The document provides an overview of recent dynamics in the global rare-earth market. It discusses: 1) An introduction to rare-earth elements, including which are considered critical and their main applications such as in permanent magnets. 2) Current rare-earth demand and supply, with China as the dominant supplier meeting over 65% of global demand in 2011, driven by applications such as permanent magnets. 3) Chinese mining and export quotas which have tightened in recent years, contributing to price volatility as global supply became increasingly dependent on China. 4) The politics surrounding rare-earth trade, including an alleged Chinese embargo on exports to Japan in 2010 and an ongoing WTO dispute brought by the US

1. Recent Dynamics in the
Global CRITICAL Rare-Earths Market
Gareth P Hatch, PhD
Presented by Jack Lifton
Founding Co-Principals, Technology Metals Research, LLC
GeoArena
October 17, 2012 – Uppsala Konsert & Kongress

2. Overview
 An Introduction to the Rare Earths
 Rare-Earth Demand
 Current Rare-Earth Supply
 Chinese Mining & Export Quotas
 Rare-Earth Price Volatility
 The Politics of Rare Earths
 Other Supply & Demand Issues
 Future Sources of Rare-Earth Supply

3. Disclaimer & Cautionary Statement
The information contained in this presentation is provided by Technology Metals Research, LLC (“TMR”) and
the author, for general educational purposes only. Certain information herein is based on third-party sources
that are believed to be reliable, but whose accuracy is not guaranteed. It may also contain statements that
could constitute forward-looking statements, describing expectations, opinions or guidance that are not
statements of fact. Forward-looking statements may include, among others, statements regarding future
market supply and demand, government policies, and other market dynamics, or the assumptions underlying
any of the foregoing. In this presentation, words such as "may", "could", "would", "will", "likely", "believe",
"expect", "anticipate", "intend", "plan", “goal”, "estimate" and similar words and the negative forms thereof are
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4. Recent Dynamics in the Global Rare-Earth Market
I: An Introduction to the Rare Earths

5. Which are the 17 rare-earth elements?
Source: Technology Metals Research
An Introduction to the Rare Earths 5

6. The rare-earth industry focuses on 15 elements
Source: Technology Metals Research
An Introduction to the Rare Earths 6

7. The rare earths can be divided into sub-groups
Source: Technology Metals Research
 Definitions relate to the processing of concentrates
 Used by metallurgists & flow-sheet engineers
 Not always used elsewhere in the industry
• Sm frequently grouped with lights; Eu & Gd with the heavies
 Be sure to know which convention is being used
• Make sure to compare “apples to apples”
An Introduction to the Rare Earths 7

8. The magnet-related rare earths
Source: Technology Metals Research
 For commercial permanent-magnet materials:
• Sm-Co type: Sm (Gd, Pr)
• Nd-Fe-B type: Nd, Pr, Dy (Tb)
• Sm-Fe-N type: Sm
An Introduction to the Rare Earths 8

9. The “alphabet soup” of rare-earth acronyms
 Rare-earth element – REE
 Rare-earth oxide – REO
 Light REE / REO – LREE / LREO
 Medium REE / REO – MREE / MREO
 Heavy REE / REO – HREE / HREO
 Critical REE / REO – CREE / CREO
 Total REE / REO – TREE / TREO
An Introduction to the Rare Earths 9

10. Why should I care about non-magnet-related REEs?
 REEs are chemically very similar to each other –
thus:
• They are always found together
• They have to be mined together
 They are very difficult to separate from each other
• They require complex processing routes, e.g. solvent extraction
• Facilities require significant capital & operational expenditures
 The dynamics for any one REE indirectly affects
them all
• Magnet production can ∴ be affected by non-magnet REEs
An Introduction to the Rare Earths 10

11. Applications for REEs
 Significant growth in end-use demand
• New hi-tech products and devices in addition to new markets
• Increased market penetration of clean-energy platforms
 Clean-energy applications require significant
quantities
 Beware of the hype
 Be aware of the potential impact of legislation
• E.g. Effects of ban on incandescent light bulbs on HREEs
• Drive for more energy-efficient appliances and devices
An Introduction to the Rare Earths 11

12. Recent Dynamics in the Global Rare-Earth Market
II: Rare-Earth Demand

13. From where does the demand originate?
2011e Demand 2016f Demand
105 kt TREO 160 kt TREO
Sources: IMCOA, Technology Metals Research
Rare-Earth Demand 13

