cormark securities inc.: initiating coverage on rare earth metals

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L Edward Otto (416) 943-6748 [email protected] METALS & MINING September 13, 2011 Rare Earth Metals Critical To Energy Efficient Products, Mobile Electronics, & Electric Vehicles We are initiating coverage on: Frontier Rare Earths Limited Recommendation: Top Pick Target: $4.60 Great Western Minerals Group Ltd. Recommendation: Buy Target: $1.50 Matamec Explorations Inc. Recommendation: Buy (S) Target: $1.05 Quest Rare Minerals Inc. Recommendation: Buy Target: $11.40 During the past twenty-four months, Cormark Securities Inc., either on its own or as a syndicate member, participated in the underwriting of securities for these companies Disclosure statements located at the back and inside back cover Used in relatively small amounts, rare earths allows magnetic, electrical, and chemical processes to occur at significantly lower energy levels, allowing for increased energy efficiency and smaller scale products. Over the next decade, demand for rare earths is expected to grow at 7-9% pa, driven largely by a continued shift to energy efficient ‘green’ products, increased use of mobile electronics, and electric vehicles. China currently produces ~97% of global rare earths. In July 2010 China announced significant reductions to rare earths export quotas (~40%) claiming protection of a strategic and dwindling resource. At the same time China has made efforts to reduce illegal rare earths mining (~25% of production). Collectively, this has resulted in a sharp increase in prices and a signal to the rest of the world to secure new sources of production. Since 2006 rare earths prices have increased 1,000-10,000%. Based on our long-term forecast all of the dozen most advanced rare earths projects are needed to meet demand. While select ‘light’ rare earths are at risk of oversupply, ‘critical’ rare earths will remain in short supply in an optimistic production scenario. This report focuses on the four best development opportunities we see in the rare earths sector. We are initiating coverage on Frontier Rare Earths Limited (FRO-T, Top Pick, $4.60 target), Great Western Minerals Group Ltd. (GWG-V, Buy, $1.50 target), Matamec Explorations Inc. (MAT-V, Buy (S), $1.05 target), and Quest Rare Minerals Inc. (QRM-V, Buy, $11.40). We view each of these companies as favourable rare earths developers with potential for near-term production and highly profitable operations. We have also included a write-up on Namibia Rare Earths Inc (NRE-T) a s we believe it could be an interesting long-term resource story.

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Cormark Securities Inc. initiated coverage on rare earth metals.

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Page 1: Cormark Securities Inc.: Initiating Coverage on Rare Earth Metals

L

Edward Ot to (416) 943-6748 [email protected]

M E T A L S & M I N I N G

September 13, 2011 Rare Earth Metals

Critical To Energy Efficient Products, Mobile Electronics, & Electric Vehicles

We are initiating coverage on:

Frontier Rare Earths Limited Recommendation: Top Pick Target: $4.60

Great Western Minerals Group Ltd.Recommendation: Buy Target: $1.50

Matamec Explorations Inc. Recommendation: Buy (S) Target: $1.05

Quest Rare Minerals Inc. Recommendation: Buy Target: $11.40

During the past twenty-four months, Cormark Securities Inc., either onits own or as a syndicate member,participated in the underwriting ofsecurities for these companies

Disclosure statements located at the back and inside back cover

Used in relatively small amounts, rare earths allows magnetic, electrical, and chemical processes to occur at significantly lower energy levels, allowing for increased energy efficiency and smaller scale products. Over the next decade, demand for rare earths is expected to grow at 7-9% pa, driven largely by a continued shift to energy efficient ‘green’ products, increased use of mobile electronics, and electric vehicles.

China currently produces ~97% of global rare earths. In July 2010 China announced significant reductions to rare earths export quotas (~40%) claiming protection of a strategic and dwindling resource. At the same time China has made efforts to reduce illegal rare earths mining (~25% of production). Collectively, this has resulted in a sharp increase in prices and a signal to the rest of the world to secure new sources of production. Since 2006 rare earths prices have increased 1,000-10,000%.

Based on our long-term forecast all of the dozen most advanced rare earths projects are needed to meet demand. While select ‘light’ rare earths are at risk of oversupply, ‘critical’ rare earths will remain in short supply in an optimistic production scenario.

This report focuses on the four best development opportunities we see in the rare earths sector. We are initiating coverage on Frontier Rare Earths Limited (FRO-T, Top Pick, $4.60 target), Great Western Minerals Group Ltd. (GWG-V, Buy, $1.50 target), Matamec Explorations Inc. (MAT-V, Buy (S), $1.05 target), and Quest Rare Minerals Inc. (QRM-V, Buy, $11.40). We view each of these companies as favourable rare earths developers with potential for near-term production and highly profitable operations. We have also included a write-up on Namibia Rare Earths Inc (NRE-T) as we bel ieve i t cou ld be an in terest ing long- term resource s tory .

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Rare Earths Markets An Emerging Industry Outside Of China

In July 2010, ‘rare earths’, the largely unheard-of metals, made mainstream newsheadlines as China announced significant reductions to rare earths export quotas. China,which accounts for ~97% of global rare earths production, began imposing export quotason rare earths in 2004. The July 2010 ~40% reduction in rare earths quotas resulted in asharp increase in prices and a signal to the rest of the world to secure new sources ofproduction. Since 2006 rare earths prices have increased 1,000-10,000%.

Used in relatively small amounts, rare earths allow magnetic, electrical, and chemicalprocesses to occur at significantly lower energy levels, allowing for increased energyefficiency and small scale products. We estimate that demand for rare earths will grow atan average of 7-9% pa over the next decade, increasing from ~125,000 t in 2010 to239,000-288,000 t in 2020. It is estimated ~25% of rare earths production in China wassourced from illegal mining (~50% of ‘heavy’ rare earths). In an effort to improveenvironmental standards and consolidate the industry, China is likely to see minimalincrease in rare earths production.

The greater challenge in meeting forecast rare earths demand is the over/under supply ofindividual rare earth metals. We forecast a large shift in relative demand of individualrare earths metals, but expect new projects entering production to have a similardistribution to current supply, leading to significant oversupply risks for individual rareearth metals. Projects with a significant heavy rare earths grade (not relative distribution,just grade) are our focus for development potential.

The most advanced rare earths mine developers range in production potential from 5,000tpa to 20,000 tpa. We expect that all of the dozen most advanced rare earths projectsare needed to meet forecast demand. Based on the development timeline of theseprojects the ‘critical’ rare earths (neodymium, europium, terbium, dysprosium, andyttrium) look to remain in short supply.

Prices for rare earths have increased 1,000-10,000% from their 2006 levels, but forconsumption to grow at 7-9% pa over the next decade prices must fall significantly.Molycorp and Lynas have the opportunity to realize 3-4 years of high pricing, but rareearths prices have likely peaked and we expect a slow decline until the bulk of newprojects achieve production (2016-17).

Similar to other industrial commodity booms such as uranium, molybdenum, and lithium;almost overnight the number of rare earths exploration companies jumped from a handfulto more than a hundred. Within two years the world has figured out that, “rare earths arenot rare”. Despite the relative abundance of rare earths deposits, it is near-termproduction from workable projects that is likely to remain in short supply for thenext decade. High capital costs, difficult metallurgy, marginal ‘heavy’ rare earths grades,and a lack of people with significant rare earths processing experience are major hurdlesto bringing new mines to production.

The combination of an abundance of projects and peak pricing should not beinterpreted as a sector in decline, instead a maturing of the sector and shift in focusto development assets. The rare earths sector differs from past industrial mineral boomsin several ways: current producers are not increasing production, capital and technicalhurdles to production are much higher, and advanced rare earths development projectsremain attractive when an +80% drop in prices is forecast.

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Initiating Coverage Frontier Rare Earths Limited (FRO-T) Top Pick – $4.60

Frontier is an early stage rare earths developer focused on the Northern Cape Province of South Africa. The Company is fully funded to complete a bankable feasibility study on its Zandkopsdrift Rare Earths Project. The deposit has a high rare earths grade (3.65% TREO [B Zone]) and excellent distribution of elements (21% CREO/TREO), ranking 4th

in Cormark’s list of rare earths projects value per tonne. We believe the project is capable of starting construction in H2/13, with first production in H2/16, and ramping to full production in 2018. The mine is expected to average 20,000 tpa rare earths over a 40+ year life. KORES has signed an initial joint venture agreement to acquire a 10-20% interest in the project, up to a 10% interest in Frontier, and a 10-40% right and obligation to purchase production at market prices. The support of a world class strategic partner will aid in advancing the project to production. Based on our capital cost estimate and forecast cash buy-ins by KORES and BEE shareholders, Frontier is near fully financed for construction with debt financing likely available to cover the balance.

Great Western Minerals Group Ltd. (GWG-V) Buy – $1.50

Great Western Minerals is a late stage rare earths developer, focused on the Western Cape Province of South Africa. The company’s flagship asset, the past producing Steenkampskraal mine is in the process of refurbishment, with first production expected H2/12 and separated rare earths oxide production in H2/13. The mine is expected to produce ~5,000 tpa of rare earths oxides at low cash costs. The deposit is uniquely high grade (~16.7% TREO [Main Zone]) with a favourable distribution of critical rare earths (~22% CREO/TREO), ranking 1st in Cormark’s list of rare earths in-situ project value per tonne. We are confident the company will delineate a resource sufficient to support a long life operation. Great Western Minerals has the most exposure to near-term high rare earths pricing with its H2/13 production target (excluding the fully valued Molycorp and Lynas) and the company’s vertically integrated production model provides the opportunity to capture the full value chain of a fast growing industry.

Matamec Explorations Inc. (MAT-V) Buy (S) – $1.05

Matamec Explorations is an early stage rare earths developer. Its flagship asset, the Zeus Rare Earths Project, is located between the cities of Val d’Or, Quebec and North Bay, Ontario. Initial metallurgical work demonstrates potential for pre-concentration by magnetic separation and a one step low temperature acid leaching, resulting in uniquelylow cost processing. We believe the Zeus Project has the potential to become a ~5,000 tpa rare earths producer with ~$8/kg rare earths in concentrate cash costs and ~$41/kg realized price. Management expects to have a preliminary economic assessment completed Q4/11 and we believe the project is capable of a 2017 initial production start.

Quest Rare Minerals Inc. (QRM-V) Buy – $11.40

Quest is an advanced rare earths developer, focused on its Strange Lake Project, in northern Quebec. The deposit grades ~1.3% TREO with a high ~46% HREO/TREO distribution and significant zirconium/hafnium/niobium by-product credits, ranking 5th in Cormark’s list of rare earths project value per tonne. The Company is fully funded to complete pilot plant (Q1/12) and bankable feasibility studies (Q4/12). While the project is remotely located, with fly-in only access and harsh northern conditions, the scale of the resource and production potential justify development. The resource is at surface and sufficient to support a ~15,000 tpa rare earths, 20+ year (high grade) mine life, with a 160+ years total resource. We believe the project is capable of a H2/13 construction start, with first production in H1/17 and full production in 2020. Quest stands out as a high value rare earths developer based on its ~46% HREO/TREO distribution.

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Rare Earth Metals Used in relatively small amounts, rare earths allow magnetic, electrical, and chemical processes to occur at significantly lower energy levels, allowing for increased energy efficiency and smaller scale products. Over the last decade rare earths have seen rapid growth for use in technology and are critical to continued growth in mobile and ‘green’ industries.

The term ‘rare earths’ generally refers to 17 elements of the periodic table (see Figure 1); 15 elements of the lanthanoid group as well as yttrium and scandium which are chemically similar and/or occur within rare earths deposits.

Figure 1 Period Table Of Elements With Rare Earth Elements Highlighted

Sources: Technology Metals Research, LLC. (2011)

Rare earths (“TREO”) can be segmented into ‘light’ and ‘heavy’ on the basis of atomic weight with yttrium generally grouped in with heavy rare earths (see Figure 2). Light rare earths (“LREO”) are more often found in carbonatites while heavy rare earths (“HREO”) tend to occur in a number of less common mineral types or in ion-absorbing clays.

The division of light and heavy rare earths is also used as a measure of relative scarcity; light rare earths tend to be more commonly occurring and significantly lower priced versus the less commonly occurring and significantly more expensive heavy rare earths. Yttrium is often grouped with heavy rare earths due to its geologic occurrence and physical properties, though it is significantly lower priced.

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The global hunt for rare earths deposits has had a strong focus on heavy rare earths mineralization due to their much higher value, critical need in end uses, and significantly lower risk of long-term oversupply. While advertising that rare earths deposits have a high percentage of heavy rare earths relative to total mineralization has become popular, it is misleading. Having a high heavy rare earths grade can be significantly different than having a high percentage of heavy rare earths relative to total rare earths grade.

Figure 2 Definition Of Light & Heavy Rare Earths

Sources: Technology Metals Research, LLC. (2011)

Rare Earths Role In Technology

Rare earths have a broad range of uses; the most common uses being catalysts, magnets,and phosphors. Catalysts have historically been the largest end use for rare earths but thegrowth of mobile electronics and ‘green’ technologies has spurred the development ofcompact and high efficiency motors, utilizing rare earth magnets, which now consumethe largest amount of rare earths (see Figure 3).

Figure 3 Rare Earths Consumption By End Use (2010)

Alloys18%

Catalys ts19%Phosphors

7%

Ceram ics6%Glass

9%Polishes

15%

Magnets20%

Other6%

Consumption By Volume

Other2% Magnets

39%

Polishes10%

Glass4%

Ceram ics2%

Phosphors12%

Catalys ts16%

Alloys15%

Consumption By Value

Sources: Cormark Securities Inc., Technology Metals Research, LLC. (2011) and IMCOA

The most notable use of rare earths is in magnets; rare earth magnets are much more powerful than ferrite magnets providing the ability to manufacture smaller, lighter, and more energy efficient motors. A 31:68:1 ratio of neodymium, iron, and boron is used to produce rare earth magnets with small amounts of dysprosium and terbium added to increase the magnets strength at high temperature and praseodymium to augment magnetic field strength. Compact and high efficiency motors allow for increased capabilities in mobile electronics, electric vehicles, and wind turbines. Virtually all permanent magnet based electric motors can be made smaller and more energy efficient using rare earth metals. Not only mobile electronics benefit from rare earths, household items such as washers and dryers can be made more energy efficient using rare earth magnets. The development of electric cars relies on both powerful batteries and energy

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efficient motors to provide driving range and power comparable to combustion engine vehicles.

Lanthanum and cerium, the most commonly occurring of the rare earths, are used in the petroleum industry to covert heavy crude oil into gasoline and other refined products due to their ability to interact with hydrogen atoms in long-chain hydrocarbons. Cerium, and to a lesser degree lanthanum and neodymium, are used in catalytic converters, in combination with platinum group metals, to reduce the emission of pollutants from an internal combustion engine.

Phosphors are materials that emit light when exposed to an electrical current. LCD, LED, and plasma displays make use of compounds containing europium, yttrium, and terbium for their specific color properties and high electricity to light conversion efficiency. The ever improving capabilities of each generation of mobile phones are a great demonstration of the ability of rare earths to increase energy efficiency and reduce size.

Beyond the three major uses for rare earths noted above, other end uses include such items as glass, fiber optics, ceramics, plastics, polishes, and lasers (see Figure 4).

Figure 4 End Uses Of Rare Earths By Element (2010)

Sources: Technology Metals Research, LLC., Roskill, and IMCOA

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Rare Earths Demand Forecast

Since 2000, demand for rare earths has grown at ~4.7% pa (see Figure 5). Over the nextdecade we forecast an average growth rate in rare earths demand of 7-9% (see Figure 6).By examining the growth potential for different rare earths end uses and the percentage ofeach metal used (see Figure 7) we can forecast underlying metal demand growth rates.On this basis we observe significantly higher growth in demand for rare earths such asdysprosium, terbium, europium, neodymium, and yttrium, collectively referred to as the‘critical’ rare earths (“CREO”) (see Figure 8).

Figure 5 Rare Earths Demand Growth (2000-2010) 9.5%

8.8%

5.8%

5.8%

5.1%

3.5%

3.4%

(2.4%)

4.7%

(5.0%) (2.5%) 0.0% 2.5% 5.0% 7.5% 10.0%

Magnets

Ceram ics

Metal Alloys

Other

Polishes

Phosphors

Catalys ts

Glass

Total

Sources: Cormark Securities Inc., Technology Metals Research, LLC. (2011), Roskill and IMCOA

Over the last decade the use of rare earth magnets has grown at an average of 9.5% pa. The significantly higher strength of rare earth magnets has allowed for higher energy efficiency, greater performance, and reduced size in motors, loudspeakers, hard-disks, cordless power tools, and mobile electronics. We expect demand for rare earth magnets to continue to grow at similar rates due to the continued transition from traditional magnets to rare earth magnets in all applications. In addition to growing market share of the magnets market, electric cars and direct drive wind turbines will further accelerate the growth in demand for rare earth magnets.

Demand for rare earths in catalyst applications has grown slightly faster than the global economy in the last decade. As production of oil continues to shift to heavy oil sources we see demand for catalysts growing at above average rates. Catalysts used in automotives to reduce environmentally harmful emissions will also see above average growth rates as the world shifts to higher tier engine emission standards. Demand for catalytic converters is likely to grow faster than the underlying demand for vehicles and generators.

Rare earths demand in metal alloys has grown at an average of 6.8% pa over the last decade. While we expect continued growth for use in non-battery alloy applications, battery applications are likely to grow in line with the global economy. Rare earths are used in nickel metal hydride batteries which have been supplanted by lithium batteries as the performance battery of choice. Nickel metal hydride batteries are likely to continue to be used in applications that favor cost savings over energy and power performance and will see growth in demand in line with the economy.

As the world shifts to higher energy efficiency lighting we expect demand for rare earths in phosphors to grow at accelerated rates. The global shift away from incandescent lighting to CFL and LED sources will see increased demand for rare earth metals. Growth in LCD, LED, and plasma screen displays as well as mobile electronics with

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large and full-color displays, will result in increased demand for phosphors and rare earth metals.

Rare earths based polishes are used in the manufacture of CRT and some types of LCD monitors, as well as high-quality mirrors and architectural glass products. The secondary and fast growing use of rare earths based polishes is in electronic components which has grown at 8-12% pa over the last decade. Collectively demand for rare earths based polishes should continue to grow slightly faster than the global economy.

The notable exception to large growth in the rare earths sector is for use in glass. CRT monitors are commonly made using cerium oxide stabilized glass. The rapid transition to LCD, LED, and plasma displays has led to a significant drop in demand in CRT monitors and subsequently for rare earths in glass. To offset the decline, lanthanum has seen a growing use in glass to reduce passage of UV rays and is now commonly used in camera lenses.

Rare earths are used in ceramics for a range of applications; from coloring additives to improving refractory, electrical, and hardness properties. We expect this sector to grow slightly above world economy growth rates due to increasing demand for high technology products and continued development of new applications.

Figure 6 Rare Earths Demand Forecast By End Use 2010 Rare Earths Demand Forecast

End Use 2010 Demand Growth Rate 2020 Demand(t) (t)

Magnets 26,000 12% - 14% 80,800 - 96,400Catalysts - Petroleum Refining 7,800 8% - 10% 16,800 - 20,200Catalysts - Automotive 16,700 6% - 8% 29,900 - 36,100Alloys - Batteries 13,400 2% - 4% 16,300 - 19,800Alloys - Excluding Batteries 8,600 4% - 6% 12,700 - 15,400Phosphors 8,500 8% - 10% 18,400 - 22,000Polishes 19,000 4% - 6% 28,100 - 34,000Glass 11,000 2% - 4% 13,400 - 16,300Ceramics 7,000 6% - 8% 12,500 - 15,100Others 7,000 4% - 6% 10,400 - 12,500

Total 125,000 7% - 9% 239,000 - 288,000 Note: Totals may not sum exactly due to rounding. Source: Cormark Securities Inc.

The exciting potential for rare earths is how many new uses have yet to be commercialized or discovered. Above and beyond the current uses and growth rates for rare earths are the exciting opportunities for new applications. One such example is Molycorp’s rare earths based water purification technology. Many of the least common rare earth elements have never been thoroughly investigated for potential applications simply because the metals were unavailable. As new mines enter production and global production of erbium, holmium, thulium, and ytterbium increase it is likely that new applications will be found for their unique physical, chemical, thermal, and electrical properties. Our forecasts for individual rare earth metals demand is based on the current distribution of rare earths in the major end uses (see Figure 7). New technologies and end uses for rare earths are upside to our estimates.

