further plans to broaden its operations to encompass the production of metal, alloys and NdFeB magnets. In early June 2010, Molycorp and Neo Material Technologies (NEM-TSX) announced a rare earth “Mine to Magnets” supply chain agreement. This contemplated a technology transfer agreement and a supply agreement where 46
  • 4th August 2010 Sector Research – Rare Earths Review Neo would purchase mixed rare earth carbonates as well as neodymium and praseodymium oxides from Molycorp. The initial planned production upon full restart at the end of 2012, is 40 million pounds of Rare Earth Oxides (REO) per year (19,090 tonnes per annum (tpa)- almost 7 million pounds of neodymium and praseodymium oxides). This production can be achieved by using less than half the tonnes of ore that was required in the past to produce 40 million pounds REO per year. According to Harbinger Capital, the company will look to build capacity to ramp up production to 40,000 tpa. Molycorp’s total proven and probable reserves are 2.21 billion pounds of rare earth oxides at an average grade of 8.24% (higher than our 2% criteria!) Molycorp intends to produce a very wide range of rare earth products, these include; bastnäsite concentrates containing 58-63% lanthanum oxides; leached bastnäsite concentrates containing 68-73% lanthanide oxides; calcined leached bastnäsite concentrates containing 85-90% lanthanide oxides; cerium oxide, carbonate and nitrate; europium oxide; a yttrium-europium co-precipitate; lanthanum oxide; a high lanthanum lanthanide concentrate; a lanthanum- lanthanide chloride solution; a lanthanum-lanthanide nitrate solution; lanthanum acetate solution; neodymium oxide; praseodymium oxide; yttrium oxide; gadolinium oxide; samarium oxide; terbium oxide; erbium oxide and ytterbium oxide. Metals Mix at Mountain Pass Element % of bastnäsite Ore Cerium 48.8 Lanthanum 34.0 Neodymium 11.7 Praseodymium 4.2 Samarium 0.79 Gadolinium 0.21 Europium 0.13 Dysprosium 0.05 Other REE 0.12 Source: Molycorp prospectus and Hallgarten & Company Bastnäsite ore is crushed and milled, and then floated away from the waste material. The resultant bastnäsite concentrate is then processed by leaching with strong acid solutions, followed by a series of solvent extraction steps which produce the various individual REO minerals, generally in a high purity, greater than 9% oxide form. The company expects to sell and transport a portion of the REOs produced to customers for use in their particular applications. The remainder of the REOs will be processed into rare earth metals. A portion of these metals will be sold to end users and we expect to process the rest into rare earth alloys. These rare earth alloys can be used in a variety of applications, including but not limited to: electrodes for Nickel Metal Hydride (NiMH), battery production; samarium cobalt magnet production; and Neodymium Iron Boron, or NdFeB, magnet production. 47
  • Sector Research – Rare Earths Review 4th August 2010 Initially, the company’s modernisation and expansion plans envisioned adding facilities and equipment for metal conversion and alloy production at the Mountain Pass facility. However, they have entered into a letter of intent to acquire a third-party producer of rare earth metals and alloys in the United States. If this acquisition is completed, instead of adding such facilities and equipment at Mountain Pass, Molycorp plan to transport cerium, lanthanum, neodymium-praseodymium (so called didymium) and samarium oxide products from Mountain Pass to the new off-site location that already possesses the technological capability to produce rare earth metals and alloys. In March 2009, Molycorp signed an agreement to acquire a controlling interest in Great Western Minerals (GWG-TSX-V), however in June 2009, Molycorp announced that it had been unable to reach agreement and had let its interest in GWG lapse. According to Hallgarten & Co., Mountain Pass was always europium rich, and has a specialised europium plant to produce red-phosphor. Molycorp maintains a joint venture with Sumitomo called Sumiken Molycorp, which markets rare earth products in Asia and produces permanent magnet materials in Japan. According to Molycorp’s prospectus, they have secured letters of intent for 138% of their planned production in 2013. They could sell 268% more non-metal lanthanum (oxides and other compounds) than they could produce (11,000 tonnes (t) versus 2013 planned production of 3,100 t), 10 times the neodymium metal (3,300 t versus planned production of 313 t), 9 times the praseodymium metal (1,090 t versus 116 t). Things are not so rosy as regards to lanthanum metal, where only 17% of planned production of 2,507 t is spoken for, cerium non-metal fares slightly better with 71% of planned production of 9,680 t subject to letters of intent, while only 51% of planned production of NdPr in NdFeB alloy is signed up. Molycorp intends to develop new higher margin products and processes for REEs that historically have had lower demand. For example, cerium is used primarily for glass polishing and has typically sold at prices lower than those for other REEs. However, the company has developed XSORBX® ASP or Arsenic Sequestration Process, a proprietary product and process, primarily consisting of cerium that removes arsenic and other heavy metals from industrial processing streams and allows customers to more safely sequester arsenic and increase their production. Molycorp has entered into a non-binding letter of intent with a water filtration company to jointly develop water treatment products. The company claims that, although the consultancy IMCOA predicts that there will be a surplus of cerium in the future, they anticipate most of their production will serve the new, proprietary XSORBX® ASP water treatment market segment that they have under development. Molycorp believes that this segment alone could consume many times more cerium units than they can produce. Furthermore Molycorp believe the new segment negates the need for additional letters of intent at this time. Molycorp has suffered from a history of water related issues and indeed was originally closed down by the US Environmental Protection Agency because of a 48
  • 4th August 2010 Sector Research – Rare Earths Review water leak. In the prospectus we learn; “Currently, processing of REOs requires significant amounts of water. The technology being developing to significantly reduce fresh water requirements, includes proprietary production of our own hydrochloric acid and sodium hydroxide from waste water at our own chlor-alkali plant, has not yet been proven at commercial scale and has not yet been implemented. Although we believe our existing water rights and water supply are sufficient to meet our projected water requirements, any decrease or disruption in our available water supply until this technology is successfully developed may have a material adverse effect on our operations and our financial condition or results of operations. “ Lynas Corporation (LYC-ASX) Lynas argue that they are the most advanced ex-China potential producer of rare earth elements. Their analysis also indicates that potentially their Mount Weld project in Western Australia has the greatest in-situ value of any of the major projects outside of China. The company has been looking to develop the Mount Weld open pit mine since 2000 and have raised A$679.5m since June 2006 in equity to advance this project. The company was successful in obtaining A$200m of debt in 2008 and convertible funding both to bring the mine and concentrator in Australia, and its associated processing facility (the Advanced Materials Plant) in Malaysia on stream. Prior to the credit crunch, it had undertaken foundation work at both sites, as well as limited mining. However all work came to a halt in February 2009, as convertible note holders asked for their money back and the company was unable to draw down its $125m funding, sourced by HVB Group, now part of Unicredit Bank (UCG-IM). In