Start Here Investing in Rare Earths

Table of Contents
Rare Earth Quotas: Political Posturing or Cause for Concern?...................................................................... 2
“Free Marketing”: Rare Earths Companies Bask in Global Attention ........................................................... 6
US Takes Action on Foreign Dependence as Rare Earths Scare Continues .................................................10

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Rare Earth Quotas: Political Posturing or

Cause for Concern?
Rare earths, which are seldom heard of but are used in
abundance, could be the latest resource added to the tariff tit-for-
tat between the US and China.
As the war of words between the US and
China rages on, another commodity has been
swept up in the trade dispute between the two
powerhouse nations.

Rare earths, which are seldom heard of but are

used in abundance to manufacture electronics
and technological goods, could be the latest
resource added to the tariff tit-for-tat.

In a retaliatory move against US President Donald Trump’s growing list of tariffs and the US
government's ban on technology sharing with Huawei (SZSE:002502), Chinese President Xi
Jinping alluded last week to the idea that his country may limit supply of rare earths to America.

The speculation was enough to drive the sector into a fury of conjecture. But how much of the
tariff talk is mere political posturing and how much is cause for concern?

China's rare earths market dominance

China is by far the largest producer of rare earths, with output in 2018 topping 120,000 metric
tons (MT). Meanwhile, the US is heavily reliant on imports to supplement the 15,000 MT it
produced last year.

What's more, the vast majority of rare earths refinement, which is crucial in producing oxides
and concentrates for technological uses, is done in China.

Luisa Moreno, managing director of Tahuti Global, told the Investing News Network (INN) that
China accounts for more than 80 percent of the world production of refined rare earths.

Malaysia, home to Australian rare earths company Lynas (ASX:LYC,OTC Pink:LYSDY),

makes up about 15 percent of refined rare earths production, although the country does not mine
rare earths domestically, importing the raw material from Australia.

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“China is refining a good percentage of the rare earths that are mined in other parts of Asia and
some small amounts coming from Africa. Also, China refines heavy rare earths concentrates
from refineries outside China,” explained Moreno. “For example, Malaysia exports heavy rare
earth concentrates to China because they do not have the capability to refine those individual
elements.”

The majority of the 18,000 tonnes of imported rare earths to the US in 2018 were light rare
earths like lanthanum, cerium and neodymium.

“In fact, over 50 percent is lanthanum, a very common rare earth element (REE) that is found in
most rare earths deposits in the world,” said Moreno. "However, the less common rare earths,
often referred to as heavy rare earths, like dysprosium, lutetium, yttrium, scandium and others,
are only imported to the US in small amounts, but are nearly impossible to source outside
China."

She explained that, while the US only uses a small amount of these heavier REEs, the critical
applications that they are used for would be severely affected if imports were to be cut.

“Many of the heavy rare earths are used in the medical field, in missile systems, in advanced
optical devices, et cetera,” Moreno said.

Although China hasn’t yet implemented quotas or exemptions on America-bound exports,

tensions escalated Tuesday morning (May 28) when Hu Xijin, the editor in chief of Chinese
tabloid Global Times, tweeted, “Based on what I know, China is seriously considering restricting
rare earth exports to the US. China may also take other countermeasures in the future.”

Based on what I know, China is seriously considering restricting rare earth exports to the US.
China may also take other countermeasures in the future.

— Hu Xijin 胡锡进 (@HuXijin_GT) May 28, 2019

Past tariff tensions a sign of what's to come?

This isn’t the first time the critical metals have been used as a political pawn and likely won’t be
the last.

In 2010, China cut REE exports by approximately 40 percent at a time when it provided roughly
97 percent of global supply. The country said the intention was to crack down on illegal rare
earths and to introduce environmental protocols. However, it was largely viewed as a move
against Japan as part of a longstanding feud over island rights.

The drastic reduction in global supply prompted the World Trade Organization to force China to
lift all export limits in 2015. The decrease also drove rare earths prices much higher, which
worked against China’s illegal rare earths crackdown.

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As David Merriman, manager of battery and electric vehicle materials at Roskill, pointed out, the
2010 limits also spurred on exploration and production outside of China, which ultimately
weakened Chinese dominance in the sector.

“As a result of the 2010 situation, Japan invested in Lynas as their REE supplier and have stuck
with them to ensure their success,” Merriman told INN. "With Chinese supply into the USA
becoming more questionable and production from Lynas being hoovered up by Japan, the USA
could turn to Russia (unlikely because of political reasons) or India (unlikely because of
technical reasons) to supply their material."

"Alternatively, the USA could look to nurture a REE company like Japan did to ensure a
sustainable source of materials, though they will have to be willing to support it through a
potentially volatile pricing period.”

