1. SEVEN STRATEGIES
FOR RARE EARTHS
HOPEFULS:
NAVIGATING THE
UNCERTAINTIES OF THE RARE
EARTHS INDUSTRY
John P. Sykes, Director,
Greenfields Research Ltd (UK) Image: Shutterstock

2. CONTENTS
– Where now for rare earths?
– Unanswered questions about geology?
– “Geology” based strategies
– Unanswered questions about mine project development?
– Unanswered questions about delays?
– “Development” based strategies
– Unanswered questions about the future?
– “Uncertainty” based strategies
– How do you plan in the face of all these unanswered
questions?

3. TWO FORMS: “LIGHT” & “HEAVY”
• •
• •
• •
21 39 57 58
Sc Y La Ce
59 60 62 63
Pr Nd Sm Eu
• •
64 65 66 67
Gd Tb Dy Ho
• • •
68 69 70 71
• • •
Er Tm Yb Lu • • •

4. …OR THREE: “LIGHT” “MEDIUM”& “HEAVY”
• •
• •
•
21 39 57 58
Sc Y La Ce
59 60 62 63
Pr Nd Sm Eu • •
64 65 66 67
Gd Tb Dy Ho • • •
• • •
68 69 70 71
Er Tm Yb Lu • •
•
•

5. …OR : “CRITICAL” & “NON-CRITICAL”
• •
• •
•
21 39 57 58
Sc Y La Ce
59 60 62 63
Pr Nd Sm Eu
64 65 66 67
Gd Tb Dy Ho • • •
• • •
68 69 70 71 • • •
Er Tm Yb Lu • • •

6. …OR: BY END USE
• •
• •
•
21 39 57 58
Sc Y La Ce
59 60 62 63
Pr Nd Sm Eu • •
64 65 66 67
Gd Tb Dy Ho • • •
68 69 70 71
•
Er Tm Yb Lu •
•
•
•
•
•

7. WHERE NOW FOR
RARE EARTHS?
Entering “Phase 2” of the
recent rare earth industry: mine
project development
Image: Shutterstock

8. ENTERING “PHASE 2”: PROJECT DEVELOPMENT
La Oxide 99% min FOB China
(CN) / tonne
200,000
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Aug Aug Aug Aug Aug
2007 2008 2009 2010 2011
Data: Metal Pages; Bloomberg

9. WHY IS MINING SO DIFFICULT?
1. Relative crustal
abundance.
2. Degree of metal
concentration by
natural processes into
mineral deposits.
3. The mechanical ease
of obtaining the ore
from the earth.
4. The ease of extracting
the metal from the ore.
Source: Gupta & Krishnamurthy (2005)

10. RARE EARTHS AREN’T THAT “RARE”
Source: USGS (2002)

11. ELECTROPOSITIVITY & ELECTRONEGATIVITY
Source: WebElements,
Wikipedia

12. TWO PRINCIPAL TYPES OF DEPOSIT
Carbonatites Alkaline IOCG Hydrothermal
e.g. Mountain Pass, USA e.g. Thor Lake, Canada e.g. Olympic Dam, Australia Bear Lodge, USA.
Placer Paleoplacer Laterite Ionic clay
e.g. Chavara, India e.g. Elliot Lake, Canada e.g. Mt Weld, Australia e.g. Longnan, China
Source: BGS, USGS, Williams et al., Wikipedia, Encyclopedia Britannica, Goldavenue Encyclopedia, Kimberley Rare Earths, New York Times

13. WHERE WILL NEW SUPPLY COME FROM?
Data: Intierra, USGS, Infomine, Technology Metals Research, Google Earth, IHC Merwerde, Panoramio

14. PLENTY OF PROJECTS: NOW TO DEVELOP THEM?
Data: Greenfields Research, Company websites, Infomine, Technology Metals Research, USGS

15. MINING THROUGH STANDARD TECHNIQUES
Images: Greenfields
Research Ltd, BGS,
Molycorp, Atlas Copco

16. WHY IS MINING SO DIFFICULT?
1. Relative crustal 1. Rare earths are
Now largely resolved
abundance. abundant in the by “exploration” in
crust. “Phase 1” (2008-11)
2. Degree of metal 2. Rare earths do not
concentration by readily concentrate
natural processes into in the crust by
mineral deposits. natural processes.
3. Rare earth ore are
3. The mechanical ease easily extracted from Now entering
“Phase 2” where
of obtaining the ore the earth. “development” will
be the focus
from the earth. 4. Extracting the rare
4. The ease of extracting earth metals from
their ores is very
the metal from the ore. difficult.
Source: Gupta & Krishnamurthy (2005)

17. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

18. UNANSWERED
QUESTIONS ABOUT
GEOLOGY
The heavy-light paradigm or
“Grade is King” even in the world
of rare earths

19. THE “STANDARD” BASKET VALUE CHART
Total Rare Earth Oxide Basket Value (US$/kg)
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0
Hastings
Kutessay II
Norra Karr
Kangankunde
Strange Lake
Bokan
Thor Lake
Mt Weld (Duncan)
Dubbo
Kvanefjeld
Zandkopsdrift
Bear Lodge
Nolans Bore
Mt Weld (CLD) Heavy rare earth deposits
Steenkampskraal Advanced light rare earth deposits
Ngualla
Mt Pass Early stage light rare earth deposits
Data: Greenfields Research Ltd, Company websites

20. QUESTION: HOW MUCH HEAVY IN A LIGHT?
Heavy rare earth deposits The highest grade
0.090 “heavy” rare earth
Advanced light rare earth deposits deposits are actually the
0.080 advanced “light” projects
Dysprosium Oxide Grade (%)
Early stage light rare earth deposits
0.070
0.060
0.050 Some “heavy” rare earth
projects actually have a very
0.040 low heavy rare earth grade
0.030
0.020
0.010
0.000
Data: Greenfields Research Ltd, Company websites

21. REDUX: ORE VALUE VERSUS BASKET VALUE
Focus is on these Or perhaps
120.00 projects: mainly “heavy”
110.00 rare earth projects this one?
TREO Basket Value (US$/kg)
100.00
90.00 Focus should be on these:
mainly advanced “light”
80.00 rare earth projects
70.00
60.00
50.00
40.00
30.00
20.00
0.00 1.00 2.00 3.00 4.00 5.00 6.00
Gold ore equivalent: 26.3g/t 52.7g/t 79.0g/t 105.3g/t
131.7g/t 158.0g/t
TREO Ore Value (US$/kg)
Data: Greenfields Research Ltd, Company websites; Idea for original chart from Technology Metals Research

22. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

23. THE BCG BOX OR “GROWTH-SHARE MATRIX”
Market Growth (requiring investment)
QUESTIONS STARS
Also known as “problem
Leading
children”. High growth sector
but large capital investment assets/products
required. dominating fast growing
markets, still requiring
investment.
DOGS/PETS CASH COWS
Not profitable. Usually High market share in
“pet projects” that slow growth industry –
provide a non-financial “milked” to fund other
benefit i.e. synergies, investments
labour retention etc
Market Share (returning investment) Based on: Boston Consulting Group (BCG)

24. THE BCG BOX FOR MINE PROJECTS
Market Growth (adding to the competition)
PROBLEM CHILD STARS
Challenging projects with World class assets with
scale, that could be stars in a high grades and large scale.
high growth industry, Will dominate future sector
assuming some structural and be hugely profitable.
changes.
PET PROJECTS CASH COWS
High grade, small scale
Not profitable. Usually “pet
projects, which are quickly
projects” that provide a
cash generative, allowing
non-financial benefit i.e.
access to an industry and
synergies, labour retention
providing cash for
etc
investment elsewhere.
Market Share (beating the competition) Based on: Boston Consulting Group (BCG)

25. “GEOLOGY” BASED RARE EARTH STRATEGIES
120.00
110.00
TREO Basket Value (US$/kg)
100.00 PROBLEM
STARS
90.00 CHILDREN
80.00
70.00
60.00
50.00
40.00 PET PROJECTS CASH COWS
30.00
20.00
0.00 1.00 2.00 3.00 4.00 5.00 6.00
Gold ore equivalent: 26.3g/t 52.7g/t 79.0g/t 105.3g/t
131.7g/t 158.0g/t
TREO Ore Value (US$/kg)
Data: Company websites; Idea for original chart from Technology Metals Research

26. STRATEGY 1A: THE CASH COW
Advantages
– Assets very competitive
– Most already very advanced
– Geology and technology already
known
Examples: Molycorp, Lynas, Great
– First mover advantage in geology as
best assets picked first Western Minerals, MbAC Fertilizer?
Disadvantages
– Financial markets currently very tricky
– First mover disadvantage – all R&D
had to be done “in-house”
– Currently not a viable strategy for non-
first movers