May 2009, state owned China Non-Ferrous Metal Mining agreed to subscribe for 700 million new shares at A$0.36 per share, raising A$252m and offered Chinese bank finance to restart the project. A$0.36 per share represented a 52.5% premium above the volume weighted average Lynas share price for 30 trading days prior to the announcement. Total capex of over A$500m was envisioned, US$286m to compete and commission the first phase to produce 10,500 tpa of REO and US$80m for phase two which would bring production to 21,000 tpa of REOs. However in September 2009, this tie up was dropped as Australian Foreign Investment Review Board (FIRB) approval couldn’t be achieved, strategic considerations being cited. In October 2009, following the recovery in markets and improved sentiment towards rare earths, the company raised A$450m of equity from institutions and has recently recast capital cost projections. It has recommenced work on the processing plant in Australia and the Advanced Materials Plant in Malaysia. The company estimates that their Phase 1 plans will cost A$339m, with first concentrate feed to the kiln in Malaysia anticipated in Q3 2011. This forecast incorporates a major increase in Engineering, Procurement and Construction Management (EPCM) fee from $100m to $136.4m. 49
  • Sector Research – Rare Earths Review 4th August 2010 Building the Advanced Materials Plant in Malaysia offers a number of advantages, namely tax (0% for twelve years), plentiful natural gas, electricity, nearby sulphuric and hydrochloric acid supplies. The company points out that 3 tonnes of reagents will be used to process one tonne of concentrates, so bringing concentrates to the Advanced Materials Plant makes a lot of sense. The company will enter into negotiations with the Australian tax authorities regarding transfer pricing, as they will only be producing concentrates in Australia. Concentrates are potentially worth very little as the Chinese are the only other buyer. Hence the impact of the proposed 40% Australian Resources Tax may be relatively small. The company has outlined 12.24 million tonnes (Mt) of Joint Ore Reserves Committee (JORC) compliant measured, indicated and inferred resources grading 9.7% rare earth oxides (REOs) at Mount Weld, calculated at a 2.5% REO cut off, and has already mined and stockpiled 773,000 t, grading from 8% up to 26% REOs. The company claims the low thorium content of 44 parts per million in each percent of rare earth oxides, offers a competitive advantage against other non-Chinese projects. Apparently beyond 100ppm per one per cent of REO one will have problems with thorium. Uranium values are also very low. Paterson Securities Limited- Lynas Corporation Revenue Forecasts 2012 Price Potential % of 2013 Price Potential % of REO Production per Kg Revenues Potential Production per Kg Revenues Potential tonnes US$ US$m Revenues tonnes US$ US$m Revenues Lanthanum 1,583 9.84 15.58 14.2% 4,355 10.04 43.72 13.6% Cerium 2,901 4.92 14.27 13.0% 7,983 5.02 40.07 12.4% Neodymium 1,148 30.62 35.15 32.1% 3,160 31.23 98.69 30.6% Praseodymium 330 30.62 10.10 9.2% 909 31.23 28.39 8.8% Samarium 141 5.19 0.73 0.7% 388 5.3 2.06 0.6% Dysprosium 8 125 1.00 0.9% 21 128 2.69 0.8% Europium 27 568 15.34 14.0% 76 580 44.08 13.7% Terbium 4 656 2.62 2.4% 12 669 8.03 2.5% 231.2 312.5 Others 64 5 14.80 13.5% 175 7 54.70 17.0% Total 6,206 15.34 109.60 100.0% 17,079 15.65 322.4 100.0% Source: Paterson’s Securities Ltd & Libertas Capital Corporate Finance. As can be noted, Mount Weld is dependent on lanthanum, cerium, neodymium and europium revenues. It should be noted that these price forecasts are considerably higher than those presented by Molycorp in its prospectus. As part of their original funding effort they have signed a number of long term customer agreements. A long term, greater than ten year agreement, worth over US$200m, has been signed with French chemical major Rhodia (RHA-FP). This is set to supply cerium, europium, terbium and lanthanum. This represents about 25% of projected volumes, but due to the relative low prices of lanthanum and cerium, a much lower proportion of projected revenues. The company has also signed an approximate US$200m, 5 year contract to supply neodymium and praseodymium to one customer, and has four other contracts worth from $20m up to $80m to supply product from the Malaysian plant. 50
  • 4th August 2010 Sector Research – Rare Earths Review Mount Weld has significant undrilled potential, so Lynas is well placed to meet increasing levels of demand. As the Mount Weld concentrator operation would be permitted and in operation, there is the possibility that deals could be done with the other Australian hopefuls Alkane Resources (ALK-ASX) and Arafura Resources (ARU-ASX) to buy their potential production of concentrates for processing in Malaysia. Lynas itself have a stake in the early stage Kangankunde project in Malawi. Lynas is currently capitalised at around £750m (A$1,300m) and has about A$400m of cash. Having just raised the capital to restart construction at Mount Weld and the Advanced Materials Plant in Malaysia, news flow for the rest of the year may be fairly limited. Owing to this placing, the company has a wide institutional shareholder base, with Morgan Stanley being the largest shareholder with around 5%. They remain well placed to become the first non-Chinese producer of rare earths. Although the share price could drift, they should eventually be buoyed by general sentiment towards the sector. Alkane Resources (ALK-ASX) Alkane is developing the Dubbo Zirconia Project (DZP), an open pit zirconium mine in New South Wales, Australia. The company is also exploring for gold nearby, and has recently reported progress on their McPhilamys gold joint venture with Newmont (NEM-NYSE), where they have a conceptual target of more than 4 million ounces (Moz) of gold, and at their Tomingley project, where mine planning is underway on a 800,000 oz JORC compliant resource So far at Dubbo they have outlined a Joint Ore Reserves Committee (JORC) compliant measured resource of 35.7 million tonnes grading 1.96% zirconium dioxide (ZrO2), 0.04% hafnium dioxide (HfO2), 0.46% niobium pentoxide (Nb2O5), 0.03% tantalum dioxide (Ta2O5), 0.14% yttrium oxide (Y2O3), 0.75% rare earth oxides and 0.014% uranium oxide (U3O8). An inferred resource of 37.5 Mt at similar grades has also been outlined. Resource drilling was completed in 2001; the process flow sheet was developed between 1999 and 2002, with trails to mini pilot plant stage. An Industrial Commercial Ready grant of A$3.3m was received from the Australian Government in April 2006 as a contribution towards process optimisation in a demonstration pilot plant which was commissioned in March 2008. Product samples from the demonstration pilot plant were distributed in the second half of 2009. The company is currently revising and updating their 2002 feasibility study with planned delivery by Q3 2010. They aim to process 400,000 tonnes per annum of ore to produce 15,000 tpa of zirconium products, 2,000 tpa of a niobium-tantalum concentrate, just under 2,000 tpa of light rare earth concentrates containing lanthanum, cerium and neodymium and 600 tpa of a yttrium rare earth concentrate containing yttrium, gadolinium, dysprosium and terbium. The zirconium products produced include a zirconium basic sulphate, zirconium hydroxide and zirconium carbonate. These are expected to contain a small amount of the transitional metal hafnium (Hf, 71). 51
  • Sector Research – Rare Earths Review 4th August 2010 DZP Yttrium & Rare Earth Element (REE) Output Source: Alkane Resources. Zirconium is used as a drying agent in paints, in solid oxide fuel cells, in engineering ceramics where it adds toughness, and other hard wearing properties, and has a rising use in automotive pretreatment, offering environmental benefits over traditional zinc phosphate metal treatments. Hafnium is used in control rods for nuclear reactors and a number of specialist alloying purposes. Zircon Supply Demand Price Source: Alkane Resources. 52
