• The REE market
• Thermodynamic properties of LaCrO₃
• Nanocrystalline Powders
• New REE materials and their applications

Dr. Chen Zhanheng was kind enough to answer some questions that I submitted to him, and he agreed that I could post them here.  He has been extremely gracious with his time and I extend my sincere thanks to him!

Please enjoy, as he provides some interesting insight into a variety of topics. Here is the written interview:

Where did you receive your education?

1985-1989 University of Science and Technology Beijing, Bachelor Degree;

1989-1992 Graduate School, University of Science and Technology Beijing, Master Degree;

2002-2008 Graduate School, University of Science and Technology Beijing, PhD.

Was there a particular person or project that was pivotal in your studies?

Sure, there are many persons affecting my studies, all kinds of medium and experts illuminating my thinking space. As I said at the Hong Kong conference, to study rare earth resources, market, environment and application all are my personal interests. Not any project, but the fantastic advanced rare earth materials related hi-tech attracted me.

How important is the study of rare earths?

Techniques with rare earths have permeated our everyday life, such as consumer electronics, new energy technique and defense system, though most of the people don’t know what rare earths are.

What has been the biggest surprise in your study of the REEs?

The biggest surprise is that China enterprises were left far behind those development countries in design and development of end products. Many capitals were invested in resource industries.

The Chinese Society of Rare Earths is very important in China.  What role does it play in the Chinese Rare Earth industry?

It consists of many rare earth experts; they are the most important intellect resources to support the development of the Chinese Rare Earth Industry. CSRE is just an academic organization; it could provide the government with some macroscopic and constructive recommendation on rare earth science and technology, and also rare earth industry, but does not set any policies, has no rights.

How many members does the Chinese Society of Rare Earths have?

More than 3000 members, including 160 advanced members, and 60 of them are the core members.

How important are the rare earths to China?

China once was proud of its rare earth resources—the biggest one. But the application was left behind.

China is planning to develop 7 new strategy industries, such as electric vehicles, wind powder, energy saving industry as you know, all the seven strategy industries are related to rare earth materials, I think. In fact, in hi-tech industry, the whole world is involved in rare earth materials. So not only to China, but the whole world, rare earths are very important. So I myself strongly recommend establishing a stable multi-supply system.

If China wants to transform the resource growth economies to the technique growth economies like Japan as soon as possible, there are still a long time to go, may be 10, 20, 30….years.

What are the hopes for the rare earths industry in China for the next 5 years?

I hope after consolidation and strict environment management, the industry could recover from disordered development to a reasonable style, the environment and the polluted area are improved greatly, and regional rare earth economies are well established.

How closely do you follow rare earth events outside of China?

I am not that close to rare earth events out of China, for my personal ability and knowledge limitation.

Do you think any new rare earth mines will be opened in China over the next five years?

No new exploitation could be allowed.

Are many Chinese companies looking at rare earth projects outside of China?

No, maybe there is, but I do not know.

How many rare earth research centers are there in China?

Almost all science and technology universities and institutes are related to rare earths, as to the biggest and the most professional, 7-10 I think.

What were the key role, support and programs of the Chinese Government that allowed the rare earth industry to become so successful?

The government paid great attention in rare earth exploration, exploitation, separation and smelting, and provided with huge financial support from basic research to application, and promoted the development and application of rare earth advanced materials.

The rare earth industry in China is really not that successful in my mind, the environment was damaged, the valued resources were wasted and did not create the due value.  I think that it is the basis of science and technology, industry and humanity in China limited its development.

What are some of the misconceptions about China’s rare earth industry?

To describe that China develop rare earth industry is a carefully planned scheme, to make it a political issue and to buzz that China rare earth supply cuts threatened USA defense security.

I am personally against voices of parochial nationalism and extreme patriotism in China. The world should eliminate the politicalized trend on rare earth issue.

What possibilities do you see unfolding in rare earth research over the next decade?

A great progress in application especially on new energy industries will be promoted by the developed and developing countries.  For research, a diversity of advanced rare earth materials will be developed and applied in green technologies.

What is the most exciting thing going on in rare earths today?