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Figure 7 Percentage Of Rare Earth Metals Used Per End Use (2010) Rare Earth Metals

End Use La Ce Pr Nd Sm Eu Gd Tb Dy Y OtherMagnets 23.0% 69.0% 0.8% 2.0% 0.2% 5.0%Catalysts - Petroleum Refining 90.0% 10.0%Catalysts - Automotive 5.0% 90.0% 2.0% 3.0%Alloys - Batteries 50.0% 33.4% 3.3% 10.0% 3.3%Alloys - Excluding Batteries 26.0% 52.0% 5.5% 16.5%Phosphors 8.5% 11.0% 4.9% 1.8% 4.6% 69.2%Polishes 31.5% 65.0% 3.5%Glass 25.0% 67.0% 1.0% 3.0% 3.0% 1.0%Ceramics 17.0% 12.0% 6.0% 12.0% 53.0%Others 19.0% 39.0% 4.0% 15.0% 2.0% 1.0% 19.0% 1.0%

Sources: Cormark Securities Inc. and IMCOA

Combining our forecast growth rates (see Figure 6) with the relative amounts of each rare earth metal consumed (see Figure 7) we arrive at our forecast demand for each of the rare earth metals (see Figure 8). Our forecast for individual rare earth metals demand is based on the current distribution of rare earth metal in the major end uses and new technologies and end uses are an upside to our estimates.

Figure 8 Rare Earth Metals Demand Forecast Rare Earths Demand Forecast

2010 Demand Growth Rate 2020 Demand(t) (t)

Lanthanum 28,770 5% - 7% 45,930 - 55,490Cerium 48,980 4% - 6% 75,460 - 91,260Praseodymium 8,700 10% - 12% 22,700 - 27,150Neodymium 23,420 11% - 13% 63,840 - 76,300Samarium 790 6% - 8% 1,390 - 1,670Europium 420 8% - 10% 900 - 1,080Gadolinium 740 11% - 13% 2,050 - 2,450Terbium 440 9% - 11% 1,010 - 1,200Dysprosium 1,300 12% - 14% 4,040 - 4,820Yttrium 11,250 7% - 9% 21,740 - 26,090Other 180 3% - 5% 240 - 290

Total 125,000 7% - 9% 239,000 - 288,000 Note: Totals may not sum exactly due to rounding. Source: Cormark Securities Inc.

Figure 8 demonstrates the ‘critical’ ranking of rare earth metals such as dysprosium, neodymium, terbium, and europium, and yttrium, which have high forecast growth rates. Compounding the issue for ‘critical’ rare earths is the potential supply side reaction. The dozen most advanced rare earths projects collectively have a similar rare earths distribution to current production and the relative percentage of each rare earth metal produced is unlikely to change. This imbalance between rare earths metal supply distribution and forecast demand distribution will result in oversupply issues for select elements (see Figure 9).

In a balanced supply/demand scenario new mines would continue to enter production until the basket value of their production reached break even. On this basis we expect the basket value of rare earths to decrease over time. Rare earths such as lanthanum and cerium are likely to sharply decrease in price as they enter significant oversupply. Rare earths such as dysprosium, terbium, and europium are more likely to see a small decline in prices as they remain in short supply.

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Figure 9 Rare Earths Demand Distribution Forecast 2010 Production 2020 Demand Change In Oversupply

Distribution Distribution Relative Demand Risk

Lanthanum 23.0% 19.2% (16%) HighCerium 39.2% 31.6% (19%) HighPraseodymium 7.0% 9.5% 36% LowNeodymium 18.7% 26.6% 42% LowSamarium 0.6% 0.6% (8%) HighEuropium 0.3% 0.4% 12% LowGadolinium 0.6% 0.9% 44% LowTerbium 0.4% 0.4% 19% LowDysprosium 1.0% 1.7% 62% LowYttrium 9.0% 9.1% 1% LowOther 0.1% 0.1% n/a n/a

Total 100.0% 100.0% Source: Cormark Securities Inc.

Rare Earths Supply Since the 1980s China has gradually increased rare earths production while the rest of the world has declined. By-product light rare earths production from iron ore mines in the Bayun Obo region of China have been the primary source for low-cost production undercutting global competitors. Without significant revenue from light rare earths production, global producers were forced to shut down and by-product production of heavy rare earths ceased outside China. As demand for heavy rare earths has grown production has been sourced through mining of exceptionally low grade ion-absorption clays in the south provinces of China (~50% estimated to be illegally mined).

Figure 10 Rare Earths Supply History

0

25

50

75

100

125

150

1985 1990 1995 2000 2005 2010

Rar

e Ea

rths

Pro

duct

ion

(000

t) China

Res t of World

Sources: Cormark Securities Inc. and Roskill

China currently accounts for ~97% of rare earths production and is the only significant source of heavy rare earths. In 2004 China began implementing export quotas on rare earth metals, claiming protection of a dwindling resource and a focus on increasing value add manufacturing within the country. The export quota has decreased from (66,000 t) in 2004 to the current level of ~30,000 t. The July 2010 announcement that full year export quotas were being reduced 40% from 2009 levels sent shockwaves through the market and has resulted in the dramatic rise in rare earths prices.

In addition to imposing export quotas on rare earths production, China has worked to improve environmental standards in the rare earths mining sector by shutting down more

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pollutive producers, cracking down on illegal mining, and consolidating production. As a result production from China has decreased. It is estimated that ~25% of global rare earths production is from illegal mining in China, including ~50% of heavy rare earths production. Continued effort to shut down illegal mining operations will result in further rare earths supply reductions. Over the next decade we forecast minimal growth in production of rare earths from China (150,000 t in 2020).

Figure 11 presents the rare earths supply/demand forecast over the next decade, based on current producers and Cormark/company estimates for the dozen most advanced projects. We believe Figure 11 presents an optimistic supply scenario, and not all the projects are likely to achieve production on the timeline presented, but the figure does demonstrate the potential for rare earths oversupply.

Figure 11 Total Rare Earths Supply/Demand Forecast

0

50

100

150

200

250

300

350

2010 2012 2014 2016 2018 2020

Rar

e Ea

rths

Pro

duct

ion

(000

t)

NechalachoZeusZandkopsdriftNorra KarrStrange LakeBear LodgeDubboNolans BoreSteenkam pskraalOrissa-KeralaMt WeldMountain PassKarnasurtBuena NorteChinaDem and HighDem and Low

Sources: Cormark Securities Inc. and company forecasts

A closer examination of the individual rare earths supply/demand forecast reveals that while total rare earths production is at risk of oversupply, in an optimistic supply scenario, critical rare earths (neodymium, dysprosium, terbium, europium, and yttrium) are likely to remain in short supply (see Figure 12).

Figure 12 Critical Rare Earths Supply/Demand Forecast

0

20

40

60

80

100

120

140

160

2010 2012 2014 2016 2018 2020

Crit

ical

Rar

e Ea

rths

Pro

duct

ion

(000

t)

NechalachoZeusZandkopsdriftNorra KarrStrange LakeBear LodgeDubboNolans BoreSteenkam pskraalOrissa-KeralaMt WeldMountain PassKarnasurtBuena NorteChinaDem and HighDem and Low

Sources: Cormark Securities Inc. and company forecasts

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Rare Earths Prices Rare earths are not exchange traded commodities; prices are negotiated between producers, metals traders, and end users with industry groups and governments tracking the most commonly traded metals prices. Figure 13 shows the historic average annual prices for the most common of the rare earths and demonstrates the extreme jump in prices since 2010. Heavy rare earths are currently 15-40x more expensive than light rare earths, due to a significant difference in scarcity. Over the next decade we expect the difference in prices to increase as individual rare earths face over/under supply issues.

Figure 13 Rare Earths Price History (US$/kg) (YTD)

Oxide: 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Current CAGRLanthanum 1.85 1.51 1.60 1.57 1.76 3.01 7.95 5.89 19.92 132.75 165.00 60%Cerium 2.03 1.68 1.57 1.40 1.49 2.46 4.35 4.16 21.75 133.94 170.00 59%Praseodymium 3.87 4.09 7.44 8.29 13.58 26.74 26.92 15.07 42.67 227.13 280.00 57%Neodymium 4.33 4.26 5.64 7.38 14.79 28.88 27.22 15.29 45.58 298.06 450.00 63%Europium 239.90 292.30 277.00 239.10 299.60 469.50 463.70 549.20 3,116.25 6,500.00 47%Terbium 170.00 341.00 311.40 456.20 553.90 658.80 352.10 526.30 2,522.81 4,750.00 48%Dysprosium 19.71 15.55 30.78 41.47 69.38 82.54 112.10 104.70 225.50 1,504.58 3,000.00 70%Yttrium 4.01 6.87 15.28 13.84 26.80 162.81 210.00 105%

Sources: Cormark Securities Inc., Technology Metals Research, LLC. (2011) and Metal Pages

Prices for rare earths have increased 1,000-10,000% from their 2006 levels, but for consumption to grow at 7-9% pa over the next decade prices must fall significantly. Molycorp and Lynas have the opportunity to realize 3-4 years of high pricing, but rare earths prices have likely peaked and we expect a slow decline until the bulk of new projects achieve production (2016-17). Based on the current distribution of rare earths production we have assumed a long-term basket value of ~$40/kg, roughly equal to our estimate of the marginal project cost (capital & operating cost).

The hurdle for additional rare earths projects to achieve production is a combination of high capital costs, lack of people with rare earths processing experience, and need for end users. As an industrial mineral, projects will struggle to finance construction without demonstrated end users for production. We believe it is likely that the dozen most advanced rare earths developers receive support from joint venture and off-take partners to meet demand over the next decade. Future increases to rare earths supply (beyond 2020) are likely to be the result of mine expansions and not new projects. An oligopoly of producers is expected to form in the longer term, similar to many other industrial minerals, and support basket rare earths prices higher than $40/kg.

Combining our forecast for a major shift in the distribution of rare earths demand with a $40/kg basket price results in our long term rare earths price forecast (see Figure 14). We expect the price of lanthanum and cerium to drop to historically low prices ($0.50-1.00/kg) as the bulk of new rare earths projects enter production. Critical rare earths are likely to see the smallest drop in pricing as we forecast them to remain in short supply ($1,000-1,500/kg).

We assume no value for the less common rare earths; holmium, erbium, thulium, ytterbium, and lutetium. Markets for these metals are currently too small to have well established prices and we view the sale of these metals as upside to our estimates.

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Figure 14 Rare Earths Price Forecast (US$/kg) Long

Oxide: 2012 2013 2014 2015 Term

Lanthanum 125.00 50.00 20.00 5.00 1.00Cerium 125.00 50.00 20.00 5.00 0.50Praseodymium 275.00 275.00 275.00 150.00 75.00Neodymium 450.00 450.00 450.00 200.00 75.00Samarium 150.00 75.00 35.00 25.00 10.00Europium 5,000.00 5,000.00 4,000.00 2,000.00 1,000.00Gadolinium 225.00 225.00 225.00 225.00 150.00Terbium 4,000.00 4,000.00 4,000.00 3,000.00 1,500.00Dysprosium 3,000.00 3,000.00 3,000.00 2,000.00 1,000.00Yttrium 160.00 100.00 75.00 50.00 15.00

Sources: Cormark Securities Inc.

Rare Earths Mine Developers & Explorers

Figure 15 presents Cormark’s list of the 11 most advanced rare earths developmentprojects. The projects have been ranked based on run rate production value to adjustedenterprise value, accounting for our estimates of capital cost, operating cost, recoveries,and rare earths payability. Our ranking places no value on resource size or potentialproduction expansion. We view rare earths as an industrial mineral and as such assign novalue for in-situ resource, instead focusing on near-term development potential.

The resource summaries presented in Figure 15 are based on the highest cut-off grade defined for each project which can support a ~20 year mine life. The in-situ value per tonne estimate is calculated based on Cormark’s long-term rare earths prices forecast (see Figure 14). Projects such as: Strange Lake (Quest), Nechalacho (Avalon), and Zandkopsdrift (Frontier) have very large resources and a much higher cut off grade can be used to examine the in-situ value of initial production years. Steenkampskraal (Great Western Minerals) stands out as a very high in-situ value per tonne project, but lacks resource size. The company’s resource estimate is based on historic numbers and no exploration drilling has been completed on the project. We believe the deposit can be expanded to at least 1 MM t ore at similar grade. Zeus (Matamec) ranks as the lowest in-situ value project, but has the potential for very low cost processing allowing for competitive economics.

Production starts and run rate capacities are based on Cormark estimates and company guidance. Figure 15 indicates a run rate production of 10,000 tpa for Great Western Minerals, contrary to our 5,000 tpa long-term forecast (see Figure 37). Great Western Minerals is the closest junior developer to production and likely able to double capacity before many of its peers achieve production, but at this time we value an expansion to 10,000 tpa as upside to our forecast, though we do account for this expansion in calculating our long-term supply/demand balance. Molycorp and Lynas stand out with impressive market capitalizations due to their fully financed, built/construction ongoing project status. Both companies have the potential to realize several years of high rare earths pricing until the bulk of development projects achieve production in 2016/17.

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Figure 15 Global Rare Earths Development Projects Resource Production

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ Value Run RateCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore) Start (tpa REO)Development Stage Rare Earths CompaniesFrontier Rare Earths Limited $133 $83 Zandkopsdrift S. Africa 12,350 3.65% 0.78% 0.29% 21% 8% $1,269 2016 20,000Great Western Minerals Group, Ltd. $317 $308 Steenkampskraa S. Africa 250 11.65% 2.62% 0.89% 22% 8% $3,346 2013 10,000Quest Rare Minerals Ltd. $246 $196 Strange Lake Canada 31,351 1.26% 0.57% 0.57% 46% 46% $1,089 2017 15,000Matamec Explorations, Inc. $47 $42 Zeus Canada 16,314 0.51% 0.21% 0.19% 41% 37% $463 2017 5,000Tasman Metals Ltd. $202 $186 Norra Karr Sweden 16,200 0.65% 0.34% 0.33% 52% 51% $522 2016 7,500Avalon Rare Metals Inc. $415 $383 Nechalacho Canada 25,499 2.24% 0.76% 0.52% 34% 23% $1,891 2017 10,000Arafura Resources Limited $255 $158 Nolans Bore Australia 30,300 2.80% 0.66% 0.09% 24% 3% $840 2015 20,000Rare Element Resources Ltd. $359 $286 Bear Lodge USA 6,804 3.41% 0.68% 0.13% 20% 4% $1,108 2016 10,000Lynas Corporation Limited $2,862 $2,590 Mt Weld Australia 17,490 8.09% 1.67% 0.44% 21% 5% $2,756 2012 22,000Alkane Resources Limited $520 $502 Dubbo Australia 73,200 0.89% 0.29% 0.20% 33% 22% $634 2016 5,000Molycorp, Inc. $4,421 $3,941 Mountain Pass USA 27,216 6.55% 0.81% 0.03% 12% 0% $962 2013 40,000 Sources: Cormark Securities Inc and company reports

In addition to the publicly listed rare earths projects, several private projects are in development including; Orissa-Kerala – India, Lahat – Malaysia, Karnasurt – Russia, Dong Pao – Vietnam, and Buena Norte – Brazil. All these projects are small scale (<5,000 tpa) and have similar rare earths distributions to current production.

Based on our forecast for 7-9% pa growth in rare earths demand and a sustained shortage of critical rare earths production, we believe all of the dozen most advanced projects are needed and should be advanced to production. This report focuses on companies with projects which we view as capable of successfully achieving near-term production, are attractively valued, and well positioned to receive the largest reratings as they shift to trading at producer multiples.

Similar to other industrial commodity booms such as uranium, molybdenum, and lithium; since China announced major rare earths export quota reductions in July 2010 the number of rare earths exploration companies has jumped from a handful to more than a hundred. We take a much more conservative view on the valuation of exploration stage projects, assigning no value for resources in the ground, only development potential. In two years the world has figured out that ‘rare earths are not rare’ and there are relatively abundant rare earths resources around the globe. Projects that are unlikely to achieve production in the next decade will be further hindered by declining prices and new producers’ ability to expand production to meet demand. An abundance of rare earths resources will prevent the need for producers to acquire exploration stage assets leaving less than exceptional deposits to languish. Exploration stage projects must stand out as uniquely high grade, large, and/or having a low capital requirement to be able to force their way into a mature industrial mineral market. On this basis we see potential for rare earths explorers such as Namibia Rare Earths, which we view as having outstanding long-term resource potential. Figure 16 lists the 15 most advanced rare earths exploration companies.

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Figure 16 Rare Earths Exploration Projects Resource

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ ValueCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore)Exploration Stage Rare Earths CompaniesGreenland Minerals and Energy Limited $254 $242 Kvanefjeld Greenland 58,000 1.49% 0.32% 0.17% 21% 11% $1,040Commerce Resources Corp. $61 $56 Eldor Canada 50,950 1.97% 0.39% 0.09% 20% 5% $600Ucore Rare Metals Inc. $94 $81 Bokan USA 3,669 0.75% 0.33% 0.29% 45% 38% $569Hudson Resources Inc. $52 $49 Sarfartoq Greenland 14,058 1.53% 0.31% 0.04% 20% 3% $427Stans Energy Corp. $104 $81 Kutessay II Kyrgyzstan n/a 0.33% 0.15% 0.16% 45% 48% $360

Pre-Resource Rare Earths Exploration CompaniesNorthern Minerals Limited $112 $104 Browns Range AustraliaPacific Wildcat Resources Corp. $96 $93 Mrima Hill KenyaNamibia Rare Earths Inc. $47 $19 Lofdal NamibiaMidland Exploration Inc. $44 $39 Ytterby CanadaGeomega Resources Inc. $39 $37 Montviel CanadaMontero Mining and Exploration Ltd. $29 $27 Wigu Hill TanzaniaRare Earth Metals Inc. $25 $17 Red Wine CanadaMkango Resources Ltd. $21 $15 Songe MalawiSearch Minerals Inc. $20 $11 Strange Lake CanadaWealth Minerals Ltd. $17 $17 Rodeo Argentina Sources: Cormark Securities Inc and company reports

Rare Earths Conclusion We estimate that demand for rare earths will grow at an average of 7-9% pa over the nextdecade, increasing from ~125,000 t in 2010 to 239,000-288,000 t in 2020. One of themany challenges in meeting forecast rare earths demand is the over/under supply ofindividual rare earth metals. We forecast a large shift in relative demand of individualrare earths, but expect new projects entering production to have a similar distribution tocurrent supply. Cormark’s long-term average basket price for rare earths is $40/kg basedon our estimate of the marginal project cost (operating and capital cost). Light rare earthssuch as lanthanum and cerium are forecast to enter oversupply and drop to historic levels($0.50-1.00/kg long term), while critical metals such as dysprosium, terbium, andeuropium are forecast to face a much small drop in prices ($1,000-1,500/kg long term).Based on our long-term forecast all of the dozen most advanced rare earths projects areneeded to meet rare earths demand. The development timeline for each of these projectswill likely leave ‘critical’ rare earths in short supply.

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Frontier Rare Earths Limited (FRO – $1.48, TSX)

Recommendation: Top Pick Target Price: $4.60

Figure 17 Statistics And Estimates Current Price C$1.48 Shares Outstanding (MM)52 Wk High C$3.75 Basic52 Wk Low C$1.44 DilutedCash ($MM) $48.0 Mngt. & Dir.Total Debt ($MM) $0.0 InsidersNAVPS C$9.22 Market Cap.Price/NAV 0.2x Float

EV

89.689.62.6

$28.5$132.6

$84.6

67.7

Sources: Cormark Securities Inc., Company reports Figure 18 Price Chart

$1.25

$1.75

$2.25

$2.75

$3.25

$3.75

Nov-10 Feb-11 May-11 Sep-11

Stoc

k Pr

ice

(C$)

0

500

1,000

1,500

2,000Volum

e (000s)

Sources: Cormark Securities Inc., Bloomberg

• Frontier is an early stage rare earths developer, focused on the Northern Cape Province of South Africa. The Company is fully funded to complete a bankable feasibility study (Q4/12) on its Zandkopsdrift Rare Earths Project and has the potential to become a low-cost 20,000 tpa rare earths producer with significant heavy rare earths.

• The Zandkopsdrift B Zone, the focus of initial production has a high average rare earths grade (3.65% TREO) and distribution (21% CREO/TREO), ranking 4th in Cormark’s list of rare earths project value per tonne. The resource is at surface and sufficient to support a 40+ year open pit mine life with significant exploration potential.

• Initial metallurgical testing and similar mineralization to other rare earths deposits demonstrate Zandkopsdrift ore is amenable to conventional extractive processes.

• Korea Resources Corporation (“KORES”) has signed an initial joint venture agreement to acquire a 10-20% interest in the project, up to a 10% interest in Frontier, and a 10-40% right and obligation to purchase production at market prices. KORES will fund the project pro-rata and arrange debt financing. We expect the parties to finalize a definitive agreement in Q1/12.

• Management has done an excellent job of fast-tracking the project since its secured the exploration rights for Zandkopsdrift in 2007, completing a resource estimate, initial metallurgy work, Black Economic Empowerment agreement, and joint venture agreement. The project is on track for a preliminary economic assessment in Q4/11, bankable feasibility study in Q4/12, and production in H2/16.

• We are initiating coverage on Frontier Rare Earths Limited with a Top Pick rating and $4.60 price target, based on a DCF12.5% valuation and 0.5x NAV multiple. We view Frontier as a fast track rare earths developer, with a strong management team and JV partner capable of carrying the robust project to production. Based on our capital cost estimate and forecast cash buy-ins by KORES and BEE Shareholders the Company is near fully financed for construction.