  • 4th August 2010 Sector Research – Rare Earths Review DZP Flow Sheet Source: Alkane Resources. Alkane is capitalised at around £50m (A$85m), and will possibly have to issue more equity soon. As at end March 2010, they had A$1.8m of cash, having spent $2.8m during the quarter. At present, private company Abbotsleigh Pty Ltd is the largest shareholder with 28.5% of the outstanding shares. It is difficult to determine how much value is ascribed by the market to their Dubbo project, rare earth grades are low, and should be considered by-products from this primarily zirconium operation. The flow sheet is complicated and could be expensive. Arafura Resources (ARU-ASX) Arafura is developing their Nolans Bore rare earths, phosphates and uranium project in the Northern Territory, Australia. East China Mineral Exploration & Development Bureau owns just over 22% of the issued shares. The company claims that the fluorapatite, apatite-allanite calcsilicate Nolans Bore resource is sufficient to sustain production of 20,000 tonnes (t) of rare earth oxides, 80,000 tpa of phosphorus pentoxide (P2O5), 400,000 t of calcium chloride and 150 tonnes (0.33 Million pounds) per annum of uranium for more than 20 years. Located close to infrastructure, it is 10 kilometres (km) from the Stuart Highway, Nolans Bore has a total Joint Ore Reserves Committee (JORC) compliant measured, indicated and inferred resource of 30.3 million tonnes (Mt) grading 2.8% rare earth oxides, 12.9% phosphate and 0.44 pound per tonne U3O8. The company intends to chemically separate rare earths from phosphate. From the phosphate line the company intends to produce phosphoric acid with a calcium 53
  • Sector Research – Rare Earths Review 4th August 2010 chloride reside. From the rare earth stream they intend to produce rare earth products and uranium oxide. Nolans Rare Earth Mix Source: Arafura Resources. In Situ REO Value (February 2010) Source: Arafura Resources. 54
  • 4th August 2010 Sector Research – Rare Earths Review Project Valuation (estimated costs) Source: Arafura Resources. Arafura is at a relatively early stage of its development, from 2010 through to 2013 they intend to continue drilling out the resource, and undertake the various mine site selection tasks. They also need to seek finance and are looking for a strategic partner. The company has recently reported that the average price for a Nolans mix now amounts to around US$22.23 per kilogramme an increase of 100% since the December 2009 quarter. They are currently capitalised at around £130m (A$225m), having just raised A$19.5m in a placement and rights issue. Nolans Bore is relatively low grade, and relatively low returns seem evident in their estimated 6 year project payback. Arafura also have an issue with uranium, the Northern Territory is already a significant producer of uranium at Ranger in the Kakadu National Park. Local authorities and native title groups have not been keen on new uranium producers in the Territory. Avalon Rare Metals (AVL-TSX) Avalon is focused on their 100% owned Nechalacho underground rare earths deposit, near Thor Lake in the Northwest Territories of Canada. A National Instrument (NI) 43-101 compliant inferred resource of 64.2 million tonnes (Mt) grading 1.96% total rare earth oxides, plus tantalum, niobium, zirconium, hafnium and gallium has so far been outlined. Nechalacho is relatively well endowed with gadolinium and dysprosium, and has low thorium levels. 55
  • Sector Research – Rare Earths Review 4th August 2010 N-S Composite Section (looking west) Source: Avalon Rare Metals. Following underground mining, the company is looking to recover a Rare Earth Element concentrate (REE con) with grinding and froth floatation. A hydrometallurgical plant is planned offsite; here the concept is to caustic crack the REE con, followed by acid leaching. Solvent extraction is then hoped to precipitate two mixed REE carbonates one mainly Light Rare Earth Elements (LREEs) the other mainly Heavy Rare Earth Elements (HREEs). Final separation of REE oxides may be achieved in Asia, whilst metallurgical testwork continues. They hope to produce 5-10,000 tonnes per annum of rare earth oxides, 49.4% lanthanum and cerium, 21.3% neodymium, 4.2% praseodymium, 3.7% samarium or otherwise 25.6% heavy REEs plus yttrium. The company expects first production in 2015. Avalon’s recently released Prefeasibility Study is as feared, pretty poor, with pre- tax and post-tax Internal Rates of Returns (IRR) of 14% and 12% respectively. Project capital cost is estimated to amount to a huge C$900m, operating costs amount to C$267 per tonne of ore mined or $5.93 per kilogram of product. The PFS now models the construction of a hydrometallurgical plant, possibly using some of the facilities at the historic Pine Point lead-zinc mine also in the NWT, and also miles from anywhere. An additional capital requirement of $500m for a hydrometallurgical plant does sound expensive, so it is possible that a number of other costs have increased as well. The poor returns illustrate the need for high grades; the Nechalacho resource grade of 1.7% Total Rare Earth Oxides (TREO’s), 3.16% zirconium oxide, 0.41% niobium oxide and 0.041% tantalum oxide doesn’t appear high enough. Furthermore the difficulties and costs of extracting the TREOs from the zirconium, niobium and tantalum, are also illustrated. It is however encouraging that they have recognised the need for fully integrated production, returns would probably have been even lower if they had stuck to their original plans to sell two concentrates to the Chinese for final Rare Earth Element (REE) extraction. Avalon is capitalised at about £130m (C$210m), has C$15m of cash and a wide institutional shareholder base. Grades at Nechalacho are not outstanding, although they do claim a high HREE content and low thorium levels. 56
  • 4th August 2010 Sector Research – Rare Earths Review Cache Exploration (CAY-TSX-V) Cache is busy acquiring rare earth element properties, and has acquired positions in the Welsford igneous complex in New Brunswick, Canada, the Louil Hills peralkaline complex in Newfoundland, the Cross Hills plutonic suite also located in Newfoundland. They have a very modest capitalisation of C$4m, while their projects are too early stage to come to a view as to their merits. Dacha Capital (DAC-TSX-V) Dacha is marketed as the first Exchange Traded Fund (ETF) to invest in rare earth metals. From the first half 2010 Chinese export quota detail analysed by Lynas Corp, one notes that the export quota for the first half of 2010 was 22,283 t, of which 5,978 t was “available” for “Foreign-Invested firms”. Dacha Capital, has so far this year purchased 53 t of REEs and 163 t of REOs. Overall Dacha has therefore bought about 1% of the first half export quota or around 3% of that “available” to Foreign-Invested firms, hence they have barely scratched the surface and as yet don’t have the clout to move prices. The share price of the worlds’ only Rare Earth Element (REE) investment fund has plunged following the release of their maiden Net Asset Value. As at end June 2010 this was C$0.38 per share based on 72.16m shares outstanding. In addition to the 5 tonnes (t) of Dysprosium oxide, 30t of ferrous dysprosium, 20 t of Gadolinium oxide, 3t of Lutetium oxide, 12t of terbium oxide and 20t of yttrium oxide held outside China in their South Korean warehouse, they also have 6t of Europium oxide and 120t of yttrium oxide held within China. They also retain $6.7m of cash and other assets. Dacha is an interesting concept and offers zero mining, processing, and uranium- thorium risk. When it was placing 48.9m shares at 45 cents, the company had hoped for them to trade at twice NAV. Obviously the market saw through that argument when it noticed the NAV release. With rare earth prices continuing to perform during the month following the Chinese quota news, a positive end July NAV might be anticipated. At end June they were already up 15% on cost, so C$0.33 per share might be a very interesting entry point. Etruscan Resources (EET-TSX) Etruscan Resources is a West African gold mining company that has just undergone a management buy-in led by Endeavour Financial (EDV-TSX). One of the stones unturned was a rare earths project in Namibia. The company failed in its search for Iron Oxide Copper Gold (IOCG) style mineralisation, but the rare earth containing carbonatite discovered could be world scale. Over a 15 kilometre strike length at Lofdal, encouraging rare earth grab samples of up to 1% total rare earth elements plus yttrium had been discovered. The REE carbonatite dykes at Lofdal are enriched in HREEs. The average grade of all dyke samples taken to date is 0.7% total rare earth elements plus yttrium ("TREE+Y"). The highest individual sample graded 8.9% TREE+Y and the highest heavy rare 57