27. STRATEGY 2A: THE “HEAVY” PROBLEM CHILD
Advantages
– Attractive to the equity market
– Seems to be a high growth market
– No major incumbent competitors
Examples: Hastings Rare Metals, Stans
Disadvantages Energy, Tasman Metals, Quest Rare
– Projects currently low grade Minerals
– Process routes unknown – R&D
intensive
– Capital costs will be high
– Development timeframe very lengthy
– Debt financing will be very tricky

28. VULNERABLE TO MAGNET SUBSTITUTION
Source: USGS (2011)

29. THE R&D RACE IS ON!
Likely to be > 10 years for a new material
Likely to be > 10 years for a new mine
Construction
(Separation)
Exploration
Resource
(Benification
Finance
(Extraction)
Metallurgy
Metallurgy
Permitting
Scoping
Metallurgy
Off-take
PFS
BFS
s
)
Source: Richard Holliday, Material Value Consultancy Ltd

30. UNANSWERED
QUESTIONS ABOUT
MINE PROJECT
DEVELOPMENT
Why “quality” beats “scale” in this
part of the mining industry

31. WARNING ABOUT BASKET VALUES
Total Rare Earth Oxide Basket Value (US$/kg)
0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 180.0 200.0
Hastings
Kutessay II
Norra Karr
Kangankunde
Strange Lake
Bokan
Thor Lake
Mt Weld (Duncan) Assumes separated rare earth oxide prices
Dubbo
Kvanefjeld Assumes 100% recovery of all rare earths
Zandkopsdrift No assessment of resource grade
Bear Lodge
Nolans Bore
Mt Weld (CLD) Heavy rare earth deposits
Steenkampskraal Advanced light rare earth deposits
Ngualla
Mt Pass Early stage light rare earth deposits
Data: Company websites; Idea for original chart from Technology Metals Research

32. WHICH RARE EARTH PRICE DID YOU MEAN?
La (US$/kg) Ce (US$/kg)
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Carbonate (45% Oxide 99% FOB Oxide 99.999% FOB Metal 99% FOB Mischmetal (La
REO) FOB China China China China 35%, Ce 65%) FOB
China
Data: Metal Pages

33. MORE COMPLICATED SUPPLY CHAIN
Images: Wikipedia, Science Photo Library, Images of the elements

34. WHEN IS VALUE ADDED IN RARE EARTHS?
Data: Metal Pages

35. CONCAVE VS CONVEX METALS [1]
•
•
•
•
•
•
•
•
Source: Trench (2011)

36. VALUE ADDED LATER IN THE CHAIN
Data: Metal Pages; Wellmer, Dalheimer & Wagner (2008)

37. CONVEX METALS & STRATEGY
•
Value extracted from metal
•
•
•
•
•
•

38. CONCAVE METALS & STRATEGY
•
Value extracted from metal
•
•
• •
•
•

39. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

40. RECOVERIES: SOME ARE MORE EQUAL THAN OTHERS
Recoveries range:
6.5% to 41.0% Recoveries range:
65% to 90%
Remember: “basket values” analysis assume even 100% recovery
Sources: Pele Mountain Resources, DNI Metals

41. RECOVERY: TURNING SOMETHING INTO NOTHING
RARE EARTHS 101
Resources x reserve recovery x mining recovery x
grade x processing recovery x cracking recovery (x
separation recovery) = LOM production
90% recoveries: 90% x 90% x 90% x 90% x 90% = 59%
75% recoveries: 75% x 75% x 75% x 75% x 75% = 24%
50% recoveries: 50% x 50% x 50% x 50% x 50% = 3%

42. THE MASS LOSS-RECOVERY PARADIGM
Percentages indicate equivalent
30 96.7% mass loss to take ore to a 30%
concentrate
Concentrating Factor (multiple)
25
20
93.3%
15
90.0%
10 86.7%
83.3% 80.0%
76.7% 73.3% 70.0% 66.7%
5
0
0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00
Ore Grade (%)

