The Delicate Supply Balance and Growing

Demand for Rare Earths

Magnetics 2010
Orlando, Florida

January 27, 2010

Ian M London, P. Eng. MBA, VP Market Development

…Advancing Green Technology

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 Safe Harbour Statement

Forward looking information

Certain statements contained in or incorporated by reference into
this presentation constitute forward-looking statements. Such
statements reflect the current views of Avalon Rare Metals
Inc. with respect to future events and are subject to certain
risks, uncertainties and assumptions. Many factors could
cause the actual results, performance or achievements of
Avalon Rare Metals Inc. that may be expressed or implied by
such forward-looking statements to vary from those described
herein should one or more of these risks or uncertainties
materialize. Avalon Rare Metals Inc. does not intend, and
does not assume any obligation, to update these forward-
looking statements.
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 Avalon Rare Metals Inc.

Avalon Rare Metals Inc. (TSX:AVL, OTCQX:AVARF)

is a Canadian junior mineral exploration and
development company with a primary focus on the
rare metals and minerals
Owns five rare metals and minerals projects in
Canada, three of which are at an advanced stage of
development
Avalon’s flagship Nechalacho Rare Earth Deposit is
one of the premier heavy rare earth projects in the
world

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 Avalon’s Canadian Profile

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 Scope of Discussion

An REE Refresher
REE Supply & Demand
(2009-2014)
The China Factor
Non-Chinese Supply
Options
Going Into Production
Some Predictions
 REE
Refresher

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 What are Rare Earth Elements?

Light REE:
La = Lanthanum
Ce = Cerium
Pr = Praseodymium
Nd = Neodymium
Sm = Samarium

Heavy REE:
Eu = Europium
Gd = Gadolinium
Tb = Terbium
Dy = Dysprosium
Ho = Holmium
Er = Erbium
Tm = Thulium
Yb = Ytterbium
Lu = Lutetium
Y = Yttrium

Neodymium, Dysprosium, and Terbium in highest demand

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 The Rare Earths

Gadolinium Praseodymium Cerium

Samarium Lanthanum

Neodymium

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 History of REEs

Year/Time
1794 Rare earths discovered by Johan Gaddin at Ytterby in
Sweden
1903 First commercial production of rare earth flints at Treibach
in Austria
1953 Demand approx. 1,000 tonnes REO (Value US$25M)
1985 Development of the Neo magnet
China initiates low-cost production
2003 Demand approx. 85,000 tonnes REO (Value US$500M)
2008 Demand approx. 124,000 tonnes REO (Value US$1.25 B)
[2016] [Demand approx. 200,000 tonnes REO (Value US$2-3 B)]

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 REEs Enable Many Technologies

Hybrid vehicles LED Phosphors

Nd, Dy, La Eu, Y

Superconductors
Y, Eu, Ho

PET Scans - Gd
Lasers
Nd, Ho
Tm, Er
Normal Depressed

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 REE Magnets in Automotive
Technology

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 REE – Multiple Applications

Application Rare Demand Drivers

Earths
Magnets Nd, Pr, Sm, Drives for computers, mobile phones, mp3 players, cameras.
Tb, Dy Voice coil motors. Hybrid vehicle electric motors. Wind turbines.
Cordless power tools. MRIs. Mag-lev trains
LaNiH Batteries La, Ce, Pr, Hybrid vehicle batteries. Hydrogen absorption alloys for re-
Nd chargeable batteries
Phosphors Eu, Y, Tb, LCDs, PDPs, LEDs. Energy efficient fluorescent lights/lamps
La, Ce
Fluid Cracking La, Ce, Pr, Petroleum production – greater consumption by ‘heavy’ oils and
Catalysts Nd tar sands
Polishing Ce, La, Nd Mechano-chemical polishing powders for TVs, computer
Powders monitors, mirrors and (in nano-particulate form) silicon chips
Auto Catalysts Ce, La, Nd Tighter NOx and SO2 standards – platinum is re-cycled, but for
rare earths it is not economic
Glass Additive Ce, La,Nd, Cerium cuts down transmission of UV light; La increases glass
refractive index for digital camera lens
Fibre Optics Er, Y, Tb, Eu Signal amplification