  • Sector Research – Rare Earths Review 4th August 2010 earth (HREE) enriched sample graded 1.5% HREE. The company is hoping to outline a 25-30 million tonne deposit. The company is looking to spin out its rare earth interests into a new pure exploration company. This appeared to be too small to impact the Etruscan share price. Globe Metals & Mining (GBE-ASX) Globe’s main focus is its Kanyika niobium, uranium, tantalum and zircon project in Malawi. A Bankable Feasibility Study (BFS) was commissioned in August 2009 and production is planned to commence in 2013 at a rate of 3,000 tonnes per annum niobium metal, principally in the form of ferro-niobium. Mine life is forecast in excess of 20 years. At the same time they announced that Thuthuka Group, a private South African engineering and construction contracting company, entered into a formal agreement to invest US$10.6m to earn a 25% interest. This $10.6m injection was expected to fund 85% of the estimated cost of the BFS. In early April 2010, Globe announced that a dispute between the two parties had slowed work on the project and in June Thuthuka withdrew. Globe is also exploring the Machinga rare earth project in Malawi, where they are farming into a Resource Star’s (RSL-ASX) project. Here they could earn up to an 80% interest. Recent trenching has shown Total Rare Earth Oxides (TREO) and Niobium grades of up to 1% TREOs and 1.34% niobium pentoxide respectively. Globe is currently capitalised at around £10m (A$17m), with A$3.0m of cash. There remains considerable uncertainty about progress at Kanyika, while Machinga is very early stage and possibly too low grade to be of interest. Great Western Minerals (GWG-TSX-V) Great Western Minerals (GWMG) is developing an integrated rare earths business, and was formed by the merger of the exploration stock Great Western with the manufacturing business of Less Common Metals (LCM). LCM, located in Birkenhead UK, and Great Western Technologies Inc. (GWTI), located in Troy, Michigan, USA produces a variety of specialty alloys for use in the rechargeable battery, permanent magnet, automotive and aerospace industries. LCM currently supplies 20% of the world’s samarium-cobalt (SmCo) alloy for used in permanent magnets and is a significant supplier of alloys for NdFeB permanent magnets. The company claims that they have the only fully integrated mine to market rare earth elements business model outside of China. LCM has a current productive capacity of 1,100 tonnes per annum (tpa) of rare earth alloys, whereas Great Western Technologies has a 2,550 tpa capacity. LCM currently sells 430 tpa of alloys, whereas GWTI sells 250 tpa. Potential productive capacities may not sound large in tonnage terms, but the company claims that they may represent US$150-200m in potential revenues. LCM also produce other rare earth alloys, including magneto-optic and magnetostrictive materials, hydrogen storage systems and master alloys, high purity rare earth metals, spluttering targets and ultra pure indium. GWTI 58
  • 4th August 2010 Sector Research – Rare Earths Review manufactures high purity custom made alloys, sputtering targets, precious metals, special high purity alloy foils, ingots and rods, special low oxygen powders, single crystal isotopes, rare earth special elements, brazing alloys, raney nickel alloys and is involved in scrap metal recovery. Overview of Rare Earth Alloy Production Source: Great Western Minerals. It should be mentioned before one gets too excited, that manufacturing revenues amounted to a modest C$12m in 2009, but potential margins are very high, particularly with their own feed from Steenkampskraal in South Africa. The rare earth alloy business is evolving, with the industry moving towards strip cast alloys for the magnet industry becoming the new preferred quality. Great Western proposes to build two strip cast furnaces to meet this demand. The company has been in discussions with potential customers and two of them could consume the entire output of both furnaces. Coupled with production from Steenkampskraal, the first furnace could have first saleable product in June 2011. The company has an option to acquire the former operating Steenkampskraal rare earth mine in South Africa where a New Order Mining Right has just been issued and continues to explore the advanced Hoidas Lake rare earth prospect in Saskatchewan, Canada. It also has two other less advanced rare earth prospects in Canada, Douglas River in Saskatchewan and Benjamin River in New Brunswick and a 25% share in the Deep Sands heavy mineral sands project in Utah, USA. At Steenkampskraal, an underground in-situ resource of 117,550 tonnes (t) of monazite grading 16.74% of rare earth oxides (REO), a broken underground resource of 47,000 t grading 5% REOs, while a surface resource of 85,000t grading 8.29% REOs remains from past mining operations. Steenkampskraal was originally a thorium mine, and retains its licence to store that material. The company intends to mix thorium with concrete for storage, but recognise if the 59
  • Sector Research – Rare Earths Review 4th August 2010 thorium market ever returns, the Indians are quite keen developers of thorium for nuclear power, this thorium concrete can be acid leached for thorium recovery. (1) Preliminary Cash Flow Projections – Mining Plus Downstream Revenue Year 2012 2013 2014 2015 2016 Revenue (C$) 78,739,725 120,951,441 122,158,630 121,003,187 121,014,224 Cost of Sales 58,094,720 87,993,453 88,630,217 88,040,854 88,054,064 EBITDA 20,645,005 32,957,989 33,528,413 32,962,333 32,960,160 Note 1 – Assumptions: 1 Based on historical data and in-house engineering and economic assumptions 2 Converted from SA Rand-exchange rate projections 3 Escalation for certain op costs, no pricing escalation 4 Consolidated from Chloride Production, Separation, Metal Making and Alloying stages 5 Assumes using all Nd, Pr, Sm and Dy from Steenkampskraal, Partial La and Y. Source: Great Western Minerals. The company estimates that Steenkampskraal could be re-opened at a cost of US$30m, and could supply 100% of GWTI and LCM rare earth element needs for 10 years. Like many rare earth projects, the proposed process flow sheet is complicated, although as the mine successfully operated during the 1960s and 1970s the metallurgy is well understood. After crushing and grinding, the monazite ore is gravity and magnetically separated from the gangue. It is then floated to separate a copper silver concentrate, while the resulting monazite concentrate is subject to digestion and leaching. A fertiliser tri-sodium phosphate is separated in a solid-liquid separator, while rare earth hydroxides are selectively dissolved in hydrochloric acid. The thorium hydroxide residue is transported for safe storage, while the 45% Total Rare Earth Oxide (TREO) concentrate is then subjected to solvent extraction. From this rare earth carbonates are precipitated, they are calcined to produce rare earth oxides which are then subject to electrolysis or metallothermic reduction to produce rare earth metals or alloys. GWML have already outlined National Instrument (NI) 43-101 compliant