43. MINING = THE COST OF MOVING ROCK
~Mt Weld* Project X
Same size
Ore tonnage 250,000 tonnes 250,000 tonnes
processing, cracking
Ore grade 10% 2.5% & separation plants
Total REO in ore 24,500 tonnes 6,250 tonnes required
Conc. Recovery (x6 upgrade) 65% 65%
Total REO in conc. 15,925 tonnes 4,063 tonnes Is this concentrate
Concentrate grade 60% 15% marketable?
Concentrate tonnage 26,542 tonnes 27,087 tonnes
Cracking recovery (x1.5
90% 90%
upgrade) Same cost to produce
Total REO in cracked conc. 14,333 tonnes 3,657 tonnes x4 less REO
Cracked conc. Grade 80% 22.5%
Cracked conc. Tonnage 17,916 tonnes 16,253 tonnes
Separation recovery 95% 95%
Project X will cost x4
to operate and build
Separation REO tonnage 13,616 tonnes 3,474 tonnes
on a unit basis!
Separated REO grade 99.9% 99.9%
* Data for Mt weld is rounded and edited for purposes of clarity!
– © Greenfields Research Ltd; Source: Lynas Corporation

44. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

45. CAPITAL COSTS: WHAT IS AFFORDABLE?
Market Capitalisation
Nolans Bore (equiv. US$10 million)
Kvanefjeld
(Arafura Resources) Project Capital Cost
(Greenland Minerals & Energy) (equiv. US$100 million)
Dubbo
Mt Weld (Alkane Resources) Sarfartoq
(Lynas) (Hudson Resources)
Mountain Pass Strange Lake Kipawa-Zeus
(Molycorp) (Quest Rare Minerals) (Matamec Explorations)
Eco Ridge
Zandkopsdrift (Pele Mountain Resources)
(Frontier Rare Earths)
Hastings
(Hastings Rare Metals)
Thor Lake
(Avalon Rare Metals) Bear Lodge
(Rare Element
Resources)
Data: Company websites

46. CONCAVE VS CONVEX METALS [2]
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•

47. LIFE CYCLE OF A MINING PROJECT
Source: Brent Cook / MarketOracle

48. MINE PROJECT DEVELOPMENT RISK
Source: Trench (2012)

49. RARE EARTH PROJECT DEVELOPMENT RISK
Source: Trench (2012)

50. WHEN DO RARE EARTH STOCKS and
Mining permits
RUN?
contracts awarded
Scoping study Independent review China Non-Ferrous
completed completed Metals deal
Feasibility study GFC cancelled
Initial resource completed
Rare earth prices
announced take-off, not
reflected in Lynas
share price
1st technical study Resource
completed Downstream plant
moved to Malaysia upgrade
China Non-
Downstream 1st series of off-take Ferrous Metals
agreement signed agreements signed deal proposed
Malaysia reviews
downstream
operations

51. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

52. WILL SCALE INCREASE ENVIRONMENTAL ISSUES?
“The Fear of a
Toxic Rerun”
New York Times, Keith Bradsher,
29th Jun 2011
“Taking a Risk
for Rare Earths”
New York Times, Keith Bradsher,
8th Mar 2011
Images: New York Times

53. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

54. WHY ARE MINE PROJECTS DIFFICULT?
• Quantity : size of the resource
Geological Risk • Quality : grade (metal content) of the resource
• Scope: throughput, grade control; mining & processing type, recovery; waste
Technical Risk • Operating cost: both initial estimate and difference between estimate and actual
• Commodity price: forecast & sensitivity to primary, by- & co-products
Market Risk • Contracts: intermediate market conditions, realisation cost; counterparty risk
• Fatal flaws: discovery of major geological, technical, political, financing or legal issue
Completion Risk • Project management: cost overruns; delays; increased complexity
• Professional: management with experience; recruiting & retaining; ex-pats
Human Resource Risk • Labour: recruiting, retaining & training labour; labour unions during construction
• Regulatory: difficulties, costs and delays associated with environmental compliance
Environmental Risk • Technical: problems in running an environmentally sound mine
• Regulatory: changes in laws or problems complying with them
Legal Risk • Corporate: legal issues with corporate partners, suppliers & other counterparties
• Actual: problems with the government, legal & business environment of a country
Political Risk • Apparent: external reputation of a country affecting financing, recruitment, image
• Spending: problems with initial estimate; capital cost overruns
Capital Cost Risk • Financing: problems raising the required capital
• Discretionary: deliberate decision to delay a project
Delay Risk • Non-discretionary: unforeseen problem causing a delay to the project
• Location: political or natural problems in your location i.e. war or flooding
Force Majeure • Technical: sudden catastrophic technical failure at the mine project
Based on: Trench (2011)

55. WHAT IS A “DEVELOPABLE” PROJECT?
12.00 Major late stage light
rare earth projects
10.00
Early stage light
TREO Grade (%)
8.00 rare earth projects Major early stage
light rare earth
6.00 projects
Heavy rare
4.00 earth projects
2.00
0.00
0.0 200.0 400.0 600.0 800.0 1000.0
Ore (Mt)
Data: Company websites