The most exciting thing is the application of rare earths will be highly needed in new energy technology, such as EV or HEV, wind powder and an effort to establish a multi-supply system worldwide to avoid China “monopoly” on rare earth supply—but some China rare earth enterprises may not be that happy.

Are you surprised by the worldwide attention that the rare earths have received over the last year?

In fact, I am not that surprised like Ms. Judith [Judith Chegwidden of Roskill, who spoke at the recent conference in Hong Kong], because I know the importance of rare earths to modern hi-tech industry. All of us are benefitting from techniques with rare earths. The problem is that how can our human beings live together in peace.

What advice would you offer to a young engineer or scientist who is interested in the rare earths?

Never give up study, keep curiosity and progressive spirit, and respect the existence value of others.

Thank You, Dr. Chen Zhanheng!

How complex is the study of REEs compared to base metals or precious metals?

I think, in mineral exploration, every sector targeting a specific type of resource has its own complexities and challenges. The greatest one for people involved REE exploration, be it companies or academics, is the lack of public awareness, at least at the same level that gold, diamond or base-metal exploration sectors are accustomed to.

One can easily strike a bilateral conversation about gold or platinum with a person off the street, but mentioning neodymium or bastnäsite in that conversation will probably draw a blank stare. This, for the lack of a better word, public ignorance ultimately translates into less support for what I do relative to someone working on platinum, for example, even though the economic impact of these different resource types is probably comparable. Besides, there are purely subjective factors at work here, like the historical role of gold as an inflation hedge, which further amplify the differences between exploration for precious metals and rare earths.

On the technical side of things, the stats are fairly self-explanatory. There are over 250 rare-earth minerals out there, but only about 30 minerals that contain essential Au or Pt. (This is not counting the minerals that contain REE or precious metals substituting for other elements.) So, the mineralogical and chemical diversity alone makes REE research a highly specialized area. On the other hand, REE are much more abundant than any of the precious metals, which means they are easier to detect and track down to the source when it comes to geochemical survey, for example. But, by and large, like I said, every mineral exploration sector has its share of problems.

What are some of the misconceptions about exploration for REEs?

There are many misconceptions, most of which stem from ignorance, the point I have made before. Where should I start? Well, just the lack of understanding of what REE are and what they represent geologically is the source of much confusion and misinformation.

High-profile scandals and spectacular failures in some other areas of mineral exploration, that have enjoyed greater visibility and have been publicized to a much greater extent – like the diamond sector, have cultivated a refined and well-informed generation of entrepreneurs and investors. No one in the right mind would support a diamond project targeting basalts or granites. Unfortunately, the REE sector has a long way to go before it reaches the same level of finesse. For example, just recently, I came across a release claiming that assays from some property returned high values of gold, silver, platinum and other rare earths – and that is coming from a company that is supposed to be advising people on their resource investments.

One of the most common misconceptions is that high TREO numbers equal good ore potential. The problem is that many rock-forming and accessory minerals are capable of incorporating REE, sometimes in significant amounts. Suppose you leave your kids $100,000 in the will – a very round number, right? But what if you have ten kids… or twelve? I have seen a number of carbonatites with overall high TREO values, in which REE are dispersed through a dozen different minerals rather than being concentrated in a single “ore” mineral, and none of those dozen would be abundant enough to get anyone’s adrenaline going. This is what many people do not realize: carbonatites and most alkaline rocks are such unusual beasts that enrichment in REE is actually normal for these rocks.

In some geological settings, more than 50% carbonatites contain >3,000 ppm REE. The catch is to find one with a single REE mineral, which would contain REE at economically viable levels. Secondly, that mineral has to be amenable to processing. For example, over 60% of all proven REE reserves in Russia are “locked” in apatite in the huge alkaline intrusions at Kola, which contains up to 80,000 ppm TREO. However, none of those REE are extracted, even from the Khibiny apatite that is mined and processed for phosphate.

Beyond Kola, there are large deposits of REE-bearing apatite in eastern Siberia, southern Mongolia, South Africa and other places, but technologists are yet to prove that nitric acid leaching of phosphate ore is competitive relative to bastnäsite mining. Then there is eudialyte and several other minerals that may potentially serve as a source of REE, but their economic future is yet uncertain.