measured and indicated resource of 2.5 million tonnes grading 2.075% Total Rare Earth Elements (TREE) or 2.43% Total Rare Earth Oxides (TREO) at Hoidas Lake. The level of neodymium at 0.42% is particularly encouraging. The company intends to conclude its metallurgical and transportation tests with a pre- feasibility study by late 2010, and a full bankable feasibility study completed by 2011. Production is slated for 2014. At Deep Sands in Utah, USA the company has a target resource of 500 Mt grading 0.25% rare earth oxides. This monazite deposit has a significant yttrium and other heavy rare earth element content, so high potential in-situ values may make up for the low overall grade. Great Western Minerals is currently capitalised at just under £30m, with C$5m of cash, and has a widely spread shareholder base. They have a unique integration strategy with the hope of re-opening Steenkampskraal to supply their manufacturing operations with raw material. The company forecasts that the value added from manufacturing could be considerable, while Hoidas Lake remains a prospective rare earth target. Due to the mix between exploration and manufacturing, the company appears to be undervalued by the Canadian 60
  • 4th August 2010 Sector Research – Rare Earths Review market. Vertical integration in the rare earths industry appears to be a virtue rather than a problem, they deserve support. Greenland Minerals and Energy (GGG-ASX) Greenland, who have just raised A$21m in an equity placing is exploring the Ilimaussaq intrusive complex, where they have defined at Kvanefjeld in Greenland, at a cut off of 0.015% U3O8, a Joint Ore Reserves Committee (JORC) compliant indicated and inferred resource of 457.0 million tonnes grading 0.028% U3O8 (0.62lb per tonne (lb/t)), 1.07% total rare earth elements (including yttrium) and 0.22% zinc. Kvanefjeld is 7 kilometers from tidewater with deep water North Atlantic Ocean fjords. The company is currently undertaking a pre-feasibility study, with particular emphasis on metallurgical testing. Alkaline pressure leach is being investigated for uranium recovery, and the company hopes to build a pilot plant by mid 2012. First production could occur in 2015. The company forecasts nominal production of 43,700 t of rare earth oxides and 3,895 t (8.6 Mlb) of U3O8 per annum, following a capital spend of US$2.31bn. Unit costs were estimated at US$29.6 per pound of U3O8 and $5.75 per Rare Earth Oxide (REO) kilogram. Using a REO price range of $13/kg and $80/lb for U3O8, an Internal Rate of Return (IRR) of 24% was estimated. 61
  • Sector Research – Rare Earths Review 4th August 2010 Source: Greenland Minerals and Energy. 62
  • 4th August 2010 Sector Research – Rare Earths Review Kvanefjeld – Multi-Element Ore Source: Greenland Minerals and Energy. As well as metallurgical issues and a relatively low internal rate of return, the company faces a major issue in that uranium production is not currently permitted in Greenland. “Greenland Minerals and Energy Ltd are aware of and respect the Greenlandic government’s stance on uranium exploration and development in Greenland, which is currently a zero tolerance approach to the exploration and exploitation of uranium. Any potential change toward the current stance of zero tolerance is not expected until after the public consultation and review process is concluded in the coming months. The company is currently advancing the Kvanefjeld Project, recognised as the world’s largest undeveloped JORC compliant resource of rare earth oxides (REO), in a multi-element deposit that is inclusive of uranium and zinc. Greenland Minerals will continue to advance this world class project in a manner that is in accord with both Greenlandic Government and local community expectations, and looks forward to being part of the community discussion on the social and economic benefits associated with the development of the Kvanefjeld Project.” 63
  • Sector Research – Rare Earths Review 4th August 2010 Process Flow Sheet – Base Case Scenario Source: Greenland Minerals and Energy Greenland is capitalised at about £60m (A$105m), and at the end of December 2009 had A$7.6m of cash. The recent placing raised $6m initially with $15m in place as an equity facility with YA Global Investment (Yorkville). Two private companies Quayside and Westrip hold 15.5% and 10.3% of the outstanding shares respectively. Kvanefjeld is undoubtedly a very large potential rare earth and uranium deposit, however rare earth grades are low and the metallurgical characteristics look difficult. In addition the uranium issue has yet to be resolved; uranium remains important for the economic viability of this project. Hudson Resources (HUD-TSX-V) Hudson is developing the 100% owned early stage Sarfartoq rare earth carbonatite project in Greenland. It is also exploring the nearby Garnet Lake diamond project, but the company points out that the potential in-situ value of rare earths is up to ten times that of diamonds. Hudson claims an advantage over Kvanefjeld in that uranium levels are very low at Sarfartoq. 2009 drilling highlighted 50.25m grading 2.189% total rare earth oxides (TREO), with neodymium oxide and praseodymium oxide averaging over 25% of the TREO’s. With regard to location, Hudson point out that access to open water shipping is critical given that reagents comprise 40% of mining costs, while power comprises 30% of mining costs. Fortunately for Hudson, Alcoa is planning to 64
  • 4th August 2010 Sector Research – Rare Earths Review build an aluminium smelter with a 600MW hydroelectric power plant located within kilometres of the project. Deep water access is located within 20km. The company has a lot of exploration and evaluation work to undertake on this project, a new drill programme has just commenced, funded by a $5m recently concluded placement. The company is capitalised at around £20m (C$32m), with $2.2m of cash and has Teck Corp (TCKB-TSX) as the largest shareholder with an 8.22% holding. Although early stage, Sarfartoq looks an interesting prospect. Kirrin Resources (KYM-TSX) Kirrin is accumulating a portfolio of early stage uranium and rare earth element projects in Canada. So far interesting grab samples and limited drill results have been recorded at their Alexis River in Labrador and Lost Pond property in Newfoundland. They are earning 50% of Last Pond and 60% of Alexis River. Kirrin is capitalised at less than £1m (C$1m) and will need to raise funds to pursue its exploration plans. Matamec Explorations (MAT-TSX-V) Matamec has a number of exploration projects in Ontario and Quebec. It has had recent success at its Kipawa rare earth project in Quebec. Kipawa mineralogy appears complicated, but 2.57m grading 2.22% zirconium dioxide, 0.356% light rare earths oxides (lanthanum to neodymium), 0.037% medium rare earth oxides (samarium to gadolinium), 0.121% heavy rare earths (terbium to lutetium), and 0.242% yttrium oxide are worthy of note. Kipawa Deposit Mineralogy Source: Matamec Exploration. The company has recently released a maiden National Instrument (NI) 43-101 resource for Kipawa. Reflecting the complex mineralogy the company has set this out under two scenarios Scenario 1 is presented as a Total Rare Earth Oxides 65
  • Sector Research – Rare Earths Review 4th August 2010 (TREO) resource with Zirconium Dioxide (ZrO2) by products. Scenario 2 is presented as a Zirconium Dioxide resource with by product TREOs. Source: Matamec Explorations Matamec is capitalised at around £7.5m (C$11m) with C$1.2m of cash at the end of December 2009. They will have to raise funds to pursue their exploration plans. Metallica Minerals (MLM-ASX) Metallica is getting very excited about their Lucknow nickel cobalt and scandium prospect at the former Greenville nickel mine in Queensland, Australia. This project is sometimes called NORNICO. The company claims this has the potential to make the company the world’s largest supplier of scandium. Metallica are initially planning to produce scandium oxide (Sc2O3 - so called scandia), which sells for US$1,400 per kilogramme, but are also evaluating the production of value added scandium aluminium master alloy and scandia stabilised zirconia, used in solid oxide fuel cells. Drilling at Lucknow has outing drill grades of plus 200 grammes per tonne (g/t) scandium, the best result being 27m from surface grading 882 g/t scandium, including 9m @ 1,417g/t scandium. Metallurgical test work has shown that in addition to high nickel and cobalt extractions, high extractions of scandium, (around 90%) can also be achieved through the proposed heated Atmospheric Acid Leach (AAL) nickel-cobalt 66
