1. The Challenges in Developing New Rare Earth Mine Supply Outside of China
John P. Sykes & Allan Trench
Centre for Exploration Targeting,
Curtin University & The University of Western Australia
Joshua Wright
Rowton Ltd
CCCNC & Metal Pages Rare Earths Conference, Chengdu, China: 11th Sept 2014

2. CCCNC & Metal Pages Rare Earths
Aims
•An assessment of the challenges faced in developing new rare earths mine supply outside of China.
•Risk progression in rare earth projects via study of ‘delays’ at Mt Weld, Dubbo and Nolans.
•Value accretion in rare earth projects via share price movements over time at Mt Weld.
•Introduce the concept of ‘concave’ project value accretion and assess how it interacts with corporate risk at rare earths projects
•Show that theoretically value accretion and risk progression in rare earths mine project development are misaligned.
•Suggest some potential strategies for mitigating ‘concavity’.
•NB: Mt Weld, Dubbo and Nolans are used as examples, though the observations likely apply globally.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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3. CCCNC & Metal Pages Rare Earths
RISK PROGRESSION IN RARE EARTH PROJECTS: MT WELD
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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4. CCCNC & Metal Pages Rare Earths
Mt Weld was a long, complex project
1st resource
Scoping study
FS
Marketing / off-take agreements
2nd resource
3rd resource
LAMP planning
Malaysian permits
Peer Review
Farm in
Mine & plant tenders
Financing
Australian permits
Mining starts
China JV
Re- done
LAMP tenders
Plant starts
Re-financing
GFC: Project suspended
Approximately 13 years from project purchase to production
Timeframe estimated from archive of press releases on Lynas Corporation website and Infomine document archive
4th resource
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
LAMP construction
LAMP starts
Appeals
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Source: Sykes & Trench (2012)
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5. CCCNC & Metal Pages Rare Earths
Mt Weld faced a variety of problems
11 Sept 2014
Project Delay
Discretionary
Strategic
Portfolio Sequencing
Government
Non-Discretionary
Government
Direct
Indirect
Equipment
Cost
Delays
People
Skilled
Unskilled
Finance
Debt
Equity
Resource
Quality
Quantity
The Challenges in Developing New Rare Earth Mine Supply Outside China
Major delay
Minor delay
Mt Weld Delays Summary (2000-2013)
Based on: Trench (2011)
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6. CCCNC & Metal Pages Rare Earths
Government problems most common
0
2
4
6
8
10
12
NB: Does not consider the magnitude or ‘cost’ of the delay, nor the interconnected nature of delays.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Mt Weld Frequency of Delays (2000-2013)
Slide 6 of 33

7. CCCNC & Metal Pages Rare Earths
MEANWHILE ELSEWHERE IN AUSTRALIA…
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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8. CCCNC & Metal Pages Rare Earths
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
LYNAS: Mt Weld (14 years from purchase to production)
Farm in
Resource Drilling
Scope
FS
Peer Review
Finance
GFC
Re-finance
Construct
Permit
PRODUCTION >>>
ALKANE: Dubbo (Forecast 18 years from purchase to production)
Purchase
FS
Financing
DFS
GFC
DFS
Expanded FS
EIS?
Finance & Construct?
PRODUCE ?
ARAFURA: Nolans (Forecast 14 years from purchase to production)
Purchase
Scope
PFS
FS
GFC
FS
Expanded FS?
Finance & Construct?
PRODUCE ?
Lynas was not suffering alone…
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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9. CCCNC & Metal Pages Rare Earths
Dubbo was facing strategic challenges
0
2
4
6
8
10
12
NB: Does not consider the magnitude or ‘cost’ of the delay, nor the interconnected nature of delays.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Frequency of Delays at Dubbo (1999-2013)
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10. CCCNC & Metal Pages Rare Earths
Nolan’s was facing financing problems
0
2
4
6
8
10
12
NB: Does not consider the magnitude or ‘cost’ of the delay, nor the interconnected nature of delays.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Frequency of Delays at Nolans (2003-2013)
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11. CCCNC & Metal Pages Rare Earths
Aussie REE projects difficult to deliver
0
2
4
6
8
10
Mt Weld
Dubbo
Nolans
Delay (years)
Length of Delays at Australian Rare Earth Projects (1999-2013)
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The Challenges in Developing New Rare Earth Mine Supply Outside China
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12. CCCNC & Metal Pages Rare Earths
Facing a wide range of problems!
0
2
4
6
8
10
12
14
16
18
20
NB: Does not consider the magnitude or ‘cost’ of the delay, nor the interconnected nature of delays.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Frequency of Delays at Australian Rare Earth Projects (1999-2013)
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13. CCCNC & Metal Pages Rare Earths
Australian REE projects tells us:
•Rare earth projects have long and complex histories; 15-20 years!
•Vulnerable to technical, financial and government problems
•Companies can be strategically indecisive.
•Frequency of problems are beginning to be understood.
•Magnitude and interconnected nature is not.
–Government & financial delays maybe of greater magnitude?
–Negative feedback loops with the financial sector?
–Good starting ‘geology’ does however seem critical.
•‘Non-technical’ risks cannot be engineered away – ever present!
•Should concern governments interested in ‘strategic commodities’.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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14. CCCNC & Metal Pages Rare Earths
VALUE ACCRETION IN RARE EARTH PROJECTS: MT WELD
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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15. CCCNC & Metal Pages Rare Earths
Brent Cook’s Life cycle of a mine project
Concept
Exploration
Discovery
Economics
Development
Mining
Value
Time
EXPLORATION
MINING
High Risk – High Potential
Lowered risk
Full Value
Speculation
Orphan Period
Speculators Leave
Institutional Investment
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Marketoracle
Slide 15 of 33