What possibilities do you see unfolding in rare earth geological research over the next decade?

First of all, I see some major breakthroughs in our understanding of how and where REE concentrate. With the equipment we have at our disposal these days, we can identify any of the common REE minerals in ten seconds by zapping it with a laser beam, and detect any of the REEs in any sample at the sub-ppm level with a micron-scale resolution. Apart from their obvious practical importance (for resource evaluation, metallurgical studies, etc.), these developments enable us to correlate specific types of REE mineralization with specific rock types, geological processes and tectonic settings more accurately than ever before.

Hopefully, we are going to reach the point soon where our cumulative knowledge could be put together into an integrated model for REE deposits based not only on the type of host rock (which is essentially the extent of our current understanding), but also such parameters as mantle dynamics, tectonic regime, paleogeographic factors, etc. For some deposit types, we are only beginning to unravel the complexities of their origin. Secondly, the recent revival of industrial interest in rare earths has given a boost to field-based research in most parts of the world, which has led to, and will undoubtedly lead to more, exciting finds and, perhaps, even discovery of new deposit types. In Manitoba alone, we have described four new carbonatites in the past decade, three of which host REE mineralization.

Where in the world would you look for rare earths?

Carbonatites and alkaline rocks enriched in REE occur in a variety of tectonic settings, and any of them, provided the right climatic conditions, can develop an REE-enriched weathering carapace. This basically means that a rare-earth deposit can be found literally anywhere on any of the six continents.

There are many other factors at play here which will determine whether it is practical to look for a mineral deposit in this particular corner of the world or another. Let’s say, a fortuitous concatenation of circumstances produces a large carbonatite body in a rift setting with primary monazite, apatite and pyrochlore, which then weathers into a thick lateritic carapace hosting millions of tons of REE- and Nb-rich ore ready to be scooped up. But then circumstances take a turn for the worse and the rift is flooded by sea water. Obviously, several hundred meters of marine sediment deposited on top of our REE-Nb deposit will make it difficult to find and greatly diminish its value.

Then, of course, there are all sorts of political, economic and social factors that might attract or, on the contrary, deter potential investors and entrepreneurs should a commercially viable deposit be found, and have to be carefully thought through beforehand. For all these reasons, I would limit my exploration efforts to the well-exposed parts of North America, including both cratons and younger orogenic belts, as well as understudied investor- and mining-friendly countries with diversified geology, such as Kenya.

What has been the biggest surprise in your study of the REEs?

The greatest surprise of all was that no one has so far attempted to look at the “big picture” of REE transport and concentration, or even systematize the existing knowledge in such a way that some general trends and patterns would emerge. We have a better understanding of where and why different rocks containing leucite form than why some carbonatites are REE-rich while others are barely different from marbles, even though leucitic rocks are not nearly as economically important as carbonatites. But this just means that there is a lot of work to be done, so it was a good surprise.

How do you characterize a carbonatite?

I would like to give you an informal definition of carbonatite, if I may, simply because I have not formed a solid and inclusive scientific definition of my own yet, whereas the one given in the dictionary just does not cut it, in my opinion. Here it goes: Carbonatites are the most mineralogically and geochemically extraordinary rocks of diverse origin and often turning up where you least expect them.

What is the biggest challenge to overcome when looking at REE deposits?

I would say the greatest challenge one has to deal with when looking at a potential REE deposit is tying in microscale observations (things like replacement of one REE mineral by another or chemical variations within a single mineral grain) with large-scale parameters such as resource distribution, grade variations, tectonics, etc. Anyone who has seen a typical REE-mineralized rock will understand what I mean. There are exceptions, of course, but these exceptions are mostly among low-grade deposits which can be easily modeled, like the Lovozero loparite horizons, for example.

It takes a team of professionals with decades of cumulative experience to figure out the micro-macro connections and, ultimately, make the right call. Few other mineral commodities present the same range of mineralogical-technological problems as rare earths. For example, palladium refining is probably every bit as tricky as the extraction of individual lanthanides, but the bulk of palladium mining is restricted to magmatic copper-nickel ores and does not have to deal with problems like radioactive byproducts.