  • 4th August 2010 Sector Research – Rare Earths Review processing plant which will be located at the Greenvale mine site. There is excellent potential to produce scandium oxide as a valuable by product from this Ni-Co & Sc recovery process. Grants Gully Cross Section Source: Metallica Minerals. Metallica is capitalised at around £16m (A$29m), with $8.8m of cash. They have a large portfolio of Australian assets, which as well as NORNICO includes 56% of Metro Coal (MTE-ASX), a Surat basin thermal coal and underground coal gasification project, 33% of Cape Alumina (CBX-ASX) (close to Rio Tinto’s (RIO) Weipa bauxite mine), 76% of Planet Metals (PMQ-ASX), which hold 85% of the Wolfram Camp, tungsten-molybdenum project, and 100% of the Mt Cannindah copper gold porphyry. In early August 2010, their stakes in MTE, CBX and PMQ were worth about A$40m, which suggests they are worthy of interest, particularly as NORNICO is potentially very valuable. Neo Material Technologies (NEM-TSX) Neo Material Technologies is a producer, processor and developer of neodymium-iron-boron magnetic powders, rare earth, and zirconium based engineered materials and applications, and other high value niche metals and their compounds through its Magnequench and Performance Materials business divisions. Magnequench’s Neo powders are used to produce bonded magnets generally used in micro motors, precision motors, sensors and other applications requiring high levels of magnetic strength, flexibility, small size and reduced weight. The company believes it is the world’s number one producer with a 15-20% market share. 67
  • Sector Research – Rare Earths Review 4th August 2010 Rare earth and zirconium applications include catalytic converters, computers, television display panels, optical lenses, mobile phones and electronic chips. Gallium metal, nitrate tri-chloride and oxide sales from the newly acquired Recapture Metals are primarily used in the wireless, Light Emitting Diode (LED), flat panel, solar and catalyst industries. The company believes that it is a strong number 2 in these various markets with a 10-15% market share. Approximately 50% of sales are achieved in China, with 23% in Japan. North America and Europe lag and represent 8% each of sales. Customers include Daido, Ohara Optical (5218 JP), Epson (6724 JP), Canon (7751 JP), BASF (BAS GR), Murata Manufacturing (6981 JP), Philips (PHIA NA), Panasonic (6752 JP), Samsung (005930 KS) and Hitachi (6501 JP). The company announced, in April 2009, an agreement with Peruvian tin miner Minsur (MINSURI1 PE), to investigate the potential to produce a Heavy Rare Earth Element (HREE) concentrate from the tailings and from newly mined material from Minsur’s Pitinga tin and niobium-tantalum ferro alloy mine in Brazil. The company has been quiet on progress at Pitinga, but brokers Fraser Mackenzie forecast that Pitinga will likely go commercial by the end of 2011. It is not immediately clear who will process the HREE concentrates. Recently released Q1 results to end March 2010 are encouraging, revenues increased 126% to US$65.1m, while EBITDA of $19m, net income of $12.8m and earnings per share of $0.11 per share compares to a Q1 2009 negative EBITDA of -$1.3m, a net loss of -$3.1m and loss per share of -$0.03. Cash provided by 68
  • 4th August 2010 Sector Research – Rare Earths Review operations in the quarter was $5.7m. During a traditionally slow first quarter both divisions enjoyed robust demand for their products. The company has recently announced a technology tie up with Molycorp (MCP- NYSE). Both have probably noted that integration from mining, through processing, to final product manufacture is the key to making superior returns in the Rare Earth Element space. Molycorp has the Mountain Pass potential rare earths mine in California, but lost the manufacturing connections during closure in the 1990’s. Neo was formed as those manufacturing operations were sold off by the Chinese, and has grown by acquisition since. It has been searching for non-Chinese rare earth supplies to become more integrated for some time and has been investigating the re-processing of waste material from Minsur’s (MINSURI1 PE) Pitinga tin mine in Brazil, but progress on this front has been quiet of late. Bloomberg consensus forecasts for the full year amount to C$0.41 per share and trade at 12.6 times that forecast. This appears undemanding, Bloomberg 2011 forecasts suggest a further rise in earnings to 47 cents. Pala Investments hold 19.7% and they usually know a thing or two. Neo are capitalised at around £300m (C$480m) and had US$67.1m of cash at the end of the first quarter. Peak Resources (PEK-ASX) Source: Peak Resources. Peak have a number of gold exploration projects in Australia and Tanzania and are farming into the private company Zari Exploration’s Ngualla rare earth project in Tanzania. 69
  • Sector Research – Rare Earths Review 4th August 2010 At Ngualla three test pits have confirmed consistent concentration of mineralisation with grades up to 16.42% phosphate, 0.69% lanthanum, 0.33% niobium, 0.48% neodymium, 0.14% praseodymium, 0.63% cerium, 0.03% yttrium 306ppm, 1.79% titanium, and 0.007% tantalum in an unconsolidated alluvial deposit. The alluvial potentially could be quite large, the company has an initial target of 2.5 kilometres (km) by 1.5km to a depth of 10m (over 100 Million tonnes), with a further 1.5 km by 0.8 km target to a depth of 7m. Peak can earn 80% of the equity in this project upon sole production of a Bankable Feasibility Study (BFS). Peak has committed A$1.9 m to produce a JORC compliant resource estimate by November 2010 and a scoping study on the alluvium by April 2011. Peak is capitalised at around £6m (A$11m), with A$3.7m of cash. Pele Mountain Resources (GEM-TSX-V) Pele Mountain is developing its 100% owned Eco Ridge uranium mine near Elliot Lake in Northern Ontario, Canada. Elliott Lake is a former uranium mining area, with mines operated by Denison Mines (DML-TSX) and Rio Tinto (RIO). A National Instrument (NI) 43-101 compliant indicated and inferred resource of 42.5 million pounds of U3O8 has been outlined. In 2008, Pele commenced the permitting process by filing a Project Description with the Canadian Nuclear Safety Commission and the Federal Government’s Major Project Management Office. Drilling has also confirmed the presence of low grade Rare Earth Elements (REE), occurring as rare earth oxides in conjunction with uranium oxide (U3O8) in the Main Conglomerate Bed at Eco Ridge. To date, all 30 drill intersections that have been analysed for REE, have contained REE, although grades of no more than 0.32% REO’s suggest that the economics of uranium will prove more significant. Although yttrium and heavy REE comprise a minority of the deposit’s overall rare earth content, these minerals have far greater economic value than the light REE and have demonstrated good recoverability. Preliminary leach testing at SGS Canada Inc. indicates potential recoveries of approximately 64% of combined yttrium and heavy REE. The Elliot Lake mining camp was a global producer of yttrium during the 1980s as a by-product of uranium production. Pele Mountain has a number of other gold and nickel exploration projects in Ontario, and are capitalised at around £7m (C$11m). On 11th January 2010, they had C$2m of cash. 70