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Fast Track To Production

Frontier is an early stage rare earths developer focused on the Northern Cape Province ofSouth Africa. The Company is fully funded to complete a bankable feasibility study on itsZandkopsdrift Rare Earths Project. The deposit has a high rare earths grade (3.65%TREO [B Zone]) and excellent distribution of elements (21% CREO/TREO), ranking 4th

in Cormark’s list of rare earths projects value per tonne. KORES has signed an initialjoint venture agreement to acquire a 10-20% interest in the project, up to a 10% interestin Frontier, and a 10-40% right and obligation to purchase production at market prices.The support of a world class strategic partner will aid in advancing the project toproduction. We believe the project is capable of starting construction in H2/13, with firstproduction in H2/16, and ramping to full production in 2018. The mine is expected toaverage 20,000 tpa rare earths over a 40+ year life. Based on our capital cost estimate andforecast cash buy-ins by KORES and BEE Shareholders, Frontier is near fully financedfor construction with debt financing arranged by KORES likely available to cover thebalance of funding needs.

Capital Structure

Frontier trades on the TSX under the symbol FRO and has a financial year ending inDecember. The Company was listed on the Toronto Stock Exchange in November 2010,completing a $60 MM initial public offering (17,650,000 units [share + ½ warrant] at$3.40 per unit) to fund the project through to the completion of a bankable feasibilitystudy. The Company has ~89.6 MM shares outstanding on a fully diluted based (seeFigure 19) and a market capitalization of ~$133 MM. Shares are tightly held with insidersholding ~80% of the Company (see Figure 20).

Figure 19 Frontier Capital Structure Shares Outstanding (Basic) (000s) 89,563

Warrants (exercisable @ C$4.60) 10,864Warrants (exercisable @ C$4.88) 609Options (exercisable @ $2.00) 1,967Options (exercisable @ C$3.29) 4,433

Shares Oustanding (Fully Diluted) 107,436Cash ($000) (Q2/11) $50,255Debt ($000) $0

Source: Company Reports

Figure 20 Major Shareholders

Top Shareholders Shares Held (000s) Basic Ownership (%)Kensington Nominees 24,486 27.3%Lambeth Nominees 15,120 16.9%Westminster Nominees 14,294 16.0%Blenheim Management Services 13,790 15.4%James Kenny 2,153 2.4%First Canadian Mutual 977 1.1%Front Street 442 0.5%IG Investment 410 0.5%CIBC Global 360 0.4%Top Holders 72,031 80.4%

Sources: Cormark Securities Inc., Bloomberg, and Sedi

Zandkopsdrift Rare Earths Project (FRO – 95%)

Frontier Rare Earths holds an effective 95% interest in the Zandkopsdrift Rare Earths Project (see Figure 21). Over the past 60 years the Zandkopsdrift carbonatite has beenexplored by academics and various exploration companies. The carbonatite was initiallyinvestigated for its manganese potential in the 1950’s, followed by phosphate andniobium, and finally for its rare earths potential. From 1985 to 1988, Anglo American completed geological mapping, magnetic (see Figure 22) and IP surveys, and exploration

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drilling, which confirmed rare earths mineralization. Frontier acquired all diamond drill core, RC drilling chips, sample pulps, and records from Anglo American, giving the Company a significant head start on completing a first compliant resource estimate.

Located in the Namaqualand region of the Northern Cape Province of South Africa, the property is accessible by maintained all weather gravel roads. The nearest railhead is located ~30 km to the south, at Bitterfontein, and extends 230 km south to port at Saldanha Bay, which handles the bulk of South Africa’s iron ore exports. The nearest high voltage line is located approximately 100 km to the south, but the local power utility has plans to develop a major power station that would result in the construction of a 400 kV line passing through the property. Mining operations are expected to be supplied by available water sources and may be supplemented by piping water from a small desalination plant to be located approximately 40 km from Zandkopsdrift on the coast. The regional centre, Springbok, located ~145 km from the property, is a source of local skilled labor and engineering expertise as a result of base metals and coastal/marine diamond mining in the region. Overall, the property has excellent access, climate, local resources, and infrastructure, allowing for potentially low capital and operating costs.

Figure 21 Zandkopsdrift Project

Source: Company Reports

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Zandkopsdrift Geology The Zandkopsdrift deposit is a rare earths bearing carbonatite that occurs as a circularintrusive and rises ~40 m above the surrounding plains (see Figure 21). Surface outcropsof the deposit consist of deeply weathered secondary iron-manganese material.

Rare earths mineralization at Zandkopsdrift is related to a number of phases ofcarbonatite intrusion that have undergone several stages of alteration and weathering,resulting in a deeply weathered, vertically zoned, horizon. Exploration work to date hasidentified several rare earths enriched zones, mostly within the upper 80 m of thecarbonatite. These zones correspond with deep weathering, alteration, and supergeneenrichment.

The majority of the rare earths bearing minerals identified at Zandkopsdrift consist of latestage, supergene, monazite and crandallite. Similar to Mount Weld (Lynas), theZandkopsdrift deposit contains primarily supergene and hydrothermal monazite, whichhas been subjected to deep lateritic weathering and is believed to be amenable to aconventional extraction process.

Figure 22 Zandkopsdrift Property (Magnetic Survey)

Source: Company Reports

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Rare Earths Resource Exploration at Zandkopsdrift has been focused on testing the lateral and vertical extentsof a deeply weathered rare earths enriched zone identified by historical drilling. Thedeposit has been investigated with numerous phases of historical drilling, the most recentbeing completed by Anglo American in 1989.

Frontier acquired both the historical data and samples from exploration carried out onZandkopsdrift by Anglo American. Compilation of the data resulted in Frontiercompleting several mineralogical and petrographical studies and a 13 hole reversecirculation validation drill program to confirm previous drilling for use in a NI 43-101compliant resource estimate.

The deposit can be sub divided into three zones, with each internal zone at a higher gradethan the previous. A Zone, B Zone and C Zone are defined by cut-off grades of 1.5%,2.5% and 3.5% TREO, respectively (see Figure 23). The B Zone is contained within theA Zone and the C Zone is contained within the B Zone. Total indicated and inferredtonnage in the B Zone (7.8 MM t indicated & 4.5 MM t inferred) is sufficient to support a+20 year mine life and has been used in our conceptual mine plan.

While a 3.65% average TREO grade is impressive, the distribution of each rare earthmetal is critical and Frontier boasts a 21% CREO/TREO ratio (Figure 24). Zandkopsdriftranks 4th for in-situ value ($1,270/t ore using Cormark’s long-term rare earths priceforecast) of the dozen most advanced rare earths projects (see Figures 15 and 29 for adetailed comparison). Combined with our forecast for low capital and operating costs,Frontier, has the opportunity to become one of the highest margin producers in the rareearths space.

Figure 23 Zandkopsdrift Resource Estimate (October 2010)

Source: Company Reports

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Figure 24 Zandkopsdrift Resource Estimate Grade Distribution (October 2010)

Source: Company Reports

Resource Expansion & Regional Exploration

An 18,000 m resource drilling program was initiated in February 2011 with the objectiveto increase resource confidence level. The program is expected to be complete in lateSeptember 2011 and is expected to move the majority of the Zandkopsdrift resource tothe measured and indicated categories. An updated Zandkopsdrift resource model isexpected to be published either before or in conjunction with the preliminary economicassessment.

To date, 30 smaller satellite intrusives/plugs have been identified proximal to theZandkopsdrift main carbonatite pipe (see Figure 25). While current resources aresufficient to support a 40+ year mining operation at currently contemplated rates, satellitepipes and plugs identified proximal to Zandkopsdrift have similar potential for rare earthsmineralization and may be a future source of resource expansion.

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Figure 25 Zandkopsdrift Regional Exploration Targets

Source: Company Reports

Metallurgy An initial review carried out by SGS Minerals Services of Lakefield, Ontario of historicalmetallurgical and mineralogical studies at Zandkopsdrift indicated that there isconsiderable potential for upgrading by flotation and hydrometallurgical treatment with anumber of leaching options, resulting in a high (>90%) recovery of rare earths.

Diamond drilling for the recovery of samples for metallurgical test work commenced onschedule in mid January 2011 with approximately 5,500 kg of core shipped to SGSMinerals Services of Lakefield, Ontario in mid April. A large composite sample of 1,000kg, representative of the overall Zandkopsdrift deposit, was selected from this material, aswell as a number of smaller variability samples from the higher and lower grade sectionsand from different rock types in the core samples.

A bench scale metallurgical test program comprising mineralogical analysis, orecharacterization, bench scale flotation, leaching and separation tests commenced in midMay 2011, with the objective of identifying the optimal flow sheet for the recovery of thecontained rare earths. Initial results are expected to be available for the completion of thepreliminary economic assessment.

Similar to Mount Weld, Australia (Lynas), the Zandkopsdrift deposit contains primarilysupergene and hydrothermal monazite, which has been subjected to deep lateriticweathering. We believe the deposit is amenable to a conventional extraction process,likely to employ flotation processing prior to high temperature acid leaching. Historicmetallurgical testing indicated an acid consumption of 50-60 kg/t processed. TheCompany expects total acid consumption to be similar to Mount Weld (~400 kg/t). Weestimate an overall rare earths processing recovery of 80% at costs of ~$7.50/kg rareearths oxides through to separation.

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Production Potential We believe management’s target for a Q4/12 completion of the bankable feasibility studyis achievable and that construction is likely to follow in H2/13. We have allotted a 30-36month construction period with first production in H2/16 and full production in 2018.

We envision a 2,000 tpd mining and processing operating with a 80% average recoveryproducing ~20,000 tpa of separated rare earths oxides. Assuming a $3.75/t ore miningcost, $210/t ore processing cost (~$7.50/kg rare earths oxides), $10 MM pa mine site andplant site G&A cost, 3% effective royalty (5% royalty on mine-site production, assumedto be 60% of separated rare earths value), and $50/t shipping cost we calculate an averagecash cost of ~$9.00/kg rare earths oxides. The forecast average realized price is~$35.00/kg.

Total capital costs for the project are estimated to be ~$450 MM, including $100-150MM for mine and plant construction, and $300-350 MM for the separation facility, basedon comparable projects and mining scale. As a 2,000 tpd open pit mining operation, withnear zero overburden material, we expect mine site construction to be straight forwardand low cost. Thorium and uranium levels are low and no additional precautions,treatment, or containment is likely needed.

Based on a 20 year mine life the DCF12.5% valuation for the Zandkopsdrift project ~$1.3BB (Figure 26). The B Zone resource alone is sufficient to support a 20+ year mine lifeand incorporating the A Zone into a mine plan would extend the mine life well beyond 40years, but at this stage we make a conservative mine life estimate.

Cormark forecasts an average realized price of ~$35/kg over the life of the mine. Atcurrent prices levels Zandkopsdrift would realize ~$285/kg.

Figure 26 Zandkopsdrift Conceptual Model Summary (in C$000s, except where noted) 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019ECommodity Price Assumptions ($/kg)

Lanthanum Oxide La2 O3 $125 $50 $20 $5 $1.00 $1.00 $1.00 $1.00Cerium Oxide CeO2 $125 $50 $20 $5 $0.50 $0.50 $0.50 $0.50Praseodymium Oxide Pr₆ O11 $275 $275 $275 $150 $75 $75 $75 $75Neodymium Oxide Nd2 O3 $450 $450 $450 $250 $75 $75 $75 $75Samarium Oxide Sm2 O3 $150 $75 $35 $25 $10 $10 $10 $10Europium Oxide Eu2 O3 $5,000 $5,000 $4,000 $2,000 $1,000 $1,000 $1,000 $1,000Gadolinium Oxide Gd2 O3 $225 $225 $225 $225 $150 $150 $150 $150Terbium Oxide Tb4 O7 $4,000 $4,000 $4,000 $3,000 $1,500 $1,500 $1,500 $1,500Dysprosium Oxide Dy2 O3 $3,000 $3,000 $3,000 $2,000 $1,000 $1,000 $1,000 $1,000Yttrium Oxide Y2 O3 $160 $100 $75 $50 $15 $15 $15 $15Others $- $- $- $- $- $- $- $-

ProductionOre Mined (000 t) 219 613 700 700Ore Mined (tpd) 1,250 1,750 2,000 2,000Recovery 80.0% 80.0% 80.0% 80.0%

6,423 17,983 20,552 20,552Total Cash Cost ($/kg) $9.15 $9.00 $8.93 $8.93Realized Pricing ($/kg) $34.79 $34.79 $34.79 $34.79EBITDA $164,670 $463,827 $531,516 $531,516Capex $30,000 $100,000 $200,000 $150,000 $10,000 $10,000 $10,000 $10,000Cash Flow $(30,000) $(100,000) $(200,000) $(150,000) $154,670 $415,278 $365,061 $365,061Net Present Value ($000s)

10.0%12.5%15.0%

Total Rare Earths Production (000 kg)

$1,774,723$1,326,562$1,001,227

Source: Cormark Securities Inc.

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Black Economic Empowerment Agreement

The Prospecting Right to the Zandkopsdrift property is held by Sedex Minerals, a 74%owned subsidiary of Frontier. Through shareholder agreements, historicallydisadvantaged South African individuals and entities (“Black Economic EmpowermentShareholders” or “BEE Shareholders”) own the remaining 26% interest in SedexMinerals. In consideration for Frontier funding the project through to the completion of abankable feasibility study, BEE Shareholders will make a cash payment to Frontier equalto 21% of the valuation of the Zandkopsdrift Project based on the market value ofFrontier following completion of the bankable feasibility study. On this basis Frontierholds an effective 95% interest in the Zandkopsdrift project until such payment isreceived.

Strategic Partnership

On July 13, 2011, Frontier announced it had entered into a strategic partnership withKORES, the Korean government owned mining and natural resource company, toaccelerate the development of the Zandkopsdrift Project.

Terms of the agreement are as follows:

• 10% Project Acquisition By KORES: “Following completion and publication of the preliminary economic assessment on Zandkopsdrift (Q4/11 expected completion), KORES will acquire an initial 10% interest in Zandkopsdrift. Consideration will be on market-related terms and payable in cash.”

• 10% Project Acquisition By KORES: “Following completion of the bankable feasibility study, KORES may purchase and additional 10% interest in the project based on the valuation as set out in the DFS, payable in cash.”

• 10% Frontier Acquisition By KORES: “Following completion of the bankable feasibility study, KORES may purchase a 10% interest in Frontier based on market price for Frontier shares.”

• Debt Financing: “KORES will take responsibility for arranging debt finance from Korean and other international lenders to cover the capital requires for the construction and development of a rare earths mining and processing operation at Zandkopsdrift. KORES will contribute to all costs and expense incurred in the development and operation of Zandkopsdrift pro rata to its equity interest in the project.”

• Off-Take Agreement: “KORES will have the right and obligation to purchase a share of rare earths production from Zandkopsdrift proportionate to its interest in Zandkopsdrift. In addition, if KORES fully exercises its option to acquire shares in Frontier, it shall have the right and obligation to purchase up to a maximum 20% additional share of rare earths production from Zandkopsdrift.” We assume market pricing for all rare earths production based on Cormark’s long rare earths price forecast and assume demand for production will remain robust.

• Technical, Operational, And Downstream Opportunities Assistance: “KORES will provide such technical, operating and other assistance relating to the design, planning, construction and operation of a rare earths mining and processing operation at Zandkopsdrift as may be required by Frontier. KORES and Frontier will cooperate to jointly pursue rare earths related downstream business opportunities in South Africa in partnership with other established Korean industry partners.” We assume rare earths production is carried through separation to individual oxide products. Construction and operation of a separation plant is known to be a large challenge, but we assume it is achieved through the support of additional joint venture partners.

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While these terms are currently non-binding, we expect the parties to sign a binding agreement in Q1/12. The Company notes that it is in continued discussions with a number of other parties and will look to enter in to further strategic partnerships that would be complementary to the proposed KORES agreement.

This agreement is similar to a joint venture agreement made between KORES and Lithium One Inc. (LI-V; Buy; $2.40 target; Edward Otto). As with lithium, the Korean government has designated rare earths as a strategic resource and KORES is tasked to further Korea’s access to strategically important mineral resources through international investments and joint ventures.

We have assumed KORES and BEE Shareholders complete each of the buy-ins at a range of P/NAV multiples (above current share price) and account for the dilution/cash value of each event. While we believe our estimates are conservative, if we assume all buy-ins are made at the current Frontier share price our NAV and target price decrease by ~15%. Each buy-in is a major derisking event for construction of the project, but should any of them not occur, investors are provided with the opportunity for less dilution and a higher valuation potential.

Fast Track To Production

Management (see Figure 27) has done an extraordinary job of fast-tracking the project.Zandkopsdrift was acquired in 2007 and since that time the Company has completed aresource estimate, initial metallurgy work, established an ideal joint venture partner,negotiated a favourable BEE Shareholders agreement, and is on track for the completionof a preliminary economic assessment in Q4/11. We expect management to continue thismomentum, completing its bankable feasibility study in Q4/12 and carrying the project toproduction in H2/16. Management has outlined a 2015 production goal, but we havetaken a more conservative view, any project acceleration relative to our timeline is upsideto our valuation.

The Company has a strong balance sheet with adequate funds to advance the projectthrough completion of a bankable feasibility. Terms for the buy-in of its joint venturepartner and BEE Shareholders will provide significant cash to fund Frontiers share ofconstruction capex. Based on our capital requirement estimate and forecast cash buy-ins from KORES and BEE Shareholders the Company is near fully financed forconstruction. Debt financing arranged by KORES is likely available to cover the balanceof construction funding needs.

Figure 27 Frontier Management

• Over 30 years experience in the minerals exploration with particular experience in rare earths, base metals, uranium and diamonds • Formerly an independent consulting geologist since 2000, principally contracted to Fugro Survey, the international consulting group• Ph.D in geology from the University of Cape Town

Dr. Stuart SmithVP Exploration

James KennyCEO and Director

• Over 20 years of experience in the natural resources sector as an executive, adviser and broker of various listed and private companies• Formerly an investment banker working in senior roles with ABN AMRO, Rothschild, NatWest and Evolution Securities• Bachelor of Commerce (Honours) and a Master’s degree in finance (MBS) from University College, Dublin

Paul McGuinnessCFO and Director

• Chartered accountant with a Bachelor of Commerce and a Masters’ degree in accounting from University College, Dublin • Extensive experience in finance and investment banking, having worked with a number of international firms including Schroders, Collins Stewart

and Salomon Smith Barney, where he worked as a corporate adviser to various financial, energy, and mining companies • Chief Executive of MG Capital Limited, a private consulting firm which provides advisory and financial control services

Derick de WitVP Project Dev.

• Over the past 15 years Mr de Wit has been involved in the preparation and/or management of more than 30 independent review, scoping, prefeasibility and feasibility studies for minerals projects, both in Africa and Canada

• Former Managing Director of Venmyn Independent Projects, a leading independent consultant specializing in the technical and economic evaluation of minerals projects both in Africa and internationally

• Over 30 years experience in the minerals exploration with particular experience in rare earths, base metals, uranium and diamonds • Formerly an independent consulting geologist since 2000, principally contracted to Fugro Survey, the international consulting group• Ph.D in geology from the University of Cape Town

Dr. Stuart SmithVP Exploration

James KennyCEO and Director

• Over 20 years of experience in the natural resources sector as an executive, adviser and broker of various listed and private companies• Formerly an investment banker working in senior roles with ABN AMRO, Rothschild, NatWest and Evolution Securities• Bachelor of Commerce (Honours) and a Master’s degree in finance (MBS) from University College, Dublin

Paul McGuinnessCFO and Director

• Chartered accountant with a Bachelor of Commerce and a Masters’ degree in accounting from University College, Dublin • Extensive experience in finance and investment banking, having worked with a number of international firms including Schroders, Collins Stewart

and Salomon Smith Barney, where he worked as a corporate adviser to various financial, energy, and mining companies • Chief Executive of MG Capital Limited, a private consulting firm which provides advisory and financial control services

Derick de WitVP Project Dev.

• Over the past 15 years Mr de Wit has been involved in the preparation and/or management of more than 30 independent review, scoping, prefeasibility and feasibility studies for minerals projects, both in Africa and Canada

• Former Managing Director of Venmyn Independent Projects, a leading independent consultant specializing in the technical and economic evaluation of minerals projects both in Africa and internationally

Sources: Cormark Securities Inc. and Company Reports

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Valuation

Based on our conceptual mine model for the Zandkopsdrift Project, our sum-of-the-partsNAV for the Company is $1,073 MM or $9.22 per share (Figure 28). In line with our rareearths sector wide valuation benchmark, we have applied a 12.5% discount rate to theproject. While we employ a 10% discount rate for base metal and industrial metalprojects, we account for the higher risk/challenges of the rare earths sector, which has notyet been established outside of China, with an increased discount rate. At this stageprocessing rare earths is regarded as significantly more challenging than other minedcommodities, with complex mineralogy and a variety of processing flow sheets.

We have assumed KORES and BEE Shareholders complete their buy-in for the project tomost conservatively reflect Frontier’s ownership dilution over the next two years.