What is the most exciting thing going on in REEs today?

The recent revival of interest in rare-earth mineral deposits offers an unprecedented opportunity to advance our understanding of these deposits and beyond. By “beyond” I mean all the things that do not have any direct implications for exploration, but are important for figuring out how the Earth works.

Knowing what controls the distribution and transport of such an important group of elements as REE opens up all sorts of possibilities for studying any igneous, metamorphic or sedimentary system. For example, we have been looking at ways to discriminate true carbonatites from carbonatite look-alikes and come across some really interesting geochemical observations completely overlooked by metamorphic and sedimentary petrologists before us.

The REE boom is also exciting because it brings us to places that we would otherwise not go, and we bring along new research tools that simply were not available to our predecessors decades ago. I am really fortunate to be part of these ongoing activities, and just wish I had more students to handle the increasing amount of workload!

Have you noticed any increased interest in REEs over the past year?

Yes, I think so.  It seems like 2009 was the best year so far in terms of many new companies getting into the game, old properties getting revisited and re-assessed, and new options cropping up, as well. Very few people had heard of Clay Howells or Kutessay before, and now someone will be working on both of these and many others, which is great. It is about time we steal some of the spotlight from PGM and diamonds! Mind you, I am not a business person and therefore cannot comment on how healthy the REE business is at the moment, but my dilettante impression is that it is all going very well.

What advice would you offer to a young geologist who is interested in the rare earths?

The same advice I give to every one of my students: read the literature and follow what other people in this field are doing, and do not limit yourself to technical reports or papers in Economic Geology. Look at papers describing speciation of REE in fluids and chemical variation of specific REE minerals, experimental studies simulating natural systems, explore foreign literature – look at graphs and tables, if you cannot read the language. It can be difficult at first to navigate a maze of technical terms and diagrams, but there is no way all this information can be neatly packaged and spoon-fed to you by your mentor, and most of it is relevant – you just never know when you are going to need it!

Special thanks to Dr. Chakhmouradian for helping me to understand a number of issues regarding the rare earths!

Where did you receive your education?

My alma mater is St. Petersburg State University, the second largest school in Russia. For my master’s and doctoral degrees, I studied in the Department of Mineralogy. The Russian postsecondary education used to be very different from the North American. For one thing, so many young people of my generation were interested in geology that each specialized department within the Faculty of Geology (Mineralogy, Paleontology, etc.) was graduating several students every year. With the collapse of the Soviet Union, that interest has dwindled due to the shrinking job market for geologists, and many of my former classmates have ultimately chosen alternative careers, but others have stuck with geology and don’t regret it.

When and how did you get interested in the rare earths?

I was fortunate that way because several of my former profs were involved in the study of the famous Kola alkaline province from the 1950s through the 80s, so I, too, “got hooked”. Both of my thesis advisors were great mentors who passed their knowledge and passion for geology and alkaline rocks on to me. For my thesis, they encouraged me to re-examine the perovskite mineral group, which included loparite, the principal source of rare-earth metals for the Russian industry to this day. Basically, I have been working on rare-earth minerals since 1992 when I first visited Kola and the Lovozero Mountains, where loparite has been mined for the past 60 years.

Was there a particular person or project that was pivotal in your studies?

There was no single person that I can definitively credit (or blame) for my choice of a career path. In addition to my advisors, whom I already mentioned, I should definitely acknowledge my other mentors and senior colleagues who nurtured that interest and contributed to my development as a scientist, including Roger Mitchell, Anatoly Zaitsev and Rudy Wenk. And, as far as the pivotal project goes, it definitely was my PhD dissertation on the Kola perovskites. These minerals are an important repository for REEs, but, besides that, they commonly occur in rocks hosting all sorts of REE mineralization, like carbonatites and nepheline syenites. Some contain apatite loaded with light REEs, others garnet with Y and heavy REEs, others something else yet, like REE carbonates, monazite, or loparite. Every project I have been involved in taught me something new about REEs, helping me fine-tune my methodology and find new exciting avenues of research.

How important is the study of rare earths?