16. CCCNC & Metal Pages Rare Earths
‘Convex’ risk progression: Project vs Corporate
•Project/Technical risk versus Corporate Risk in the Minerals Sector
Project Risk
Corporate Risk
Increasing risk
Exploration Feasibility Development Production De-commissioning
Source: Trench & Packey 2012
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
A high chance of project related problems at this stage, but little at stake so not of concern to the overall company
A lower chance of project related problems at this stage, but if they do occur they could be life-threatening to the company
Based on: Trench & Packey (2012)
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17. CCCNC & Metal Pages Rare Earths
Value accretion at Lynas was ‘concave’
-15.00
-12.50
-10.00
-7.50
-5.00
-2.50
0.00
2.50
5.00
7.50
10.00
12.50
15.00
Apr 01
Jul 01
Oct 01
Jan 02
Apr 02
Jul 02
Oct 02
Jan 03
Apr 03
Jul 03
Oct 03
Jan 04
Apr 04
Jul 04
Oct 04
Jan 05
Apr 05
Jul 05
Oct 05
Jan 06
Apr 06
Jul 06
Oct 06
Jan 07
Apr 07
Jul 07
Oct 07
Jan 08
Apr 08
Jul 08
Oct 08
Jan 09
Apr 09
Jul 09
Oct 09
Jan 10
Apr 10
Jul 10
Oct 10
Jan 11
Apr 11
Jul 11
Oct 11
Lynas vs ASX vs Cerium
Rare earth resource announced
HofA with Gansu Rare Earths for downstream plant
Purchase of Mt Weld completed
Pilot plant work completed successfully
Scoping Study completed
Feasibility Study completed
Downstream agreement with Rhodia
Downstream plant moved to Malaysia
Mining approved by WA govt & mine contract awarded
GFC: financing problems
China Non- Ferrous deal announced
More permit approvals
China Non- Ferrous deal cancelled
Rare earth prices soar – not reflected in share price
Off-take contracts awarded
Permit approvals in Malaysia
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Sykes & Trench (2012)
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18. CCCNC & Metal Pages Rare Earths
Rare earth value accretion is concave
Value Recognition
Convex minerals:
• Gold
• Tin
• Copper
• Nickel sulphide
Concave minerals:
• Lead & Zinc
• Nickel laterite
• Vanadium
• Rare earths
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Trench & Packey (2012)
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19. CCCNC & Metal Pages Rare Earths
CAUSES OF CONCAVE COMMODITIES
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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20. CCCNC & Metal Pages Rare Earths
Value is added downstream in REE’s
0%
50%
100%
150%
200%
250%
Ore in ground
Mining (Mixed
Oxide)
Seperation
(Single
Oxide)
Refining
(Metal)
Alloying
(Mischmetal)
Cerium
Lanthanum
50-60% at the mining stage
20-25% in separation
25-35% at the refining stage
© Greenfields Research Ltd; Data: Metal Pages
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Source: Sykes (2011)
Slide 20 of 33

21. CCCNC & Metal Pages Rare Earths
Convex & concave value chains can cause convex & concave commodities
Exploration
Mining
Processing
Refining
Marketing
Value Recognition
Convex minerals:
• Gold
• Tin
• Copper
• Nickel sulphide
Concave minerals:
• Lead & Zinc
• Nickel laterite
• Vanadium
• Rare earths
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Trench & Packey (2012)
Slide 21 of 33

