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scale, 100% of the recoverable cerium (Ce) oxide (85% of the total Ce oxide) with a single SX
mixer/settler. Two additional mixer/settlers then successfully removed thorium (Th) to below
detection levels. The pilot plant produced cerium oxide and lanthanum oxide at purities (>99.9%) that
appear to be commercially saleable, and production samples were supplied to a potential customer for
evaluation.
Completed the 2015 condemnation drill program at the planned physical upgrade (“PUG”) plant site
for the Bear Lodge REE Project. The drill program confirmed the absence of meaningful mineralized
material under the site, while the geotechnical program identified the characteristics of the soils for
foundation design as part of detailed engineering. Both programs helped progress the design of the site
and related mine infrastructure.
Plans for 2016
We have limited cash resources on hand and have announced measures to reduce staffing and conserve
remaining cash. The Company has narrowed the focus of its activities to advance the Project concentrating on only
the very highest priority items that we believe have the greatest potential to preserve the value of the Project and
shareholder value, including seeking capital and actively pursuing potential strategic alternatives, including off-take
agreements, joint ventures, mergers, acquisitions and asset sales. If we obtain sufficient financing, we plan to
resume permitting, resume pilot plant testing and incorporate the design of a small-scale initial production facility
into the planned Feasibility Study.
TRENDS AND DESCRIPTION OF THE REE MARKET
Uses for REE products
REEs are used in computers, cellular telephones, television screens, wind turbines, fuel cells, magnetic
refrigeration technologies, energy-efficient lighting, petroleum-refining catalysts and numerous other modern
specialty technologies. REEs are also used in hybrid-electric vehicles and all-electric vehicles, many of which
contain REE-bearing nickel-metal-hydride batteries and REE “super” magnets within electrical motors and
generators. Prices of REEs are affected by the supply and demand fundamentals of the market.
Trends affecting supplies of REE products
Global REE supply continues to be dominated by production from China, which produced an estimated
87% of the world’s REE output in 2015, according to the Industrial Minerals Company of Australia Pty Ltd
(“IMCOA”) and Curtin University. Over the nine years through 2014, China reduced its export quotas for REEs by
more than half (with a marked reduction in the summer of 2010) and increased related export taxes. The quota
reductions resulted in significantly higher REE prices beginning in 2010, when quotas were reduced by
approximately 40%. Since then, illegal or unauthorized Chinese REE production, the slowdown in global economic
growth, demand destruction due to elevated REE prices in 2010 and 2011 and significant supply from accumulated
REE stockpiles have caused dramatic REE price declines from 2012 through 2015.
After an initial adverse ruling from the World Trade Organization (“WTO”) in March 2014, and an
affirmation of that ruling against China’s trade practices on appeal in August 2014, China abolished export quotas as
of January 1, 2015, on rare earths, tungsten and molybdenum. The quotas were replaced by an export licensing
system that many industry sources believe has actually tightened China’s control over REE exports. The WTO
ruled against China in the case that was brought by the United States, Europe and Japan alleging that China’s export
quotas and export taxes on rare earths violated global trade rules.
China subsequently eliminated its export taxes on rare earths as of May 1, 2015, and replaced them with a
system of
ad valorem
resource taxes on light, medium and heavy rare earth concentrates, in addition to tungsten and
molybdenum. Resource tax rates were set at 7.5%, 9.5% and 11.5% on light rare earth concentrates from Shandong
Province, Sichuan Province and the Inner Mongolia Autonomous Region (Baotou-Bayun Obo), respectively, and at
27% on medium and heavy rare earth concentrates regardless of production region. Because the new taxes are
applied to concentrates and were not levied on downstream products already in the pipeline, REE export prices
immediately declined to approximate Chinese domestic prices for most REEs. It remains to be seen what impact the
new, ad valorem, resource taxes on production will have on pricing of China’s REE exports in the longer term.