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 Key facts about REEs…1

Widely dispersed, but rarely concentrated; Only found as

a group, not found individually
In most deposits, light rare earths “LREE” are far more
abundant than heavy rare earths “HREE”; LREE typically
comprise 98-99% of resource
Consequently, HREE far more valuable: US$550/kg for
Terbium vs. US$7.50/kg for Cerium
REE must be recovered as a group and sequentially
separated; HREE cannot be selectively extracted
Key applications in super magnets and phosphors; Need
for Nd + HREE rich deposits, which are rare

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 Key facts about REEs…2

Rare earths are not commodities; Requirements are customer

specific
Western rare earths enterprises tend to be single project
companies
Rare Earth mining and processing is capital intensive
(>US$30,000/tonnes capacity)
New projects tend to have long starts-up; limited expertise
outside China
Supply and demand for individual REOs is not in balance
The Magnet Metals… Neodymium (Nd), Praseodymium
(Pr), Dysprosium (Dy), Terbium (Tb) and Samarium (Sm)

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 The REE Magnet Metals… 1

Nd…
Growth in demand of approx. 15% annually for neo-magnets
since 2003 has outpaced supply
Pr…
Can partially substitute for Nd without significant negative impact
on magnet properties
A mixed grade of Nd/Pr (75%/25%), commonly referred to as
didymium, is used in magnet alloy production – primarily to
stretch the raw material availability

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 The REE Magnet Metals… 2

Dy…
Probably the most important addition for increasing coercivity and
temperature stability (required by hybrid motor-generators and
power steering mechanisms)
High-end temperature range NdFeB magnets applications (200°C)
may require 10 wt% addition of Dy
Search on adequate substitute
Tb…
Performs similar function as Dy, possibly better as it has a stronger
influence on coercivity, however Tb also used in tri-colour
phosphors for low energy fluorescent lamps, hence its availability in
tighter than Dy
Other common metal additives and substitutions in NdFeB-
type magnets incl. cobalt, niobium, aluminium and gallium

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 REE Supply
& Demand
(2009-2014)

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 Global Rare Earths Demand in
2008 (TREO ±10%)
Application China Japan & USA Others Total
NE Asia

Catalysts 7,000 2,000 12,500 1,500 23,000

Glass 8,000 2,000 1,000 1,500 12,500

Polishing 8,000 4,500 1,000 1,500 15,000
Metal 16,000 4,500 1,250 1,000 22,500
Alloys
Magnets 21,000 3,500 750 1,000 26,500
Phosphors 5,500 2,500 500 500 9,000
Ceramics 2,500 2,500 1,250 750 7,000
Other 6,000 2,000 250 250 8,500
Total 74,000 23,500 18,500 8,000 124,000

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 Global Rare Earths Market
IMCOA 2009 updated market forecast
Global demand in 2008
124,000 tonnes TREO valued
250,000
at US$1.25 billion
200,000
Forecast demand in 2014
D e m an d  t p a ‐ R EO

150,000 200,000 tonnes TREO valued

100,000
at US$2-3 billion, assuming
10% per annum growth rate in
50,000 demand from existing
0
technology only
2 00
4
2 00
5
2 00
6
2 00
7
2 00
8 9f 0f 1f 2f 3f
2 00 2 01 2 01 2 01 2 01 2 01
4f
Does not factor in demand
China Supply ROW Supply Adjusted Global Demand China Demand from new technology
ROW = rest of world supply
(yet to come on stream) Estimated that 25% of all new
technologies rely on REE
 A Miner and Metallurgists
View…

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 Global Demand/Supply for
Individual Rare Earths 2014 (± 15%)
RE Oxide Demand % Supply %
REO tonnes REO tonnes
La 51,000 28.4 54,750 26.9
Ce 65,750 36.5 81,750 40.3
Pr 7,900 4.4 10,000 4.9
Source:IMCOA

Nd 34,900 19.4 33,000 16.3

Sm 1,390 0.8 4,000 2.0
Eu 840 0.5 850 0.4
Gd 2,300 1.3 3,000 1.5
Tb 590 0.3 350 0.2
Dy 2,040 1.1 1,750 0.9
Er 940 0.5 1,000 0.5
Y 12,100 6.7 11,750 5.7
Ho-Tm-Yb-Lu 200 0.1 1,300 0.5
Total 180,000 100 203,500 100

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 Price Trends:
Neodymium & Praseodymium Oxides

Nd Current Price: Pr Current Price:

US$23.00/kg
www.metal-pages.com US$22.50/kg

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 Price Trends:
Dysprosium & Terbium Oxides

Dy Current Price: www.metal-pages.com Tb Current Price:

US$119/kg US$ 360/kg

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 Price Trends:
Samarium & Cerium Oxides

Ce Current Price: www.metal-pages.com Sm Current Price:

US$4.75/kg US$4.75kg

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What Did the Future Hold…
(1960 Æ 2009)?