To just say that it is important would be somewhat of an understatement. In a lot of ways, REEs are to us now like aluminum was to people of the late 1800s. Few scientists realized the real value of aluminum at the time, but can you imagine the aerospace, automobile and even the packaging industries of today without this metal?

What is your specialty within the study of REEs?

I am a mineralogist/geochemist by training, so my professional interests revolve around the various types of REE mineralization that we find in rocks of alkaline affinity. Although many great minds have worked in this field, many key issues of REE geochemistry and mineralization remain unresolved. Why, for example, some carbonatites are loaded with bastnäsite, whereas others contain REEs barely above the background levels? Why is heavy REE mineralization prevalent in alkali granites, but so rare in carbonatites?

I bet, every company and exploration geologist would like to find the practically implementable answers to these questions, but it is generally academics, who have the time and instrumental capabilities to dedicate themselves to such long-run goals. REEs are not the only type of resource that interests me. I also work on niobium, tantalum, titanium, zirconium and uranium-thorium minerals. Anyone interested can look at my research “portfolio” on my website:

http://umanitoba.ca/geoscience/faculty/arc/

Where have you explored for REEs?

Because I am not an exploration geologist, I have never really explored for REEs, in the conventional sense of that word, anyway. Exploration requires weeks and months of reconnaissance and fieldwork, which would leave me essentially no time for teaching, student supervision, public outreach and many other activities that are part of my current job. I like my job too much to trade it for full-time REE exploration. I have, however, consulted for a number of companies.

Whenever possible, I try to get out there and see the rocks, touch, scratch and sample them myself rather than using someone else’s material. To me, nothing is like this first-hand visual experience.

What are some of the most interesting sites that you have studied?

I have seen and worked on many carbonatite and alkaline localities in the Northern Hemisphere and they are all interesting and special in their own individual ways. I find it difficult to rank them in any way, because each of the sites I have visited had something special about it, and it may not necessarily have been anything to do with its economic potential.

To this day, for example, I am very partial to the Murun alkaline complex in eastern Siberia, even though it would be a boring place to explore for REEs. There are some beautiful carbonatites and really exotic silicate rocks at Murun, but they are generally poor in REEs. My wife Katya, who is also a mineralogist and carbonatite expert, found a few specs of burbankite in these carbonatites, but that was it. Nonetheless, I hold this place very dear to my heart because of its rugged beauty, its unique gemstones, and other things that I connect to at some conscious or subconscious level.

Geologically, the most complex and, therefore, interesting of all the places I have been to are probably the alkaline and carbonatite complexes of Kola Peninsula. Places like the giant Khibiny and Lovozero intrusions in central Kola have been explored and studied by hundreds of people, but there is probably still enough work for many more generations of scientists to come.

The most geologically challenging, least explored and, hence, most fun to work on are the recently discovered carbonatites in central Manitoba.

How do you decide how to collect samples?

Optimally, I would like to have some understanding of the place where I would be sampling and its rocks beforehand. If any material collected by my predecessors is available for study, that is ideal. I would look at some rocks and thin sections and try to relate what I see under the microscope to what I read about the place and its geology in the literature.

Coming to the field equipped not only with the right tools but also with knowledge gives you a great edge and allows you to conduct sampling in a systematic fashion. When you are in a completely unfamiliar place, choosing the right sampling strategy can be a difficult task. I’d say there is no unified approach to sampling. It all depends on what you are actually sampling (bedrock, loose material of unknown provenance, drill core, etc.), as well as on your maneuverability and scope of your fieldwork. Is your goal to sample methodically one large outcrop, or you will be moving from site to site? Is there any evidence of intense weathering, metasomatism or metamorphic overprint in the rocks you are sampling? What types of analysis do you have in mind for this material?… You have to have clear answers to all these and many other questions before you can work out the right sampling strategy – right for this particular place and the very specific goals you are trying to achieve.

The only generalization I can make is that your samples have to represent the geology of the sampling site as accurately as possible. Also, I teach my students that, if you want to do a thorough job as a researcher or consultant, maintain a meticulous written and photographic record of what you are sampling. I spend as much time as I can at an outcrop, looking at the same rocks, contacts and structures from different vantage points, jotting down my notes, snapping lots of pictures and trying to come up with some plausible story for how this all formed while, hopefully, enjoying a cup of tea fresh off the campfire.