56. WHAT IS A “STAR” PROJECT?
12.00
10.00 WHERE ARE ALL
CASH COWS
THE STARS?
TREO Grade (%)
8.00
6.00
4.00
PET PROJECTS PROBLEM CHILDREN
2.00
0.00
1.0 10.0 100.0 1000.0
Ore (Mt)
Data: Company websites

57. STRATEGY 2B: THE “LIGHT” PROBLEM CHILD
Advantages
– Metallurgy / processing better known
– Possibilities to leverage scale
– Second mover advantage in
development timeframe
Examples: Rare Element Resources,
– First movers success may make these
projects more attractive for debt Arafura Resources, Peak Resources,
financing Frontier Rare Earths
Disadvantages
– Unattractive to the equity market
– Capital costs still likely to be high
– Light rare earths market has less
attractive fundamentals

58. STRATEGY 3: AIMING FOR THE STARS
Advantages
– Potential to a new Bayan Obo or
Ionic Clay?
– Lower short term cash burn
– First movers may provide an exit Examples: Tantalus Rare Metals, TUC
strategy
Resources, Namibia Rare Earths, Vale
– Examples of exploration success in
rare earths exist
Disadvantages
– Won’t provide cash flow
– May miss the best years of the
market
– Exploration generally unattractive
for equity investors currently

59. UNANSWERED
QUESTIONS ABOUT
PROJECT DELAYS
Why rare earth
“oversupply” may not be
imminent
Image: Shutterstock

60. WHAT IS A REALISTIC DEVELOPMENT TIMEFRAME?
First mover rare earth projects Second mover rare earth projects
• Delays due to technical problems at feasibility stage • Shorter development time, and lower development cost
• Faced funding problems throughout due to lack of investor awareness • Maturing new market outside of China
Typical development timeframe will be 12-15 years Targeting 5-10 years from purchase to production?
COMPARISON OF AUSTRALIAN RARE EARTH PROJECTS
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
LYNAS: Mt Weld (Forecast 12 years from purchase to production)
Project Resource Scoping Feasibility Project Refinancin
Farm In Drilling Study Study
Peer Review GFC Construction PRODUCTION >>>
Funding g
ALKANE: Dubbo (Forecast 15 years from purchase to production)
Project Definitive Expanded Financing /
Purchase
Feasibility Study Financing Definitive Feasibility Study GFC
Feasibility Study FS Construction
PRODUCTION >>>
ARAFURA: Nolans (Forecast 12 years from purchase to production)
Expanded
Project Prefeasibilit Feasibilit Financing / PRODUCTION
Purchase
Scoping Study y Study
GFC Feasibility Study Feasibility >>>
y Study Construction
Study
Data: Company websites

61. TYPES OF DELAY AT MINE PROJECTS
Project Delay
Discretionary Non-Discretionary
Portfolio
Strategic Governmental Governmental Equipment People Finance Resource
Sequencing
Direct Indirect Cost Delays Skilled Unskilled Debt Equity Quality Quantity
Source: Trench (2011)

62. RARE EARTH PROJECTS PRONE TO DELAY
Length of delays at Australian rare Frequency of delays at Australian
earth projects 1999-2012 rare earth projects 1999-2012
15
Frequency
Nolans
10
5
Dubbo
0
Mt Weld
0 2 4 6 8
Delay (years)

63. DEALING WITH AN
UNCERTAIN FUTURE
Developing future rare earth
industry scenarios to help guide
strategy
Image: Shutterstock

64. THE BCG BOX FOR RARE EARTHS SCENARIOS
Increasing shortage of heavy rare earths
HEAVY SHORTAGE SHORTAGE
Chinese exports of heavy rare Chinese exports of all rare
earths restricted (i.e. partial earths fall (i.e. smuggling
Chinese WTO victory) AND/OR stopped, Chinese WTO
continued strong demand victory, planned reductions)
growth AND/OR higher than
expected demand growth
SURPLUS LIGHT
China increases exports of
all rare earths (i.e.
SHORTAGE
Preferential export of heavy
increased smuggling or
rare earths AND/OR
loss of WTO case) AND/OR
unexpected strong demand
widespread demand
growth (substitution?)
destruction occurs.
Increasing shortage of light rare earths Based on: Boston Consulting Group (BCG)

