Cibcreport Rare Metals

Institutional Equity Research
Initiating Coverage
March 06, 2011 Metals & Minerals
Sector Weighting: Market Weight

Once Ignored On The Periodic
Table, Don't Ignore Them Now
A Rare Earth Element Industry Overview
As China squeezes global supply and uses for rare earths continue to grow,
the world needs new rare earth deposits. Those deposits with favorable
grade weightings and extensive work already completed are more likely to
be developed in the next 10 years than earlier-stage plays.
While the market for rare earths is expected to grow at 9%-15% per year
to 2015, we do not foresee every deposit going into production. As of March
6, we initiate coverage of Avalon Rare Metals (SO), Frontier Rare Earths
(SO-Spec.), and Molycorp (SO) as the preferred ways to play the space.
All figures in Canadian dollars, unless otherwise stated. 11-106854 2011
CIBC World Markets does and seeks to do business with companies covered in
its research reports. As a result, investors should be aware that the firm may
have a conflict of interest that could affect the objectivity of this report.
Investors should consider this report as only a single factor in making their
investment decision.
See "Important Disclosures" section at the end of this report for important
Matthew Gibson Ian Parkinson required disclosures, including potential conflicts of interest.
1 (416) 956-6729 1 (416) 956-6169 See "Price Target Calculation" and "Key Risks to Price Target" sections at the
Matthew.Gibson@cibc.com Ian.Parkinson@cibc.ca
end of this report, or at the end of each section hereof, where applicable.
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Once Ignored On The Periodic Table, Don't Ignore Them Now - March 06, 2011
Table of Contents
Why Rare Earths? ...................................................................................... 3

How To Play Rare Earths.......................................................................... 4
The China Factor .................................................................................... 5
Bayan Obo ....................................................................................... 6
The Basics ................................................................................................ 8
Project Locations .................................................................................. 10
Processing ........................................................................................... 11
Supply And Demand ................................................................................ 14
CIBCs Rare Earth Forecast .................................................................... 15
Demand .............................................................................................. 16
Permanent Magnets ........................................................................... 17
Wind Energy ................................................................................... 18
Hybrid Electric Vehicles .................................................................... 20
Phosphors ......................................................................................... 20
Rechargeable Batteries ....................................................................... 23
Supply................................................................................................. 24
Rare Earth Pricing.................................................................................... 28
Bubbles ............................................................................................... 30
Price Target Calculations And Key Risks To Price Targets ........................... 32
Table of Exhibits
Exhibit 1. CIBCs Rare Earth Coverage ..................................................... 3
Exhibit 2. The Rare Earths Value Chain .................................................... 4
Exhibit 3. Bullish Rare Earth Elements...................................................... 4
Exhibit 4. REO Eq Grade And Leverage To Bullish Elements ........................ 5
Exhibit 5. Chinas Rare Earth Export Quotas ............................................. 6
Exhibit 6. Bayan Obo Mine Site ............................................................... 7
Exhibit 7. Rare Earth Elements................................................................ 8
Exhibit 8. Rare Earth Oxide Usage By Industry (2010E) ............................. 9
Exhibit 9. Rare Earth Uses And Demand Drivers ........................................ 9
Exhibit 10. Select Global Earth Deposits................................................... 10
Exhibit 11. Generalized Bastnasite Beneficiation Flow Diagram ................... 11
Exhibit 12. Generalized Flow Diagram For Extraction Of Monazite
And Xenotime From Ti-Zr-REE Mineral Sand ......................... 12
Exhibit 13. Mountain Pass Previous Separation Process Using SX ................ 13
Exhibit 14. Supply And Demand Projections ............................................. 14
Exhibit 15. Supply And Demand Balances Select Rare Earth Elements....... 15
Exhibit 16. CIBC Rare Earth Forecast....................................................... 16
Exhibit 17. Long-term Rare Earth Forecast ............................................... 16
Exhibit 18. End-use By Metal .................................................................. 17
Exhibit 19. Differences In Electric Generators ........................................... 17
Exhibit 20. Direct-drive Wind Turbine ...................................................... 19
Exhibit 21. Global Installed Wind Capacity 20022030E (Moderate Case) ..... 20
Exhibit 22. Uses For Permanent Magnets In Hybrid Cars ............................ 20
Exhibit 23. Personal Technology Demand Outlook ..................................... 21
Exhibit 24. A Plasma Television Pixel ....................................................... 21
Exhibit 25. The Range Of CFL Lightbulbs .................................................. 22
Exhibit 26. Electric Vehicle Sales 2007-2020E........................................... 23
Exhibit 27. NiMH Car Battery For A Toyota Prius ....................................... 23
Exhibit 28. Select Investable Deposits In Development Outside China ......... 25
Exhibit 29. Development Stages Of Select Rare Earth Projects.................... 26
Exhibit 30. Race To Full Production Rare Earth Developers....................... 27
Exhibit 31. Rare Earth Spot Prices ........................................................... 28
Exhibit 32. Select Rare Earth Historical Prices FOB China ........................... 29
Exhibit 33. Bubbles In Recent History ...................................................... 30
Exhibit 34. Significant Historical Bubbles .................................................. 31
2
Why Rare Earths?

The rare earth (RE) story is one of robust demand growth coupled with an
uncertain supply-side response, creating a deficit market in many elements and
the foundation for significant increases in prices. Rare earth demand is driven, in
large part, by two of the fastest-growing sectors on the planet, energy and high
technology. In the energy square, neodymium, praseodymium, and dysprosium
are used in the manufacturing of rechargeable batteries, hybrid/electric cars,
and wind turbines. Cerium and lanthanum are used in fluid cracking catalysts
and catalytic converters. In the high tech sector, elements like europium and
yttrium are used in flat panel displays, lasers, radar, and weapon guidance
systems. Neodymium, praseodymium, yttrium, europium and terbium have
substitutes but they are not as effective and other elements have none at all in
specific applications. Unlike base metals, new applications are also being
constantly developed for rare earths given their unique attributes.
China produces 97% of the worlds rare earth elements and has begun
restricting exports, reducing permits from 66,000 tonnes in 2004 to
30,000 tonnes in 2010. Additional measures, such as shutting down
environmentally dangerous production and instituting heavy levies (15%25%)
on exports, have left the rest of the world in the lurch. As a result, prices outside
of China have risen 706% on average since January 2009 and several projects
are being progressed through to production. In our opinion, Molycorp (MCPSO),
Avalon Rare Metals (AVLSO), and Frontier Rare Earths (FROSO-Speculative)
are excellent vehicles through which investors can participate in the rare earth
industry, as they have a broad range of projects from near-term production to
early-stage development.
Exhibit 1. CIBCs Rare Earth Coverage

Company Ticker Rating Price (Mar 3) NAV P/NAV
Molycorp MCP SO US$49.83 US$78.88 0.6x
Avalon AVL SO C$7.31 C$9.50 0.8x
Frontier FRO SO-S C$3.11 C$7.30 0.4x
Source: Bloomberg and CIBC World Markets Inc.
We believe that the tight market has created opportunities for new producers to
enter the market, although not every company that flaunts a rare earth resource
will necessarily go into production. It takes an average of 10 years for a typical
deposit to move from discovery to production and in that time we believe the
market opportunity will have passed. It is important for investors to pick
companies with the first-mover advantage, large resources, technically
competent management teams, and favorable weightings to what we term the
bullish metals those elements tied to what we foresee as the tightest
markets within the rare earth complex going forward.
Elements used as phosphors yttrium, terbium, and europium are our natural
favorites, followed by those used in permanent magnets neodymium,
praseodymium, and dysprosium. These elements lie in what has been termed
the light and heavy rare earths. The distinction stems from the relative atomic
weights of each element and the fact that some heavier rare earths sell for
substantially higher prices than light rare earths. While every deposit has a
naturally occurring grade weighting to the 17 rare elements, giving them
strategic value in the market place, there are additional ways in which to
increase this leverage.
3
As seen in Exhibit 2, Molycorp will increase its leverage to neodymium and

praseodymium by focusing on the downstream production of alloy and magnets.
In doing so, the company will capture more of the value-added margin related to
the rare earth elements in its deposit, rendering these metals a higher portion of
its operating profits.
Exhibit 2. The Rare Earths Value Chain

Exploration and Development Mining and Production of Rare Separation into Individual Rare Upgrading Oxides to Rare Earth Converting Metals into Alloy Powders Component Manufacturing (80%
Earth Concentrate (97% China) Earth Oxides (97% China) Metals (100% China) (80% China, 20% Japan) China, 17% Japan, 3% Europe)
Molycorp Currently Molycorp's Goal
Lynas Currently Lynas' Goal
Frontier Currently Frontier's Goal
Avalon Currently Avalon Currently
Neo Material Technology Currently
RE Concentrate Nd Oxide FOB China Nd Metal FOB China Nd Magnet Powder Permanent Magnets
Price: US$38.00/kg Price: US$150/kg US$203/kg ~US$444/kg Price: ~US$696/kg
MCP Margin: US$145/kg MCP Margin: 192/kg MCP Margin: 348/kg Margin: Depends on Size/Shape
Source: Company reports.
How To Play Rare Earths