  • 4th August 2010 Sector Research – Rare Earths Review Quantum Rare Earth Developments (QRE-TSX-V) Quantum Rare Earth Developments are exploring a number of early stage rare earth projects. At Archie Lake in Saskatchewan, Canada, the company is exploring a monazite occurrence, where numerous grab samples have shown very high rare earth anomalies. The company is also exploring the Jungle Well and Laverton projects within 150 kilometers of Lynas’ Mount Weld project in Western Australia, and has recently acquired the Elk Creek carbonatite in Nebraska, USA. Quantum has a market capitalisation of around £4m (C$6m), and presumably will be looking for cash to advance their early stage projects. Cliffs Natural Resources (CLF-NYSE) have inherited a 10.24% shareholding following their acquisition of Freewest Resources. Quest Rare Minerals (QRM-TSX-V) Quest Rare Minerals which has just changed its name from Quest Uranium has two rare earth exploration projects, Misery Lake and Strange Lake both on the border of Quebec and Labrador in Canada. They retain their Plaster Rock uranium project in New Brunswick, Canada. Quest was the best performing TSX Venture Exchange stock in 2009 with a 5,530% increase in share price. Strange Lake located 125 kilometres (km) west of Vale’s (VALE5 BZ) Voisey’s Bay nickel copper cobalt mine. It has a historical pre-National Instrument (NI) 43-101 resource of 52 million tonnes grading 3.25% zirconium dioxide (ZrO2), 0.66% yttrium oxide (Y2O3), 0.56% niobium oxide (Nb2O3) and 1.3% total rare earth oxides (TREO). The company has recently outlined a maiden compliant inferred resource of 115,000 t grading 1% TREO, 1.973% zirconium dioxide, 0.208% niobium pentoxide (Nb2O5), 0.053% hafnium dioxide (HfO2) and 0.082% beryllium oxide (BeO). Source: Quest Rare Minerals 71
  • Sector Research – Rare Earths Review 4th August 2010 Misery Lake is at an earlier stage of exploration, but encouraging grab samples grading up to 8.56% TREO plus yttrium, 42.4% iron, 7.12% phosphorus pentoxide (P2O5), 4.85% titanium dioxide (TiO2), 3.05% zirconium dioxide and 2.72% niobium pentoxide have been recorded. The target is associated with a 6 km diameter magnetic anomaly. Quest is capitalised at around £75m (C$120m) and at 15th April 2010 had cash of C$5.1m. With relatively low rare earth grades, remote location and complicated metallurgy this appears high. Rare Earth Metals (RA-TSX-V) Rare Earth Metals is developing their 100% owned Clay Howells carbonatite exploration project near Timmins in Ontario, Canada. Recent drill results include 76.6 m grading 0.69% TREO, 0.12% Nb2O3 and 47.2% magnetite (Fe2O3). The light rare earth component appears to be large with 92-94% LREE in the total rare earths. The company has a number of other rare earth exploration projects, Red Wine in Labrador, and the Lackner project in Ontario. They are capitalised at around £10m (C$15m), with C$9.6m of cash. This appears reasonable particularly as magnetite may carry the day. Rare Element Resources (RES-TSX-V) Rare Element Resources is developing the Bear Lodge project in Wyoming USA, which the company believes has similarities to Mountain Pass in California. Newmont Mining (NEM-NYSE) is earning a 65% joint venture interest in the Sundance gold venture, but Rare Element controls 100% of the rare earths occurrences. Bear Lodge is an alkaline igneous complex, with the rare earth’s contained in ancylite and bastnäsite in veins and dykes. The company is hoping to outline a National Instrument (NI) 43-101 compliant resource by mid 2010. The company has just announced a National Instrument (NI) 43-101 inferred resource of 4.0 million tonnes grading 6.65% Rare Earth Oxides (REOs) using a 4% REO cut off grade. The company calculates the resource to a wide range of cut off from 1% up to 5%, but gives a REO breakdown only at 1.5%, in this base case scenario. At this cut off cerium oxide represents 47.1% of the REOs, lanthanum oxide 31.2%, neodymium oxide 11.9%, praseodymium oxide 4%, samarium oxide 2.3%, gadolinium oxide 1.2% and the rest 2.3%. They are capitalised at around £65m (US$90m) with US$5m of cash. Considering the projects are early stage, with a high proportion of Light Rare Earth Elements (LREE) they appear expensive. Stans Energy (RUU-TSX-V) Stans Energy has a number of rare earths and uranium projects in the central Asian state of Kyrgyzstan. They are looking to re-establish production at its 100% owned Kutessay II rare earths mine and plant in Kyrgyzstan. Kutessay produced 80% of the rare earth elements for the former Soviet Union for 30 years. The mine has a historic, non National Instrument (NI) 43-101 compliant Russian 72
  • 4th August 2010 Sector Research – Rare Earths Review reserve estimate of 63.3 tonnes of rare earths, with a 50:50 split between lights and heavies. The deposit also contains thorium, silver, molybdenum, lead, zinc, tantalum, niobium, hafnium and bismuth, but benefits from known metallurgy, 120 Rare Earth Element products have been produced from Kutessay concentrate including oxides, metals and alloys. Historical Rare Earth Element recovery rates of 65% were recorded in Soviet times. Stans Energy’s properties in Kyrgyzstan Source: Stans Energy. Source: Stans Energy. 73
  • Sector Research – Rare Earths Review 4th August 2010 Kutessay II Rees by Value USD Source: Stans Energy. Stans Energy owns an exclusive option to purchase the Kyrgyz Chemical- Metallurgical Plant (KCMP). KCMP was designed to separate rare earth elements from Kutessay II concentrates, and produced oxides, metals and alloys grading up to 99.99% pure. KCMP has been under care and maintenance since 1990, but almost all equipment remains on site. Stans Energy are currently calculating a Joint Ore Reserves Committee compliant resource estimate for Kutessay II, and analysing the potential for reopening KCMP. The company is due to report on progress by Q3 2010, when it hopes to proceed with a pre-feasibility study. Stans Energy is capitalised at around £18m (C$29m) and have just raised C$1.5m in a share placement. The concept is interesting, but one has to question how much of a processing plant mothballed in 1990, will be useable. Recent political turmoil in Kyrgyzstan won’t help. Tasman Metals (TSM-TSX-V) Tasman is in the process of building up a portfolio of Rare Earth Element exploration projects in Scandinavia. Norra Kärr in Sweden is their most advanced project and benefits from past exploration activity. A northern trench in nepheline syenite assayed 244m grading 1.9% zirconium dioxide (ZrO2) plus 0.37% TREOs, while a southern trench assayed 149m grading 1.5% ZrO2 and 0.43% TREOs and 52m @ 1.47% ZrO2 and 0.54% TREOs. The company point out that these trenches were never assayed for 6 of the 9 higher value Heavy Rare Earth Elements (HREE), while subsequent grab samples showed elevated HREE values. 74
  • 4th August 2010 Sector Research – Rare Earths Review Source: Tasman Metals. Recent drilling from Norra Kärr has confirmed the encouraging trench data. 108.1m from 43.4m grading 0.74% TREO and 2.1% ZrO2 was pulled from one hole, while 149.2m from 2.5m grading 0.61% TREOs and 1.7% ZrO2 was pulled from a second. The company believes that the high proportion of HREO (49% of TREOs), including 278 parts per million (ppm) of Dysprosium oxide (Dy2O3) is significant. The company also believes that the low content of radioactive metals (averaging only 15ppm uranium and 10 ppm thorium) will simplify future permitting, processing and mining options. Tasman is capitalised at around £22m (C$36m), and have just raised C$3m of equity in a placement. Rare earth grades don’t appear particularly special, while the metallurgy doesn’t look straightforward. Ucore Rare Metals (UCU-TSX-V) Ucore Rare Metals, formerly Ucore Uranium, is exploring a historical non- National Instrument (NI) 43-101 compliant resource of 374 million pounds (170,000 tonnes) of rare earths, 11 Mlbs of uranium, 96 Mlbs of niobium at their huge 100% controlled Bokan Mountain project in Alaska. The deposit also has significant beryllium, zirconium and thorium mineralisation. 75