Despite that diversification and continued work by China to halt illegal and environmentally
unfriendly rare earths production, the nation remains the dominant player in the rare earths
industry — when it capped its REE exports last October until the new calendar year, prices rose
for in-demand rare earths.

For Simon Moores, managing director of Benchmark Mineral Intelligence, the 2010 REE quotas
were a precursor and foreshadowing of today’s struggles.

“Until the rare earths crisis of 2010, governments were unaware of the supply imbalances that
can exist in niche minerals and metals that are key to the most crucial defense and technology
applications,” he said. “It was the coming of age for a wide variety of niche minerals that are
used in 21st century technology. If you consider the iPhone was launched in 2007, it was quite
an early warning sign for the world.”

A wakeup call for the US — and the world

As part of an effort to shore up its own supply, the US government pledged US$40 million for
increased REE exploration and production in 2017. Last year, Trump added rare earth magnets to
the John S. McCain National Defense Authorization Act, essentially banning the import of the
Chinese rare earth magnets in the name of national security.

Less than a month later, the US administration changed its mind, and strategically left rare earths
and the electric vehicle sector — which uses rare earth magnets — off a 194 page tariff list
released in September 2018.

The turnaround was likely because the country is unable to meet its own needs through domestic
production and does not have the capacity to refine its own rare earths.

“The US will not be able to produce refined REEs at home in the short term. Surely not to
replace the imported volumes from China, (which were) about 13,000 tonnes in 2018,” said
Moreno. “Can it source the REEs from somewhere else? Yes, but again, considering the
volumes, not immediately. Unless it gets it indirectly via Japan and Europe.”

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With only one domestic mine, the Mountain Pass rare earths mine in California, which was
offline between 2015 and 2018, it would be a challenge for the US to meet its own demand if
Chinese supply were to come off the table.

“Theoretically, there is sufficient REE production outside of China to meet the USA’s
consumption, though this would cause the USA to compete with the EU and Japan, which have
established REE supply contracts with producers, mainly Lynas,” Merriman explained. “Overall,
the USA would be in a difficult position to replace its imported REEs from China without
causing massive market disruption.”

The road from exploration to production is long, often taking a decade from discovery to output,
meaning China’s supremacy in the rare earths sector is likely to go unchallenged in the near
future.

“The fear that gripped the US and other countries that are heavily reliant on Chinese rare earth
supply, such as Japan and Korea, is now being played upon again. In many ways, China has
every right to do what it wants with its own natural resources,” said Moores. “The rest of the
world has had nearly 10 years to correct this huge supply imbalance and has failed to do so.”

He believes this is the wakeup call the global mining sector at large needs to move away from
outdated resources to the metals and minerals of the future.

“This is a warning shot to electric vehicles and energy storage raw materials of lithium, graphite,
cobalt and nickel — the oil pipelines of tomorrow,” he added.

This sentiment was echoed by Moreno, even though she believes a rare earths embargo by China
is unlikely and would not be a good decision given the potential price and market implications.

“I think that this incident will continue to remind the west that they are heavily dependent on
China when it comes to rare earths. There is need for more REE production and refining outside
Asia.

"But it is not just rare earths — China is the largest refiner of tungsten, cobalt, vanadium,
graphite, antimony, and many other minor metals,” she said.

Whether the country will limit exports to the US or implement an outright ban, it is too early to
tell. However, as Moreno stated, “It would be a poor strategy.”

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any

company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or
thoroughness of the information reported in the interviews it conducts. The opinions
expressed in these interviews do not reflect the opinions of the Investing News Network and
do not constitute investment advice. All readers are encouraged to perform their own due
diligence.

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“Free Marketing”: Rare Earths

Companies Bask in Global Attention
Rare earths have been getting lots of attention recently, and so
have companies with rare earths development projects.
Rare earths are the latest resource to burn
under the spotlight of the trade war, with the
world’s primary producer — China —
seemingly considering leveraging its dominant
position in the supply chain to bring a whole
lot of pain to negotiations with the US.

Despite having its own reserves and its own

output, the US is heavily dependent on rare earth
imports from China, which also has a stranglehold
on processing capacity, putting the US in a
precarious position should China choose to start applying pressure.

From reports over the last few weeks, that appears to be exactly what China is thinking about: in
a move that made trade war watchers sit up and take note, President Xi Jinping visited a major
rare earth-dependent factory alongside Vice Premier Liu He, who is China’s lead trade negotiator
with the US.

While Jinping’s visit was just that, a visit, talk about restricting rare earth imports to the US has
also been present within the media in China.