What kind of scientific equipment do you use to research REE samples?

In my research, I use a wide range of analytical techniques, from the “old-fashioned” immersion oils and X-ray powder diffraction to things like Raman micro-spectroscopy, which allows you to rapidly identify minerals based on how they interact with laser light – whatever gets the job done.

Step one is always petrographic analysis using polarizing microscopy, but it is never enough just by itself because it does not let you distinguish between optically similar minerals and does little for grains smaller than 50 microns.

I teach my students to follow up the petrography with energy-dispersive analysis, back-scattered-electron imaging and Raman micro-spectroscopy to make sure they’d be able to point at any grain in their rock and say what that is.

Depending on the task at hand, available budget and degree of my interest, I can then decide if any advanced, and generally more expensive, work needs to be done. For example, I often use stable-isotope analysis because it helps distinguish carbonatites from other rock types; to figure out the distribution of REEs in my samples, I use laser-ablation mass-spectrometry, and so forth… There is an instrument to tackle almost any problem one can think of. And, like I said, the problem does not have to be of practical nature – I am a scientist, after all, and sometimes “get carried away” in what I do.

If my work on a project turns up something of purely academic interest, I sometimes decide to pursue the new research lead at my own expense. For example, I once did some work for Avalon and stumbled across an unusual mineral which was of no economic value to anyone, but had a very unusual chemistry. So, I asked Don Bubar for his permission to use their material for study, and it turned out to be a new mineral that my colleague Luca Medici and I described in the European Journal of Mineralogy a few years ago.

What advantage does the equipment give you?

It is as essential as an acoustic aid to a hearing-impaired person, only in so many more ways and at many different levels. It gives you the advantage of knowing – not guessing – but knowing exactly what type of rocks and minerals you are dealing with, what their composition is, and everything else you will ever need to know.

The basic equipment, like a petrographic microscope, is well worth an investment, while other, more expensive instruments like an electron microprobe may not be affordable, but should still be at an arm’s length when you need them.

Just one example: Eu is about one hundred times more expensive than Ce. Variations in Eu content in ore minerals such as monazite can be as much as one order of magnitude, which means a tonne of ore can be worth hundreds of dollars or thousands at the same TREO grade. You won’t be able to say if it is hundreds or thousands unless you “go analytical”.

Anyone working on such complex types of mineral resources as rare earths should develop a network of willing and expert collaborators in academia to have access to the equipment and analytical expertise.

More next week…

COX: How does Mountain Pass compare to Chinese projects?

SMITH: Our goal is to be globally cost competitive.  To produce a pound of rare earth oxide equivalent, we want to make sure that our unit costs  are equal to or less than anybody else in the world.  The processing techniques that we have been working on for seven years are now coming to fruition.  When you couple all these new improvements together, we will be able to produce 20,000 tons of rare earth oxides at Mountain Pass using less than half of the feed stock ore to our mill.  That to us is a demonstration of our commitment to sustainability and to managing the world-class resource that we have in the right way.  We have effectively doubled the life of our resource by improving the processing capabilities on site. We’ve also focused heavily on water consumption.  Our water consumption is going to be dramatically lowered in the full restart project.  WhenYou couple that with a lot of the innovative approaches to managing acid and base material and reagents on site, we are absolutely, 100% confident that we will be cost competitive.

COX: That’s a big statement.

SMITH: It is a big statement.  I want to reiterate, we are 100% confident that we will be cost competitive.  The numbers that we’re seeing already suggest that we will actually have costs below Chinese costs.  And that’s on today’s cost level.  As you probably discovered in your interviews with various people in research in this industry, you know that the Chinese are going through some growing pains right now as well.  And they’re very serious about changing their environmental practices and their health and safety practices.  They want to do things better than they have been doing them and we encourage that.  But that will further increase their costs.

COX: Although they’re also involved in a substantial effort right now to streamline their own processes –

SMITH: Correct.

COX: — and make it a lot more efficient.  So who knows?  Maybe they’ll be able to lower their costs.  I certainly don’t know.