We believe that exposure to bullish elements within the rare earth complex will
be the best way to achieve above-average returns in the space. The elements
listed in Exhibit 3 not only offer exposure to the fastest-growing markets but the
limited supply coming online in the next 10 years, due to the forecasted grade
weightings of projects moving into production, gives them significant strategic
value.
Exhibit 3. Bullish Rare Earth Elements

Light Rare Earths Applications Industry CAGR 2010E2015E
Yttrium Red phosphor, fluorescent lamps, ceramics, metal alloy agent 30.00%
Praseodymium Magnets, battery alloy, lasers 16.00%
Neodymium Permanent magnets, auto catalyst, petroleum refining, lasers 16.00%
Heavy Rare Earths Applications Industry CAGR 2010E2015E

Terbium Phosphors, permanent magnets 30.00%
Dysprosium Permanent magnets, hybrid engines 16.00%
Source: IMCOA and CIBC World Markets Inc.
Besides the development potential of a deposit, one must also consider how
much exposure a company will offer investors to the elements outlined in
Exhibit 3. Molycorp will generate a significant amount of leverage to the
neodymium and praseodymium markets given its focus on the downstream
production of NdFeB alloy powders and permanent magnets. Avalons
Nechalacho deposit represents the best way to play heavy rare earths currently,
we believe, as its deposit is 25% weighted to elements like terbium, dysprosium
and yttrium, and is further along the development timeline than most. Frontier
will have more leverage to the battery metals and, as its flowsheet is derisked, it
should offer patient investors substantial returns as it re-rates to a valuation
more in line with its peers.
4
Other considerations in an investment analysis are the capability of management

teams to develop the assets, the potential flowsheet of a project, the extent to
which a region is mining-friendly, a projects proximity to infrastructure, and a
companys ability to access financial markets to support its development plan.
We believe that Molycorp, Avalon and Frontier all fit this bill, albeit with different
risk profiles.
Exhibit 4. REO Eq Grade And Leverage To Bullish Elements
20.0%
Steenkampskraal (Great
Western)
15.0%
Mountain Pass (Molycorp)

Grade (% REO)
10.0%
Zandkopsdrift (Frontier)
Mount Weld (Lynas) Nolans Project (Arafura)

Nechalacho (Avalon)
5.0% Hoidas Lake (Great
Bear Lodge (Rare Element) Western) Dubbo (Alkane)
Kvanefjeld (Greenland Strange Lake (Quest)

Minerals) Norra Karr (Tasman)
0.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%
Grade Weighting in Bullish Elements
Bubbles represent the size of the deposit.

The China Factor

The Chinese government has reduced the export of rare earths for the first half
of 2011 by 35% compared to H1/2010. The quota has been set at
14,446 tonnes to be split among 31 different companies and further cuts may
transpire in the near term. The Chinese Commerce Ministry has formally stated
that this policy is in response to what it sees as a dwindling natural resource,
one that China will require for its own future.
In addition, the government has begun cracking down on illegal mining,

consolidating the industry into fewer, larger, and more technically advanced
companies, and introducing environmental regulations that will dampen
increases in Chinese production going forward. Wang Guoqhen, a former VP of
China Nonferrous Metals, has estimated that these reforms will double
production costs inside China.
5
A recent study undertaken by the Chinese Society of Rare Earths estimates that
Chinese production will decline from 120,000 tpa in 2010 to ~100,000 tpa in
2015. Combined with a 15% per year demand growth, this study estimates that
western suppliers will have to address a gap of 80,000 tpa as China likely moves
from a net importer to a net exporter.
Exhibit 5. Chinas Rare Earth Export Quotas
70,000
60,000
Rare Earth Oxides (tonnes)

50,000
40,000
30,000
20,000
10,000
-
2004 2005 2006 2007 2008 2009 2010
Chinese Ex port Quotas JV Quota
Source: Chinese Ministry of Commerce.
The good news is that there are multiple deposits outside of China that remain
undeveloped; in fact, rare earths are not that rare. Some rare earth elements
are as common in the earths crust as copper. However, high-grade deposits
close to infrastructure and in mining-friendly jurisdictions are a little harder to
come by. At best, it will take years for these new deposits, even the furthest
along, to move into production. We do not believe that China will cut off all rare
earth supply, but even undertaking the measures it has will keep the market
outside of China extremely tight, thus supporting high prices. We believe that
Chinas policy is partially politically motivated as it attempts to encourage
hardware manufacturers that use these elements to establish facilities in
mainland China in order that the country can capture more of the value-add
activities related to the industry and absorb more technical knowledge. At the
same time, we believe that the country will encounter extensive demand as the
Chinese consumer becomes more tech savvy and as the development of green
energy remains a staple in policy platforms, limiting the possibility of Chinese
production upsetting the market.
Bayan Obo
Bayan Obo is a giant polymetallic REE-Fe-Nb hydrothermal deposit located in
Inner Mongolia, China. In 2010 it was expected to produce 55,000 tonnes of
rare earth oxide (REO), representing 46% of Chinese production and 42% of
global supply. It is by far the largest rare earth deposit in the world, containing
some 56.3MM tonnes of REO, according to U.S. Geological Survey (USGS)
estimates, although there are a number of other wide-ranging estimates for the
deposits size. The deposit is weighted mostly to light rare earths, containing
roughly 73% cerium and lanthanum and only 2.2% heavy rare earths.
6
Exhibit 6. Bayan Obo Mine Site
Source: Google Earth.
The deposit was discovered in 1927 by interests controlled by the former USSR.
It began production in 1957 and, although it has been mined from
approximately 20 different sites, the bulk of production has come from two large
deposits, the Main and East ore bodies (seen clearly in Exhibit 6). Mining occurs
at approximately 15,000 tpd using electric shovels and rail haulage. Due to a
lack of water onsite, ore is transported to Batou via rail for processing. During
the high REO price environment of the late 1970s and early 1980s, selective
mining was not practiced. According to a study conducted by the USGS in 1990,
REO production comes strictly from bastnasite ore found in certain zones of the
deposit, though their processing techniques follow a typical monazite flowsheet.
There is limited detail available on the mine plan and the production potential of
Bayan Obo. Some industry experts believe that the mine may be moving away
from REO-rich regions, resulting in a forecast decline in production from the
mine over the next five years.
7
The Basics
The rare earths are a moderately abundant collection of 17 elements, 15 of
which are known as lanthanides plus scandium and yttrium. The elements were
first isolated in the 18th and 19th centuries, and were named rare earths due to
the difficulties scientists had in refining them into pure metal. Due to the
elements chemical similarities, efficient separation processes were not
developed until the 20th century. Rare elements are actually not that rare. In
fact some elements, such as cerium, the most abundant rare earth, are more
common in the earths crust than copper or lead. Most rare elements have a
commercial market, though some of the heavier rare earths essentially only
trade by special order.
Each elements unique properties have led to new applications being developed
consistently over the last 50 years, and research into new uses continues. In
certain applications substitutes do exist, but these rarely work as effectively.
Given the small overall cost represented by these elements in end-products and
the lack of effective substitutes, we foresee continued strong demand for these
metals.
Exhibit 7. Rare Earth Elements
Atomic Upper Crust 2010E Demand

Light Rare Earths Symbol Weight Abundance (ppm) Applications (Mt)
Yttrium Y 88.9 22.0 Red phosphor, fluorescent lamps, ceramics, metal alloy agent 6,706
Lanthanum La 138.9 30.0 Hybrid engines, metal alloys, fluid cracking (heavy oil), flint, hydrogen storage 41,605
Cerium Ce 140.1 64.0 Polishing powder, auto catalyst, petroleum refining, metal alloys 43,181
Praseodymium Pr 140.9 7.1 Magnets, battery alloy, lasers 10,602
Neodymium Ne 144.2 26.0 Permanent magnets, auto catalyst, petroleum refining, lasers 29,440
Promethium Pm 145.0 na Nuclear battery (does not occur in nature) na
Samarium Sm 150.3 4.5 Magnets 728
Europium Eu 151.9 0.9 Red color for television and computer screens 387
Gadolinium Gd 157.2 3.8 Magnets 899
Atomic
Heavy Rare Earths Symbol Weight Applications
Terbium Tb 158.9 0.6 Phosphors, permanent magnets 433
Dysprosium Dy 162.5 3.5 Permanent magnets, hybrid engines 1,750
Holmium Hm 164.9 0.8 Glass coloring, lasers
Erbium Er 167.3 2.3 Phosphors
Thulium Tm 168.9 0.3 Medical x-ray units 312
Ytterbium Tb 173.1 2.2 Lasers, steel alloys
Lutetium Lu 175.0 0.3 Catalysts in petroleum refining
Total Demand 136,043
Source: Society Mining, Metallurgy and Exploration Inc., IMCOA.
8
Exhibit 8. Rare Earth Oxide Usage By Industry (2010E)
Others
Phosphors 4%
6%
Magnets
Glass Additives 25%
6%
Polishing Powder
14%
Battery Alloy
14%
FCC
15%
Metallurgy ex batt
Auto catalysts 9%
7%
Source: Roskill.
The permanent magnet industry is the largest user of rare earth elements,
representing approximately 25% of current demand. We expect that as this
market grows it will represent over 30% of the rare earth market by 2015. We
also predict that the battery alloy market will increase in importance in terms of
tonnes demanded by 2015. We summarize in Exhibit 9 the uses and projected
CAGRs of the sectors that use rare earths (from 20102015).
Exhibit 9. Rare Earth Uses And Demand Drivers