What's more, China’s willingness to limit exports of rare earths in disputes with trading partners
is well known. It restricted rare earth shipments to Japan in 2010 over a fisheries dispute, so
negotiations with the US in the trade war are likely fair game.

As mentioned, that's a problem because the US relies heavily on China for rare earths supply, as
does the rest of the world — outside of the Asian nation, there’s only one other significant
producer of rare earths: Australia’s Lynas (ASX:LYC,OTC Pink:LYSDY).

Lynas has assets in Australia and Malaysia and recently announced plans to develop rare earths
processing capacity in the US alongside a local downstream rare earths processor. Its share price
has soared by over 50 percent year-to-date, with much momentum coming in the last few weeks.

While Lynas has seen plenty of movement, so have companies developing rare earth assets. The
Investing News Network (INN) reached out to rare earths-focused companies with properties in

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Canada and Australia that their respective governments deem significant to find out whether the
sector has been getting extra attention.

The answer was a resounding "yes," with each pointing to the trade war as the reason why.

INN also asked them how they feel about that extra attention, and the response was predictably
one of thoughtful elation.

“It’s free marketing right now,” said Defense Metals (TSXV:DEFN,OTCQB:DFMTF) Vice
President of Communications Todd Hanas. Defense is developing its Wicheeda rare earth project
in BC.

Hanas said that what is happening in the rare earth space has been a long time coming. “This has
been stirring for a long time and it’s finally here — it’s real.”

He added that junior miners with advanced projects “are going to do well.” He explained, “(The
news) couldn’t be better timing for us in regards to Trump finally realizing this can’t go on.”

Defense’s share price peaked in late May at C$0.22, up from C$0.145 at the start of the month.

Avalon Advanced Materials (TSX:AVL,OTCQB:AVLNF) is developing its Nechalacho project

in the Northwest Territories of Canada. President and CEO Don Bubar said that the current
situation was just a matter of time given the trade war.

“China threatening to weaponize rare earths in the context of the trade war with the US was
highly predictable. We saw it coming when Trump first announced he was imposing tariffs on
China last year.”

Bubar added that the world has done little to wrest control of rare earths from China after it
inflicted pain on Japan in 2010.

“China still largely controls the global supply of rare earths and the 'magnet rare earths'
(neodymium-praseodymium-dysprosium), in particular, remain critical ingredients in a growing
list of new technologies, including electric vehicles, as well as defense applications.”

Avalon’s share price went from C$0.045 on May 17 to C$0.16 on May 30.

CEO and Director of Canada Rare Earth (TSXV:LL,OTC Pink:RAREF) Tracy A. Moore told
INN that whether or not China actually applies any pressure through rare earths, this is a
teachable moment.

“The possibility of a disruption to the supply of rare earths is a major concern whether the
disruption actually occurs or whether there is a threat," she said.

“The fact is: one country with centralized planning and significant amount of control over its
individual industry participants acts as an oligopoly if not a monopoly.”

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Canada Rare Earth has enjoyed a similar bounce in value through May.

Greg Andrews, president and CEO of Search Minerals (TSXV:SMY), said that the renewed
interest in the sector is going to be good for the company as it has been advancing its
Newfoundland and Labrador projects while the market was depressed. “We are poised to
capitalize on the renewed interest,” he said.

In Australia, Northern Minerals (ASX:NTU) Managing Director and CEO George Bauk said that
while the use of rare earths as a weapon in trade negotiations isn't unprecedented, “development
of alternative rare earth supplies is not something that can occur overnight.”

He added that while existing projects outside China such as Lynas’ Mount Weld and Northern
Minerals’ Browns Range could potentially take away China’s ability to cause pain, “they are
limited by time and other factors in how quickly they can react to changes in the market.”

Northern Minerals actually had a drop in value around the same time all the others were going
up, falling from AU$0.076 to AU$0.058 on May 17. However, it has been trading well up since
March, when it announced an attractive maiden mineral resource for the Dazzler deposit at its
Browns Range project.

Nic Earner, managing director of another Australian miner, Alkane Resources

(ASX:ALK,OTCQX:ALKEF), said the company has long been aware of the danger China poses
to the rare earth supply chain.

“The trade war is simply bringing this risk into both focus and genuine impact. This is
compounded by the actual rapid rise in demand of rare earths without an adequate supply
response.”

Alkane is primarily a gold miner, but it describes its Dubbo project in Central New South Wales
as “set to become a strategic and significant producer of critical materials for advanced
technologies.”

Alkane was also well up on May 17, reaching a high of AU$0.35 on May 31.

Aiming for the US?

With so much talk about how China fits into the rare earth market, INN also asked each rare
earth company whether it is specifically targeting the US for its product and got a mix of
responses that overall skew towards "yes."