22. CCCNC & Metal Pages Rare Earths
Other reasons for ‘concaveness’
•Cost is in downstream processing stages.
•Geological and exploration challenges not significant compared to later stage technical and non-technical challenges.
•Potentially lengthy development timeframe.
•Commodity is unknown to investors.
•High political risk jurisdiction.
•Inexperienced management.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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23. CCCNC & Metal Pages Rare Earths
MITIGATING CONCAVE RISK
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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24. CCCNC & Metal Pages Rare Earths
Make the ‘concave’ problem a ‘convex’ solution
Increasing risk
Exploration Feasibility Development Production De-commissioning
Source: Trench & Packey 2012
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
‘Concave’ Project Risk
‘Convex’ Project Risk
Corporate Risk
Solve concave problems early:
•Experienced management?
•Technological (not geological) focus?
•Inform the investing public?
Based on: Trench & Sykes (2013)
Slide 24 of 33

25. CCCNC & Metal Pages Rare Earths
DELAYS risk peak
REDUCES
risk
Input of extra capital:
•Strategic investor?
•Take advantage of fashions?
Exploration
Development
Production
Extra funding delays risk accrual
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Trench & Sykes (2013)
Slide 25 of 33

26. CCCNC & Metal Pages Rare Earths
Convex to concave sequencing
Value ‘Staircase’ becomes:
•‘Convex’ project first i.e. gold then rare earths
•Raise money from a fashionable commodity
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Based on: Trench & Sykes (2013)
Slide 26 of 33

27. CCCNC & Metal Pages Rare Earths
Focus on whole of value chain
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Four Key Elements to Value Realisation
If we do not satisfy 1, 2, 3 and 4, then the positive value realisation at 5 is impossible : the project cannot progress – e.g. we have no social license – or there is value destruction – e.g. some combination of 2, 3 and 4 renders the operational cash-flow insufficient to deliver positive NPV.
Production Rate
kWh/tonne
Depth
Geometry
Social Licence
Recovery
Future Commodity Prices
Geometallurgy
Capex
Opex
Geological Factors
Financial Engineering
Future Energy Prices
Operating Factors
Mineral Deposit Value Realisation
1
2
3
4
5
Water and Geotech
A high quality deposit successfully links these elements to deliver value
Source: McCuaig, Vann & Sykes (2014)
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28. CCCNC & Metal Pages Rare Earths
Opportunity Realisation: Front End Loading
VALUE
Front End Loading
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
Source: Bell (2014)
Slide 28 of 33

29. CCCNC & Metal Pages Rare Earths
Mitigating ‘concave risk’: going convex!
•Resolve downstream technological problems causing concavity.
•Integrate downstream to capture late accruing value.
•Consider strategic investors, who support the project from early stages.
•Public information (industry bodies etc) about the commodity.
•Take advantage of fashions - hot commodity goes from concave to convex.
•Stay away from high risk jurisdictions.
•‘Experienced’ management teams (i.e. ‘experience of commodity’).
•Front End Load projects, do not overspend on exploration.
•BUT good geology is critical!
•Develop a convex commodity first, then the concave project.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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30. CCCNC & Metal Pages Rare Earths
IN SUMMARY
Rare Earth Mining & Exploration: The Challenges in Developing New Rare Earth Mine Supply Outside of China
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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31. CCCNC & Metal Pages Rare Earths
In summary
•Rare earth projects have long and complex histories; 15-20 years!
•Vulnerable to technical, financial and government problems
•Frequency of problems understood. Magnitude and interconnection is NOT.
•Rare earth projects are ‘concave’ – value accretes late.
•Exploration & ‘geological risk’ mitigation is NOT a driver.
•Technical, governmental, environmental & financial risk mitigation ARE value drivers.
•Other causes of ‘concaveness’ include value chain structure, investor unfamiliarity, inexperienced management and ‘country’ risk.
•Value accretion and risk mitigation are not aligned for rare earth projects.
•Strategies exist for converting ‘concave’ projects to ‘convex’ of which ‘front end loading’ and ‘whole of value chain’ thinking are the most critical.
11 Sept 2014
The Challenges in Developing New Rare Earth Mine Supply Outside China
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32. THANK YOU
For more information:
Centre for Exploration Targeting: www.cet.edu.au
Greenfields Research: www.greenfieldsresearch.com
Rowton Ltd: www.rowton-ltd.com
Contact information:
John P. Sykes: johnpaul.sykes@postgrad.curtin.edu.au
Joshua Wright: josh.wright@rowton-ltd.com
Allan Trench: allan.trench@curtin.edu.au

33. Learn more on “Mineral Economics for Geologists”
Date: 2nd December 2014 Website: http://www.cet.edu.au/education-and- training/short-courses/mineral-economics- for-geologists Contact: Centre for Exploration Targeting info-cet@uwa.edu.au Prof Allan Trench allan.trench@crugroup.com Mr John Sykes johnpaul.sykes@postgrad.curtin.edu.au