2010E2015E
Application Rare Earths Demand Drivers CAGR
Neodymium, Praseodymium, Samarium, Terbium, Renewable power generation, hybrid vehicle electric motors, hard drives for
Magnets Dysprosium computers, mobile phones, MP3 players, cameras 16%
Battery Alloy Lanthanum, Cerium, Praseodymium, Neodymium Hybrid electric vehicles, hydrogen absorption alloys for rechargeable batteries 18%
Europium, Yttrium, Terbium, Lanthanum, Dysprosium,
Phosphors Cerium, Praseodymium, Gadolinium LCDs and PDPs, energy-efficient fluorescent lights 30%
Fluid Cracking Lanthanum, Cerium, Praseodymium, Neodymium Petroleum production heavy oil and tar sands 6%
Auto Catalysts Cerium, Lanthanum, Neodymium NOx, Sox reduction, recycling of rare earths not prevalent 8%
Mechano-chemical polishing powders for TVs, monitors, mirrors and (in
Polishing Powders Cerium nano-particulate form) silicon chips 15%
Ceramics Lanthanum, Cerium, Praseodymium, Neodymium, Yttrium Ceramic capacitors PSZ in advanced ceramics (turbine blade coatings) 3%
Cerium cuts down transmission of UV light. La increases glass refractive index for
Glass Additive Cerium, Lanthanum, Neodymium, Europium digital camera lenses. 4%
Fiber Optics Erbium, Yttrium, Terbium, Europium Signal amplification 30%
Source: IMCOA, U.S. Geological Survey, CIBC World Market Inc.
9
Project Locations
Exhibit 10. Select Global Earth Deposits
26 6
11 13
12 15
27
18
23 19
28 24 1
14
8
2 3
5 29 30
4 22
20 25
21 10
16 17 7
31 9
Company Project Resources Production Capacity Completed Engineering

1 Baogang Rare Earth Bayan Obo 56,392,000 55,000 Production
2 Various Jianxi 9,303,300 55,000 Production
3 Various Sichuan 510,000 10,000 Production
4 CBMM Morro Dos Seis Lagos 11,730 650 Production
5 Indian Rare Earths Limited Orissa N/A 12,700 Expansion
6 JSC Sevredmet Lovozerskoye 1,150,000 4,000 Production
7 Lynas Corp Mount Weld 1,183,400 22,000 Construction
8 Molycorp Minerals Mountain Pass 1,840,000 42,402 Construction
9 Alkane Resources Dubbo 545,340 2,580 DFS
10 Arafura Nolans Project 848,400 20,000 PFS
11 Avalon Rare Metals Nechalacho 3,057,000 9,296 PFS
12 Great Western Hoidas Lake 62,208 5,000 RD
13 Greenland Minerals Kvanefjeld 4,889,900 43,700 PEA
14 Rare Element Resources Bear Lodge 398,860 10,000 PEA
15 Quest Rare Minerals Strange Lake 1,147,082 12,120 PEA
16 Frontier Rare Earths Limited Zandkopsdrift 947,000 17,039 RD
17 Great Western Steenkampskraal 29,400 2,500 RD
18 Kazatomprom/Sumitomo Ulba N/A 13,608 RD
19 Matamec Explorations Zeus 31,800 N/A RD
20 Montero Mining Wigu Hill N/A N/A RD
21 Namibia Rare Earth Inc. Lofdal N/A N/A RD
22 Neo Materials/Mitsubishi Pintinga N/A N/A RD
23 Pele Mountain Resources Eco Ridge 67,222 N/A RD
24 Stans Energy Kutessay II N/A 1,000 RD
25 Tantalus Rare Earths AG Tantalus N/A N/A RD
26 Tasman Metals Norra Karr 326,700 5,000 RD
27 Ucore Uranium Bokan Mountain N/A N/A RD
28 US Rare Earths Lemhi Pass 567,455 N/A RD
29 Vietnam Gov't Mau Xe North and South 11,740,000 30,000 RD
30 Vietnamese Gov't Toyota Tsucho/Sojitz Dong Pao 759,000 7,000 PEA
31 Wealth Minerals Ltd Rodeo de Los Molles 1,176,000 N/A RD
Source: Company reports, USGS, and U.S. Department of Energy.
10
Processing
Given the chemical similarities of rare earth elements, developers and producers
face challenges to process these elements economically. Most rare earth
deposits primarily comprise mineralization in the form of monazite or bastnasite.
Here we examine these two processing techniques.
The first step is mining undertaken using traditional hard rock mining
techniques, either open-pit or underground mining methods. This step in the
process does not account for a significant portion of overall operating costs
given the low tonnage nature of these operations.
Ore is transported to a mill where standard floatation methods increase the

concentration of REO. Molycorps Mountain Pass deposit previously used
floatation techniques to create a 60% REO concentrate similar to that produced
by Bayan Obo. From here the next step really depends on the type of
mineralization being processed. For bastnasite, additional upgrading of the
concentrate can be achieved through leaching. At Mountain Pass, leaching using
HCl, along with roasting, was previously used to increase concentrate and
oxidize the material (see Exhibit 11 for a simplified flow diagram). Exhibit 12
details a simplified flowsheet for monazite concentrate production.
Exhibit 11. Generalized Bastnasite Beneficiation Flow Diagram
Source: Society of Mining, Metallurgy and Exploration Inc.
11
At Bayan Obo, concentrate undergoes the cracking process, whereby

concentrate is baked with sulfuric acid at temperatures of 300o Celsius to
600o Celsius and processed further. Ore from Avalons Nechalacho deposit,
which principally contains monazite ore, will also require this step. As cracking
is most often associated with monazite processing, Bayan Obo ore is believed to
contain significant amounts of this rare earth-bearing mineral.
Exhibit 12. Generalized Flow Diagram For Extraction Of Monazite And Xenotime From Ti-Zr-REE Mineral Sand
These steps take a company to the point at which it has a workable rare earth
element (REE) concentrate on site. 43% RE concentrate sells today for
US$38.00/kg. A significant value-added margin can be captured in the value
chain by moving to the next step in the refining process producing separated
rare earth oxides. This step is costly, however, both in terms of capital and in
accounting for ~70% of the operating costs of the overall operation. The
majority of these costs are related to power and reagents.
12
Rare earth elements are quite similar chemically, making them difficult to
separate. Fractional crystallization and ion-exchange techniques have proven
effective at separating these elements but only on a small scale. Large-scale
operations, such as the one at Mountain Pass or Mount Weld, will likely use
liquid-liquid solvent extraction (SX). Exhibit 13 illustrates the process used
previously at Mountain Pass. Molycorp, Avalon, and Frontier all plan to become
separated rare earth oxide producers.
While each of the steps detailed in Exhibit 13 uses well-known technology,

determining the number of steps required to reach the end-result requires a
significant amount of testing to ensure the right processes and reagents will be
used in the chemical plant. This knowledge base is a significant barrier to entry
for projects that have not yet started this work in earnest.
Exhibit 13. Mountain Pass Previous Separation Process Using SX
Molycorp plans to take processing one step further through the conversion of
oxides to metals, metals to alloys, and alloys to finished rare earth magnets.
These steps increase operating costs but also realized prices. Molycorp estimates
that its operating margins will increase 62% as it moves through processing
neodymium oxides to alloys.
13
Supply And Demand