14. From where does the demand originate?
Estimate of global rare-earth demand in 2011 (t REO ± 15%)
Japan & Market
End Use China USA Others Total
SE Asia Share
Permanent Magnets 16,500 500 3,500 500 21,000 20%
Metal Alloys 15,000 1,000 4,000 1,000 21,000 20%
Catalysts 11,000 5,000 2,000 2,000 20,000 19%
Polishing Powders 10,500 750 2,000 750 14,000 13%
Phosphors 5,000 500 2,000 500 8,000 8%
Glass Additives 5,500 750 1,000 750 8,000 8%
Ceramics 3,000 1,500 2,000 500 7,000 7%
Other 3,500 500 1,500 500 6,000 5%
Total Demand 70,000 10,500 18,000 6,500 105,000 100%
Market Share 67% 10% 17% 6% 100%
Source: IMCOA
Rare-Earth Demand 14

15. From where does the demand originate?
Forecast for global rare-earth demand in 2016 (t REO ±
20%)
Japan & Market
End Use China USA Others Total
SE Asia Share
Permanent Magnets 28,000 2,000 4,500 1,500 36,000 23%
Metal Alloys 23,000 2,000 3,000 2,000 30,000 19%
Catalysts 15,500 5,500 2,500 1,500 25,000 16%
Polishing Powders 13,000 2,000 2,000 1,000 18,000 11%
Phosphors 8,500 750 2000 750 12,000 8%
Glass Additives 7,000 1,000 1,000 1,000 10,000 6%
Ceramics 4,000 2,250 2,500 1,250 10,000 6%
Other 5,000 8,000 4,000 2,000 19,000 12%
Total Demand 104,000 23,500 21,500 11,000 160,000 100%
Market Share 65% 15% 13% 7% 100%
Source: IMCOA
Rare-Earth Demand 15

16. Recent Dynamics in the Global Rare-Earth Market
III: Current Rare-Earth Supply

17. From where does the supply originate?
2011e Supply 2016f Supply
103 kt TREO 195 kt TREO
Sources: IMCOA, Chinese State Council Information Office, Technology Metals
Research
Current Rare-Earth Supply 17

18. Where are REEs currently mined?
Source: Technology Metals Research
Current Rare-Earth Supply 18

19. Recent Dynamics in the Global Rare-Earth Market
IV: Chinese Mining & Export Quotas

20. Rare-earth mining production in China
Province / Region 2011 Mining Quota
LREOs (t) HREOs (t)
Fujian 0 2,000
Guangdong 0 2,200
Guangxi 2,500 0
Hunan 1,500 0
Inner Mongolia 50,000 0
Jiangxi 0 9,000
Shandong 1,500 0
Sichuan 24,400 0
Yunnan 0 200
Sub-totals 80,400 13,400
Total Quota 93,800
Actual Production 96,900
Sources: Technology Metals Research, Chinese Ministry of Land & Resources, Chinese State Council Information
Office
Chinese Mining & Export Quotas 20

21. Chinese rare-earth export quotas
 China has been issuing export quotas for several
years
• Ostensibly to “remediate” environmental issues
• Obvious “side-effect”: inward re-location of supply chain
 2012: allocation contingent on better pollution
controls
 Allocations split between L and M/HRE production
 Alloys and compounds not included
 40% reduction in 2010 started the price increases
Chinese Mining & Export Quotas 21

22. Chinese rare-earth export quotas
* rare-earth oxides only – other materials may constitute approx. 2-3,000 t / year
Sources: Chinese Ministry of Commerce, Chinese Ministry of Industry & Information Technology, Asian Metal
Chinese Mining & Export Quotas 22

23. Recent Dynamics in the Global Rare-Earth Market
V: Rare-Earth Price Volatility

24. What caused the recent REE price spike?
 Triggered by 40% reduction in 2010 export quotas
 Led to disconnect between internal & export pricing
 Inflection point in Feb 2011 for internal China prices
• Internal stockpiling / speculation
• Siphoning to black market for export – arbitrage opportunity
 Prices peaked in Jul-Aug 2011
 Significant reduction in volumes of official exports
• Apparent increase in smuggling of rare-earth materials
Rare-Earth Price Volatility 24