We apply a 0.5x NAV multiple to arrive at our $4.60 target price. We generally valuepre-construction industrial and base metals projects at 0.6x NAV, but have made anadjustment to reflect the increased risk of the jurisdiction. While South Africa is regardedas a higher risk jurisdiction we highlight its positive advantages. The Northern CapeProvince has a long history of mining with excellent infrastructure and skilled labor.Permitting, especially for a large chemical (separation) plant is likely much easier thanother first world jurisdictions. Capital and operating costs are expected to be lower due tofavourable infrastructure, weather, and labor costs.

As the Company continues to advance the project, announcing a construction decision,arranging all necessary construction financing, and initiating construction, we believe theCompany should rerate to a pre-production status, trading at 0.7-0.8x NAV.

Our valuation is based on Cormark’s long-term rare earths price forecast which is a smallfraction of current prices. At current prices we estimate production Zandkopsdrift tobe worth $285/kg versus our forecast price of $35/kg, an 88% drop from currentprices. We assign no value for lesser rare earths holmium, erbium, thulium, ytterbium,and lutetium. Due to historically limited supply there has been limited investment inresearch and development for potential applications of the least commonly occurring rareearths. As new rare earths mines enter production and the supply of these metalsincreases we expect multiple end uses to be discovered and commercialized. While wesee major potential for these metals, without a currently well defined market, we valuerevenue from these metals as upside to our forecast.

The major upside opportunity is for prices to remain high. Assuming the dozen mostadvanced rare earths projects all achieve production on time, critical rare earths willremain in short supply (though light rare earths will be oversupplied) based on Cormark’sforecast 7-9% pa growth in rare earths demand (see Figure 12). Frontier has the upsidepotential to realize several years of high pricing.

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Figure 28 NAV Breakdown Discount

Ownership Rate $MM C$/Share

Zandkopsdrift 95% 12.5% $1,260 $10.8310% interest sale to KORES -$133 $(1.14)Additional 10% interest sale to KORES -$133 $(1.14)21% BEE Holders Interest -$279 $(2.39)

Ownership Adjustments -$544 $(4.67)Corporate Adjustments -$16 $(0.14)

Cash And Cash Equivalents $48 $0.41Cash To Be Received For 10% Sale To KORES $53 $0.46Cash To Be Received For Additional 10% Sale To KORES $64 $0.55Cash To Be Received For 10% Interest In Frontier $40 $0.34Cash To Be Received For BEE Holders 21% Interest $98 $0.84Cash From Dilution (Options/Warrants) $71 $0.61Total Debt $0 $0.00

Net Financial Assets $373 $3.21

Net Asset Value $1,073 $9.22

Basic Shares Outstanding (MM) 89.610% Interest In Frontier Shares Issued (MM) 9.0Options & Warrants Outstanging (MM) 17.9

Total Fully Diluted Share Outstanding (MM) 116.4

Current Frontier Rare Earths Share Price $1.48

Price / NAV 0.2x

Source: Cormark Securities Inc.

Rare Earths Comparables

See Figure 15 and Figure 29 for a comparison of Frontier and its rare earths peers.Frontier ranks 4th for in-situ rare earths value per tonne with a large resource capable ofsupporting a long life mining operation. Favourable infrastructure, weather, andpermitting environment allow for fast track development and near term production.

Similar to its rare earths peers, and many other base metal and industrial metalscompanies, Frontier’s share price is down ~50% since April 2011. Summer 2011 hasbeen a challenge for the broader equities markets, with base and industrial metals beingsome of the hardest hit. We remain confident that the fundamentals for rare earths areunchanged and continue to see growth in demand of 7-9% pa over the next decade. Onthis basis Frontier is well positioned and attractively valued. Based on our demandforecast, while light rare earths are likely to be in oversupply, heavy rare earths willcontinue to be undersupplied all of the dozen most advanced rare earths projects areneeded to meet forecast demand.

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Figure 29 Rare Earths Comparables Resource

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ ValueCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore)Development Stage Rare Earths CompaniesGreat Western Minerals Group, Ltd. $317 $308 Steenkampskraa S. Africa 250 11.6% 2.6% 0.9% 22% 8% $3,346Lynas Corporation Limited $2,862 $2,590 Mt Weld Australia 17,490 8.1% 1.7% 0.4% 21% 5% $2,756Avalon Rare Metals Inc. $415 $383 Nechalacho Canada 25,499 2.2% 0.8% 0.5% 34% 23% $1,891Frontier Rare Earths Limited $133 $83 Zandkopsdrift S. Africa 12,350 3.6% 0.8% 0.3% 21% 8% $1,269Quest Rare Minerals Ltd. $246 $196 Strange Lake Canada 31,351 1.3% 0.6% 0.6% 46% 46% $1,089Rare Element Resources Ltd. $359 $286 Bear Lodge USA 6,804 3.4% 0.7% 0.1% 20% 4% $1,108Molycorp, Inc. $4,421 $3,941 Mountain Pass USA 27,216 6.6% 0.8% 0.0% 12% 0% $962Arafura Resources Limited $255 $158 Nolans Bore Australia 30,300 2.8% 0.7% 0.1% 24% 3% $840Alkane Resources Limited $520 $502 Dubbo Australia 73,200 0.9% 0.3% 0.2% 33% 22% $634Tasman Metals Ltd. $202 $186 Norra Karr Sweden 16,200 0.7% 0.3% 0.3% 52% 51% $522Matamec Explorations, Inc. $47 $42 Zeus Canada 16,314 0.5% 0.2% 0.2% 41% 37% $463 Note: Projects sorted by insitu value per tonne. Sources: Cormark Securities Inc. and company reports

Upcoming Events / Catalysts

Frontier currently trades at 0.2x our NAV estimate. Over the next year we would expectthe Company to rerate to 0.5x P/NAV multiple due to the following catalyst events:

• Preliminary Economic Assessment & Resource Update (Q4/11)

• Finalizing JV Agreement (Q1/12)

• Pre-feasibility Completion (H1/12)

• Bankable Feasibility Completion (Q4/12)

Initiating Coverage With A Top Pick Rating & $4.60 Target

We are initiating coverage on Frontier Rare Earths Limited with a Top Pick rating and$4.60 price target, based on a DCF12.5% valuation and 0.5x our NAV estimate. We viewFrontier as a fast track rare earths developer, with a strong management team and JVpartner capable of carrying the robust project to production.

The Company is fully funded to complete a bankable feasibility study on itsZandkopsdrift Rare Earths Project which has the potential to be a low-cost 20,000 tparare earths producer. The deposit has an excellent resource grade (3.65% TREO [BZone]) and distribution (21% CREO/TREO), ranking 4th in Cormark’s list of rare earthsproject value per tonne. The resource is sufficient to support a 40+ year mine life withsignificant exploration potential. Zandkopsdrift has excellent infrastructure, providing theopportunity for a low capital and operating costs. Management has done an extraordinaryjob of fast-tracking the project and we expect the team to continue this momentum,completing its bankable feasibility study in Q4/12 and carrying the project to productionin H2/16. Based on our capital requirement estimate and forecast cash buy-ins fromKORES and BEE Shareholders the Company is near fully financed for construction. Debtfinancing arranged by KORES is likely available to cover the balance of constructionfunding needs.

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Great Western Minerals Group, Ltd. (GWG – $0.75, TSXV)

Recommendation: Buy Target Price: $1.50

Figure 30 Statistics And Estimates Current Price C$0.75 Shares Outstanding (MM)52 Wk High C$1.23 Basic52 Wk Low C$0.32 DilutedCash ($MM) $12.3 Mngt. & Dir.Total Debt ($MM) $1.6 Market Cap.NAVPS C$1.97 FloatPrice/NAV 0.4x EV $304.8

381.3420.7

6.3

$281.3$315.5

Sources: Cormark Securities Inc., Company reports Figure 31 Price Chart

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

Stoc

k Pr

ice

(C$)

0

3,000

6,000

9,000

12,000

15,000

Volume (000s)

Sources: Cormark Securities Inc., Bloomberg

• Great Western Minerals Group is a late stage rare earths developer, focused on the Western Cape Province of South Africa. The Company’s flagship asset, the past producing Steenkampskraal mine is in the process of refurbishment, with first separated rare earths oxide production targeted for H2/13. The mine is expected to produce ~5,000 tpa of rare earths oxides at low cash costs.

• The deposit is uniquely high grade (~16.7% TREO [Main Zone]) with a favourable distribution of critical rare earths (~22% CREO/TREO), ranking 1st in Cormark’s list of rare earths in-situ project value per tonne. The resource is based on historic estimates, but remains open along strike and at depth. We are confident the Company will delineate a resource sufficient to support a long life operation at similar grade in the near term.

• Construction of rare earths processing and separation facilities are expected to commence in Q1/12 with first production in H2/13. Steenkampskraal ore is comprised of highly weathered monazite, amenable to conventional flotation and acid leaching processing using off-the-shelf components, allowing for a fast-track construction at low capital cost.

• The Company’s 100% owned subsidiary, Less Common Metals, processes rare earths metals into alloys used for the manufacture of rare earths magnets. The Company has a long and successful production history, is in the process of expanding operations, and will benefit from the ability to source raw material from the Steenkampskraal mine.

• We are initiating coverage on Great Western Minerals Group Inc. with a Buy rating and $1.50 price target, based on 0.7x NAV estimate for the Steenkampskraal mine and 8.0x EV/EBITDA multiple for the Company’s downstream processing unit, Less Common Metals. We view Great Western Minerals as a fast track developer, with the ability to capitalize on near-term high rare earths pricing and a vertically integrated production process to maximize exposure to a fast growing industry.

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Highest Grade Project & Downstream Processer

Great Western Minerals is a late stage rare earths developer, focused on the WesternCape Province of South Africa. The company’s flagship asset, the past producingSteenkampskraal mine is in the process of refurbishment, with first production expectedH2/12 and separated rare earths oxide production in H2/13. The mine is expected toproduce ~5,000 tpa of rare earths oxides at low cash costs. The deposit is uniquely highgrade (~16.7% TREO [Main Zone]) with a favourable distribution of critical rare earths(~22% CREO/TREO), ranking 1st in Cormark’s list of rare earths in-situ project value pertonne. We are confident the company will delineate a resource sufficient to support a longlife operation. Steenkampskraal ore is comprised of highly weathered monazite,amenable to conventional flotation and acid leaching processing using off-the-shelfcomponents, allowing for a fast-track construction at low capital cost. Great WesternMinerals has the most exposure to near-term high rare earths pricing with its H2/13production target (excluding Molycorp and Lynas), and the Company’s verticallyintegrated production model provides the opportunity to capture the full value chain of afast growing industry.

The Company’s 100% owned subsidiary, Less Common Metals, processes rare earthmetals into alloys used for the manufacture of rare earths magnets. The Company has along and successful production history, is in the process of expanding operations, and willbenefit from the ability to source raw material from the Steenkampskraal mine.

Capital Structure

Great Western Minerals trades on the TSXV under the symbol GWG and has a financialyear ending in December. Formerly a gold-diamonds explorer, the Company began rareearths exploration in 1999 with the acquisition of the Hoidas Lake Project, Saskatchewan.In 2005 the Company sharpened its focus on rare earths development, spinning out itsdiamond exploration properties into Great Western Diamonds Corp and dropping itscopper-gold exploration properties. On December 22, 2008, the Company entered into anoption agreement to re-commission the Steenkampskraal rare earths mine, located in theWestern Cape Province, South Africa. Since pursuing the development ofSteenkampskraal the Company has raised ~$50 MM to advance rare earths explorationand development. Great Western Minerals has a cash balance of ~$12 MM (see Figure32). The Company has ~475 MM shares outstanding on a fully diluted basis (see Figure32) and a market capitalization of ~$315 MM.

Figure 32 Great Western Minerals Capital Structure Shares Outstanding (Basic) (000s) 381,284

Options (exercisable @ $0.18-0.20) 9,475Options (exercisable @ $0.0.35-0.50) 13,335Options (exercisable @ $0.61-0.80) 6,370Options (exercisable @ $1.05) 1,500Warrants (exercisable @ $0.10-0.18) 1,421Warrants (exercisable @ $0.28-0.30) 1,179Warrants (exercisable @ $0.45-0.80) 60,504

Shares Oustanding (Fully Diluted) 475,068Cash ($000) (Q2 FY2011) $12,300Debt ($000) $1,599

Source: Company Reports

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Figure 33 Major Institutional Shareholders Top Shareholders Shares Held (000s) Basic Ownership (%)AGF Investments 29,725 8%CQS Asset Management 8,735 2%Sprott Asset Management 8,285 2%Manulife Asset Management 8,212 2%Natcan Investment Management 3,863 1%Russell Grant 1,500 0%Gary Billingsley 1,204 0%John Pearson 912 0%Acuity Investment Management 500 0%Top Holders 62,936 17%

Sources: Cormark Securities Inc., Bloomberg

Steenkampskraal (GWG – 100%)

The past producing Steenkampskraal rare earths mine (see Figure 34) is located in the Western Cape Province of South Africa, 70 km north of the town of Vanrhynsdorp, and350 km northwest of Cape Town. The property is accessible by well-maintained gravel road with good infrastructure in the area due to the proximity to Vanrhynsdorp (~4,000pop.) and many farms and other mining operations nearby. The climate is semi-desert and Mediterranean-like due to the influence of the Benguela Current that flows northwardalong the west Cape coast. Steenkampskraal is located on generally flat topography,typical Western Cape desert, with prominent rock outcroppings dispersed throughout theregion.

In December 2008, Great Western Minerals, entered into an option agreement with Rareco of Stellenbosch, South Africa, to pursue the refurbishment of the Steenkampskraal mine.Great Western Minerals eventually acquired a 100% interest in Rareco, completing theacquisition in July 2011. Rareco, now a subsidiary of Great Western Minerals, holds a 74% interest in the Steenkampskraal mine. The remaining 26% interest is held by theSteenkampskraal Workers’ Trust, a black economic empowerment company (“BEEShareholders”). We account for the BEE Shareholders trust interest as a 26% NPI on minesite (pre-separation processing) production.

The Steenkampskraal mine was operated from 1952 to 1963 by Monazite and MineralVentures, a subsidiary of Anglo American. During that period, 63,400 t of monaziteconcentrate was produced and sold to buyers in Europe and the US. A monaziteconcentrate was sold mostly for its thorium content rather than its rare earths content, and was the largest thorium source in the world during its operation.

Redevelopment of the mine was investigated by Metorex (1979) and again by Anglo American in 1986. These companies studied the viability of producing monaziteconcentrate but no decision was made to proceed with mining due to the small-scale historic resource and limited rare earths markets at the time. Rareco was formed in 1989 toinvestigate the potential of the Steenkampskraal mine. Due to the increasing influence andactions of the Chinese on the rare earths industry in the early 1990s, prices for rare earths products fell to the point where it was not possible to raise additional funding to advancethe project and Rareco placed the project on standby.

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Figure 34 Steenkampskraal Property – Historic Underground Mine Entrance

Source: Company Reports

Geology The Steenkampskraal monazite deposit occurs in a sequence of highly metamorphosedcrystalline gneisses of the Roodewal Suite. These rocks are a pale-colored, competenthost rock in which the gray-brown pegmatite ore body occurs. The lode itself is dark grayto brown, fine-grained and massive. It has a sharp contact with the wall rock, from whichit stands out boldly.

The monazite-bearing ore body is tabular in shape with an undulating form and anaverage thickness of 50 cm, varying from 30 cm to 90 cm. The deposit has a 400 midentified strike and 250 m of down dip extent. The angle of the dip is 20-30° butcontains areas where the ore body is nearly horizontal and other areas where the dipexceeds 60°. The ore body is locally irregular, breaking into inter-fingering lenses in thewall rocks. These lenses are generally accompanied by a broader mineralized lode andwall rock mineralization. Faults cut the known extent of the ore zone in two places withthrows of 2-10 m, but apart from this, there is little structural disturbance and the wallrocks are competent.

Minerals present in the ore body include monazite, quartz, apatite and magnetite withsmall amounts of zircon, pyrite, chalcopyrite, galena and ilmenite. The monazite is thesource of the rare earths and chalcopyrite can be a source of copper and gold. On average,monazite constitutes 28% of the ore at Steenkampskraal, although the grade can varyfrom 5% to 80%.

Exploration & Mine Refurbishment

Great Western Minerals purchased an extensive database of information from AngloAmerican, which has identified multiple on site target areas for rare earths resourceexpansion. There has been very limited exploration work carried out on the propertyhistorically and when mining was stopped, due to thorium market conditions, the deposithad only been mined to a depth of ~100 m. While the historic resource is sufficient tosupport a 5,000 tpa rare earths mine for ~10 years, we expect the deposit to growsignificantly and support an expanded mining rate.

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In May 2011, the National Nuclear Regulator granted necessary approvals for the Company to commence the refurbishment of the former-producing mine site and to undertake an exploration project at site. East Rand Engineering Services was selected in June 2011 to carry out the mine and shaft refurbishment. Work was initiated in July 2011 and expected to be completed by mid November, 2011. As at August 30, 2011, work remained on schedule with winding controls 95% complete and the first 45 m of the decline having been cast in concrete.

September 15, 2011 a surface exploration drilling program is scheduled to be initiated and will be followed by an underground exploration drill program upon completion of the mine refurbishment. The ~$1.5 MM exploration program will include diamond drilling to test the potential for additional resources at depth and along strike.

Resource The Steenkampskraal deposit is locally irregular, breaking into inter-fingering lenses inthe wall rocks. These lenses are generally accompanied by a broader mineralized lodeand wall rock mineralization. Some additional ore, not included in the reserves, mayoccur in this manner.

In addition to potentially economic by-products such as copper and gold, the deposit alsohosts significant thorium (~2.5% ThO2). While generally considered a deleterious wasteproduct, thorium today is being considered as an alternative to uranium for powergeneration. The Company has received expressions of interest from third parties inrecovering the thorium from the operation. Using existing proven technology, GreatWestern Minerals believes that it can extract the thorium during the production of thefinal mixed rare earths chloride concentrate to meet any and all customer andenvironmental requirements. According to current plans, the extracted thorium will bemixed with concrete and stored in designated areas within the underground mine. Thethorium can then be recovered through a simple acid digestion process if, as and whenrequired.

With the mine refurbishment on track for completion mid November 2011, we expect theCompany to complete an initial NI 43-101 compliant resource estimate in Q1/12. Whilethe historic resource is sufficient to support a 5,000 tpa rare earths mine for ~10 years, weexpect the deposit to grow significantly and support an expanded mining rare.

The main zone of the historic resource is uniquely high grade (~16.7% TREO) (seeFigure 35) with a good distribution of critical rare earths (22% CREO/TREO) (see Figure36), ranking 1st in Cormark’s list of global rare earths development projects in-situ value.For the purpose of our conceptual mine model we have assumed the Company willsuccessfully delineate a total resource of ~1.0 MM t at ~9.5% average grade and a similarrare earths distribution.

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Figure 35 Steenkampskraal Historic Resource Contained

Source Net Tonnes(1) Grade Rare Earths(t) (% TREO) (t)

Underground Rock:In-situ-Main Zone(3) 117,500 16.74% 20,000Broken 17,000 5.00%(2) 850HW/FW Zones 30,000 5.00%(2) 1,500

Surface Material:Tailings 43,500 9.52% 4,150Rock Dump 41,500 7.00% 2,900

Totals 249,500 29,400

(1) After 20% mining dilution.(2) Estimates provided by Rareco.(3) The in-situ rock also grades 0.8% Cu, 0.5g/t Au and 6.0g/t Ag.

Source: Company Reports

Figure 36 Steenkampskraal Resource Distribution Lanthanum Oxide La₂O₃ 21.67%Cerium Oxide CeO₂ 46.67%Praseodymium Oxide Pr₆O₁ ₁ 5.00%Neodymium Oxide Nd₂O₃ 16.67%Samarium Oxide Sm₂O₃ 2.50%Europium Oxide Eu₂O₃ 0.08%Gadolinium Oxide Gd₂O₃ 1.67%Terbium Oxide Tb₄O₇ 0.08%Dysprosium Oxide Dy₂O₃ 0.67%Holmium Oxide Ho₂O₃ 0.05%Erbium Oxide Er₂O₃ 0.08%Thulium Oxide Tm₂O₃ 0.07%Ytterbium Oxide Yb₂O₃ 0.07%Lutetium Oxide Lu₂O₃ 0.01%Yttrium Oxide Y₂O₃ 5.00%Total 100.00%

Source: Company Reports

Metallurgy In July 2011, Great Western Minerals contracted DRA Mineral Projects of South Africafor the detailed design of the Steenkampskraal processing plant. DRA is a multi-disciplinary, multi-national organization that specializes in the mining, infrastructure andmineral processing industries and is one of the largest project management enterprises inAfrica. The plant detailed design project is expected to be completed by December 2011.The processing plant is the first step in the rare earths refining process.

The processing plant will ‘crack’ monazite ore with a caustic leaching process andremove copper and gold by flotation. Tri-sodium phosphate will also be produced as aby-product and a potentially sale-able product. The thorium contained in the rare earthsore will be removed at the processing stage, and be readied for licensed storage, leaving aclean rare earths chloride concentrate ready for the solvent extraction separation phase atthe Company’s rare earths separation facility.