Our forecast growth rates for applications in which rare earth elements are a
component are primarily in the double digits to high single digits. We expect the
five-year CAGR for overall REO demand to be 12.5% to 2015. This forecast
assumes that 245,000 Mtpa of REO will be required by 2015, an estimate higher
than most forecasts currently in the marketplace but consistent with the Chinese
Rare Earth Association. While the aggregate graph below (Exhibit 14) would
suggest that the REO market is balanced, it does not reflect the markets of each
individual element, which is a far more accurate way to look at the rare earth
market, in our view. Each element has a unique set of demand drivers and
production profiles, making each element a market unto itself.
Exhibit 14. Supply And Demand Projections
300,000
250,000
200,000
REO (tonnes)
150,000
100,000
50,000
-
2004 2005 2006 2007 2008 2009 2010E 2011E 2012E 2013E 2014E 2015E
REO Existing Supply REO New Supply REO Demand
Source: Roskil, USGS, and CIBC World Markets Inc.
In an effort to establish a supply/demand forecast for each of these markets, we

estimate: 1) the individual element requirements for each of the various
industries that comprise the demand side of the equation; and, 2) the varying
deposit compositions that will come into production over the next five to
10 years, forming supply. By combining estimated production rates with
estimated demand growth rates for the various end-user industries, we create a
matrix through which to forecast individual supply and demand balances for
each element.
As is evident in Exhibit 15, we forecast elements like cerium, which comprises

the bulk of rare earth deposits, to be in a surplus for the foreseeable future
while we estimate that magnet elements like neodymium and praseodymium will
be in deficit. Deficit markets will likely drive prices higher and support a
longer-term supply-side response. Note that information on recycling,
anticipated by-product production, and the actual start dates of most mines are
our best estimates at this time.
14
Exhibit 15. Supply And Demand Balances Select Rare Earth Elements
55,000
45,000
35,000
25,000
Oxide Tonnes
15,000
5,000
(5,000)
(15,000)
(25,000)
La Ce Pr Nd Sm Eu Gd Tb Dy Y
2010E Supply Demand Balances 2015E Supply Demand Balance 2020E Supply Demand Balance
400%
350%
300%
Surplus / Shortfall as % of Demand
250%
200%
150%
100%
50%
0%
-50%
-100%
La Ce Pr Nd Sm Eu Gd Tb Dy Y
2010E Supply Demand Balances 2015E Supply Demand Balance 2020E Supply Demand Balance
Source: CIBC World Markets Inc.
CIBCs Rare Earth Forecast

To generate our rare earth pricing forecasts, we reviewed the key supply and
demand drivers for each of the metals in the sector. We believe that supply
generated by recycling, by-product production, and new projects coming online
in the near term have the potential to flood the market, triggering a drastic drop
in price for some of the light rare earths, particularly cerium and lanthanum.
These we have labeled the Bearish Elements. Elements for which we anticipate a
sustained deficit in our supply/demand forecast we have labeled as Bullish and
we expect their prices to increase substantially. Other elements we have labeled
as Neutral and these we forecast to post more modest price increases.
Bullish elements, in our opinion, are praseodymium, neodymium, terbium, and

yttrium. Neutral elements are lanthanum, europium, dysprosium and
gadolinium. Finally, bearish elements are cerium and samarium.
15
Exhibit 16. CIBC Rare Earth Forecast
1600%
Percentage Increase From Base Year

1400%
1200%
1000%
800%
600%
400%
200%
0%
2009A 2010A 2011E 2012E 2013E 2014E 2015E
Neutral Elements Bearish Elements Bullish Element
Source: CIBC World Markets Inc.
To form our long-term forecast, outlined by metal in Exhibit 17, we estimate

that prices will re-base similar to other large increases in commodity prices at
200%400% higher than our initial year of study, that being 2009. The path a
particular element takes depends on our projected supply/demand balance
looking out five years from now.
Exhibit 17. Long-term Rare Earth Forecast

REO Spot Prices 2010A 2013E 2015E
Yttrium US$/kg $105.50 $26.07 $107.60 $67.25
Lanthanum US$/kg 93.00 22.53 17.49 17.49
Cerium US$/kg 96.00 21.52 16.60 12.45
Praseodymium US$/kg 138.50 46.44 120.32 75.20
Neodymium US$/kg 150.00 47.56 122.85 76.78
Samarium US$/kg 91.00 16.62 18.00 13.50
Europium US$/kg 660.00 552.89 1,392.57 1,392.57
Gadolinium US$/kg 100.50 22.29 54.99 54.99
Terbium US$/kg 780.00 537.02 1,055.70 1,055.70
Dysprosium US$/kg 467.00 229.36 688.08 688.08
Source: Metals Pages and CIBC World Markets Inc.
Demand
We take a top-down approach to generate our demand forecast. Using industry
growth rates and average historical weightings for metal usage by industry, we
first distinguish those industries that are particularly heavy users of rare earths;
we then forecast each industrys usage by metal. This method allows us to
capture the cross-utilization of metals in different industries and the variability of
growth rates across sectors. While it is possible that demand intensity will
change due to new uses for rare earths (e.g., development of magnetic
refrigeration), it is difficult to forecast these changes. Given the unique
characteristics of these metals, new uses are being discovered and developed
every day, making the possibility of greater-than-anticipated demand growth a
distinct possibility.
16
The usage allocation per industry, outlined in Exhibit 18, then drives our forecast
demand for each rare earth element. We believe that the fastest-growing areas
of demand particularly permanent magnets, rechargeable batteries, and
phosphors will be the most important to the rare earth industry moving
forward. Elements like neodymium, praseodymium, dysprosium, yttrium,
terbium are tied to the fastest-growing industries.
Exhibit 18. End-use By Metal

Metal Usage (% Of Total Demand)
Application La Ce Pr Nd Sm Eu Gd Tb Dy Y Other
Magnets 23.4% 69.4% 2.0% 0.2% 5.0%
Battery Alloy 50.0% 33.4% 3.3% 10.0% 3.3%
Metallurgy Ex-batt 26.0% 52.0% 5.5% 16.5%
Auto Catalysts 5.0% 90.0% 2.0% 3.0%
FCC 90.0% 10.0%
Polishing Powder 31.5% 65.0% 3.5%
Glass Additives 24.0% 66.0% 1.0% 3.0% 2.0% 4.0%
Phosphors 8.5% 11.0% 4.9% 1.8% 4.6% 69.2%
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%
Source: IMCOA.
Permanent Magnets
Permanent magnets are highly sought after given their strength and ability to
maintain their magnetism over extremely long periods of time. Magnets derived
from rare earth elements such at neodymium, praseodymium, and dysprosium
are the strongest-known permanent magnets. Their strength allows components
to be reduced in size and weight, as can be seen in Exhibit 19, and can be made
resistant to temperature changes like excessive heat generated from the friction
of moving parts in a vehicle or generator.
Exhibit 19. Differences In Electric Generators
Source: Avalon Rare Metals.
17
Rare earth magnets, typically NdFeB, are the strongest and most resistant to
heat degradation. There are few manufacturers of these types of magnets
outside of China and Japan: 80% of production comes from China, 17% from
Japan and 3% from Europe. There are two types of Nd magnets: bonded and
sintered. Sintered magnets are stronger, pure magnets, while bonded magnets
are better suited for smaller applications like disk drives and small motors. On
June 8, 2010, Molycorp signed a letter of intent with Neo Material Technologies
(NEMTSX), a North American company with processing facilities in Canada and
China. The agreement is for a technology transfer: Neos principle product
bonded NdFeB magnet powder in exchange for offtake from Molycorps
Mountain Pass mine once in production. Subsequently, Molycorp signed a
Memorandum of Understanding (MOU) with Hitachi (6501T) for the license of
technology in order to produce sintered NdFeB magnets. There are only nine
other companies worldwide with access to these rights, giving Molycorp a
strategic advantage through this significant barrier to entry. While the cost of
the strategy is not well known at this time and magnet production will represent
only a small component of Molycorps business, there is potential value creation.
Todays rare earth industry is fragmented, with a number of companies

undertaking separation, upgrading, converting and magnet manufacturing.
Vertically integrating these steps under one banner and at fewer sites can
engender a dramatic reduction in transportation costs and the capture of
value-added margin at each of these steps. Molycorp estimates that operating
margins on its neodymium line can be increased by 62% by further processing
oxides to alloys.
This strategy also demonstrates how rare earth miners could potentially skew
their leverage to particular rare earth commodities by conducting further
value-added activities down the rare earth value chain. The Mountain Pass mine
is not necessarily endowed with above-average quantities of neodymium, but
through upgrading and value-added processing, neodymium, praseodymium and
dysprosium actually comprise the majority of the companys projected revenues.
Wind Energy
Wind turbines have traditionally used large gearboxes to drive electrical
generation. One of the biggest challenges facing renewable energy and, in
particular, wind energy is capacity utilization. Replacing the gear-driven turbine
with a direct-drive permanent magnet generator increases the availability and
reliability of each turbine given fewer breakdowns and less routine maintenance
downtime. GEs (GENYSE) newest direct-drive wind turbine boasted 25%
efficiencies over those turbines using gear boxes.
18
Exhibit 20. Direct-drive Wind Turbine
Source: GE.
Prior to the financial crisis, the wind energy industry was growing at 20% per
year, and we anticipate it to ramp back up to these levels by 20122013.
Moreover, with permanent magnets displacing more traditional turbines, the
growth in the wind sector may be much higher, according to Keith Delaney,
Executive Director of the Rare Earth Industry and Technology Association.
Molycorp estimates that for every MW of installed capacity a turbine will require
approximately a quarter tonne of REO in the form of neodymium, praseodymium
and dysprosium. To calculate this we first look at the end-product,
differentiating between oxides, metals and alloys:
Each 1 MW turbine will require 500 kg of permanent magnets. These

magnets are an alloy typically made up of iron, boron, and didymium metal,
which is a mixture of neodymium, praseodymium, and often dysprosium.
A 500 kg permanent magnet would require 160 kg of didymium metal.
To produce 160 kg of the metal, 243 kg of didymium oxide is required or a

quarter of a tonne.
China is expected to be the largest growth region for wind power going forward
with announced plans to install 150 GW of capacity by 2020. If this capacity
were solely driven by direct-drive turbines, this initiative alone would equate to
all of the estimated 2010 global production of Nd and Pr.
19
Exhibit 21. Global Installed Wind Capacity 20022030E (Moderate Case)
2000 8%
Installed Wind Capacity (GW)