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Will This Be Next?
… and REE will make it happen

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 The China
Factor

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 The China Syndrome…

Production quotas being implemented

Tighter export quotas being implemented
Environmental legislation being raised and enforced
Attempted crackdown on illegal trade
Clear drive for value added processing
Finite ‘heavy’ rare earths resources; Supply could ‘run
out’ in 20-30 years
Significant export taxes imposed; VAT rebate on exports
withdrawn

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 China Keeps REE Export Taxes
Unchanged in 2010

Material Export Tariff 2010

Nd (oxide, carbonate, other) 15%

Dy, Tb, Y, Eu (oxide, 25%

carbonate, other)

Ce (oxide, carbonate, other) 15%

Mixed/unmixed, fused RE metal 25%

Rare Earth Metal Ore 15%

Mixed/unmixed rare earth 15%

carbonate

As of December 16, 2009

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 Non-Chinese
Supply
Options

… supply really being a function of available production,

not resource in the ground

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 ‘From Mine to Magnet’ …or should it be
‘From Magnet back to Mine’

Traditionally, end users saw the supply chain as single

tiers. They would ask ‘Where do I get my magnets?’. The
magnet maker would ask ‘Where do I get my powders?
Major end users starting to ask… ‘Where do my suppliers
and their sub-suppliers get their raw materials?’

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 What are the Basic Steps in the
Production of Rare Earths

Rare Earth Ore

(Bastnaesite/Monazite/Ion Absorption Clay)
Contains all REEs

Production of a mixed rare earth

concentrate

Separation into individual rare earth Production of alloys by

(oxides/fluorides/chlorides/etc.) direct co-reduction

Converted to metals Production of alloys by

Electrolysis / Vacuum reduction melting and casting
Source: GWMG/LCM

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 Comparison of some Significant
Rare Earth Deposits…. 1
Source: IMCOA 2009

Resource TREO HREE

Grade
Deposit (million (million Content Cut-off Grade
(% TREO)
tonnes) tonnes) (% TREO)
Bayan Obo, China 1,460 3.9% 56 2% n/a

Kvanefjeld, Greenland 215 1.0% 2.6 14% 0.015% U3O8

Mountain Pass, USA 20 9.2% 1.8 1% 5% REO

Nechalacho, Canada 65 2.1% 1.3 20% 1.6% REO

Mt Weld, Australia 12 9.7% 1.2 3% 2.5% REO

Nolans, Australia 30 2.8% 0.9 4% 1.2% REO

Dong Pao, Vietnam 11 6.9% 0.8 n/a 6.9% REO

Bear Lodge, USA 9 4.1% 0.4 n/a 1.5% REO

Hoidas Lake, Canada 1.5 2.6% 0.04 7% 1.5% REO

Note: each company publishes their resources/reserves differently to comply with local rules; accordingly, these figures need to be reviewed with care as they do not
necessarily make allowances for the varying recovering associated with each reserve/resource.
 Comparison of some Significant
Rare Earth Deposits …. 2
Source: IMCOA 2009

n/a n/a

*Not shown on chart for scaling purposes

Note: each company publishes their resources/reserves differently to comply with local rules; accordingly, these figures need to be reviewed with care as they do not
necessarily make allowances for the varying recovering associated with each reserve/resource.
 Major Developer Highlights…1

Project Champion Current Status

Molycorp Minerals Mountain Pass
(www.molycorp.com) • NI 43-101 resource study scheduled for Nov 2009
• Prefeasibilty Study scheduled for Nov2009
• Production calls for 2,150 tpa (2009), 3,000 tpa
(2010/2011) to 20,000 tpa REO 2012+
• Produces primarily Ce, La today; Starting 2010/11 –
Nd/Pr (Di), and separated Nd & Pr in 2012+
• Permitting and project financing processes ongoing