In July 2011, the Company announced an initial agreement with Ganzhou Qiandong RareEarth Group (“GQD”) to build a rare earths separation plant in South Africa, located in

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proximity to the Steenkampskraal operation. The agreement is expected to be finalized inSeptember 2011. Based on initial terms, Great Western Minerals will fund constructionand issue shares to GQD equal to 25% of the construction cost of the separation facility.GQD is a Chinese rare earth oxides processor with over 20 years of operationalexperience and has been a supplier of metals and oxides to Great Western Minerals’subsidiary, Less Common Metals for over 15 years.

Based on similar highly-weathered monazite ore as Lynas’ Mount Weld Rare EarthsProject we expect conventional processing and separation using ‘off-the-shelf’components will be sufficient to produce an overall 80% recovery at low cash costs.

Production Potential Management is on track to have the Steenkampskraal mine ready for production miningin Q1/12. We believe the Company will initiate exploration and production miningoperations in H1/12 with ore being stockpiled until the completion of the processing andseparation facilities in 2013. The Company is targeting a Q1/12 construction start forprocessing and separation facilities with an early 2013 first production goal. We haveallotted an 18 month construction period with first production in H2/13 and fullproduction in 2015.

The Company is targeting a 150 tpd mining and processing operation with an 80%average recovery producing ~5,000 tpa of separated rare earths oxides. We have assumedexploration efforts are successful to delineate at least a 1.0 MM t resource at ~9.5%TREO grade.

Assuming a $125/t ore mining cost, $200/t ore processing cost (~$2.65/kg rare earths), $5MM pa mine site and plant site G&A cost, 3% effective royalty (5% royalty on mine siteproduct and 60% payability for rare earths in concentrate), and $50/t shipping cost wecalculate an average cash cost of ~$6.80/kg rare earths. The forecast average realizedprice for production is ~$28.00/kg.

Total capital costs for the project are estimated to be ~$80 MM, based on ~$30 MM formine and processing plant construction, and $50 MM for the separation facility, based onCompany estimates, comparable projects, and mining scale. As a 150 tpd undergroundmine with refurbishment ongoing, we expect construction to be very straight forward andlow cost.

Based on a ~20 year mine life the DCF12.5% valuation for the Steenkampskraal project is~$809 MM (see Figure 37). The project is uniquely high grade, with almost noexploration work completed on a past producing mine. The historic resource remainsopen along strike and at depth and the Company has significant potential to delineate aresource that is sufficient to support a long life mining operation. We have assumed asignificant resource increase in our valuation of the Steenkampskraal mine, but have heldproduction constant at ~5,000 tpa rare earths oxides. Pending a resource increase webelieve the Company would pursue an expansion to ~10,000 tpa rare earths oxide, butview this opportunity as upside to our valuation.

Cormark forecasts an average realized price of ~$28/kg over the life of the mine. Atcurrent prices levels Steenkampskraal would realize ~$236/kg.

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Figure 37 Steenkampskraal Conceptual Mine Model Summary (in C$000s, except where noted) 2012E 2013E 2014E 2015E 2016E 2017E 2018ECommodity Price Assumptions ($/kg)

Lanthanum Oxide La₂O₃ $125 $50 $20 $5 $1.00 $1.00 $1.00Cerium Oxide CeO₂ $125 $50 $20 $5 $0.50 $0.50 $0.50Praseodymium Oxide Pr₆O₁ ₁ $275 $275 $275 $150 $75 $75 $75Neodymium Oxide Nd₂O₃ $450 $450 $450 $250 $75 $75 $75Samarium Oxide Sm₂O₃ $150 $75 $35 $25 $10 $10 $10Europium Oxide Eu₂O₃ $5,000 $5,000 $4,000 $2,000 $1,000 $1,000 $1,000Gadolinium Oxide Gd₂O₃ $225 $225 $225 $225 $150 $150 $150Terbium Oxide Tb₄O₇ $4,000 $4,000 $4,000 $3,000 $1,500 $1,500 $1,500Dysprosium Oxide Dy₂O₃ $3,000 $3,000 $3,000 $2,000 $1,000 $1,000 $1,000Yttrium Oxide Y₂O₃ $160 $100 $75 $25 $15 $15 $15Gold ($/oz) $1,800 $1,500 $1,250 $1,250 $1,250 $1,250 $1,250Copper ($/lb) $4.75 $4.00 $3.50 $2.75 $2.50 $2.25 $2.25Others $- $- $- $- $- $- $-

ProductionOre Mined (000 t) 26 53 53 53 70 70Ore Mined (tpd) 150 150 150 150 200 200Grade (% TREO) 11.68% 11.68% 11.68% 11.68% 8.39% 8.39%Recovery 80% 80% 80% 80% 80% 80%

Total Rare Earths Production (000 kg) 2,643 5,285 5,285 5,285 4,953 4,953Total Cash Cost ($/kg) $8.48 $7.90 $6.15 $4.78 $6.41 $6.41Realized Pricing ($/kg) $150.25 $128.17 $70.84 $27.52 $27.87 $27.87EBITDA $372,504 $632,216 $339,145 $117,626 $105,164 $105,164BEE Shareholder Payments $26,499 $67,294 $36,003 $12,351 $11,013 $11,013Capex $60,000 $20,000 $2,000 $2,000 $2,000 $2,000 $2,000Cash Flow $(60,000) $238,253 $373,857 $199,999 $68,587 $61,202 $61,202Net Present Value ($000s)

10.0% $898,80412.5% $809,29015.0% $734,716

Source: Cormark Securities Inc.

BEE Shareholders & Royalty

The value of the 26% BEE Shareholders interest in the Steenkampskraal mine and 5%royalty are calculated based on the value of rare earths in concentrate, prior to separationinto individual oxides. We assume a 60% payability for all other rare earths developmentprojects that are not pursuing their own separation facilities. On this basis we calculate aneffective 3% royalty on separated rare earths. Similar BEE Shareholder payments arecalculated based on 60% of separated rare earths value less mine site and processing plantoperating and capital cost.

Less Common Metals & GWTI (GWG – 100%)

On June 27, 2008, the Company, acquired all the issued and outstanding shares of common stock of Less Common Metals, a corporation domiciled in Birkenhead, UK(Figure 38). Less Common Metals produces neodymium iron boron ("NdFeB") and samarium cobalt ("SmCo") alloys for the permanent magnet industry. The Company uses vacuum induction melting ("VIM") as the main process for producing an extensive array of rare earth-based metals and alloys. These products can either be cast or produced as powders. Less Common Metals is also a world leader in a co-reduction process for making SmCo alloys. The core personnel at Less Common Metals have been working in the rare earths processing area for over 20 years, establishing a large knowledge base and skill for processing rare earths as well as a marketing and sales network for production.

The key raw materials for the alloys produced by Less Common Metals include common metals such as cobalt, iron, ferroboron, and rare earth metals such as lanthanum,

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samarium, neodymium, praseodymium, and dysprosium. All of the common metals are currently readily available from Canada, Australia, South Africa and Congo; however, the rare earth metals required for these alloys are almost exclusively available only in China.

The Company is currently expanding its vacuum melting capacity to include the latest "Strip Casting" methods for the manufacture of feedstock for sintered neodymium-iron-boron magnets. Upon completion of the expansion the Company will have capacity to produce ~2,100 tpa of rare earth alloys. Feed stock for the alloys is currently sourced from third parties, but will also utilize rare earth oxides sourced from Steenkampskraal when the mine enters production (H2/13).

Figure 38 Less Common Metals Facilities, Birkenhead, UK

Source: Company Reports

In addition to Less Common Metals, the Company holds a 100% interest in Great Western Technologies, a Michigan-based subsidiary. Similar to Less Common Metals, Great Western Technologies utilizes VIM to process specialty metals. The production equipment is capable of producing nickel metal-hydride powder, used in rechargeable batteries, and a range of other specialty metals, powders and super alloys. The plants are currently operating at ~10% of capacity.

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Both Less Common Metals and Great Western Technologies are operating at or near breakeven cash flow (combined). Less Common Metals currently specializes in alloys for rare earth magnets, while Great Western Technologies focuses on alloys for nickel metal-hydride batteries and specialty rare earths-aluminum alloys. Great Western Technologies facilities can be converted to produce alloys for rare earth magnets, but at this time is viewed as upside expansion capacity. We value Less Common Metals on a run rate EBITDA multiple basis. Within one year the Company will have a 2,100 tpa rare earths alloys production capacity. Based on peer group trading multiples (see Figure 39) and operating margins we expect the company to achieve a $15/kg margin on 2,100 tpa of production starting in 2013. While current operations are impeded by difficulty in sourcing rare earth oxides, production from Steenkampskraal will allow Less Common Metals to operate at full capacity. The Company is currently in the process of nearly doubling capacity. The market for rare earths magnets is expected to grow 12-14% pa over the next decade, providing Less Common Metals the opportunity to continue to aggressively expand production. On this basis we apply an 8x multiple to our run rate EBITDA forecast of $31.5 MM pa, arriving at a NAV of $252 MM. Production of rare earth alloys from Great Western Technologies would provide upside to our estimates.

Figure 39 Less Common Metals Trading Comparables Market Enterprise EV/EBITDA Forecast EBITDA

Company Cap Value 2011 2012 2013 Margin(US$MM) (US$MM)

Specialty Metals & Alloys ManufacturersCarpenter Technology Corp. $2,104 $2,098 17.3x 9.1x 6.5x 12%Neo Material Technologies Inc $1,003 $949 11.0x 11.0x 11.0x 26%Materion Corporation $533 $618 5.8x 5.8x 5.8x 8%Average 11.4x 8.6x 7.8x 16%

Sources: Bloomberg and Company reports

Exploration Projects

In addition to its flagship development asset, Steenkampskraal, the Company holdsseveral exploration stage rare earths projects; Hoidas Lake, Saskatchewan (100%interest), Douglas Lake, Saskatchewan (100% interest), Deep Sands, Utah (25% interest),Benjamin River, New Brunswick (100% interest), and the Red Wine project, Labrador(50% interest). At this time we assign no value for the Company’s explorationprojects due to their lack of near-term development and management’s focus on itsflagship asset. Hoidas Lake currently holds the highest potential for eventual rare earthsdevelopment, the project is 100% owned by Great Western and lies 50 km northeast ofUranium City, Saskatchewan. The site is accessible by taking an all-weather road orscheduled air service to Stony Rapids and Uranium City. Since 2001 the Company hascompleted five drill programs on the Hoidas Lake property for a total of 184 diamonddrill holes (21,700 m). An NI 43-101 compliant resource estimate was completed inNovember 2009, ~2.8 MM t grading ~2.05% TREO. The majority of the rare earthelements are contained in the mineral bastnaesite which is enclosed within the apatite. If aprocess can be developed to free the bastnaesite then it may be possible to produce a highgrade concentrate which could then be transported off-site for processing, greatlyreducing processing and transportation costs.

Fastest To Production

Since entering into the Steenkampskraal option agreement in December 2008,Management (see Figure 40) has done an impressive job of advancing the project. With afeasibility study and mine refurbishment ongoing the Company has the potential to startconstruction of the processing and separation facilities in Q1/12, start mining andstockpiling ore in H1/12, and achieve production of separated rare earths in H2/13. This

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rapid timeline sets Great Western Minerals apart from its rare earths developer peer groupand gives the Company the opportunity to realize several years of high pricing, before thebulk of new projects enter production. In the next six month the Company will achieveseveral major project de-risking events; completing the mine refurbishment, initiatingexploration drilling, completing an NI 43-101 resource estimate, and initiatingconstruction of the processing and separation facilities.

Figure 40 Great Western Minerals Management

• More than 25 years of varied mining industry experience, ranging from research to senior management• Operational experience in a variety of mines throughout North America, including serving as chief engineer, mine superintendent, and mine

manager in remote northern Canadian mines as well international operations in both South America and Papua New Guinea• Richard's technical expertise is centered around ore reserve estimation, mine design, and financial modeling of mining properties.

Richard HoganVP Operations

• More than 30 years' experience in the mineral industry, much of it in Saskatchewan• Run the Flin Flon, Manitoba, office of Teck Cominco and has spent several years with Cameco's predecessor, working in and around La Ronge

John PearsonVP Exploration

• Over 30 years of experience in many of the minor metals and industrial sectors, including metallurgy and minerals processing, mining operations, minor metals trading, and industrial, commercial and business management

• Former Chairman and major shareholder of Less Common Metals Limited• Co-founder of Meldform Metals Group in 1984, a rare earth trading company built into a successful global presence with over 60 global agents

Russell GrantVP Business Dev.

• Chairman of Areva South Africa and the CEO of Safika Resources, a South African company focused on mineral exploration and mining• Held executive positions at the Council for Scientific and Industrial Research, the largest research organization in Africa, at Eskom, the largest

electricity utility in Africa, and at Harmony Gold, one of the world’s largest gold mining companies.

Mohamed MadhiPresident Rarco

Gary BillingsleyChairman

• Engineer and geoscientist with more than 30 years' experience in the mineral industry• Former officer and director of several public mining and mineral exploration companies during the past 18 years• Directly involved with putting Saskatchewan's largest gold mine into production

James EngdahlCEO and Director

• Over 20 years of experience in corporate finance at the executive level with extensive expertise in mergers, acquisitions, reorganizations• Former VP of Barclays Bank of Canada, served as President, CEO, and director of Pacific & Western Trust, President and Director of Shore Gold,

and VP Finance and Director of Claude Resources and currently a Director of Formation Metals

Jim DavidsonCFO

• Over 19 years experience in the finance divisions of Weyerhaeuser in several locations throughout North America• Former CFO of Athabasca Potash

• More than 25 years of varied mining industry experience, ranging from research to senior management• Operational experience in a variety of mines throughout North America, including serving as chief engineer, mine superintendent, and mine

manager in remote northern Canadian mines as well international operations in both South America and Papua New Guinea• Richard's technical expertise is centered around ore reserve estimation, mine design, and financial modeling of mining properties.

Richard HoganVP Operations

• More than 30 years' experience in the mineral industry, much of it in Saskatchewan• Run the Flin Flon, Manitoba, office of Teck Cominco and has spent several years with Cameco's predecessor, working in and around La Ronge

John PearsonVP Exploration

• Over 30 years of experience in many of the minor metals and industrial sectors, including metallurgy and minerals processing, mining operations, minor metals trading, and industrial, commercial and business management

• Former Chairman and major shareholder of Less Common Metals Limited• Co-founder of Meldform Metals Group in 1984, a rare earth trading company built into a successful global presence with over 60 global agents

Russell GrantVP Business Dev.

• Chairman of Areva South Africa and the CEO of Safika Resources, a South African company focused on mineral exploration and mining• Held executive positions at the Council for Scientific and Industrial Research, the largest research organization in Africa, at Eskom, the largest

electricity utility in Africa, and at Harmony Gold, one of the world’s largest gold mining companies.

Mohamed MadhiPresident Rarco

Gary BillingsleyChairman

• Engineer and geoscientist with more than 30 years' experience in the mineral industry• Former officer and director of several public mining and mineral exploration companies during the past 18 years• Directly involved with putting Saskatchewan's largest gold mine into production

James EngdahlCEO and Director

• Over 20 years of experience in corporate finance at the executive level with extensive expertise in mergers, acquisitions, reorganizations• Former VP of Barclays Bank of Canada, served as President, CEO, and director of Pacific & Western Trust, President and Director of Shore Gold,

and VP Finance and Director of Claude Resources and currently a Director of Formation Metals

Jim DavidsonCFO

• Over 19 years experience in the finance divisions of Weyerhaeuser in several locations throughout North America• Former CFO of Athabasca Potash

Source: Company Reports

Collectively the Company has a strong management team capable of advancing the project and has established a team with careers with significant experience in rare earths processing, downstream manufacturing, and rare earths sales.

Valuation

Based on our conceptual mine model for the Steenkampskraal mine, our sum-of-the-partsNAV for the Company is ~$1.2 BB or $1.97 per share (see Figure 41). Total developmentcost for the mine, processing, and separation facility is estimated at ~$80 MM. We expectthe Company to complete an equity financing for the majority of the capital cost in thenext six months. In line with our rare earths sector wide valuation benchmark, we haveapplied a 12.5% discount rate to the project. While we employ a 10% discount rate forbase metal and industrial metal projects, we account for the higher risk/challenges of therare earths sector, which is not yet established outside of China, with an increaseddiscount rate. At this stage processing rare earths is regarded as significantly morechallenging than other mined commodities, with complex mineralogy and a variety ofprocessing flow sheets.

Our target price is based on a 0.7x NAV multiple for the Steenkampskraal Mine and an8.0x EBITDA multiple for the Less Common Metals business unit. In one year we expectthe Steenkampskraal mine, processing, and separation facilities to be fully financed andin construction. As a fully financed construction project we generally value industrial andbased metals projects at 0.8x NAV, but have made an adjustment to reflect the increasedrisk of the jurisdiction. While South Africa is regarded as a higher risk jurisdiction wehighlight its positive advantages. The Western Cape Province has a long history ofmining with excellent infrastructure and skilled labor. Permitting, especially for a rareearths separation plant is likely much easier than in other first world jurisdictions. Capital

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and operating costs are expected to be lower due to favourable infrastructure, weather,and labor costs.

As the Company continues to advance the project, updating the historic resourceestimate, starting mine production and ore stockpiling, and commissioning the processingand separation facilities, we believe the Company should rerate to a producer status,trading at 0.9-1.0x NAV.

Our valuation is based on Cormark’s long-term rare earths price forecast which is asmall fraction of current prices. At current prices we estimate production fromSteenkampskraal to be worth ~$236/kg versus our forecast price of ~$28/kg, an 88%drop from current prices. We assign no value for lesser rare earths holmium, erbium,thulium, ytterbium, and lutetium. Due to historically limited supply there has been limitedinvestment in research and development for potential applications of the least commonlyoccurring rare earths. As new rare earths mines enter production and the supply of thesemetals increases we expect multiple end uses to be discovered and commercialized.While we see major potential for these metals, without a currently well defined market,we value revenue from these metals as upside to our forecast.

The major upside opportunity is for rare earths prices to remain high. Assuming thedozen most advanced rare earths projects all achieve production on time, critical rareearths will remain in short supply (though light rare earths will be oversupplied) based onCormark’s forecast 7-9% pa growth in rare earths demand (see Figure 12). Great WesternMinerals has the upside potential to realize several years of high pricing.

Figure 41 NAV Breakdown Discount Pre-Construction Financing Post Construction Financing

Mining Assets Ownership Rate $MM C$/Share $MM C$/ShareSteenkampskraal 100% 12.5% $809.3 $1.70 $809.3 $1.35Less Common Metals 100% $252.0 $0.53 $252.0 $0.42Hoidas Lake 100% $- $0.00 $- $0.00Red Wine 50% $- $0.00 $- $0.00Douglas River 100% $- $0.00 $- $0.00Benjamin River 100% $- $0.00 $- $0.00Deep Sands 25% $- $0.00 $- $0.00

Corporate Adjustments $(18.4) $(0.04) $(18.4) $(0.03)

Financial AssetsCash and Cash Equivalents $12.3 $0.03 $12.3 $0.02Cash From Dilution (Options/Warrants) $39.5 $0.08 $39.5 $0.07Construction Financing $80.0 $0.13Total Debt $1.6 $0.00 $1.6 $0.00Net Financial Assets $53.4 $0.11 $133.4 $0.22

Net Asset Value $1,096.3 $2.31 $1,176.3 $1.97

Fully Diluted Shares Outstanding (MM) 475.1 475.1Separation Facility Shares Issued 10.8Construction Financing Shares Issued (MM) 112.3Total Fully Diluted Share Outstanding (MM) 475.1 598.2

Current Great Western Minerals Group Share Price $0.75 $0.75

Price / NAV 0.3x 0.4x

Source: Cormark Securities Inc.

Rare Earths Comparables

See Figures 15 and 42 for a comparison of Great Western Minerals and its rare earthspeers. Great Western Minerals has the highest in-situ value per tonne rare earths project(~16.7% TREO [Main Zone]) with a good distribution of critical rare earths (~22%

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CREO/TREO), providing the potential for low cash cost production. The Company is themost advanced of its development stage peers (excluding Molycorp and Lynas) and isexpected to be in construction in Q1/12 with first production in H2/13.

We remain confident that the fundamentals for rare earths are unchanged and continue tosee growth in demand of 7-9% pa over the next decade. On this basis Great WesternMinerals is well positioned and attractively valued. The Company’s near-term productionprovides the opportunity to realize several years of very high rare earths prices before thebulk of new producers come online (2016-17). Based on our demand forecast, while lightrare earths are likely to be in oversupply, heavy rare earths will continue to beundersupplied. All the dozen most advanced rare earths projects are needed need to meetforecast demand.