1500
1000 13%
18%
500
32% 25%
21% 26% 27% 28%
26% 24%
0
2002A
2003A
2004A
2005A
2006A
2007A
2008A
2009A
2010E
2015E
2020E
2030E
Installed Wind Energy Capacity CAGR %
Source: Global Wind Energy Organization
Hybrid Electric Vehicles

Permanent magnets also have developing applications in hybrid-electric cars.
Estimates from Avalon Rare Metals suggest that there will be 1 kg2 kg of REO
equivalent required for each hybrid vehicle manufactured (for electric brakes
and the drive motors for all types of electric vehicles). See our discussion of
rechargeable batteries later for industry growth rates. Other potential growth
areas for permanent magnets include other renewable power applications
(run-of-river, tidal power), electric bicycles, and magnetic refrigeration.
Exhibit 22. Uses For Permanent Magnets In Hybrid Cars
Source: Shin-Etsu Rare Earth Magnets.
Phosphors
Rare earth elements are used extensively as phosphors in the electronics and
lighting industries. Color televisions and LCDs use heavy rare earth elements like
europium, terbium, and yttrium for their unique ability to change colors upon
sending an electrical current through them (also called
electro-phosphorescence).
20
Terbium and europium are also used in energy-efficient lighting. We believe that
this area of growth for the rare earth sector will be the most robust, given there
are few substitutes that work as effectively, recycling these elements is difficult,
and the overall growth of energy efficiency, as well as that of personal television
and computing, seems to be continually expanding. These factors combine to
create most of the pricing differences between light and heavy rare earths and
we believe will continue to support prices going forward, as there is little
downside risk, barring a disruptive technology.
Exhibit 23. Personal Technology Demand Outlook
900.0
55%
800.0
700.0
Vehicle Sales (MM)

600.0 55%
500.0
400.0 55%
300.0 55%
200.0 66% 40%
100.0 8% 134% 8% 46% 8% 13% 8% 6% 7% 4%
0.0
2010A 2011E 2012E 2013E 2014E 2015E
Smart Phones Laptops and Netbooks Tablets Smart Phone Growth Tablet Growth Laptop Growth
Source: Forrester.
Exhibit 24. A Plasma Television Pixel
Source: www.beingmanan.com.
21
The energy-efficient lighting industry is constantly trying to find an alternative to

the incandescent light bulb, which, given its production of waste heat, is one of
the most inefficient sources of light energy. While new technology has been
proven to work and consumers can now replace incandescent light bulbs with
those that use 20%30% less electricity, these new light bulbs tend to be more
expensive and require a warm-up period to reach full potential. However, they
can also save a user US$40 over the five-year life of a bulb, on average. Multiply
this by 30 lights in a house and there could be a saving of US$440US$1,500
per annual electricity bill. A further initial drawback to these newer lights was
that they cast a more unnatural light than incandescent bulbs. It was found that
by adding a coating of terbium and europium to the inside of the tubes in these
lights they could be made indistinguishable from traditional light bulbs. Needless
to say, if this industry is to continue it will need to continue to use these rare
elements.
Exhibit 25. The Range Of CFL Lightbulbs
Source: U.S. Department of Energy.
22
Rechargeable Batteries
Rare earths are used in nickel-metal-hydride (NiMH) batteries. The metal M is
most commonly a combination of rare earths lanthanum, cerium, neodymium
and praseodymium combined with nickel, cobalt, manganese and/or aluminum.
These batteries are used in various applications already, including car batteries
in hybrid electric vehicles (HEV), electronic devices, and power tools.
Exhibit26. Electric Vehicle Sales 2007-2020E
4.5
14%
4.0
8%
3.5 13%
Vehicle Sales (MM)

13%
3.0
17%
2.5 23%
2.0 39%
39%
1.5 32%
28% 18%
25%
1.0 41% 38% 21%
0% 73%
0.5 346% 147%
160% 211% 473%
0.0
2007A 2008A 2009A 2010E 2011E 2012E 2013E 2014E 2015E 2016e 2017E 2020E
Hybrid and Plug In Hybrid Vehicles Battery Electric Vehicles Hybrid Growth Rate Battery Electric Growth Rate
Source: JD Power & Associates.
These batteries offer comparable energy densities to lithium batteries

(power/weight), explaining why they have been used exclusively in hybrid cars
produced today. The key disadvantage of the technology is the limited shelf life,
as the batteries lose their charge over time (1% per day). There is a significant
risk that lithium-ion batteries will be used more prevalently going forward,
similar to the substitution that has occurred in hand-held devices and laptop
computers. However, with the amount of growth anticipated in the sector we
believe it is plausible that both technologies are used going forward.
Exhibit 27. NiMH Car Battery For A Toyota Prius
Source: Toyota.
23
Supply
Our supply forecast is predicated on a bottom-up approach, taking current
production levels in China and elsewhere and adding near-term production and
development projects that are sufficiently advanced to come online in the next
10 years. Exhibit 28 summarizes select development projects held by publicly
listed companies.
24
25
Exhibit 28. Select Investable Deposits In Development Outside China
Mountain Pass Mount Weld Zandkopsdrift Nolans Project Dubbo Bear Lodge Hoidas Lake Nechalacho Steenkampskraal Strange Lake Kvanefjeld Norra Karr
Frontier Rare Arafura Alkane Rare Element Great Western Avalon Rare Great Western Quest Rare Greenland
Owner Molycorp Lynas Earths Resources Resources Resources Minerals Metals Minerals Minerals Minerals Tasman Metals
Location United States Australia South Africa Australia Australia United States Canada Canada South Africa Canada Greenland Sweden
Tonnage (MM tonnes) 19.62 14.61 43.78 30.30 73.69 11.53 2.56 315.01 0.17 114.82 400.81 62.35
Grade (% TREO) 9.4% 8.1% 2.2% 2.8% 0.7% 3.5% 2.4% 1.4% 17.0% 1.0% 1.2% 0.5%
Grade (REO Eq) 9.8% 11.1% 3.9% 4.7% 2.7% 5.2% 4.6% 4.9% 27.8% 3.7% 2.0% 2.1%
Contained REO (tonnes) 1,840,000 1,183,400 947,000 848,400 545,340 398,860 62,208 4,297,829 29,400 1,147,082 4,889,900 326,700
Bastnasite/ Bastnasite/
Mineralization Bastnasite Monazite Monazite Apatite Trachyte Monazite Apatite Fergusonite Monazite Pegmatite/ Aplite Steenstrapine Eudialyte
Engineering Complete Construction Construction RD PFS DFS PEA RD PFS RD PEA PEA RD
Expected Production (tonnes) 40,000 22,000 20,000 20,000 2,580 7,000 5,000 10,000 2,500 12,000 44,000 5,000
Separated/Oxide
s/Metals/Alloys/ Separated Separated Separated Separated Separated
Finished Product Magnets Oxides Oxides Oxides Concentrate Concentrate Concentrate Oxides N/A Oxides Concentrate N/A
Capex (US$MM) 780 594 700* 430 180 89 N/A 1,100 N/A 563 2,310 N/A
Opex (Total Annual) 266 154 368* 150 N/A 72 N/A 464 N/A 440 472 N/A
Production Year 2012 2011 2015 2013 2014 2015 N/A 2015 N/A 2015 2,015 N/A
Bullish Element Weighting 16.540 19.600 25.770 29.070 36.047 17.659 30.040 37.230 27.410 46.146 26.000 55.725
Light Weighting 99.840 99.200 98.310 99.380 94.729 99.133 97.270 93.690 98.970 87.988 97.100 89.122
Yttrium 0.100 - 4.120 1.320 15.814 0.809 0.370 11.690 5.000 28.128 7.700 36.260
Lanthanum 33.200 26.000 25.360 19.740 19.535 31.214 20.330 15.830 21.630 13.213 27.500 10.305
Cerium 49.100 51.000 44.200 47.530 36.822 47.110 42.770 35.720 46.550 27.427 42.000 22.328
Praseodymium 4.340 4.000 4.550 5.820 4.031 4.046 5.770 4.510 5.000 3.003 4.200 2.863
Neodymium 12.000 15.000 15.740 21.200 14.109 11.850 22.760 17.830 16.660 10.711 12.900 11.260
Samarium 0.800 1.800 2.310 2.370 2.171 2.341 3.660 3.910 2.500 2.603 1.600 2.290
Europium 0.100 0.400 0.590 0.400 0.078 0.549 0.720 0.490 0.080 0.200 0.100 0.382
Gadolinium 0.200 1.000 1.440 1.000 2.171 1.214 0.890 3.710 1.550 2.703 1.100 3.435
Heavy Weighting - 0.700 1.690 0.410 5.194 0.696 2.720 5.130 1.030 12.112 2.250 10.878
Terbium - 0.100 0.170 0.080 0.310 0.171 0.220 0.540 0.080 0.601 0.200 0.763
Dysprosium - 0.200 0.770 0.330 2.016 0.405 0.420 2.710 0.670 4.104 1.100 4.962
Holmium - 0.100 0.130 - 0.388 0.026 0.090 0.480 0.050 0.901 0.200 1.145
Erbium - 0.200 0.320 - 1.163 0.055 0.310 1.260 0.080 2.803 0.600 3.435
Thulium - - 0.040 - 0.155 0.004 0.080 - 0.070 0.501 0.100 0.573
Ytterbium - 0.100 0.230 - 1.008 0.032 1.300 - 0.070 2.803 0.050 -
Lutetium - - 0.030 - 0.155 0.004 0.300 0.140 0.010 0.400 - -
Source: Company reports and CIBC World Markets Inc.
Our supply forecast does not take into consideration capital constraints for
developers or any permitting or political opposition to the development of
projects. Overall, this creates a market for rare earth oxides that is in deficit
over the next three years, then moves promptly into balance as more
development-stage projects come into production. In Exhibit 29 we summarize
the development progress of a number of rare earth projects outside China.
Exhibit 29. Development Stages Of Select Rare Earth Projects
35%
Steenkampskraal (Great Western),