Lynas Corp Mount Weld

(www.lynascorp.com) • Raised A$450 million in 4Q09, after Chinese investment
deal rejected
• Effectively lost better part of year with financings
• Engineering & Construction of Australian and Malaysian
facilities underway
• Phase 1 (11,000 tpa) expect to start producing in 1H11
• Phase 2 to bring production to 22,000 tpa… TBA

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 Major Developer Highlights …2

Project Champion Current Status

Great Western Minerals Steenkampskraal
(www.gwmg.ca) • Awaiting re-permitting approval under new mining
laws (1Q10)
• Partnered with Black Empowerment Group at 26%
• Production / Financing Decision 1Q10
• Production 2H11
Hoidas Lake
• Updated resource at 4Q09
• Metallurgy and transportation study 1Q10
• Prefeasibility 4Q10
• Production/Financing Decision 2Q11
• Production 1H14

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 Major Developer Highlights …3

Project Champion Current Status

Arafura Resouces Nolans Bore
(www.arafuraresources.com.au) • 25% Chinese ownership closed 3Q09
• Bankable Feasibility Study and financing
arrangements to be advanced by 4Q10
• Mine design, siting plan and chemical plant studies
to be complete by 4Q10
• Reporting improved recoveries and reduced
reagent demands
• Anticipated production of 20,000 tpa
Avalon Rare Metals Inc. Nechalacho, Thor Lake
(www.avalonraremetals.com) • Updated resource released Jan 2010
• Prefeasibility Report to be available 2Q10
• Metallurgy established
• Planned output of 5,000 - 10,000 tpa in 2H14

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 …Explorers & Developers are
Making Announcements Daily

Alkane Resources Stans Energy U.S. Rare Earths Matamec

- Dubbo (was Thorium Energy) Exploration

Quest Uranium Dong Pao Hudson East Energy Corp

Resources
Rare Element Greenland Mnrls - Ucore Uranium Tasman Metals
Resources Kvanefjeld

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 Going into
Production

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 But Getting New Production
On-line Isn’t A Given
Stage Exploration Cycle Objective Time
Stage Required
1 Grassroots Conceptual, land acquisition 1 year
2 Target Generation & Filtering for drill targets 1-2 years
Drilling
3 Discovery Delineation Defining the limits of the discovery – 1-2 years
tonnage & grade
4 Infill Drilling Producing the mineral resource estimate 1-2 years
& scoping study
5 Bulk Sample & Metallurgy Evaluating recoveries and optimal 1 year
processing method
6 Prefeasibility Produce a minable reserve, establish a 1-2 years
mining plan and associated costs
7 Permitting, Marketing & Securing approvals, negotiating off-takes, 1-2 years
Feasibility making a production decision
8 Construction Building the mine 1-3 years
9 Production Mining cashflow 10-20 years

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Drilling Effort… An Illustration
(Avalon’s Thor Lake – Nechalacho)

Key
E-W Area
Section Line
156

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 3D Modeling of the Resource
(Avalon Thor Lake from 2007-8 drilling)

Thor Lake

Blocks based on cut-off grade Y2O3 > 1000ppm

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 Defining the Zones
(Avalon Thor Lake)
E-W Composite Section
(looking north, no vertical exaggeration)
114
132 131 63 62 113 53 97 56A 80-12 118

Upper LREE Zone

250m
Basal HREE Zone
Typically 20m thick, +2% TREO, 20% HREE
1500m
Drill Hole with
Basal Zone Hole 118: 2.71% TREO with 34% HREO
Intercept over 17.4 metres

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 Lake Zone: Conceptual Mine Plan

Mine Portal Vent

Barren Rock Dump

Tailings Pond
Long Lake

Upper Zone
Underground Mining
Tailings Storage

Basal Zone

Initial mine production rate: 1,000-2,000 t/day of ore through the mill.
To produce approx. 5,000-10,000 tpy TREO in chemical concentrates…
equivalent to just 2-5% of est. 2014 market (5-10% of HREO demand).