25. Recent REO prices
Sources: Technology Metals Research, Metal Pages
Rare-Earth Price Volatility 25

26. How was the magnet industry affected?
 Major efforts to reduce Nd-Fe-B usage in 2011-2012
• Switch from REPM to induction motors
• Switch from surface-mounted to interior REPMs
• Switch back to ferrite where possible
• Higher HREE-containing REPMs – some switched to Sm-Co
 Also efforts to “drop down” a grade or two
• Reducing Dy / Tb = significant cost savings
 Magnet REO demand: 2010 ≈ 26 kt; 2011 ≈ 21 kt
• Likely to rebound in 2012 – though end users are still wary
 At least one bankruptcy of a magnet company…
Rare-Earth Price Volatility 26

27. Recent Dynamics in the Global Rare-Earth Market
VI: The Politics of Rare Earths

28. Alleged REE embargo in 2010
 Sep 2010: Chinese fishing boat collides with
Japanese patrol boats near Senkaku Islands in East
China Sea
 China accused of suspending REE shipments to
Japan
 Japan releases fishing-boat captain
 Alleged suspension of shipments “lifted”…
 Whether or not it happened – it affected the outlook
The Politics of Rare Earths 28

29. The WTO rare-earth trade dispute
 March 2012: USA, EU & Japan initiate WTO action
• Covers exports of wide range of rare-earth-containing materials
 June 2012: State Council publishes REE white paper
• Sets out position on various topics without tying into WTO case
 July 2012: Dispute resolution panel set up
 China likely to cite two GATT Article XX exceptions:
• “necessary to protect human, animal or plant life or health”
• “relating to the conservation of exhaustible natural resources”
 China recently lost a similar case
The Politics of Rare Earths 29

30. Recent Dynamics in the Global Rare-Earth Market
VII: Other Supply & Demand Issues

31. Critical REEs for clean energy
Sources: US Department of Energy, Technology Metals Research,
Other Supply & Demand Issues 31

32. The balance between REE surplus and deficit
 Demand profile of each REE vs. natural occurrence:
• Ratio Dy : Pr + Nd ≈ 1:50 – 1:2 for permanent magnets
• Ratio Dy : Pr + Nd ≈ 1:100 – 1:50 in typical LREE minerals
 Impetus for finding new sources of HREE-rich minerals
• Even HREE-rich minerals contain significant LREEs
Forecast for global supply and demand for select rare earths in
2016
CeO2 Nd2O3 Eu2O3 Tb4O7 Dy2O3 Y2O3
Demand @
60-70 kt 25-30 kt 625-725 t 450-550 t 1.5-1.8 kt 12-14 kt
150-170 kt/yr TREO
Supply @
75-85 kt 30-35 kt 450-550 t 300-400 t 1.3-1.6 kt 9-11 kt
180-210 kt/yr TREO
Source: IMCOA
Other Supply & Demand Issues 32

33. Recent Dynamics in the Global Rare-Earth Market
VIII: Future Sources of Rare-Earth Supply

34. Non-Chinese REE projects
 As of August 2012, TMR was tracking:
• 441 REE projects in 37 countries outside of China
• 90%+ at early stages of exploration & development
 Currently 43 advanced projects on TMR Index
• Completed drilling and testing to a minimum level
• Full list is available at www.RareEarths.org
Future Sources of Rare-Earth Supply 34

35. Current sources of REE supply
Source: Technology Metals Research
Future Sources of Rare-Earth Supply 35

36. Future sources of REE supply
Source: Technology Metals Research
Future Sources of Rare-Earth Supply 36

37. Future sources of REE supply outside of China
Source: Technology Metals Research
Future Sources of Rare-Earth Supply 37

38. Next challenge: producing separated REE products
 A particular issue for projects with HREE-rich deposits
• Many such companies plan to produce concentrates only
 But end users can’t use REE concentrates!
• Very few separation facilities outside of China
• Even fewer independent, toll-based separation facilities
 A solution: build a centralized CREE separation facility
• Innovation Metals plans to do just that
• Low-cost tolling facility to be built in Quebec, Canada
• IMC Consortium: mining companies, end users & traders
Future Sources of Rare-Earth Supply 38

39. Acknowledgements
 My thanks to the following individuals for useful discussions:
• Jack Lifton (Technology Metals Research, LLC)
• Patrick Wong (Innovation Metals Corp.)
• Dudley Kingsnorth (IMCOA & Curtin University)
• Zhanheng Chen (Chinese Society of Rare Earths)

40. Thank You
Gareth P Hatch, PhD
Founding Principal
Technology Metals Research, LLC
180 S. Western Ave #150
Carpentersville, IL 60110
United States of America
+1-847-867-3091
ghatch@techmetalsresearch.com
www.techmetalsresearch.com