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

CUT-OFF GRADE
A previous public resource estimate (January 14, 2010) was <strong>report</strong>ed at a cut-off grade of
1.60% TREO. This cut-off grade was based upon the estimated TREO revenues and operating
costs at the time of the estimate and did not incorporate the potential by-product revenue
streams from other rare metals (such as zirconium, niobium and tantalum).
It was recognized by Scott Wilson RPA (July 29, 2010) that a considerable portion of the total
revenue from the Nechalacho Deposit will be generated from zirconium, niobium and tantalum
sales. As such, in addition, metallurgical recovery data is now available for these (and other)
elements and both Scott Wilson RPA and Avalon have stated their resource estimate using a
monetary cut-off value (C$260/tonne) rather than an oxide (1.6% TREO) cut-off value. To do
this, Avalon created an economic model using metal prices, the effects of payable percentages,
flotation and hydrometallurgical recoveries, and any payable NSR Royalties. The net revenue
generated by this model is termed the Net Metal Return (NMR). When the NMR model is
applied to the 1.6% TREO cut-off grade for the Basal Zone used in the previous <strong>technical</strong> study
(Wardrop, March 2009) the equivalent NMR value is approximately C$500/tonne. Operating
cost estimates used in the latest PFS average C$260/tonnes (which is roughly 0.8% TREO),
and this value has been applied as a break-even cut-off for the resource estimate. Included in
the Resource calculation is the TREO equivalent which is based on metal prices and is similar
to NMR.
Technical Report 43-101 – March 13, 2011 Page 17-11
Prepared by Avalon Rare Metals Inc.