SMITH: Although we also see some other cost issues in China; for example, their labor rates aren’t going down.  There’s lots of variables and we just need to watch them all.  Our goal is to know what those variables are and to make sure that Mountain Pass continues to be the low-cost producer.

COX: So you recently announced the addition of Jack E. Thompson and Major General Charles R. Henry, US Army Retired.  What do these two gentlemen bring to the table?

SMITH: These two gentleman first of all bring independence, which is something that again, I want to compliment our shareholders and our current board members because we all unanimously feel that having independent members on our board of directors is just the right thing to do and it provides additional views that come into our discussions that enhance our ultimate decisions.  Jack Thompson, as you know, has an absolutely wonderful career in the mining industry, well over 30 years in the industry, very, very well connected and extremely experienced.  Jack is an engineer by trade and has practiced engineering for a very long time.  He brings the mining experience, the engineering experience and the general industry connections to us that very few people in the world would have the capability to bring to our board.

Major General Charles Henry, US Army Retired, also brings a tremendous amount of experience to the table.  General Henry has written books on leadership and he’s studied the subject matter extensively.  General Henry brings a level of contacts for us to the Department of Defense that we have not had before and he also has an illustrious career in the United States Army in the procurement area.  He can really provide a lot of help and suggestions to us on how to improve our procurement practices.  When one third of your production costs are tied up into reagents, that’s a huge win for us to get that level of experience on procurement.

COX: What is Rocky Smith’s role at Molycorp?

SMITH: Rocky’s one of the newest members of our team and his role is the general manager at the Mountain Pass facility.  Everything reports to him out at Mountain Pass.  Rocky brings over 30 years of chemical plant and operating experience to the table.  He’s a chemist by trade; has had excellent results in union relationships,; has a significant experience level in solvent extraction; and really brings a level of maturity and wisdom to the site that we are very, very confident with.

COX: So that’s good.  So you brought on Rocky.  Rocky’s ready to roll.

SMITH: Rocky’s ready to roll. [LAUGHTER].

COX: OK.  Fair enough.  So the 2012 production date, do you still think that looks feasible?

SMITH: Absolutely.  There’s no doubt that it’s aggressive.  We recognize that, but we also know how you have to put that data out in front and work backwards.  Three weeks ago we started dewatering the pit, because if we don’t start dewatering the pit now, you can’t lay the overburden back, you can’t have the fresh ore to feed the mill.  So yes, we think it’s absolutely doable, but it is aggressive.

COX: Many deals have closed outside of China this year.  Dong Pao in Vietnam, Sumitomo in Kazakhstan, JOGMEC in America, now in Scandinavia.  Chinese companies trying buy into two Australian firms.  What are your thoughts on these?  And how do you think it is changing your position within the market?

SMITH: When we take a look at all of these deals we certainly first of all want to say that we want to encourage all of these to move forward.  And we want to encourage all of them to achieve production levels to help the industry.  When you take a look at the supply and demand forecasts for this industry we are going to need a lot more projects producing, rare earths, not just mentioning that they’ve been discovered.  Actually producing rare earths, so that we can help China with the projected demand growth for rare earths.  We’re happy to see these projects and we’re particularly happy to see those that involve some of the heavy rare earths because it provides the entire rare earth purchasing industry with more diversity, more alternatives.

When we run our business we look at the procurement area very strategically.  We look for alternatives.  We make sure that we mitigate our risks of having sole suppliers.  We expect our customers to do the same.

We know most of these new rare earth projects actually fairly well.  Molycorp had a very long history of exploration and we have files on just about every single one of these new projects.  We don’t think it’ll change our position in the market a lot, because the production rates from these facilities are not going to become overwhelming for the market all by themselves.  They’re incremental projects at best.  There won’t be anything that competes with Chinese production.  The US will probably be the second largest country producing this material, and then Australia will be third.  These smaller projects will hopefully come in to help the larger producers.

COX: So it’s going to be one big happy rare earth family.

SMITH: Well you know, a competitive one, but certainly it is a small world out there.

COX: So talk to me a bit about the joint venture with Arnold Magnetic Technologies.

