IMCOA

2008 SME Annual Meeting Rare Earths Supply: Alternatives to China

byDudley J Kingsnorth

Industrial Minerals Company of Australia

February 2008

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DISCLAIMER

The statements in this overview represent the considered views of the Industrial Minerals Company of Australia Pty Ltd. While the Company has made every effort to ensure the veracity of the information presented it cannot expressly guarantee the accuracy and reliability of the forecasts and conclusions contained therein. Accordingly, the statements in the slides should be used for general guidance only.

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Summary of Presentation

The RE Industry todayChinaHistorical demandForecast future supply and demandOpportunities for new producers

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The Rare Earths Market Today

Total demand: 120,000te REO pa (2007)Average price: US$10-12/kg REOTotal value: US$1.3 billion paConstraints on Chinese rare earths supply are creating opportunities for non-Chinese projects

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China: Still Dominant

Reserves: >25M tonnes REOExcess secondary processing capacity Access to cheap processing chemicalsLeading edge RE technologyRapidly growing manufacturing sector Largest rare earth consumer (~60%)

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China: Industry Constraints

Production quotas – reserves limitedExport quotas – falling annually15-25% export taxVAT rebate on exports withdrawnNo new rare earth mining licencesEnvironmental legislation enforcedShortage of Dy, Nd, Eu and Tb

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Global RE Consumption 2006

Global Rare Earths Consumption in 2006 (t REO ±10%)Application China Japan and

SE AsiaUSA Europe Others Total

Catalysts 6,500 3,500 6,000 5,000 500 21,500

Glass 7,250 3,500 1,000 1,000 250 13,000

Polishing 7,000 4,500 1,000 1,000 500 14,000

Metal Alloys 10,750 4,000 1,500 1,000 250 17,500

Magnets 15,500 5,000 750 500 250 22,000

Phosphors 4,500 2,750 500 500 250 8,500

Ceramics 2,000 2,000 1,000 500 negligible 5,500

Other 6,500 1,000 250 250 negligible 8,000

Total 60,000 26,250 12,000 9,750 2,000 110,000

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2006 REO Consumption

REO Consumption by Value 2006 Magnets

37%

Ceramics4%

Metal Alloys11%

Glass3%

Catalysts6%

Other3% Polishing

3%

Phosphors33%

REO Consumption by Volume 2006

Magnets20%

Ceramics5%

Metal Alloys16%

Glass12%

Catalysts20%

Other7%

Polishing12%

Phosphors8%

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Forecast Demand in 2012

Global demand for rare earths in 2006 & 2012 (t REO) ± 10%Application Consumption tpa REO Growth Rate

2006 2012f % pa

Catalysts 21,500 30-34,000 6-8%

Glass

Polishing

13,000

14,000

14,000

20-22,000

Negligible

6-8%

Metal Alloys 17,500 44-48,000 15-20%

Magnets 22,000 45-50,000 10-16%

Phosphors & Pigments 8,500 13-14,000 7-10%

Ceramics 5,500 8-10,000 7-9%

Other 8,000 12-14,000 7-9%

Total/Range 110,000 185-195,000 9-11%pa

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2012 REO ConsumptionREO Consumption by Value 2012

Magnets51%

Phosphors24%

Polishing4%

Other2%

Catalysts3%

Glass1%

Metal Alloys12%

Ceramics3%

REO Consumption by Volume 2012

Magnets22%

Phosphors7%

Polishing11%

Other7%

Catalysts18%

Glass7%

Metal Alloys23%

Ceramics5%

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Rare Earths Supply & Demand

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

2000

2001

2002

2003

2004

2005

2006

2007

f

2008

f

2009

f

2010

f

2011

f

2012

f

Dem

and

tpa

- R

EO

0

25,000

50,000

75,000

100,000

125,000

150,000

175,000

200,000

China Supply ROW Supply Global Demand China Demand

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Potential Impact of Hybrid Vehicles on the RE Market

Toyota committed to produce 1M hybrid vehicles in 2010, considering 2MAssume global total of 3M hybrids in 2012Typically an NiMH battery for a hybrid vehicle contains 10-12kg rare earthsIf NiMH batteries achieve a 60-70% market share; as a result, additional demand could be 20,000t REO p.a.

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Potential Impact of Ongoing High Demand for NdFeB Magnets

Demand for rare earth magnet alloys grew from 2,500tpa in 1990, to 12,000tpa in 2000 to 22,000 in 2006.2003/06 growth in demand was 15-25%paDemand for rare earth magnets for voice coils (i-pods), for drives of equipment in vehicles and for electronic equipment remains high.At current rates of growth, total demand for Nd2O3 could be 55,000tpa in 2012, but price and supply considerations mean it is more likely to be 45-50,000tpa.