65. STRATEGY 1B: THE BY-PRODUCT CASH COW
Advantages
– Primary commodity provides hedge
against rare earth uncertainty
– Potentially easier to finance
– Potential earlier cash flow Examples: Greenland Minerals, Pele
– Rare earths extraction remains an Mountain Resources, Alkane Resources,
“option” CBMM
Disadvantages
– Metallurgy likely to be complicated
– Won’t work as a co-product or rare earth
“as a by-product” operation
– Difficult to achieve scale
– May be unattractive to equity markets

66. STRATEGY 4A: PET PROJECTS (THE “CASH DOG”)
Advantages
– Quick to implement, whilst market still
attractive
– Cash generative
– Simple & cost effective
Examples: India Rare Earths?
– Lower risk
Disadvantages
– Not a long term solution
– May be more trouble than it’s worth
– Not many obvious opportunities
– Rare earths not conducive to “quick &
easy” development
– May not be attractive to equity markets

67. STRATEGY 4B: DO SOMETHING ELSE!
Advantages
– Hedge against rare earth market risk
– Potential for faster development & cash
flow
– Maybe cheaper / easier / lower risk
Examples: Alkane Resources, Kimberley
– Wider range of opportunities available
Rare Earths, Avalon Rare Metals
Disadvantages
– May be unattractive to “rare earth”
focused investors
– Skills may not transfer as planned
– Loss of focus
– Spreading resources too thinly

68. STRATEGIES FOR
SCENARIOS OR
“HORSES FOR
COURSES”
Matching strategies to scenarios
and trying to prepare for all
possible futures

69. THE BCG BOX FOR RARE EARTHS SCENARIOS
Increasing shortage of heavy rare earths
HEAVY SHORTAGE
SHORTAGE Positive for all rest of
world (ROW) rare earth
Positive for “heavy” rare
mine developers
earth mine projects.
Negative for all ROW rare
Negative for “light” rare
earth consumers
earth mine projects.
SURPLUS LIGHT
Negative for all rest of SHORTAGE
world (ROW) rare Positive for “light” rare
earth mine developers earth mine projects.
Positive for all ROW Negative for “heavy” rare
rare earth consumers earth mine projects.
Increasing shortage of light rare earths Based on: Boston Consulting Group (BCG)

70. THE BCG BOX FOR RARE EARTH STRATEGIES
Market Growth (adding to the competition)
2a: HEAVY
PROBLEM CHILD
3: FIND A STAR!
2b: LIGHT
PROBLEM CHILD
4a: CASH DOG 1a: CASH COWS
4b: DO 1b: BY-PRODUCT
SOMETHING CASH COW
ELSE!
Market Share (beating the competition) Based on: Boston Consulting Group (BCG)

71. THE RARE EARTH PROJECT SCENARIOS MATRIX
BY- HEAVY LIGHT DO
FIND A
CASH COW PRODUCT PROBLEM PROBLEM CASH DOG SOMETHIN
STAR
CASH COW CHILD CHILD G ELSE!
SHORTAGE
      
HEAVY
SHORTAGE       
LIGHT
SHORTAGE       
SURPLUS
      

72. HOMEWORK: PUTTING STRATEGY INTO ACTION
Now implement the strategy-
scenario grid:
– Assign probabilities to each of the
scenarios
– Define the parameters of the target
asset for each scenario
– Determine where your assets fit
into these strategies
– Determine the entrance &
implementation cost of each
strategy
– Select a blend of strategies that
cover as many scenarios as
possible for the resources & time
available

73. CONCLUSIONS
– Entering “Phase 2”: Mine project development
– Geology: Ore value NOT heavy versus lights
– Technical: Quality NOT scale
– Delays: Oversupply may NOT be imminent
– Future scenarios: Four possible futures
– Potential strategies: Seven possible company
strategies
– Dealing with uncertainty: “Horses for courses”

74. POTENTIAL RESEARCH AREAS
– Prices: What moves rare earth prices
– Value Chain: Understanding its structure
– Technical: Quality NOT scale
– Environmental: Dealing with radiation
– Financing: Concave metal financing
– Delays: Project development risk
– Strategy: Minor metals industry

75. CONTACT DETAILS & FURTHER REFERENCE
John P. Sykes
Director, Greenfields Research Ltd (UK)
john.sykes@greenfieldsresearch.com
www.greenfieldsresearch.com
Course Leader, 3-Day MBA in Rare Earth Metals
http://www.thembatrainingcompany.com/trainin
g/3-day-mba-in-rare-earth-metals
Logo courtesy of The MBA Training Company