Figure 42 Rare Earths Comparables Resource

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ ValueCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore)Development Stage Rare Earths CompaniesGreat Western Minerals Group, Ltd. $317 $308 Steenkampskra S. Africa 250 11.6% 2.6% 0.9% 22% 8% $3,346Lynas Corporation Limited $2,862 $2,590 Mt Weld Australia 17,490 8.1% 1.7% 0.4% 21% 5% $2,756Avalon Rare Metals Inc. $415 $383 Nechalacho Canada 25,499 2.2% 0.8% 0.5% 34% 23% $1,891Frontier Rare Earths Limited $133 $83 Zandkopsdrift S. Africa 12,350 3.6% 0.8% 0.3% 21% 8% $1,269Quest Rare Minerals Ltd. $246 $196 Strange Lake Canada 31,351 1.3% 0.6% 0.6% 46% 46% $1,089Rare Element Resources Ltd. $359 $286 Bear Lodge USA 6,804 3.4% 0.7% 0.1% 20% 4% $1,108Molycorp, Inc. $4,421 $3,941 Mountain Pass USA 27,216 6.6% 0.8% 0.0% 12% 0% $962Arafura Resources Limited $255 $158 Nolans Bore Australia 30,300 2.8% 0.7% 0.1% 24% 3% $840Alkane Resources Limited $520 $502 Dubbo Australia 73,200 0.9% 0.3% 0.2% 33% 22% $634Tasman Metals Ltd. $202 $186 Norra Karr Sweden 16,200 0.7% 0.3% 0.3% 52% 51% $522Matamec Explorations, Inc. $47 $42 Zeus Canada 16,314 0.5% 0.2% 0.2% 41% 37% $463 Note: Projects sorted by insitu value per tonne. Source: Cormark Securities Inc.

Upcoming Events / Catalysts

Great Western Minerals currently trades at 0.4x our NAV estimate. Over the next year wewould expect the Company to rerate to 0.7-0.8x P/NAV multiple due to the followingcatalyst events:

• Completion of Steenkampskraal Mine refurbishment (Q4/11)

• Exploration results and resource update (Q1/12)

• Bankable feasibility completion (Q1/12)

• Construction financing for processing and separation facilities (Q1/12)

• Initiation of construction of processing and separation facilities (Q1/12)

• Production mining and stockpiling (H2/12)

Initiating Coverage With A Buy Rating & $1.50 Target

We are initiating coverage on Great Western Minerals Group Inc. with a Buy rating and$1.50 price target, based on a DCF12.5% valuation and 0.7x NAV multiple for theSteenkampskraal mine and an 8.0x EBITDA multiple for the Company’s Less CommonMetals downstream processing unit. We view Great Western Minerals as a fast trackdeveloper, with the ability to capitalize on near-term high rare earths pricing and avertically integrated production process to maximize exposure to a fast growing industry.

Great Western Minerals is a late stage rare earths developer, focused on the WesternCape Province of South Africa. The Company’s flagship asset, the past producing,Steenkampskraal Mine, is in the process of refurbishment, with first production expectedH2/12, and separated rare earths oxide production in H2/13. The mine is expected to

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produce ~5,000 tpa of rare earths oxides at low cash costs. The deposit is uniquely highgrade (~16.7% TREO [Main Zone]) with a favourable distribution of critical rare earths(~22% CREO/TREO), ranking 1st in Cormark’s list of rare earths in-situ project value pertonne. The resource a historic estimate, but remains open along strike and at depth. Weare confident the Company will delineate a resource sufficient to support a long lifeoperation at similar grade in the near term. Construction of rare earths processing andseparation facilities are expected to commence in Q1/12 with first production in H2/13.Steenkampskraal ore is comprised of highly weathered monazite, amenable toconventional flotation and acid leaching processing using off-the-shelf components,allowing for a fast-track construction at low capital cost.

The Company’s 100% owned subsidiary, Less Common Metals, processes rare earthsoxides into alloys used for the manufacture of rare earths magnets. The Company has along and successful production history, is in the process of expanding operations, and willbenefit from the ability to source raw material from the Steenkampskraal mine.

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Matamec Explorations Inc. (MAT – $0.39, TSXV)

Recommendation: Buy (S) Target Price: $1.05

Figure 43 Statistics And Estimates

Current Price C$0.39 Shares Outstanding (MM)52 Wk High C$0.70 Basic52 Wk Low C$0.19 DilutedCash ($MM) $4.4 Mngt. & Dir.Total Debt ($MM) $0.0 InsidersNAVPS C$1.73 Market Cap.Price/NAV 0.2x Float

EV

$46.8

$42.5

116.5120.1

2.0

$35.2

24.1

Sources: Cormark Securities Inc., Company reports Figure 44 Price Chart

$0.10

$0.20

$0.30

$0.40

$0.50

$0.60

$0.70

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

Stoc

k Pr

ice

(C$)

0

500

1,000

1,500

2,000

2,500

3,000

3,500Volum

e (000s)

Sources: Cormark Securities Inc., Bloomberg

• Matamec Explorations is an early stage rare earths developer. Its flagship asset, the Zeus Rare Earths Project is located between the cities of Val d’Or, Quebec and North Bay, Ontario.

• The Zeus Project has the potential to become a ~5,000 tpa rare earths producer. The deposit is at surface and sufficiently large to support an open pit, 13+ year mine life. The resource remains open at depth and along strike with significant potential to extend mine life.

• While the deposit is relatively low grade, (0.5% TREO) it has a significant distribution of heavy rare earths (~36% HREO/TREO) by-product zirconium (0.9% ZrO2) and potential for uniquely low cost processing. We believe the project is capable of ~$8/kg rare earths in concentrate cash costs and a realized price of ~$41/kg.

• The majority of mineralization is contained in coarse grained eudialyte. Initial metallurgical work demonstrates potential for pre-concentration by magnetic separation and a one step low temperature acid leach, resulting in low cost processing. The Company claims a proprietary process has been developed to prevent or mitigate silica gel issues previously associated with eudialyte processing.

• The project is located in a mining friendly jurisdiction, with nearby access to power, rail, and skilled labor, providing excellent potential for low capital and operating costs. Management expects to have a preliminary economic assessment completed in Q4/11 and based on work completed to date we believe the project is capable of a 2017 initial production start.

• We are initiating coverage on Matamec Explorations with a Buy (S) rating and $1.05 price target, based on 0.6x our NAV estimate. We view Matamec as a favorable rare earths developer with the potential to become a significant North American heavy rare earths producer. Over the next year we believe the project will be advanced through its preliminary economic assessment, initiation of pilot plant processing, initial joint venture or off-take partner agreement, and initiation of a feasibility study.

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Potential For Low Cost Processing

Matamec Explorations is an early stage rare earths developer. Its flagship asset, the ZeusRare Earths Project, is located between the cities of Val d’Or, Quebec and North Bay,Ontario. Initial metallurgical work demonstrates potential for pre-concentration bymagnetic separation and a one step low temperature acid leaching, resulting in low costprocessing. We believe the Zeus Project has the potential to become a ~5,000 tpa rareearths producer with ~$8/kg rare earths in concentrate cash costs and ~$41/kg realizedprice. Management expects to have a preliminary economic assessment completed Q4/11and based on work completed to date we believe the project is capable of a 2017 initialproduction start.

Capital Structure

Matamec trades on the TSXV under the symbol MAT and has a financial year ending inDecember. Formerly a gold-uranium explorer focused on the Ontario-Quebec region, theCompany began acquiring claims for the Zeus Project in 2003. The Company begansignificant rare earths exploration in mid 2008 and shifted its focus to entirely rare earthsin November 2009. Since becoming a rare earths focused explorer Matamec hascompleted a $6.9 MM private placement financing (~14.4 MM units (share + ½ warrant)at $0.40 per unit and ~2.3 MM flow through shares at $0.50 per share) to fund the projectthrough exploration, resource estimation, initial metallurgy, and a preliminary economicassessment. The Company has ~137.5 MM shares outstanding on a fully diluted basis(see Figure 45) and a market capitalization of ~$47 MM. Pinetree Capital andConsolidated International Investment Holdings are Matamec’s largest shareholders at~10% each (see Figure 46).

Figure 45 Matamec Capital Structure Shares Outstanding (Basic) (000s) 116,495

Options (exercisable @ $0.10-0.26) 4,198Options (exercisable @ $0.35-0.40) 1,525Warrants (exercisable @ $0.50) 7,175Warrants (exercisable @ $0.40) 3,348Warrants (exercisable @ $0.20-0.35) 4,729

Shares Oustanding (Fully Diluted) 137,470Cash ($000) (Q1/11) $5,284Debt ($000) $0

Source: Company Reports

Figure 46 Major Shareholders Top Shareholders Shares Held (000s) Basic Ownership (%)Pinetree Capital 12,250 11%Consolidated International Investment 11,882 10%Andre Gauthier 1,617 1%Top Holders 25,749 22%

Sources: Cormark Securities Inc., Bloomberg, Sedi

Zeus Project (MAT – 100%)

Matamec Explorations holds a 100% interest in the Zeus Rare Earths Project, located 160 km south of Val d’Or, Quebec. Project claims cover an area of ~17,700 ha and contain the Kipawa deposit, the focus for potential rare earths mining. The project is located in a mining friendly jurisdiction with good infrastructure and is easily accessible by logging roads (see Figure 47). Power and rail are located at the town of Temiscamingue, ~50 km west of the property.

Exploration work on the property began in 1957 after gold-uranium mineralization was found in the region. Prior to 1985, exploration work was oriented toward uranium with numerous companies, notably Valdez, Nuspar, Hollinger, Imperial Oil and Talisman

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exploring the property. In 1985 Unocal Canada conducted exploration work for rare metals yttrium and zirconium. Airborne/ground radiometric and magnetic surveys, ground scintillometer surveys, geological mapping, trench sampling, and ~4,200 m of diamond drilling were completed on the property. Due to a company restructuring in 1990 Unocal ceased its operation as a mineral exploration company and dropped claim to the properties. Matamec Explorations began acquiring claims for the property in 2003 and initiated exploration in 2007.

Figure 47 Zeus Property

Source: Company Reports

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Zeus Project - Kipawa Geology

The Kipawa deposit is hosted by a syenite body that is part of the Kipawa AlkalicComplex, a concordant folded sheet of mildly peralkaline syenite and granite. TheKipawa deposit itself is defined over a length of ~1.5 km and averages 52 m in truethickness with two types of mineralized zones. The “TREO enriched” zones consist ofthree mineralized layers that, in addition to ZrO2, contain significant concentrations ofrare earths. Between these three layers, the syenite contains ZrO2 zones, enriched inzirconium with by-product quantities of rare earths. Rare earths mineralization in theTREO enriched zone occurs predominately in the mineral eudialyte (Figure 48).

Figure 48 Kipawa Deposit Cross-Section

Source: Company Reports

Kipawa Resource The resource estimate is based on 30 historic holes (~2,000 m) and 631 m of channelsamples completed by Unocal Canada (1988-1990), as well as ~10,300 m of drillingcompleted by Matamec (2009-2011).

At a 0.3% TREO cut-off grade the 16.3 MM t indicated & inferred resource (see Figure 49) is sufficient to support a 13+ year, 5,000 tpa rare earths in concentrate mining operation. The Kipawa deposit remains open at depth and along strike, and makes up a small portion of the mineralization identified on the Zeus property. Based on the large land holding and number of other mineralized zones identified (with high-grade intercepts) we believe the project has significant mine life upside and potential for high grade zones to be discovered. We assume the resource has significant potential for expansion at similar grade, but conservatively value this as exploration upside.

The deposit is at surface, with a ~20o dip, ~15 m eudialyte zone average thickness, ~1.5 km strike, and ~200 m down dip length. Based on the geometry of the deposit we estimate a stripping ratio of 3-4:1 and more conservatively assume a 4:1 average strip ratio for our conceptual mine model.

At a ~0.5% TREO grade with 36% heavy rare earths, the deposit is relatively low grade (see Figure 50). A 0.9% ZrO2 by-production improves the value of the deposit ~10% (based on our long-term price forecast) but the opportunity lies in the deposits potential for low cost processing.

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Figure 49 Kipawa Resource (June 2011)

Source: Company Reports

Figure 50 Kipawa Resource Distribution (June 2011)

Source: Company Reports

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Metallurgy SGS Lakefield has conducted initial metallurgical test work with results showing good

recoveries of rare earths and zirconium from eudialyte concentrate. The Company hassince focused on further processing refinements, the latest involving the use of pre-concentration using magnetic separation to reduce the amount of material subjected toacid leaching. The coarse grained nature of the Kipawa material allows for a highrecovery and significant mass reduction using magnetic pre-concentration. Matamec testwork demonstrates an ~90% recovery when material is magnetically pre-concentrated to~35% of original mass.

Combined with pre-concentration, the Company has announced a refined one stepleaching process that utilizes low temperature and low acid consumption. Matamec’sproprietary leaching process replaces the alternative energy-intensive acid baking stepwith a direct room-temperature leach (see Figure 51). Matamec claims the proprietaryprocess prevents or mitigates the impact of silica gel formation that has made processingof eudialyte material difficult in the past.

The standard baking and leaching method, which is a commonly employed technique forsolubilizing rare earths bearing silicate minerals, includes an acid baking step on wholeore, using ~600 kg/t of acid at 150 ºC for 4 hours. The ability to concentrate rare earthsinto 35% of the original ore mass, while rejecting the remaining 65% as waste, results insignificant savings in reagent dosages. In combination with the significant reduction inmaterial treated, the acid dosage has decreased from 600 kg/t of ore down to 150 kg/t ofconcentrate. Limestone consumption, used for neutralization, is similarly reduced.

Figure 51 Contemplated Flow Sheet Summary

Source: Company Reports

Production Potential Based on management’s target for a Q4/11 preliminary economic assessment and workcompleted to date, we believe the project is capable of being advanced to production in2017. We believe that a 75% overall recovery is achievable and a 3,750 tpd operation issufficient to produce 5,000 tpa of rare earths in concentrate.

Using a $3.00/t mining cost, ~4:1 strip ratio, $25/t processing cost (~$6.50/kg rare earths in concentrate), $5 MM pa mine site and plant site G&A cost, and $100/t shipping cost, we calculate an average cash cost of ~$8.00/kg rare earths concentrate (including $4.00/kg by-product zirconium credit). We estimate a total capital cost of ~$150 MM, based on similar projects and scale estimates.

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We assume production is sold as a concentrate to a downstream separation facility and realizes a 60% payability for contained rare earths. Based on the rare earths distribution of the resource we calculate a rare earths value of $68/kg and a payable value of $$41/kg rare earths in concentrate. At current prices we estimate a value of $227/kg for rare earths in concentrate.

Based on the current resource (12.5 MM t indicated & 3.8 MM t inferred) and a 3,750 tpd mining rate we assume a mine life of 13+ years. The resource remains open along strike and at depth, but we take conservative view of resource expansion at this time. Our DCF12.5% valuation for the Zeus project is ~$360 MM (see Figure 52).

Figure 52 Zeus Conceptual Mine Model Summary (in C$000s, except where noted) 2014E 2015E 2016E 2017E 2018E 2019E 2020ECommodity Price Assumptions ($/kg)

Lanthanum Oxide La₂O₃ $20 $5 $1.00 $1.00 $1.00 $1.00 $1.00Cerium Oxide CeO₂ $20 $5 $0.50 $0.50 $0.50 $0.50 $0.50Praseodymium Oxide Pr₆O₁ ₁ $275 $150 $75 $75 $75 $75 $75Neodymium Oxide Nd₂O₃ $450 $250 $75 $75 $75 $75 $75Samarium Oxide Sm₂O₃ $35 $25 $10 $10 $10 $10 $10Europium Oxide Eu₂O₃ $4,000 $2,000 $1,000 $1,000 $1,000 $1,000 $1,000Gadolinium Oxide Gd₂O₃ $225 $225 $150 $150 $150 $150 $150Terbium Oxide Tb₄O₇ $4,000 $3,000 $1,500 $1,500 $1,500 $1,500 $1,500Dysprosium Oxide Dy₂O₃ $3,000 $2,000 $1,000 $1,000 $1,000 $1,000 $1,000Zirconium ZrO₂ $4 $4 $4 $4 $4 $4 $4Yttrium Oxide Y₂O₃ $75 $50 $15 $15 $15 $15 $15Others $- $- $- $- $- $- $-

ProductionOre Mined (000 t) 656 1,050 1,313 1,313Ore Mined (tpd) 2,500 3,000 3,750 3,750Rare Earths Recovery 75.0% 75.0% 75.0% 75.0%Zircon Recovery 70.0% 70.0% 70.0% 70.0%

Total Rare Earths In Concentrate (000 kg) 2,512 4,019 5,023 5,023Zircon In Concentrate (000 kg) 4,194 6,711 8,388 8,388

Total Cash Cost ($/kg) $8.88 $8.13 $7.88 $7.88Realized Pricing ($/kg) $41.05 $41.05 $41.05 $41.05EBITDA $80,790 $132,265 $166,581 $166,581Capex $25,000 $75,000 $50,000 $2,000 $2,000 $2,000 $2,000Cash Flow $(25,000) $(75,000) $(50,000) $78,790 $121,548 $115,206 $115,206Net Present Value ($000s)

10.0% $481,89012.5% $356,13115.0% $263,547

Source: Cormark Securities Inc.

Joint Venture Or Off-Take Agreement

Management indicates that a number of potential joint venture or off-take discussionshave taken place or are ongoing, but to date no agreement has been announced. Weassume production of rare earths is taken to the concentrate stage and sold to adownstream processer (joint venture or off-take partner) for rare earths separation andhave assumed a 60% payability on production.

If the Company were to pursue the development of its own separation facility and realizea 100% payability, our NAV for the mine and processing plant would increase ~$400MM, easily justifying the estimated capital cost of $50-100 MM. We view thisproduction scenario as upside to our estimates.

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Valuation

Based on our conceptual mine model for the Zeus Project, our sum-of-the-parts NAV forthe Company is ~$380 MM, including an assumed $30 MM equity raise (see Figure 53).In line with our rare earths sector wide valuation benchmark, we have applied a 12.5%discount rate to the project. While we employ a 10% discount rate for base metal andindustrial metal projects, we account for the higher risk/challenges of the rare earthssector, which is not yet established outside of China, with an increased discount rate. Atthis stage processing rare earths is regarded as significantly more challenging than othermined commodities, with complex mineralogy and a variety of processing flow sheets.

We assume a $30 MM financing is completed (at current price levels) in the next year, tofund a pilot plant and feasibility study. Applying a 0.6x NAV multiple we arrive at our$1.05 target price. The Zeus project is favorably located in a mining friendly jurisdiction,with good access and infrastructure, and combined with our forecast for a low capex startup we believe a 0.6x P/NAV pre-construction developer multiple is appropriate.

As the Company continues to advance the project, announcing a construction decision,arranging all necessary construction financing, and initiating construction, we believeMatamec should rerate to a pre-production status, trading at 0.8x NAV.

Our valuation is based on Cormark’s long-term rare earths price forecast which is a smallfraction of current prices. At current prices we estimate concentrate production fromZeus to be worth ~$227/kg, versus our forecast price of $41/kg, an 82% drop fromcurrent prices. We assign no value for lesser rare earths holmium, erbium, thulium,ytterbium, and lutetium. Due to historically limited supply there has been limitedinvestment in research and development for potential applications of the least commonlyoccurring rare earths. As new rare earths mines enter production and the supply of thesemetals increases we expect multiple end uses to be discovered and commercialized.While we see major potential for these metals, without a currently well defined market,we value revenue from these metals as upside to our forecast.

The major upside opportunity for the Company is for rare earths prices to remain high.Assuming the dozen most advanced rare earths projects all achieve production on time,critical rare earths will remain in short supply (though light rare earths will beoversupplied) based on Cormark’s forecast 7-9% pa growth in rare earths demand (seeFigure 12). Matamec has the upside potential to realize several years of high pricing.

Figure 53 NAV Breakdown (C$ millions, unless otherwise indicated) Discount

Ownership Rate $MM C$/ShareZeus 100% 12.5% $356.1 $1.62

Corporate Adjustments $(14.7) $(0.07)

Financial AssetsCash and Cash Equivalents $4.4 $0.02Cash From Dilution (Options/Warrants) $2.6 $0.01Feasibility Financing $30.0 $0.14Total Debt $- $0.00Net Financial Assets $37.0 $0.17

Net Asset Value $378.4 $1.73

Fully Diluted Shares Outstanding (MM) 137.5Feasibility Financing Shares Issued (MM) 81.8Total Fully Diluted Share Outstanding (MM) 219.3

Current Matamec Explorations Share Price $0.39

Price / NAV 0.2x

Source: Cormark Securities Inc.

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Rare Earths Comparables

See Figures 15 and 54 for a comparison of Matamec and its rare earths peers. Whilerelatively low grade (~0.5% TREO), a significant distribution of heavy rare earths (~36%HREO/TREO), by-product zirconium, and the potential for uniquely low cost processingprovide the opportunity for Matamec to be a low cost rare earths producer. TheCompany’s favorable jurisdiction and low estimated capex minimize development risk.