  • Sector Research – Rare Earths Review 4th August 2010 Source: Ucore Rare Metals. Ucore – Bokan – I&L 2.5 m Drill Interval – REE $/t Source: Ucore Rare Metals. 76
  • 4th August 2010 Sector Research – Rare Earths Review Recognising its strategic importance, the Alaska State House of Representatives has unanimously passed a resolution in favour of expedited permitting and production of heavy rare earth resources at the Bokan Mountain project in southeast Alaska. Resolution 16 – Mining-Processing of Rare Earth Elements recommends the continued exploration of rare earth deposits in Alaska and, more specifically, the issuance of permits, as promptly as allowed by law, for extraction, processing and production of rare earth materials on the Bokan Mountain properties. Bokan Mountain was a previous producer with significant remaining infrastructure. Recent drilling has been encouraging with up to 95% HREOs and up to 1.13lbs/ton Terbium Oxide (Tb2O3 and 7.69 lbs/t Dysprosium Oxide (Dy2O3). The company intends to drill at least 3,000m in 2010 with a view of declaring a National Instrument (NI) 43-101 compliant inferred resource. Ucore has a market capitalisation of around £19m (C$28m), and have about C$2m of cash. Bokan appears to be an interesting project, and may benefit from considerable Alaskan state support. Unlisted Companies Dong Pao In 2009, the Japanese trading companies Toyota Tsusho Corp (8015 JP) and Sojitz Corp (2768 JP), and a Vietnamese government-run resource development company, launched a joint venture to start developing a major earth mineral site at Dong Pao, about 280km northwest of Hanoi in Vietnam. The joint venture will begin commercial mining operations as early as 2011, supplying about 5,000 tonnes of the minerals, or about a quarter of Japan's annual consumption, for about 20 years. A study by the Japan International Cooperation Agency and the Metal Mining Agency of Japan dated March 2001 indicated that reserves of the F3 orebody at Dong Pau amounted to 890,000 tonnes grading 12% rare earth oxides. Bastnäsite, being the main ore mineral, is apparently enriched in light rare earth elements, while there are suggestions that thorium levels are quite high. It is not clear whether the presence of the potential environmental contaminant arsenic is an issue, the Governmental report also reports processing issues arising from the weathered nature of the bastnäsite. Frontier Minerals Limited Private company, Frontier Minerals, is developing their Zandkopsdrift rare earth carbonatite in South Africa, where estimated resources of 31.5 million tonnes grading 3.6% REOs have been outlined. It is not clear to which standard these resources are reported. Montero Mining Montero Mining is a private Vancouver company with listing aspirations. They are exploring the Wigu Hill project in Tanzania. Wigu Hill is a prominent 3 77
  • Sector Research – Rare Earths Review 4th August 2010 kilometres (km) by 6 km carbonatite intrusion, where historical rare earth oxide grades of 10% with associated uranium and phosphate concentrations have been reported. Montero is required to spend US$3.5m by November 2012 to earn a 60% interest, with an option to purchase or earn an additional 10% for $2m once it has earned in. In 2009 they mapped the property, carried out scintillometer surveys and extensively sampled the carbonatite dykes. The company is looking to raise C$6m in a pre-IPO placement in order to advance the project. They feel they can get to a National Instrument (NI) 43-101 compliant resource of 1 million tonnes grading 10% rare earths pretty quickly, at which point they will able to list in Vancouver. Montero appears to be an interesting situation; it is always useful to start off with high grades. They have yet to undertake any metallurgical tests, and their 95% exposure to light rare earths might be a disadvantage. Spectrum Mining Spectrum is a private company that has recently reported drilling on their Wicheeda rare earths project in British Colombia, Canada. 48.64 metres (m) averaging 3.55% Rare Earth Elements (REE), 72m grading 2.92% REE and 144m grading 2.20%. As can be seen a staking rush has followed this announcement, with a number of parties including Commerce Resources (CCE-TSX-V) getting in on the act. Source: Commerce Resources. 78
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  • Sector Research – Rare Earths Review Libertas Capital Corporate Finance Limited Recommendation Structure Libertas Capital Corporate Finance Limited, wholly owned by Libertas Partners LLP, is authorised and regulated by the Financial Services Authority. Buy: Total return expected to appreciate 10% or more over a 12-month period. Neutral: Total return expected to be between +10% and –10% over a 12-month period. Sell: Total return expected to depreciate 10% or more over a 12-month period. The information in this report has been prepared by Libertas Capital Corporate Finance Limited (‘LCCF’). Materials available herein have no regard to the specific business objectives, financial situation or particular needs of any specific recipient. The research is published for information purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The information in this report is intended for recipients who are Eligible Counterparties and/or Professional Customers as those terms are defined in the Rules of FSA. If you do not fit into these categories please disregard this information. The opinions, estimates and projections in this report accurately constitute the current judgement and express views of the author as at the date of the report. They do not necessarily reflect the opinions of LCCF and are subject to change without notice. Unless specifically stated otherwise, all price information is indicative only. No representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness or reliability of the materials, nor are they a complete statement of the securities, markets or development referred to herein. The material should not be regarded by recipients as a substitute for the exercise of their own judgement. The financial instruments discussed in this report may not be suitable for all investors. Investors must make their own investment decisions using their own independent advisors as appropriate. The value of, and the income produced by, financial instruments may fluctuate, so that investors may get back less than they invested. A change in the exchange rate may adversely affect the value of, or the income derived from, financial instruments. Past performance does not guarantee future performance. The analyst(s) responsible for covering the securities in this report receive compensation based upon, among other factors, the overall profitability of LCCF. LCCF may, from time to time, perform corporate finance or other services for, or solicit corporate finance or other business from, any company mentioned in this report. LCCF, its related entities, directors, employees and agents accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or part of these materials. No part of this document may be reproduced in any manner without the written permission of LCCF. The information in this report is provided with the understanding that LCCF is not acting in a fiduciary capacity. Certain laws and regulations impose liabilities which cannot be disclaimed. This disclaimer shall in no way constitute a waiver or limitation of any rights a person may have under such laws and/or regulations. LCCF is authorised and regulated by the Financial Services Authority, and is a member of the London Stock Exchange. Please note that LCCF has a research conflicts policy, which can be made available upon request. Copyright ©2010 Libertas Capital Corporate Finance Limited, all rights reserved. Additional information is available upon request. Libertas Capital Corporate Finance Limited, 16 Berkeley Street, London W1J 8DZ Tel: +44 20 7569 9650 – Fax: +44 20 7493 8543 Internet: www.libertaspartnersllp.com