Current forecast on operating costs: $200/tonne (mining & processing)

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 REE Concentrator Flow Sheet
Water Recycle
Crusher
Tailings Thickener
Desliming Tank
Magnetic Separation

Mags

Flotation
To Tailings Pond
Grinding to (previous slide)
-40 micron

Gravity Separation

Concentrate 25% of feed mass,

Recovering 82-85% REE, Zr, Nb
Concentrate
Concentrate Storage Bldg
To Dock Site (Summer) –
Filter Barge-Hay River-REE
Refinery
Regrind Mill
Ice Road to Yellowknife
(Winter) – Hay River-REE
Refinery

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 REE Hydromet Flow Sheet
New sodium hydroxide
Concentrate

Tunnel furnace

Concentrate storage
Water
Product
Drums
Recycle NaOH Reagent
to market

Dry & pack

Zirconium
Reagent
Sulphuric acid Evaporator
Filter
Dry & pack

Solvent extraction HREO

Reagent

Hydrochloric acid Dry & pack

Solvent extraction
Limestone
LREO
& lime

Recycle water
Solvent extraction Thickener
To residue
storage

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 Nechalacho REE Deposit:
Development Timeline

2013:-2014 $300-400 million?

• Production
2007-2008: $7.5 million
2010-2012: $20-30 million?
• Delineation drilling
• Bulk sample & feasibility
• Metallurgical studies
• Permitting & MOU
• Preliminary engineering
• Off-take arrangements
VALUE

• Environmental studies
• Mine development
2006 - 2007: $750,000
2009-2010: $4-5 million
• Scoping study
• Definition drilling
2005: $700,000 • Metallurgy & market
• Acquisition studies
• Compilation • Pre-feasibility study
• Environmental studies

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 Predictions

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 REE Supply/Demand in a
Critical State?…1
Criticality is dynamic,
and is ‘more or less’ and
not ‘either/or’’
Degree of criticality
changes as technologies
evolve and new products
are developed,
essentially - a function of
‘importance in use’ and
‘supply risk’
 REEs in a Critical State?…2

Rare earth chemical and physical properties make substitution

with other minerals difficult
Important applications (e.g. catalytic converters, permanent
magnets, portable disk drives, liquid crystal displays fiber
optics, optical glass) use 79% of total rare earth’s used in U.S.
Mineral demands and supply chains are increasingly complex
Recycling not widely practiced, so secondary sources difficult
to establish
Decision makers need continuous, unbiased and thorough
minerals information… some independence; more sharing

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 REE Industry Predictions… 1

Chinese state-controlled entities will continue to seek

investments in raw material supply around the world,
generally guided by long term security of supply rather
than profit
Free markets in which metals go to the highest bidder
will become thinner and less reliable for just-in-time
procurement strategies
Mainstream mining companies unlikely to invest in
primary specialty metal mines such as REE deposits,
and will at most add circuits to recover them as by-
product metals from existing base metal mines

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 REE Industry Predictions… 2

Currency and energy cost volatility tend to rule against longer-

term price contracts; Lack of transparency and poor price
discovery mechanisms make spot market pricing unreliable
End users with large downstream markets at risk may make
upstream equity and/or debt investments in resource juniors
REE producers may either be owned/operated by a
consortium of downstream users, or the producers will need to
own downstream operations to capture added-value to the
mined raw materials
Disruptive technologies will reduce some demand, but new
uses will always be created

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 REE Industry Predictions… 3

Aggregate and individual REE supply-demand balance will still be

an issue, but expect the overall demand of 180,000 tpa REO will be
met
Supplies of Nd, Dy, Tb and Y will remain tight, so prices will be
strong
China may not ‘starve’ the Rest of the World of rare earths, however
Western technology and industrial companies will need to manage
supply risk
First of new and potential projects should be on-stream by 2014
NA/Australian/European/Japanese companies and governments will
take initiative to fill in Supply Chain weaknesses for its longer-term
economic and job well-being

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 Sources of Reference

Roskill’s “The Economics of Rare Earths & Yttrium”, 13th edition

BCC’s “Market Research Report – Rare Earth: World Wide Market,
Applications, Technologies”, June 2009
Dudley Kingsnorth, IMCOA “Meeting Demand in 2014, November
2009
Metal-Pages and Asian Metal
Company websites
Conversations with industry personnel

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 Corporate Information

Avalon Rare Metals Inc.

130 Adelaide St. W, Suite 1901
Toronto, ON Canada M5H 3P5
T: (416) 364-4938 ۰ F: (416) 364-5162
www.avalonraremetals.com
www.raremetalblog.com
office@avalonraremetals.com

Investor Relations: Virginia Morgan

vmorgan@avalonraremetals.com

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