30% 2,500 mtpa
25%
Strange Lake (Quest Rare
Minerals), 12,120 mtpa
REO Eq Grade
Mountain Pass (Molycorp), 42,402

20% Bear Lodge (Rare Element), Mount Weld (Lynas), 22,000 mtpa mtpa
7,000 mtpa Kvanefjeld (Greenland Minerals),
15% 43,700 mtpa
Hoidas Lake (Great Western
Nechalacho (Avalon), 9,296 mtpa
Minerals), 5,000 mtpa
10%
Norra Karr (Tasman Metals), Nolans Project (Arafura), 20,000
5,000 mtpa mtpa
5%
Dubbo (Alkane), 2,580 mtpa
0%
Development Stage
Bubbles represent relative size of expected production.

At the individual element level, it is apparent that each of these markets may or
may not be balanced over the next five years. Light rare earths, like cerium, are
likely to be in surplus over the next few years, making it likely that their
respective prices correct faster than those for other elements. Elements like
neodymium, praseodymium, and yttrium appear to be in deficit for the
foreseeable future.
It is important to consider that this supply/demand balance includes some

by-product and recycled material production, although there is limited
information on the potential supply from these sources. Previously, it was not
deemed worthwhile to recover rare earths as by-products given the elements
historically low prices. Mine managers that have been pumping these elements
to tailings are perhaps looking at ways to capture the recent run-up in prices.
26
Exhibit 30. Race To Full Production Rare Earth Developers

2010E 2011E 2012E 2013E 2014E 2015E 2016E
Mount Weld 3,000 5,197 20,788 20,788 20,788
Mountain Pass - 11,000 11,000 22,000 22,000
Dubbo - - - 2,580 2,580 2,580
Steenkampskraal - - - 2,500 2,500 2,500
Zandkopsdrift - - - - 12,417 23,179
Nolans Project - - - - 5,000 10,000
Nechalacho - - - - -
Source: Company reports and CIBC World Markets Inc.
Our analysis leads us to believe that the prices of some elements will be
supported at current levels while the prices of others will drop as more supply
comes online. We, therefore, see rare earth prices diverging based on the supply
and demand assumptions we make for each individual element.
27
Rare Earth Pricing

Rare earth prices are based on the processing industry that occurs in China.
Metals and oxides are priced excluding freight. As seen in Exhibit 31, some
heavy rare earths command substantially higher prices than the lighter rare
earths. Since Chinas announcement in August 2010 that it would curtail
exports, prices outside China have risen exponentially, while prices inside China
have also steadily increased for the most part.
Exhibit 31. Rare Earth Spot Prices
Oxide Price FOB China (US$/kg)

$- $100 $200 $300 $400 $500 $600 $700 $800 $900
Y $105.50
La $93.00
Ce $96.00
Pr $138.50
Nd $150.00
Sm $91.00
Eu $660.00
Gd $100.50
Tb $780.00
Dy $467.00
Heavy Rare Earths

Light Rare Earths
Source: Metals Pages.
As seen in Exhibit 32, prices for most elements have rocketed higher, though
the light rare earth prices outside of China seem to be increasing more than the
prices for heavy rare earths. This is counterintuitive given that we know most
deposits are comprised of light rare elements. A reasonable explanation can be
found upon examination of Chinese export behavior, whereby rare earth
producers are restricted on exporting material based on tonnage, not rare earth
element. Therefore, given the opportunity to export a tonne of any product, we
believe Chinese producers are opportunistically exporting the more expensive
heavier rare earths, creating a disconnect in market prices for rare earths in the
spot market. We believe that this situation will continue in the near term, but
correct in the long term, giving producers with leverage to heavy rare earths
essentially an embedded option upon the correction.
28
29
0
50
100
150
200
250
300
350
400
450
500
0
100
200
300
400
500
600
700
0
20
40
60
80
100
120
140
160
-
4/13/2001 3/7/2003 4/13/2001
10.00
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
9/7/2003 4/13/2001
4/13/2002 4/13/2002
3/7/2004
4/13/2002
4/13/2003 9/7/2004 4/13/2003
Source: Metals Pages.

3/7/2005 4/13/2003
4/13/2004 9/7/2005 4/13/2004
Light Rare Earths
4/13/2004
3/7/2006
Medium Rare Earths

4/13/2005 4/13/2005
9/7/2006 4/13/2005
4/13/2006 3/7/2007 4/13/2006
4/13/2006
9/7/2007
4/13/2007 4/13/2007
3/7/2008
4/13/2007
Dy Oxide 99% min FOB China (US$/kg)

Nd Oxide 99% min FOB China (US$/mt)
9/7/2008
Eu Oxide 99.9% min FOB China (US$/kg)

4/13/2008 4/13/2008
4/13/2008
La Oxide 99% min FOB China (US$/kg)
3/7/2009
4/13/2009 9/7/2009 4/13/2009
4/13/2009
3/7/2010
4/13/2010 4/13/2010
9/7/2010 4/13/2010
0
20
40
60
80
100
120
0
5
10
15
20
25
30
35
40
0
10
20
30
40
50
60
70
80
90
100
6/29/2001 11/15/2007
4/13/2001
-
20.00
40.00
60.00
80.00
100.00
120.00
2/15/2008
4/13/2001
6/29/2002 4/13/2002
5/15/2008
4/13/2002
6/29/2003 8/15/2008 4/13/2003
4/13/2003
Mixed Products
11/15/2008 4/13/2004
6/29/2004
2/15/2009 4/13/2004
6/29/2005 4/13/2005
5/15/2009 4/13/2005
6/29/2006 4/13/2006
8/15/2009
Exhibit 32. Select Rare Earth Historical Prices FOB China
4/13/2006
11/15/2009 4/13/2007
6/29/2007 4/13/2007
Gd Oxide 99% min FOB China (US$/kg)

2/15/2010
Sm Oxide 99% min FOB China (US$/kg)
Ce Oxide 99% min FOB China (US$/kg)
4/13/2008
RECO3 42-45% REO FOB China (US$ / mt)

6/29/2008 4/13/2008
5/15/2010
4/13/2009 4/13/2009
6/29/2009 8/15/2010
11/15/2010 4/13/2010 4/13/2010

6/29/2010
2/15/2011
0
100
200
300
400
500
600
700
800
900
0
20
40
60
80
100
120
0
20
40
60
80
100
120
140
160
-
12/12/2003 1/12/2006
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
11/15/2007
6/12/2004 4/13/2001
5/12/2006
2/15/2008
12/12/2004 9/12/2006 4/13/2002
5/15/2008
6/12/2005 1/12/2007
8/15/2008 4/13/2003
12/12/2005 5/12/2007
11/15/2008 9/12/2007
6/12/2006 4/13/2004
Heavy Rare Earths
2/15/2009 1/12/2008
12/12/2006
4/13/2005
5/15/2009 5/12/2008
6/12/2007
9/12/2008 4/13/2006
8/15/2009 12/12/2007
1/12/2009
11/15/2009 6/12/2008 4/13/2007
5/12/2009
Pr-Nd 99% min FOB China (US$/mt)
Tb Oxide 99% min FOB China (US$/kg)
Pr Oxide 99% min FOB China (US$/kg)
2/15/2010 12/12/2008
Y Oxide 99.999% min FOB China (US$/kg)
9/12/2009 4/13/2008
5/15/2010 6/12/2009
1/12/2010
4/13/2009
8/15/2010 12/12/2009
5/12/2010
6/12/2010 9/12/2010 4/13/2010
11/15/2010
12/12/2010 1/12/2011
2/15/2011
Bubbles
It is well understood that commodities can reach pinching points, whereby
supply is outstripped by demand, creating significant price upswings. This has
been the case with several minor metals in the last 10 years as resource-hungry
China and industry changes have created demand surges. The initial phase of
these swings is usually prompted by users stockpiling the commodity based on
projected supply shortfalls in order to maintain their production levels.
Speculators entering the mix and further bidding up prices can often compound
this effect. Particularly large swings in price materialize when the commodity
represents a small portion of the overall cost of an end-product, i.e., demand is
relatively inelastic. Two case studies we examined closely were uranium and
molybdenum. Both metals achieved stratospheric highs in the previous decade
only to come crashing down. This leads us to a discussion of bubbles.
Exhibit 33. Bubbles In Recent History