Similar to its rare earths peers, and many other base metal and industrial metalscompanies, Matamec’s share price is down ~33% since April 2011. Summer 2011 hasbeen a challenge for the broader equities markets, with base and industrial metals beingsome of the hardest hit. We remain confident that the fundamentals for rare earths areunchanged and continue to see growth in demand of 7-9% pa over the next decade. Onthis basis Matamec is well positioned and attractively valued. Based on our demandforecast, while light rare earths are likely to be in oversupply, heavy rare earths willcontinue to be undersupplied. All of the dozen most advanced rare earths projects areneeded need to meet forecast demand.

Figure 54 Rare Earths Comparables Resource

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ ValueCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore)Development Stage Rare Earths CompaniesGreat Western Minerals Group, Ltd. $317 $308 Steenkampskraa S. Africa 250 11.6% 2.6% 0.9% 22% 8% $3,346Lynas Corporation Limited $2,862 $2,590 Mt Weld Australia 17,490 8.1% 1.7% 0.4% 21% 5% $2,756Avalon Rare Metals Inc. $415 $383 Nechalacho Canada 25,499 2.2% 0.8% 0.5% 34% 23% $1,891Frontier Rare Earths Limited $133 $83 Zandkopsdrift S. Africa 12,350 3.6% 0.8% 0.3% 21% 8% $1,269Quest Rare Minerals Ltd. $246 $196 Strange Lake Canada 31,351 1.3% 0.6% 0.6% 46% 46% $1,089Rare Element Resources Ltd. $359 $286 Bear Lodge USA 6,804 3.4% 0.7% 0.1% 20% 4% $1,108Molycorp, Inc. $4,421 $3,941 Mountain Pass USA 27,216 6.6% 0.8% 0.0% 12% 0% $962Arafura Resources Limited $255 $158 Nolans Bore Australia 30,300 2.8% 0.7% 0.1% 24% 3% $840Alkane Resources Limited $520 $502 Dubbo Australia 73,200 0.9% 0.3% 0.2% 33% 22% $634Tasman Metals Ltd. $202 $186 Norra Karr Sweden 16,200 0.7% 0.3% 0.3% 52% 51% $522Matamec Explorations, Inc. $47 $42 Zeus Canada 16,314 0.5% 0.2% 0.2% 41% 37% $463

Note: Projects sorted by insitu value per tonne. Source: Cormark Securities Inc.

Upcoming Events / Catalysts

Matamec currently trades at 0.2x our NAV estimate. Over the next year we expect theCompany to rerate to 0.6x P/NAV multiple due to the following catalyst events:

• Preliminary Economic Assessment (Q4/11)

• Joint Venture or Off-Take Agreement (2012)

• Pilot Plant Testing (2012)

• Initiation of a Feasibility Study (2012) Initiating Coverage With A Buy (S) Rating & $1.05 Target

We are initiating coverage on Matamec Explorations Inc. with a Buy (S) rating and $1.05price target, based on a DCF12.5% valuation and 0.6x NAV estimate. We believe the ZeusProject has the potential to become a ~5,000 tpa rare earths producer with ~$8/kg rareearths in concentrate cash costs and ~$41/kg realized price. We apply a speculative ratingto our recommendation due to the project’s dependence on a proprietary processingmethod. If proven workable, pre-concentration and one step low temperature leachingwill provide uniquely low operation costs, allowing for the relatively low grade project tobecome a high-margin project. The project is located in a mining friendly jurisdiction,with nearby access to power, rail, and skilled labor, providing potential for low capitalcost. A preliminary economic assessment is expected in Q4/11 and based on workcompleted to date we believe the project is capable of a 2017 initial production start.

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Quest Rare Minerals Ltd. (QRM – C$3.99, TSXV; QRM – US$4.02, AMEX)

Recommendation: Buy Target Price: $11.50

Figure 55 Statistics And Estimates Current Price C$3.99 Shares Outstanding (MM)52 Wk High C$8.88 Basic52 Wk Low C$3.29 DilutedCash ($MM) $50.9 Mngt. & Dir.Total Debt ($MM) $0.0 Market Cap.NAVPS C$28.92 FloatPrice/NAV 0.1x EV $194.3

59.661.51.1

$233.3$245.2

Sources: Cormark Securities Inc., Company reports Figure 56 Price Chart

$2.00

$4.00

$6.00

$8.00

$10.00

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11

Stoc

k Pr

ice

(C$)

0

500

1,000

1,500

2,000

Volume (000s)

Sources: Cormark Securities Inc., Bloomberg

• Quest is an advanced rare earths developer, focused on its Strange Lake Project, in northern Quebec. The Company has the potential to become a ~15,000 tpa high-value rare earths producer and is fully funded through the completion of a bankable feasibility study.

• The deposit grades ~1.3% TREO with a high ~46% CREO/TREO distribution and significant zirconium/ hafnium/niobium by-product credits, ranking 5th in Cormark’s list of rare earths project value per tonne.

• The resource is at surface and sufficient to support a 20+ year (high grade) mine life, with a total resource sufficient for 160+ years of operation. Significant exploration upside exists along strike, down dip, and at neighbouring mineralization targets.

• Initial metallurgical testing demonstrates potential for a magnetic separation pre-concentration or whole ore process with acid bake leaching. We expect an ~80% overall recovery is achievable. Processing costs are likely to be above average due to the project’s remote location, but are justified by the high value of rare earths produced.

• Though major upside exists if the Company were to pursue its own separation facility, we assume rare earths production is sold as a concentrate to a downstream rare earths separation facility. The Company is likely to seek a joint venture or an off-take partner in the next year to support this plan.

• The Strange Lake Project is remotely located, with fly-in only access and harsh northern conditions, but the scale of the resource and production potential justify development. We expect the Company to continue to successfully advanced the project through pre-feasibility (Q1/12), bankable feasibility (Q4/12), and achieve an H1/17 production start.

• We are initiating coverage on Quest Rare Minerals Inc. with a Buy rating and $11.40 price target, based on 0.4x our NAV estimate. We view Quest as a large scale, high value, rare earths developer with significant exploration upside.

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Northern Mega-Project

Quest is an advanced rare earths developer, focused on its Strange Lake Project, innorthern Quebec. The deposit grades ~1.3% TREO with a high ~46% CREO/TREOdistribution and significant zirconium/ hafnium/niobium by-product credits, ranking 5th inCormark’s list of rare earths project value per tonne. The Company is fully funded tocomplete a pre-feasibility and pilot plant study (Q1/12).

The project is remotely located, with fly-in only access and harsh northern conditions, butthe scale of the resource and production potential justify development. Based onCormark’s long term rare earths price forecast a ~15,000 tpa rare earths production ratewill cash flow ~$860 MM pa against an initial capital cost forecast of ~$800 MM. Theresource is at surface and sufficient to support a 20+ year (high grade) mine life, with atotal resource sufficient for 160+ year operation. We believe the project is capable of aH2/13 construction start, with first production in (H1/17) and ramping to full productionin 2020.

Capital Structure

Quest trades on the TSXV and AMEX under the symbol QRM and has a financial yearending in October. The Company was listed in January 2008 through a spin out ofFreewest Resources’ northern Quebec uranium properties. The Company was previouslycalled Quest Uranium and traded on the TSXV under the symbol QUC, but changed itsname and ticker in April 2010. The Company shifted to a rare earths explorer focus inApril 2009. Since shifting to a rare earths focus, the Company has raised ~$56 MM tofund exploration. Quest has a cash balance of ~$51 MM (see Figure 57), with $3.5 MMin government exploration rebates expected in the next month, and is sufficiently fundedthrough to the completion of a bankable feasibility study on the Company’s Strange LakeRare Earths Project. The Company has ~70 MM shares outstanding on a fully dilutedbasis (see Figure 58) and a market capitalization of ~$245 MM.

Figure 57 Quest Rare Minerals Capital Structure Shares Outstanding (Basic) (000s) 59,557

Options (exercisable @ $0.10-0.75) 1,712Options (exercisable @ $1.79-2.60) 698Options (exercisable @ $4.43-4.69) 2,390Options (exercisable @ $5.53-7.00) 375Warrants (exercisable @ $2.30-3.25) 500Warrants (exercisable @ $4.25-5.00) 4,686

Shares Oustanding (Fully Diluted) 69,919Cash ($000) (Q2 FY2011) $50,944Debt ($000) $0

Source: Company Reports

Figure 58 Major Institutional Shareholders Top Shareholders Shares Held (000s) Basic Ownership (%)Van Eck Associates 1,381 2%Front Street 650 1%Ronald Kay 611 1%AGF Investments 460 1%Altamira Management 235 0%Acuity Investment 199 0%Peter Cashin 160 0%UBS AG 146 0%Top Holders 3,844 6%

Sources: Cormark Securities Inc., Bloomberg

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Strange Lake (QRM – 100%)

Quest Rare Minerals holds a 100% interest in the Strange Lake Rare Earths Project(Figures 59 and 60). The majority of the property is located on the Quebec side of theQuebec-Labrador boarder, 125 km west of Voisey’s Bay, Labrador, and covers a total areaof approximately ~50,000 ha. Access to property is currently fly-in only, with the nearest seaport in Nain, 125 km east of the property and the nearest railhead in Schefferville, 235km southwest of the property.

Prior to 1979, minor lake sediment and radiometric survey work was completed by theGeological Survey of Canada. From 1979 to 1984, the Iron Ore Company of Canada (“IOC”) completed several exploration programs on the Strange Lake property. Exploration programs included: reconnaissance geological mapping, radiometric surveys, and geochemical sampling. A total of 373 diamond drill holes, culminated in the discovery of rare earths mineralization (Main Zone). IOC commissioned several metallurgical and economic studies to determine the economic viability of the deposit. In 1984, IOCcompleted a preliminary feasibility study, but concluded that, at the time, the market foryttrium and other rare earths did not support development.

From 1992 to 1995, Mitsui Mining & Smelting Co., Ltd. (Mitsui), a Japan-based metals supplier, conducted a metallurgical research on Main Zone deposit with mineral processing and chemical processing tests conducted.

In 2006, Freewest Resources staked 23 non-contiguous claim blocks in the region for the purpose of uranium exploration and later spun out the claims to Quest. Quest, formerly a uranium focused explorer, shifted its focus to rare earths exploration in April 2009.

Figure 59 Strange Lake Land Holdings & Identified Resource Zones

Source: Company Reports

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Figure 60 Strange Lake Property – B Zone & Exploration Camp

Source: Company Reports

Strange Lake Geology The Strange Lake B Zone rare earths deposit is hosted by the Strange Lake AlkalicComplex, which is a set of alkaline igneous rocks that are of granitic composition andparticularly enriched in sodium, potassium and heavy rare earths. The chemistry of thehost rocks, the mineralogy of the deposit, and the assemblage of rare earth elementminerals are different than the more common carbonatite-hosted rare earth elementdeposits and extremely rare in their development.

The complex is sub-circular and consists of generally concentric, high-level graniticintrusions bounded by sharp contacts with country rocks (see Figure 61). Ring faults, ator near the contact of the alkalic complex, dip outward at low to moderate angles. At thegeometric centre of the Complex is a small (~150 ha) stock of medium grained granitewith very high overall values of zirconium, niobium, and rare earths. Rooted within thismedium grained granite stock are dykes of aplite-pegmatite that contain significant valuesof rare metals.

The deposit is largely continuous in mineralization with granite host rock grading 0.9-1.2% TREO and higher grade zones found in pegmatites at relatively fine grain size.Potential ore minerals comprise predominantly kainosite, gerenite, gadolinite, zircon,pyrochlore and gittinsite. Uranium occurs as a minor element with an average grade of 68ppm.

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Figure 61 Strange Lake Property Geology

Source: Company Reports

Strange Lake Exploration Quest has focused its exploration and development efforts on the B Zone of the StrangeLake Complex. While significant historical exploration and resource delineation has beencompleted on the Main Zone, it lies on or against the Quebec-Labrador boarder. Land onthe Labrador side of the boarder is part of ‘Exempt Mineral Lands’ and seen assignificantly higher risk to permit. The B Zone is entirely on Quebec land, a miningfriendly jurisdiction with low permitting risk.

During the 2008 exploration season, Quest conducted a campaign of geophysical surveys that consisted of airborne radiometric and magnetic geophysical surveys. Geological mapping was conducted to further delineate historical geological maps, while channel sampling was done as follow-up on anomalous bedrock areas proximal to the B Zone. Summer of 2009, Quest conducted an exploration program that included: geological reconnaissance mapping, outcrop and grab sampling, trenching, and diamond drilling. The diamond drilling program on the B Zone consisted of 19 drill holes (2,181 m), all encountering rare earths mineralization in granite host rock and higher grade pegmatites (1-15 m in thickness). An additional five drill holes (340 m) were completed for a bulk sample (1,015 kg).

In the summer of 2010, Quest expanded the drilling on the B Zone deposit by drilling an additional 78 drill holes (14,270 m). By the end of 2010, the drill hole database consisted of 97 drill holes for a total of 17,474 m. The aims of the 2010 drill program were to infill and continue to define the known deposit and resource. All 78 drill holes from the 2010 drill program encountered pegmatite-hosted rare earths mineralization.

Quest conducted a winter drilling program in January 2011. A total of 21 drill holes (3,000 m) were completed to test the northern extension of the mineralized pegmatite and

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granite units that gently dip underneath Lac Brisson. Positive results have not yet been incorporated into the resource estimate. A 35,000 m exploration and geotechnical drilling program is ongoing, along with a bulk sample program to be used for the pilot mill testing program. Preliminary engineering and baseline environmental work for use in the current pre-feasibility study for the deposit is ongoing.

The Company has delineated a large and continuous rare earths resource sufficient to support large scale development and a long mine life. We expect continued exploration success, but view the current resource as more than sufficient for development.

B Zone Resource The mineral resource estimate for the Strange Lake B Zone deposit (April 2011), at0.579% TREO cut-off grade is: 140 MM t grading 0.93% TREO indicated and 90 MM tgrading 0.88% TREO inferred (see Figure 62). We focus upon the 1.0% TREO cut-offgrade resource estimate which is sufficient to support a 20+ years mine life. At a 1.3%TREO grade the deposit stands out due to its high distribution of critical rare earths(~46% CREO/TREO) (see Figure 63).

Figure 62 B Zone Resource (May 2011)

Source: Company Reports

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Figure 63 B Zone Rare Earths Distribution (1.00% TREO Cut-Off) Resource Distribution @ 1.00% TREO Cut-Off Indicated InferredTonnage (000 t) 23,052 8,299

Lanthanum Oxide La₂O₃ 0.150% 0.150%Cerium Oxide Ce₂O₃ 0.332% 0.321%Praseodymium Oxide Pr₂O₃ 0.037% 0.037%Neodymium Oxide Nd₂O₃ 0.136% 0.135%Samarium Oxide Sm₂O₃ 0.033% 0.033%

LREO 0.688% 0.676%Europium Oxide Eu₂O₃ 0.002% 0.002%Gadolinium Oxide Gd₂O₃ 0.034% 0.033%Terbium Oxide Tb₂O₃ 0.008% 0.007%Dysprosium Oxide Dy₂O₃ 0.054% 0.050%Holmium Oxide Ho₂O₃ 0.012% 0.011%Erbium Oxide Er₂O₃ 0.014% 0.035%Thulium Oxide Tm₂O₃ 0.006% 0.006%Ytterbium Oxide Yb₂O₃ 0.040% 0.036%Lutetium Oxide Lu₂O₃ 0.006% 0.005%Yttrium Oxide Y₂O₃ 0.384% 0.350%

HREO+Y 0.560% 0.535%TREO 1.248% 1.211% HREO+Y / TREO 45% 44%

Sources: Cormark Securities Inc. and Company Reports

Metallurgy Hazen Research Inc. based in Golden, Colorado, was contracted to complete mineralprocessing and metallurgical testing. Initial process work has been completed and a phaseII program is ongoing. Hazen is confident that a technically suitable process flow sheetcan be prepared.

As part of its metallurgical testing program, Quest contracted Hazen to conduct amineralogical characterization of the rare earths occurrences. Rare earths are contained ina host of silicates and minor oxides, phosphates (monazite), and carbonates (bastnäsite.The main rare earths silicates are gadolinite, gerenite, and kainosite. Other rare earthsbearing minerals are zircon, gittinsite, thorite and epidote. The main waste minerals,quartz and feldspar (K-feldspar and albite), make up between 63% and 70% of the ore.

Based on initial tests magnetic separation was deemed the only method of pre-concentration with sufficient recovery, eliminating ~45% of the material with minimalrare earths losses (4-6%). Tests on high-grade mineralization revealed that the rare earthscould be effectively liberated by acid leaching of the whole-ore without the need of pre-concentration. Rare earths recoveries were further improved by applying an acid-bakestep to the leach experiments. Acid bake tests, on finely ground high-grade ore, had 80-88% rare earths recoveries with total acid additions of 500-750 kg/t of feed.

We assume a workable process flow sheet will be prepared, achieving ~80% overall rareearths recovery, utilizing a high temperature acid bake stage with acid additions of ~600kg/t of ore feed. A magnetic pre-concentration stage may be deemed more economic,though we estimate it is approximately a break even trade-off between recovery and cost.

Production Potential Based on management’s target for the completion of a pre-feasibility study (Q1/12),bankable feasibility study (Q4/12), and work completed to date, we believe the project iscapable of being advanced to production in 2017. We have allotted a 36-40 monthconstruction period with first production in H1/17.

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At a 4,000 tpd ore mining rate, concentrating on the high grade (1.0% TREO cut-off) resource, the project is capable of producing ~14,750 tpa rare earths material with significant zirconium/hafnium (~22,500 tpa) and niobium (170 tpa).

Assuming a $5.00/t mining cost, ~0.5:1 strip ratio, $210/t processing cost (~$20.00/kg rare earths in concentrate), $10 MM pa mine site and plant site G&A cost, and $300/t rare earths in concentrate shipping cost, we calculate an average cash cost of ~$18/kg rare earths concentrate (including ~$4/kg by-product zirconium/hafnium and niobium credit).

Mining costs remain inline with the preliminary economic assessment but we take a more conservative view on processing costs. The preliminary economic assessment estimates processing costs of ~$100/t ore, including ~$24/t for power and $28/t for reagents and supplies. Adjusting costs to reflect diesel generated power and high temperature acid bake processing increases our power cost estimate to ~$60/t. The preliminary economic assessment estimates a pre-leaching and leaching acid consumption of ~33 kg/t, we believe this to be closer to ~600 kg/t, resulting in an increase in reagents and supplies cost to $100/t. Collectively these adjustments result in our $210/t processing cost estimate.

We note that the opportunity exists for magnetic pre-concentration processing, with tests demonstrating potential for a ~95% rare earths recovery and ~45% material reduction. We assume an overall recovery of ~75% is achievable in this scenario and would reduce processing costs to $150-175/t. The resultant impact to NAV is a marginal improvement, but may significantly reduce operating risk or capital cost.

The preliminary economic assessment outlines a construction cost of ~$563 MM, including ~$400 MM in direct costs and $163 for indirect costs. While we agree with component and equipment costs, due to the northern climate, limited access, and infrastructure challenges we believe that the cost to bring materials to site, assemble them, and commission facilities will likely be significantly higher. Additionally we are adjusting for a high temperature acid leach stage in the process plant and arrive at a total capital cost of ~$800 MM.

We assume production is sold as a concentrate to a downstream separation facility and realizes a 60% payability for contained rare earths. Based on the rare earths distribution of the resource we calculate a rare earths value of ~$130/kg and a payable value of ~$78/kg for rare earths concentrate.

Based on the high-grade resource (23.1 MM t indicated & 8.3 MM t inferred) and a 4,000 tpd mining rate we calculate a mine life of 20+ years. The total resource is sufficient to support a 160+ year mine life with significant potential for additional resource discoveries and extension, but we take a conservative view at this stage.

Our DCF12.5% valuation for the Strange Lake project is ~$2.0 BB (see Figure 64).

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Figure 64 Strange Lake Model Summary (in C$000s, except where noted) 2014E 2015E 2016E 2017E 2018E 2019E 2020ECommodity Price Assumptions ($/kg)

Lanthanum Oxide La₂O₃ $20 $5 $1.00 $1.00 $1.00 $1.00 $1.00Cerium Oxide CeO₂ $20 $5 $0.50 $0.50 $0.50 $0.50 $0.50Praseodymium Oxide Pr₆O₁ ₁ $275 $150 $75 $75 $75 $75 $75Neodymium Oxide Nd₂O₃ $450 $200 $75 $75 $75 $75 $75Samarium Oxide Sm₂O₃ $35 $25 $10 $10 $10 $10 $10Europium Oxide Eu₂O₃ $4,000 $2,000 $1,000 $1,000 $1,000 $1,000 $1,000Gadolinium Oxide Gd₂O₃ $225 $225 $150 $150 $150 $150 $150Terbium Oxide Tb₄O₇ $4,000 $3,000 $1,500 $1,500 $1,500 $1,500 $1,500Dysprosium Oxide Dy₂O₃ $3,000 $2,000 $1,000 $1,000 $1,000 $1,000 $1,000Yttrium Oxide Y₂O₃ $75 $50 $15 $15 $15 $15 $15Other Rare Earths $- $- $- $- $- $- $-Zirconium ZrO₂ $4 $4 $4 $4 $4 $4 $4Hafnium HfO₃ $25 $25 $25 $25 $25 $25 $25Niobium $30 $30 $30 $30 $30 $30 $30

ProductionOre Mined (000 t) 560 1,050 1,260 1,400Ore Mined (tpd) 2,400 3,000 3,600 4,000Rare Earths Recovery 80.0% 80.0% 80.0% 80.0%Zircon/Hafnium Recovery 70.0% 70.0% 70.0% 70.0%Niobium Recovery 40.0% 40.0% 40.0% 40.0%

Total Rare Earths In Concentrate (000 kg) 5,900 11,062 13,274 14,749Zirconium/Hafnium (000 kg) 9,015 16,903 20,283 22,537Niobium (000 kg) 67 126 151 168

Total Cash Cost ($/kg) $18.98 $18.19 $18.04 $17.96Payability 60.0% 60.0% 60.0% 60.0%Realized Pricing ($/kg) $77.62 $77.62 $77.62 $77.62EBITDA $345,934 $657,377 $790,852 $879,836Capex $300,000 $250,000 $250,000 $10,000 $10,000 $10,000 $10,000Cash Flow $(300,000) $(250,000) $(250,000) $335,934 $601,384 $546,597 $608,885Net Present Value ($000s)

10.0% $2,691,51212.5% $1,947,50515.0% $1,423,053

Source: Cormark Securities Inc.

