technical report on the nechalacho deposit, thor lake project ...

Neither Metal-Pages nor Asian Metal provides systematic historical pricing for elements
holmium through to lutetium. Recently, however, Asian Metal has started quoting prices for
holmium, erbium and lutetium oxides as news items. By searching for individual news items,
some limited historic data was assembled and included in the analysis.
Avalon concludes that the average REE prices collected by Avalon were a reasonable
representation of REO pricing (99% pure) as of 2009.
Project Future Price Appreciation Inside China to 2014
BCC published a study on future pricing of rare earths in 2009. BCC is an information resource
for rare earths, producing market research <strong>report</strong>s, newsletters and conferences. The forecast
period of the study is through to 2014, coinciding with the planned start-up time for the
Nechalacho deposit. BCC concluded in its <strong>report</strong> that the combination of demand growth,
Chinese government policy, production cost pressures and inflation over the 2010 – 2014 period
would likely result in a compound average growth rate (CAGR) of between 20% and 30% in
prices for rare earths. This corresponds to an average annual price increase of 9.1%.
Avalon has reviewed Scott Wilson RPAs comments on the the basis for the BCC price forecast
and gees with the following comments:
• End use demand growth is anticipated to be highest for applications requiring Nd, Pr,
Dy, Tb and Y. These oxides are also anticipated to be in relatively short supply, leading
to the potential for higher than average price increases;
• La and Ce are anticipated to be in excess supply as a result of co-production of the less
common oxides and entry into the market of significant La and Ce producers such as
Lynas and Molycorp. Prices for La and Ce are projected to remain at current levels.
• Sm and Gd are projected to be in excess supply even after factoring the potential for
substitution of these oxides for more expensive oxides in selected applications. This will
limit the potential for price increases for these oxides.
• Demand growth for Ho, Tm, Lu and Yb is expected to be minimal, with a large excess
supply. This will constrain the potential for significant price increases for these oxides.
• Chinese authorities are anticipated to adjust production and export quotas to enable
Chinese producers to maintain a significant market share, notwithstanding the entry of
new, non-Chinese producers. While the focus of Chinese policy will remain on
promotion of increased domestic value-added manufacture, it is anticipated that policies
will be adjusted to ensure an orderly export pricing scenario for rare earth concentrates
and oxides.
Based on the analysis above, Avalon believes that a realistic pricing scenario through 2014 will
conform to increases in demand for each of the rare earth oxides plus production cost inflation
Technical Report 43-101 – March 13, 2011 Page 18-81
Prepared by Avalon Rare Metals Inc.