Low Peak Base
Uranium 10.9 138 48.5
Moly 3.4 39.25 15.45
Gold 103.5 850 460.7
NASDAQ 547.84 2652.05 2089.21
Low Peak Base

Uranium 2003Present 1266.1% (64.9%)
Moly 2003Present 1154.4% (60.6%)
Gold 19761983 861.0% (45.8%)
NASDAQ 19922005 671.4% (21.2%)
Source: Bloomberg.
Investors are concerned that todays rare earth market is starting to look like a
bubble. We would argue that, if this is indeed a bubble, there is still plenty of
room for even higher prices given that, on average, rare earth oxide prices
delivered to China have risen 706%. Compare this to uraniums nearly 1,300%
run from 20032007.
We also note that the market for rare earths is even smaller than the markets
for uranium and molybdenum; products are predominantly tailored to
customers ultimate specifications. The lack of a standardized product may make
it difficult for speculators to enter the market or, if they are able to do so, quite
difficult for them to exit. We, therefore, believe that we are not in a bubble in
rare earth pricing but rather in a stockpiling phase as end-users gear up for the
following years of famine in the industry, waiting for more supply to be brought
online. Chinese export quotas have also skewed proper price discovery in the
market for light and heavy rare earths due to their quota system being based on
weight and not value.
In Exhibit 34, we examine the charts of different bubbles, looking at a simplified

version of American economist Hyman Minskys bubble stages.
1. Disturbance
2. Expansion
3. Euphoria
4. Market Reversal
5. Stability
30
It should be noted that in the chart for molybdenum the financial crisis of 2008
complicates the analysis somewhat. We believe both the molybdenum and
financial bubble bursting at the same time exaggerated this correction.
We also note that when these bubbles settled back down, commodity prices
were substantially higher than prior to the run-up in pricing. In fact, the
uranium, gold and molybdenum prices at the end of the cycle were 300%350%
higher than they were prior to the four- to six-year period of escalating prices,
significantly outperforming inflation as well. So while the current rare earth
market is indicating some signs of a bubble, e.g., tight supply/demand
fundamentals, stockpiling and inelastic consumers, etc., we do not believe we
are at or near a peak yet.
Moreover, a look at individual metals prices highlights that not every rare earth
element is showing signs of being caught in a bubble. China is exporting the
more expensive, heavier rare earths, due to export restrictions being based on
tonnage, somewhat suppressing prices. With fewer exports of light rare earth,
their prices have increased significantly compared to those for heavier rare
earths.
Exhibit 34. Significant Historical Bubbles
1 2 3 4 5 1 2 3 4 5
14.00 10.00
9.00
12.00
8.00
10.00 7.00
8.00 6.00
5.00
6.00 4.00
4.00 3.00
2.00
2.00
1.00
- -
1/1/2003
1/1/2004
1/1/2005
1/1/2006
1/1/2007
1/1/2008
1/1/2009
1/1/2010
1/1/1992
1/1/1993
1/1/1994
1/1/1995
1/1/1996
1/1/1997
1/1/1998
1/1/1999
1/1/2000
1/1/2001
1/1/2002
1/1/2003
1/1/2004
1/1/2005
Molybdenum CPI NASDAQ CPI
1 2 3 4 5 1 2 3 4 5
14.00 8.00
12.00 7.00
10.00 6.00
5.00
8.00
4.00
6.00
3.00
4.00 2.00
2.00 1.00
- -
6/1/2003
12/1/2003
6/1/2004
12/1/2004
6/1/2005
12/1/2005
6/1/2006
12/1/2006
6/1/2007
12/1/2007
6/1/2008
12/1/2008
6/1/2009
12/1/2009
6/1/2010
6/6/1976
12/6/1976
6/6/1977
12/6/1977
6/6/1978
12/6/1978
6/6/1979
12/6/1979
6/6/1980
12/6/1980
6/6/1981
12/6/1981
6/6/1982
12/6/1982
6/6/1983
Uranium CPI Gold CPI
Source: Bloomberg.
31
Price Target Calculations And Key

Risks To Price Targets
Avalon Rare Metals Inc. Price Target
Calculation
Our price target is based on a 1.0x NAV10% multiple derived from the discounted
cash flow of the Nechalacho project and the addition of net debt. Driving the per
share amount is our dilutive equity issue assumption.
Avalon Rare Metals Inc. Key Risks To Price

Target
Our price target is based on an assumed sustained rise in rare earth oxide prices
from historical levels. Should prices deviate substantially from these assumed
prices, our valuation for the company could be affected. Our price forecast is
also based on the assumed growth of several sectors, including automotives,
electric vehicles, personal computing, and wind energy; deviations in growth
rates from our forecasts could materially impact demand, the balance of supply
and, thus, prices.
Our price target is also based on an equity financing conducted at a higher price
than current share prices; substantial deviations in the stock price from our
forecast could also impact our per share NAV for the company. Valuation for the
company could also be affected by higher-than-forecast capital expenditure
requirements, operating costs, the price of construction inputs and reagents,
and fuel and labor costs in the Northwest Territories.
Frontier Rare Earths Limited Price Target

Calculation
We use a 1.0x NAV multiple based on our NAV12% calculation. This methodology
is consistent with that applied to other base metals names in our universe,
although we use a slightly higher discount rate in this case to reflect the
early-stage nature of Zandkopsdrift and the risks involved.
Frontier Rare Earths Limited Key Risks To

Price Target
Zandkopsdrift is an earlier-stage project and has not completed preliminary
engineering or metallurgy study yet. Should recoveries, process methodology, or
costs deviate substantially from our estimates (currently based on comparable
projects), our price target would be affected. Political issues around Black
Empowerment and the ownership of mineral exploitation rights could also impact
our NAV, should they deviate significantly from our assumed ownership of the
project. Our long-term rare earth oxide price forecast is higher than the
three-year trailing average and below current spot prices for most elements. A
deviation of prices from our forecast would materially impact our valuation and
price target for the company. Currently, we assume that the market will value
rare earth projects based on a 1.0x NAV methodology; given the strategic
nature of the resources, they may trade as uranium, another strategic metal,
does, where stocks can trade at a multiple of their NAVs. Should this occur, our
price target calculation would be materially impacted.
32
Molycorp, Inc. Price Target Calculation

Our price target for Molycorp is based on a NAV multiple of 1.0x our NAV10%
estimate. This is consistent with our valuation of other base metals names in our
coverage universe. We do not attribute value for the production of magnets, as
the visibility of these cash flows is not clear at this time.
Molycorp, Inc. Key Risks To Price Target

Key risks to our price target include significant deviations in individual rare earth
prices from our forecast levels. Prices could shift based on supply-side response,
demand drivers such as new uses for elements or substitution, Chinese export
policy, and global growth in the industries that are heavy users of these
elements (e.g., the permanent magnet industry, the flat panel display industry,
and the rechargeable batteries industry). Capital cost overruns and significant
deviations from our operating cost estimates could also impact our valuation and
price target for the company. The Mountain Pass mine as of the date of this
report is not fully financed; although preliminary agreements are in place to
fund the capital shortfall, signing of these agreements under terms other than
what we have assumed could impact our price target. Moving from construction
to production carries with it start-up risk and risks to the timing of cash flows;
deviations from our assumptions for initial production levels and for timing could
also impact our valuation for Molycorp.
33
IMPORTANT DISCLOSURES:
Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or
at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein
accurately reflect such research analyst's personal views about the company and securities that are the subject of this
report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii)
no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific
recommendations or views expressed by such research analyst in this report.
Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from
revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking
Department. Research analysts do not receive compensation based upon revenues from specific investment banking
transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household from
executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets
generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that
such analyst covers.
In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report,
CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities
discussed herein, related securities or in options, futures or other derivative instruments based thereon.
Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures
set forth below, may at times give rise to potential conflicts of interest.
34
Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered
by CIBC World Markets Inc.:
Stock Prices as of 03/06/2011:

Avalon Rare Metals Inc. (2a, 2c, 2e, 2g) (AVL-TSX, C$7.12, Sector Outperformer)
Frontier Rare Earths Limited (2a, 2c, 2e, 2g) (FRO-TSX, C$3.03, Sector Outperformer - Speculative)
Molycorp, Inc. (2a, 2c, 2e, 2g) (MCP-NYSE, US$49.26, Sector Outperformer)
Companies Mentioned in this Report that Are Not Covered by CIBC World Markets Inc.:
Stock Prices as of 03/06/2011:

Alkane Resources Ltd. (ALK-AUS, A$1.34, Not Rated)
Arafura Resource Limited (ARU-AUS, A$1.24, Not Rated)
General Electric (GE-NYSE, US$20.37, Not Rated)
Great Western Minerals Group (GWG-V, C$0.82, Not Rated)
Greenland Minerals And Energy Limited (GGG-AUS, A$1.25, Not Rated)
Hitachi Ltd. (6501-T, 500.00, Not Rated)
Lynas Corporation Limited (LYC-AUS, A$2.20, Not Rated)
Matamec Explorations Inc. (MAT-V, C$0.49, Not Rated)
Mitsubishi Corp (8058-T, 2296.00, Not Rated)
Montero Mining Exploration Ltd. (MON-V, C$0.60, Not Rated)
Neo Material Technologies Inc. (NEM-TSX, C$8.72, Not Rated)
Pele Mountain Resources Inc (GEM-V, C$0.44, Not Rated)
Quest Rare Minerals Ltd. (QRM-V, C$5.80, Not Rated)
Rare Earth Metals Inc. (RA-V, C$0.43, Not Rated)
Rare Element Resources Ltd. (RES-V, C$11.08, Not Rated)
Stans Energy Corp (RUU-V, C$2.31, Not Rated)
Sumitomo (8053-T, 1248.00, Not Rated)
Tasman Metals Ltd. (TSM-V, C$5.00, Not Rated)
UCore Rare Metals Inc. (USU-V, C$1.10, Not Rated)
Wealth Minerals Ltd. (WML-V, C$1.13, Not Rated)
Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to
Important Disclosure Footnotes" section of this report.
35
Key to Important Disclosure Footnotes:

1 CIBC World Markets Corp. makes a market in the securities of this company.
2a This company is a client for which a CIBC World Markets company has performed investment banking services
in the past 12 months.
2b CIBC World Markets Corp. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2c CIBC World Markets Inc. has managed or co-managed a public offering of securities for this company in the
past 12 months.
2d CIBC World Markets Corp. has received compensation for investment banking services from this company in
the past 12 months.
2e CIBC World Markets Inc. has received compensation for investment banking services from this company in the
past 12 months.
2f CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services
from this company in the next 3 months.
3a This company is a client for which a CIBC World Markets company has performed non-investment banking,
securities-related services in the past 12 months.
3b CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services
from this company in the past 12 months.
4a This company is a client for which a CIBC World Markets company has performed non-investment banking,
non-securities-related services in the past 12 months.
4b CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
4c CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related
services from this company in the past 12 months.
5a The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common
equity securities.
5b A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a
long position in the common equity securities of this company.
6a The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its
common equity securities.
6b A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this
company has a long position in the common equity securities of this company.
7 CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1%
or more of a class of equity securities issued by this company.
8 An executive of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has
provided services to this company for remuneration in the past 12 months.
9 A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company
to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer,
director or advisory board member of this company or one of its subsidiaries.
10 Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC
World Markets Corp., has a significant credit relationship with this company.
11 The equity securities of this company are restricted voting shares.
12 The equity securities of this company are subordinate voting shares.
13 The equity securities of this company are non-voting shares.
14 The equity securities of this company are limited voting shares.
36
CIBC World Markets Inc. Price Chart
No rating history data found for Avalon Rare Metals Inc.
37
No rating history data found for Frontier Rare Earths Limited
38
No rating history data found for Molycorp, Inc.
39
CIBC World Markets Inc. Stock Rating System

Abbreviation Rating Description
Stock Ratings
SO Sector Outperformer Stock is expected to outperform the sector during the next 12-18 months.
SP Sector Performer Stock is expected to perform in line with the sector during the next 12-18 months.
SU Sector Underperformer Stock is expected to underperform the sector during the next 12-18 months.
NR Not Rated CIBC World Markets does not maintain an investment recommendation on the stock.
R Restricted CIBC World Markets is restricted*** from rating the stock.
Sector Weightings**
O Overweight Sector is expected to outperform the broader market averages.
M Market Weight Sector is expected to equal the performance of the broader market averages.
U Underweight Sector is expected to underperform the broader market averages.
NA None Sector rating is not applicable.
**Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada.
"Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity issues.
***Restricted due to a potential conflict of interest.
Ratings Distribution*: CIBC World Markets Inc. Coverage Universe

(as of 06 Mar 2011) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 138 44.1% Sector Outperformer (Buy) 135 97.8%
Sector Performer (Hold/Neutral) 128 40.9% Sector Performer (Hold/Neutral) 117 91.4%
Sector Underperformer (Sell) 30 9.6% Sector Underperformer (Sell) 27 90.0%
Restricted 16 5.1% Restricted 16 100.0%
Ratings Distribution: Metals & Minerals Coverage Universe
(as of 06 Mar 2011) Count Percent Inv. Banking Relationships Count Percent
Sector Outperformer (Buy) 16 48.5% Sector Outperformer (Buy) 15 93.8%
Sector Performer (Hold/Neutral) 10 30.3% Sector Performer (Hold/Neutral) 9 90.0%
Sector Underperformer (Sell) 2 6.1% Sector Underperformer (Sell) 2 100.0%
Restricted 5 15.2% Restricted 5 100.0%
Metals & Minerals Sector includes the following tickers: ADV, AVL, BAN, BIM, CCO, CLM, CS, DML, EQN, FM, FRO, GCE, GMO, HBM,
IMN, IVN, LIF.UN, LUN, MCP, ML, MNB, NML, PDN, QUX, S, SGQ, TCK.B, TCM, TKO, UEC, UUU, WRN, WTN.
*Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc.
do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World
Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and
sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting.
Important disclosures required by IIROC Rule 3400, including potential conflicts of interest information, our system for
rating investment opportunities and our dissemination policy can be obtained by visiting CIBC World Markets on the web
at http://researchcentral.cibcwm.com under 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161
Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request.
40
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Institutional Equity Research

March 06, 2011 Metals & Minerals

Sector Weighting: Market Weight

Why Rare Earths? ...................................................................................... 3

Why Rare Earths?

Exhibit 1. CIBCs Rare Earth Coverage

As seen in Exhibit 2, Molycorp will increase its leverage to neodymium and

Exhibit 2. The Rare Earths Value Chain

Molycorp Currently Molycorp's Goal

Lynas Currently Lynas' Goal

Frontier Currently Frontier's Goal

Avalon Currently Avalon Currently

Neo Material Technology Currently

Source: Company reports.

How To Play Rare Earths

Exhibit 3. Bullish Rare Earth Elements

Heavy Rare Earths Applications Industry CAGR 2010E2015E

Other considerations in an investment analysis are the capability of management

Exhibit 4. REO Eq Grade And Leverage To Bullish Elements

Mountain Pass (Molycorp)

Mount Weld (Lynas) Nolans Project (Arafura)

Kvanefjeld (Greenland Strange Lake (Quest)

Bubbles represent the size of the deposit.

The China Factor

In addition, the government has begun cracking down on illegal mining,

Exhibit 5. Chinas Rare Earth Export Quotas

Rare Earth Oxides (tonnes)

Source: Chinese Ministry of Commerce.

Exhibit 6. Bayan Obo Mine Site

Source: Google Earth.

Exhibit 7. Rare Earth Elements

Atomic Upper Crust 2010E Demand

Exhibit 8. Rare Earth Oxide Usage By Industry (2010E)

Exhibit 9. Rare Earth Uses And Demand Drivers

Company Project Resources Production Capacity Completed Engineering

Ore is transported to a mill where standard floatation methods increase the

Exhibit 11. Generalized Bastnasite Beneficiation Flow Diagram

Source: Society of Mining, Metallurgy and Exploration Inc.

At Bayan Obo, concentrate undergoes the cracking process, whereby

Source: Society of Mining, Metallurgy and Exploration Inc.

While each of the steps detailed in Exhibit 13 uses well-known technology,

Exhibit 13. Mountain Pass Previous Separation Process Using SX

Source: Society of Mining, Metallurgy and Exploration Inc.

Supply And Demand

Exhibit 14. Supply And Demand Projections

Source: Roskil, USGS, and CIBC World Markets Inc.

In an effort to establish a supply/demand forecast for each of these markets, we

As is evident in Exhibit 15, we forecast elements like cerium, which comprises

Source: CIBC World Markets Inc.

CIBCs Rare Earth Forecast

Bullish elements, in our opinion, are praseodymium, neodymium, terbium, and

Exhibit 16. CIBC Rare Earth Forecast

Percentage Increase From Base Year

Source: CIBC World Markets Inc.

To form our long-term forecast, outlined by metal in Exhibit 17, we estimate

Exhibit 17. Long-term Rare Earth Forecast

Exhibit 18. End-use By Metal

Exhibit 19. Differences In Electric Generators

Source: Avalon Rare Metals.

Todays rare earth industry is fragmented, with a number of companies

Exhibit 20. Direct-drive Wind Turbine

Each 1 MW turbine will require 500 kg of permanent magnets. These

A 500 kg permanent magnet would require 160 kg of didymium metal.

To produce 160 kg of the metal, 243 kg of didymium oxide is required or a