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Approximate Occurrence & Demand for Individual REs

Occurrence (%)in China

Demand (%)2006

Demand (%)2012 (f)

Lanthanum 22-24 24-26 26-28

Cerium 44-48 37 29-31

Praseodymium 4-6 4 4-6

Neodymium 16-18 18-20 21-25

Samarium 1-2 1½ 2

Europium ¼-½ ½ ½

Gadolinium 1-2 2 2

Terbium ¼-½ ½ ½

Dysprosium 1-2 1-2 1-2

Yttrium 10-12 8 8

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The Problem of ‘Balance’ in 2012

Total REO demand in 2012: 190,000t REONd2O3 demand @ 21-23% Nd2O3 : 45-50,000tNd2O3 produced @ 18-20% Nd2O3 : ~30,000t‘Extra’ production to meet Nd2O3 :40-50,000tThe extra ore processed would also ‘solve’ the La, Dy, Eu and Tb shortage .

Conclusion: To meet demand of 190,000t REO in 2012 a total of 220-240,000t REO will have to be produced. Assuming that China will produce 140-160,000t REO; ‘Others’ will have to produce 60-80,000t REO in 2012

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New Producer #1Project: Mountain Pass

Company: Chevron Mining (Molycorp)

Resource(1): 50Mt @ 8-9% REO (4.3Mt cont. REO)

Capacity: 2008 - 2-3,000t REO 2010 - 4-8,000t REO

Products: Separated rare earth oxides

Capital Costs: Not available

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.molycorp.com

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New Producer #2Project: Mt Weld

Mine & Concentrator – AustraliaSeparation Plant - Malaysia

Company: Lynas Corporation (Australia)

Resource(1): 7.7Mt @ 12.0% REO (0.92Mt cont. REO)

Capacity: 2009 - 10,500t REO 2010 - 21,000t REO

Products: 100% separated REOs (except Heavy REOs)

Capital Costs: US$375 million (Stage #1 + Infrastructure)

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.lynascorp.com

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Potential New Producer #1Project: Dubbo Zirconia Project (Australia)

Company: Alkane Resources Ltd (Australia)

Resource(1): 73.2Mt @ 0.89% REO (0.65Mt cont. REO)

Capacity: 2010/11 – 1,200-2,400tpa REO

Products: Separated REOs (co-products Zr & Nb)

Capital Costs: $100 - $200 million (depending upon capacity)

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.alkane.com.au

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Potential New Producer #2Project: Nolans (Australia)

Company: Arafura Resources Ltd (Australia)

Resource: 18.6Mt @3.1% REO (0.58Mt cont. REO)

Capacity: 2011: 5,000t REO 2013: 20,000t REO

Products: Separated REOs (co-product Phosphate & U3 O8 )

Capital Costs: US$675 million (±30% incl. infrastructure)

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.arafuraresources.com.au

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Potential New Producer #3Project: Hoidas Lake (Canada)

Company: Great Western Minerals Group Ltd. (Canada)

Resource(1): 1.15 Mt @ 2.83% REO (0.03Mt cont. REO)

Capacity: 2011/12: 3,000 tpa REO

Products: Separated REOs

Capital Costs: TBA

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.gwmg.ca

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Potential New ProjectProject: Thor Lake (Canada)

Company: Avalon Ventures Ltd (Canada)

Preliminary Resource: 14Mt @ 1.23%REO (0.2Mt cont. REO)

Capacity: 2013(?): 3,000 tpa REO

Pre-Feasibility Study: To commence 2008

Note: (1). The resource figure is an indicative summary and does not necessarily comply with local stock exchange guidelines. For details refer www.avalonventures.com

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Potential Non-Chinese Production

Project/Country2006/7tpa REO

2012tpa REO

Russia 3-5,000 4-8,000

India 2-4,000 2-6,000

Mountain Pass/USA Nil 5-10,000

Mt Weld/Australia & Malaysia

Nil 20,000

Dubbo/Australia Nil 1-2,000

Nolans/Australia Nil 10,000

Hoidas Lake/Canada Nil 3,000

Total 4-8,000 45-60,000

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The Issues

Can China maintain control of:rare earth mining & productionenvironmental management practicesrare earth exports

Will higher prices impact demand?How quickly can the new projects come on-stream – to meet a potential shortfall in excess of 60,000t REO in 2012?

IMCOA

2008 SME Annual Meeting

Rare Earths Supply: Alternatives to China

Sources of Reference

Data from Roskill’s 13th Edition “The Economics of Rare Earths” (to be published in October 2007)CREIC Newsletter

IMCOA

2008 SME Annual Meeting Rare Earths Supply: Alternatives to China

byDudley J Kingsnorth

Industrial Minerals Company of Australia

February 2008