Alkane in particular stressed that it is positioned to cater and supply to US customers.

“Alkane is one of the few rare earth element opportunities out there that doesn’t have a
significant Chinese shareholding on its register or offtake into China as part of its processing
route, a fact that most people seem to ignore,” said Earner.

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Avalon’s Bubar said the company is “a natural supplier to the North American market. “The key
is to work with other rare earth refiners outside China to create a new alternative supply chain for
end users outside China.”

Northern Minerals’ Bauk said, “Northern Minerals is happy to discuss the company and its
projects with all parties. We have made several trips to the US over the past 18 months.
However, we are not restricting ourselves or focusing on one jurisdiction over another.”

Bauk did say, however, that Northern Minerals is looking into refining its product further to
produce rare earth oxides, and “by producing these products, we have the potential to supply
direct to permanent magnet makers and bypass Chinese downstream producers.”

Moore at Canada Rare Earth said that the US is “just one of a number of countries we serve.”

Defense Metals is very much aimed at the US, said Hanas, who commented, “That's why we
spelled our name ‘Defense’ with an ‘S.'” That is, of course, the American spelling.

Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company
mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or
thoroughness of the information reported in the interviews it conducts. The opinions
expressed in these interviews do not reflect the opinions of the Investing News Network and
do not constitute investment advice. All readers are encouraged to perform their own due
diligence.

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US Takes Action on Foreign Dependence

as Rare Earths Scare Continues
China is the largest country for rare earth metal production by far,
but what are the other top nations? Find out here.
The US Department of Commerce (DOC) is
calling on other government bodies to help find
domestic deposits of key resources. The move is
an attempt to free the country of its dependence
on foreign nations for critical metals.

The announcement comes after two weeks of

concerns that China will limit rare earth exports to
the US in retaliation to President Donald Trump’s
ever-growing list of tariffed and taxed goods.

A rare earth quota could potentially impact a number of industries that rely on the diverse group
of metals to manufacture electronic and technological products.

The report, titled “A Federal Strategy to Ensure a Reliable Supply of Critical Minerals,” was
uploaded as an unsecured document on Tuesday (June 4) by the DOC.

With six distinct calls to action, the goal, as outlined in the document, is to make America’s
economy and defense more secure. It asks the Department of the Interior (DOI) to: locate
domestic supplies of critical minerals; ensure access to information necessary for the study and
production of these minerals; and expedite permitting for minerals projects.

“Thanks to President Trump’s leadership, today’s federal strategy lays out a blueprint for
America to once again be a leader in the critical minerals sector,” DOI Secretary David
Bernhardt said in a subsequent announcement. “As with our energy security, the Trump
Administration is dedicated to ensuring that we are never held hostage to foreign powers for the
natural resources critical to our national security and economic growth.”

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Image courtesy of the US Geological Survey.

The US is heavily reliant on foreign imports of rare earths, uranium and a dozen other resources
in order to generate electricity, provide materials to the technology and electronics sectors and
more.

While the DOI may be amped and ready to identify new resources and mining opportunities for
the nation, David Anonychuk, managing director of M.Plan International, pointed out that it
takes quite a long time to get a rare earth mining project in full swing.

“Most rare earth juniors are at an exploration or early project stage, so it will take considerable
time to fully develop projects, perhaps seven to 10 years from resource estimate to project
production. The exploration phase can last two to three years,” he said to the Investing News
Network.

“The project study phase for mineral resource through to feasibility study can take five to seven
years or more, with environmental permitting and social being the longest path. Project
construction is about two years to get to commissioning.”

When you add it all together, it could take the US as long as 20 years to build a reliable, steady
supply of rare earths.

However, the announcement could entice explorers and mining companies to start the long
process.

“The investment community will be taking a new look at rare earth junior mining companies and
projects. That is the upside given the US/China trade dispute and recent media attention on rare

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earths,” said Anonychuk. “Exploration programs should pick up; however, (companies) will
need to secure new funding given the renewed interest.”

In addition to offering support and fast tracking for permits for the mining sector, the US will
also look to other methods of recovery to bolster its resource stocks.

“Alternatives, such as recycling, processing mine waste, extraction from seawater, or even
filtering them from energy byproducts, could prove valuable sources for critical minerals,” states
the report.

There is also a “buy American” caveat that would see all US departments that use natural
resources only source domestically produced minerals and metals.

Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any

company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or
thoroughness of the information reported in the interviews it conducts. The opinions
expressed in these interviews do not reflect the opinions of the Investing News Network and
do not constitute investment advice. All readers are encouraged to perform their own due
diligence.

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