Joint Venture Or Off-Take Agreement

Quest currently envisions producing a rare earths concentrate to be sold to a joint ventureor off-take partner. Management indicates that a number of potential joint venture or off-take discussions have taken place or are ongoing, but to date no agreement has beenannounced. We assume production of rare earths is taken to the concentrate stage andsold to a downstream processor (joint venture or off-take partner) for rare earthsseparation and have assumed a 60% payability on production.

If the Company was to pursue the development of its own separation facility and realize a100% payability on production, our NAV for the mine and processing plant wouldincrease ~$2.0 BB, easily justifying the estimated capital cost of $250-350 MM. We viewthis production scenario as upside to our estimates.

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Exploration Properties

Quest holds a portfolio of rare earths and uranium exploration properties. It holds a 100% interest in the Misery Lake Rare Earths Project, located 120 km south of the Strange Lake Project. Grab samples highlights contained up to 27% Fe, 1.2% P2O5, 1.5% TiO2, and 2.23% TREO.

The Company holds the option to earn a 50% interest in exploration properties adjacent to its Strange Lake Project. The properties are currently held by Search Minerals, an early stage rare earths explorer. The Strange Lake JV property has an interesting historic resource, 52 MM t grading 3.25% ZrO2, 1.96% TREO, and 0.56% NbO5. Based on the timeline for exploration, a compliant resource estimate, and potential development timeline, we view this as a much longer term upside.

Quest holds uranium exploration properties in Ontario and New Brunswick, but no work is planned for the properties.

At this time we assign no value for the Company’s exploration assets. The Strange Lake Project is sufficient to support development and the addition of satellite deposits or secondary projects is unlikely to impact Quest’s development plan in the next decade.

Valuation

Based on our mine model for the Strange Lake Project, our sum-of-the-parts NAV for theCompany is ~$2.0 BB or $28.92 per share (see Figure 65). In line with our rare earthssector wide valuation benchmark, we have applied a 12.5% discount rate to the project.While we employ a 10% discount rate for base metal and industrial metal project, weaccount for the higher risk/challenges of the rare earths sector, which is not yetestablished outside of China, with an increased discount rate. At this stage processing rareearths is regarded as significantly more challenging than other mined commodities, withcomplex mineralogy and a variety of processing flow sheets.

In the next year, we believe the project will be advanced through pre-feasibility and pilot plant testing with a joint venture partner likely to be established. As a pre-construction mining project we would normally apply a 0.6x P/NAV multiple to the project, but in this case adjusted for the increased technical risk and capital cost of the very northern project. We apply a 0.4x NAV multiple to arrive at our $11.40 target price. The Strange Lake project is in a mining friendly jurisdiction, but the Company must demonstrate to investors that it can keep the project on track, through infrastructure and harsh weather challenges.

As the Company continues to advance the project, announcing a joint venture partner or separation facility plans, construction decision and financing plans, we believe the Company should rerate to a pre-producer status, trading at 0.6-0.8x NAV.

Our valuation is based on Cormark’s long term rare earths price forecast which is a small fraction of current prices. At current prices we estimate production to be worth $569/kg (with significant zirconium by-product credit) or $341/kg in concentrate versus our forecast price of $78/kg in concentrate, a 77% drop from current prices. We assign no value for lesser rare earths holmium, erbium, thulium, ytterbium, and lutetium. Due to historically limited supply there has been limited investment in research and development for potential applications of the least commonly occurring rare earths. As new rare earths mines enter production and the supply of these metals increases we expect multiple end uses to be discovered and commercialized. While we see major potential for these metals, without a currently well defined market, we value revenue from these metals as upside to our forecast.

The major upside opportunity Quest has is for prices to remain high. Assuming the dozen most advanced rare earths projects all achieve production on time, critical rare earths will remain in short supply (though light rare earths will be oversupplied) based on Cormark’s

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forecast 7-9% pa growth in rare earths demand. Quest has the upside potential to realize several years of high pricing.

Figure 65 NAV Breakdown Discount

Mining Assets Ownership Rate $MM C$/ShareStrange Lake 100% 12.5% $1,947.5 $27.85Other Exploration Properties $- $0.00

Corporate Adjustments $(16.5) $(0.24)

Financial AssetsCash and Cash Equivalents $50.9 $0.73Cash From Dilution (Options/Warrants) $40.3 $0.58Total Debt $- $0.00Net Financial Assets $91.2 $1.30

Net Asset Value $2,022.2 $28.92

Fully Diluted Share Outstanding (MM) 69.9

Current Quest Rare Minerals Share Price $3.99

Price / NAV 0.1x

Source: Cormark Securities Inc.

Rare Earths Comparables

See Figures 15 and 66 for a comparison of Quest and its rare earths peers. Quest ranks 5th

for in-situ rare earths value per tonne (1.0% TREO cut-off grade resource) with a largeweighting of heavy rare earths (~46% CREO/TREO) and significant zirconium by-product credit (~2.3% ZrO2). Based on its large scale resource, Quest has the potential toexpand production capacity over time, from its contemplated ~15,000 tpa rare earthsinitial rate.

Similar to its rare earths peers, and many other base metal and industrial metalscompanies, Quest’s share price is down ~45% since April 2011. Summer 2011 has been achallenge for the broader equity market, with base and industrial metals being some ofthe hardest hit. We remain confident that the fundamentals for rare earths are unchangedand continue to see growth in demand of 7-9% pa over the next decade. On this basisQuest is well positioned and attractively valued. Based on our demand forecast, whilelight rare earths are likely to be in oversupply, heavy rare earths will continue to beundersupplied. All of the dozen most advanced rare earths projects are needed to meetforecast demand.

Figure 66 Rare Earths Comparables Resource

(US$MM, unless otherwise noted) Market Ent. Tonnage TREO CREO HREO CREO/ HREO/ ValueCompany Cap Value Project Location (000 t) (%) (%) (%) TREO TREO ($/t ore)Development Stage Rare Earths CompaniesGreat Western Minerals Group, Ltd. $317 $308 Steenkampskraa S. Africa 250 11.6% 2.6% 0.9% 22% 8% $3,346Lynas Corporation Limited $2,862 $2,590 Mt Weld Australia 17,490 8.1% 1.7% 0.4% 21% 5% $2,756Avalon Rare Metals Inc. $415 $383 Nechalacho Canada 25,499 2.2% 0.8% 0.5% 34% 23% $1,891Frontier Rare Earths Limited $133 $83 Zandkopsdrift S. Africa 12,350 3.6% 0.8% 0.3% 21% 8% $1,269Quest Rare Minerals Ltd. $246 $196 Strange Lake Canada 31,351 1.3% 0.6% 0.6% 46% 46% $1,089Rare Element Resources Ltd. $359 $286 Bear Lodge USA 6,804 3.4% 0.7% 0.1% 20% 4% $1,108Molycorp, Inc. $4,421 $3,941 Mountain Pass USA 27,216 6.6% 0.8% 0.0% 12% 0% $962Arafura Resources Limited $255 $158 Nolans Bore Australia 30,300 2.8% 0.7% 0.1% 24% 3% $840Alkane Resources Limited $520 $502 Dubbo Australia 73,200 0.9% 0.3% 0.2% 33% 22% $634Tasman Metals Ltd. $202 $186 Norra Karr Sweden 16,200 0.7% 0.3% 0.3% 52% 51% $522Matamec Explorations, Inc. $47 $42 Zeus Canada 16,314 0.5% 0.2% 0.2% 41% 37% $463 Notes: Projects sorted by insitu value. Source: Cormark Securities Inc.

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Upcoming Events / Catalysts

Quest currently trades at 0.1x our NAV estimate. Over the next year we would expect theCompany to rerate to 0.4x P/NAV multiple due to the following catalyst events:

• Pre-feasibility Results & Processing Update (Q1/12)

• Initiation of Permitting Process (Q2/12)

• Bankable Feasibility (Q4/12)

• Joint Venture or Off-Take Agreement (2012)

Initiating Coverage With A Buy Rating & $11.40 Target

We are initiating coverage on Quest Rare Minerals Inc. with a Buy rating and $11.40price target, based on a DCF12.5% valuation and 0.4x our NAV estimate. Quest is afavourable rare earths developer, with very large scale resource and production potential.

The Company is fully funded to complete a bankable feasibility and pilot plantprocessing study on its Strange Lake Rare Earths Project which has the potential to be ahigh value ~15,000 tpa rare earths producer with significant by-product zirconium(~22,000 tpa). The deposit has an excellent resource grade (~1.3% TREO) anddistribution (46% CREO/TREO), ranking 5th in Cormark’s list of rare earths in-situ valueper tonne and is sufficient to support a 20+ year high grade mine and 160+ year totalmine life with significant exploration potential.

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Namibia Rare Earths Inc. (NRE- $0.61, TSX)

Recommendation: Not Rated Target Price: N/A

Figure 67 Market Data Current Price:Basic Sh. O/S Mkt. Cap.Diluted Sh. O/S FloatMngt. & Dir. & Insdr EV - Pct. of Basic

Balance Sheet (MM)CashTotal Debt

$0.6177.8 $47.577.8 $21.941.9 $19.954%

$27.6$-

Sources: Cormark Securities Inc., Company reports

Figure 68 Main Property Lofdal Rare Earths Project Ownership: 100% Location: Namibia Stage: Exploration (Pre-Resource) Deposit: Rare Earths District Resource (M&I): - Inferred Resource: - Sources: Cormark Securities Inc., Company reports

Figure 69 Price Chart

$0.40

$0.50

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Apr-11 May-11 Jul-11 Aug-11

Shar

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0

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Sources: Cormark Securities Inc., Bloomberg

Company Profile

Namibia Rare Earths Inc. is a Canadian public mineral exploration company focused on rare earths in Namibia. The Company’s flagship asset is the Lofdal Rare Earths Project, located in north central Namibia with a 74,000 ha land package. A 7,500 m exploration drill program is ongoing testing targets along 10 km of identified mineralization. The program will be followed up by 15,000 m of resource drilling and a first resource within one year. Initial results demonstrate exceptionally high weighting of heavy rare earths within large scale hydrothermal systems.

Recent Developments

On August 17, 2011, Namibia Rare Earths announced a geophysical IP survey was completed and had identified new drill targets for potential heavy rare earths mineralization. Three of five major IP anomalies are associated with heavy rare earths intercepts while two have yet to be drill tested.

On August 3, 2011, the Company announced initial drill results from its 7,500 m exploration drill program. Highlight intercepts included: • 0.64% TREO over 5.1 m (92.4% HREE) • 0.49% TREO over 9.0 m (75.5% HREE) • 0.30% TREO over 15.0 m (80.0% HREE)

On May 18, 2011, the Company mobilized its major drilling program at Lofdal. A 7,500 m exploration drill program was initiated with two drill rigs.

On April 14, 2011, the Company announced the closing of its initial public offering and listing on the Toronto Stock Exchange under the symbol “NRE”. C$28.5 MM was raised at an issue price of C$0.80 per common share with a use of proceeds to advance exploration of the Lofdal Rare Earths Project.

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Reasons To Watch District Scale Potential: Within one year we believe an initial resource estimate couldbe completed at Lofdal, targeting heavy rare earths mineralization. In the longer term we believe there is potential for multiple deposits to be discovered with potential for Lofdal to become a leading global rare earths region.

Heavy Rare Earths: Initial drill results and surface sampling demonstrate high grade heavy rare earths mineralization and very high heavy rare earths distribution.

At Surface Mineralization: Extensive surface sampling, combined with initial exploration drilling, demonstrates mineralization is at or near surface.

Low Political Risk Assets: The Lofdal Rare Earths Project is located in a low-risk, mining friendly jurisdiction with excellent access and infrastructure.

Proven Management Team: Namibia Rare Earths has a strong management team withan established track record of exploration success and of discovering and developingmining projects around the world.

Management Don M. Burton, President: Exploration geologist with over 25 years of international experience including last 15 years in Africa, past 5 years in Namibia. Former VP Exploration and VP Corporate Development of Etruscan Resources.

Gerald J. McConnell, CEO & Director: Over 35 years of mining industry experience. Former President, CEO, and Chairman of Etruscan Resources (1990-2010), current Chairman of NovaGold Resources.

Douglas J. Jackson: Engineer with over 20 years of industry experience. Former President and CEO of Dyno Nobel and recently appointed VP Business Development of Molycorp Inc.

Lofdal Rare Earths Project Ownership: 100%

• Lofdal is a large scale (74,000 ha) rare earths exploration package located in northerncentral Namibia. Initial results demonstrate a uniquely high distribution of heavy rareearths.

• Excellent access and infrastructure; 450 km paved road from Windhoek and 28 kmfrom Khorixas, semi-desert landscape, with gravel road crossing complex.

• Work completed to date includes: regional geophysics, lithogeochemcial andgeological surveys, remote sensing, mineralogical studies, trenching, and diamonddrilling.

• The Company has a 7,500 m exploration drill program ongoing to test multiple targetsidentified from extensive surface sampling. This will be followed up by a 15,000 mresource drilling program with the goal to delineate a first resource within one year.

• Over 3,700 outcrop samples covering 8,000 ha analyzed for rare earths (2008-2010). 15km of mineralized strike identified at surface with 7 km of high grade, heavy rare earth,results.

• 25 trenches (1,922 m) completed, confirming correlation between radiometrics,alteration, geochemistry, geophysics, and mineralization.

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Figure 70 Average Of 25 Best Heavy Rare Earths Samples

Source: Company Reports

Figure 71 Lofdal Regional Sampling

Source: Company Reports

Exploration Program • The Company has a 7,500 m ongoing exploration drill program to test multipletargets identified from extensive surface sampling. The program will be followed upby a 15,000 m resource drilling program with the goal to delineate a resource withinone year.

• To date 2,300 m of drilling (24 holes) have been reported from areas 4 and 5targeting heavy rare earths zones.

• Detailed mineralogical studies of the HREE enriched zones have been initiated todetermine the potential for extraction of the rare earths. Heavy rare earths arepredominantly hosted in xenotime and aeschynite and the light rare earths inbastnaesite, parisite, synchysite, monazite, and allanite.

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Infill Drill Results Area 4 - 9.0 m @ 0.49% TREO (76% HREE) - 4.3 m @ 0.40% TREO (86% HREE) - 12.9 m @ 0.34% TREO (81% HREE) - 11.0 m @ 0.34% TREO (82% HREE)

Area 5 - 5.1 m @ 0.64% TREO (92% HREE) - 5.2 m @ 0.35% TREO (63% HREE) - 7.8 m @ 0.34% TREO (81% HREE) - 15.0 m @ 0.30% TREO (80% HREE)

Project geologists are of the opinion that mineralization is more broadly associated with large scale hydrothermal systems rather than being restricted to discrete dykes.

The hydrothermal systems can be characterized by either HREE or LREE enrichment, and zones can be traced laterally on surface in some instances for several kilometers.

Figure 72 2011 Drill Targets (Overlaying Thorium Radiometrics )

Source: Company Reports

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Risks To Target The following is a list of the most common material risks to the companies achieving our

targets:

Commodity Price Risk: Our short- and long-term commodity price assumptions are based on detailed research, and viewed to be reasonable based on current information. However, the timing and magnitude of commodity price fluctuations are always a significant risk that, in most cases, strongly affects the value of mining and mineral exploration/development companies focused on a specific commodity.

Cost Risk: Both capital and operating costs may be affected by changes in input prices (fuel, steel, chemicals, etc.) and also be affected by relative currency changes. Companies may be at risk of unexpected cost escalation as a result of these potential threats.

Financing Risk: The companies may require access to additional funding from capital markets to support growth initiatives. There can be no guarantee that such funding will be available, when required. In addition, shareholders may also be subordinated by lenders to finance an exploration project.

Geopolitical Risk: This risk deals with policies such as permitting and tax laws that are managed by governments of a jurisdiction (country, state, province, etc.). These policies usually affect mining companies more than exploration companies. Generally, developing countries are seen as being more risky because of the potential of a quick change in power to drastically change policies. Developed countries have their own geopolitical risk issues, and jurisdictions with powerful environmental lobbies can also make mining or exploration difficult.

Technical Risk: Ore reserve and resource risk is a technical risk that is derived from the subjective nature of geological interpretation. Engineering-based forecasts are by nature imprecise, and unexpected risks include events, such as earthquakes and strikes. Such events could materially affect the value of shares.

Regulatory Risk: The mining industry is highly regulated, and as such, changes in the scope of environmental practices can have a significant impact on the cost and viability of a company’s mining operations.

Exploration Risk: In some cases, the market may build in expectations for exploration success before the actual exploration work has taken place. In the event that results do not meet with the market’s expectation, the value of the shares may be negatively affected.

Logistical Risk: The companies may be exposed to the risk of inability to deliver products to the market due to issues with the long logistical supply chain to move rare earths from the mines to consumers, which is beyond managements’ control.

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Recommendation Terminology

Cormark’s recommendation terminology is as follows:

Top Pick our best investment ideas, the greatest potential value appreciationBuy expected to outperform its peer groupMarket Perform expected to perform with its peer groupReduce expected to underperform its peer group

Our ratings may be followed by "(S)" which denotes that the investment is speculativeand has a higher degree of risk associated with it.

Additionally, our target prices are based on a 12-month investment horizon.

Disclosure Statements and Dissemination Policies

A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on our web-site at: www.cormark.com

Analyst Certification I, Edward Otto, hereby certify that the views expressed in this research report accurately

reflect my personal views about the subject company(ies) and its (their) securities. I alsocertify that I have not been, and will not be receiving direct or indirect compensation inexchange for expressing the specific recommendation(s) in this report.

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Notes Page

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Figure 73 Frontier Rare Earths Limited - Disclosure Chart

Source: Cormark Securities Inc.

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Figure 74 Great Western Minerals Group Ltd. - Disclosure Chart

Source: Cormark Securities Inc.

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Figure 75 Lithium One - Disclosure Chart

Source: Cormark Securities Inc.

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Figure 76 Matamec Explorations Inc. - Disclosure Chart

Source: Cormark Securities Inc.

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Figure 77 Quest Rare Minerals Inc. - Disclosure Chart

Source: Cormark Securities Inc.

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For Canadian Residents: This report has been approved by Cormark Securities Inc. (“CSI”), member IIROC and CIPF, which takes responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CSI. For US Residents: Cormark Securities (USA) Limited (“CUSA”), member FINRA and SIPC, accepts responsibility for this report and its dissemination in the United States. This report is intended for distribution in the United States only to certain institutional investors. US clients wishing to effect transactions in any security discussed should do so through a qualified salesperson of CUSA. Every province in Canada, state in the U.S., and most countries throughout the world have their own laws regulating the types of securities and other investment products which may be offered to their residents, as well as the process for doing so. As a result, some of the securities discussed in this report may not be available to every interested investor. Accordingly, this report is provided for informational purposes only, and does not constitute an offer or solicitation to buy or sell any securities discussed herein in any jurisdiction where such would be prohibited. The information and any statistical data contained herein have been obtained from sources believed to be reliable as of the date of publication, but the accuracy or completeness of the information is not guaranteed, nor in providing it does CSI or CUSA assume any responsibility or liability. All opinions expressed and data provided herein are subject to change without notice. The inventories of CSI or CUSA, its affiliated companies and the holdings of their respective directors, officers and companies with which they are associated may have a long or short position or deal as principal in the securities discussed herein. A CSI or CUSA company may have acted as underwriter or initial purchaser or placement agent for a private placement of any of the securities of any company mentioned in this report, may from time to time solicit from or perform financial advisory, or other services for such company. The securities mentioned in this report may not be suitable for all types of investors; their prices, value and/or the income they produce may fluctuate and/or be adversely affected by exchange rates. No part of any report may be reproduced in any manner without prior written permission of CSI or CUSA A full list of our disclosure statements as well as our research dissemination policies and procedures can be found on our web-site at: www.cormark.com