SMITH: Our stated business strategy is to go from mining to magnets, and we are very, very committed to that process.  When you take a look at the wind power generation supply chain, you start with mining and you end up with your wind power turbine.  There are a lot of steps in between there.  You start with the mine, and then you have to process the ores into oxides.  The oxides have to be converted into metals.  The metals have to be alloyed, the alloys are turned in a magnetic powder, the magnetic powder is manufactured into magnets.  Then the magnets are put into the generators on the wind turbine, and then the generator goes on top of the wind turbine when it’s finally put out in the field.

When we take a look at that whole supply chain, and all the steps that are required, it’s impossible to put the entire supply chain together outside of China.  There is no place in the world other than China that converts Neodymium or Praseodymium oxide into its metallic form.  We want to make sure that there are options available for the purchasers of magnets that are reliable.  It gets very complicated and , and it creates risk from a procurement standpoint, so we’re committed to making sure there is a full supply chain for mining to magnets outside of China.

COX: So right now you guys can make oxides.

SMITH: Correct.

COX: So you still have to go from oxide to metal, metal to powder, powder to magnet.

SMITH: Correct.  And as an example most of our didymium oxide customers are in Japan.  When we sell our oxides to Japan, our Japanese customers have to arrange for that oxide to be shipped into China, converted to metal, and then shipped back to Japan.  Japan then has all the other steps in their country.  They’re missing that one step, and of course in the United States we don’t have any capability to go from oxides all the way to magnets, because we don’t do any of that in the states anymore.

COX: So what is Arnold Magnetic Technologies, or I’ll call it AMT.

SMITH: AMT.

COX: What is AMT, where do they pick up in the process, and where do they finish?

SMITH: We have a letter of intent to form a joint venture for this, and Molycorp will be engaged in mining to alloying on its own, because we know how to do that.  Most of it will occur right on the Mountain Pass site, so that we have close coupled manufacturing, in an effort to minimize our costs.  Oonce we have the alloy, some of  that alloy will probably be sold through the joint venture;  the joint venture being us and Arnold Magnetics.  We will form a new entity, have new facilities that will actually produce magnets, and then the magnets will be sold by the joint venture.  We wanted to choose a very strong magnet company to be a partner of ours, because when you take the final product to a magnet, the sale of that magnet is very different than what we’re used to at Molycorp in terms of selling products.  There is a wide array of users out there.  There’s a much more OEM nature to it where each customer needs something very specific.  Arnold has connections like this already in place.  They’ve been selling magnets to the world for a hundred years or more.

COX: So they don’t make the magnets, or they do make the magnets?

SMITH: They have some joint venture rare earth magnet production facilities in China right now.  And they do have a place over in Europe where they have the equipment to do this, but they are not producing rare earth magnets in the United States.

COX: So they have the technology, the know-how, but they don’t have the facility yet.

SMITH: Not in the United States.

COX: OK.  So to make sure I understand this, you’re going to take the oxides, then you’re going to take and make metals, then the alloys.

SMITH: Correct.

COX: On site at Mountain Pass most likely.

SMITH: Correct.

COX: And so you’ll have to build new facilities for that?

SMITH: Well that’s a great question.  Have you been to Mountain Pass?

COX: I have.

SMITH: OK.  Then you know it’s a major facility in terms of rare earth manufacturing.  If we just took a bulldozer and demolished everything  to the ground, we could build brand new, state of the art facilities, and that would probably cost us $450 million.

COX: Hence the $450 million that you just mentioned in the recent press release.

SMITH: Correct.  And purposefully so.  There doesn’t need to be a secret there.  A brand new facility would cost us $450 million.   We have a facility sitting at Mountain Pass that has produced 20,000 tons per year of rare earth oxide in the past.  What we’re trying to balance is, how much of that equipment can we continue to use such that we lower our capital costs, and at the same time recognize that in all likelihood if you use the older equipment your operating costs are going to be higher.  So we’re trying to balance what the right use of existing equipment, versus building new equipment .

I just mentioned to another reporter earlier today, I think the low end of the number we would be using for this purpose in terms of balancing existing new equipment with new equipment would be probably in the $250 million range.  So the project capital is ultimately going to be somewhere between $250 and $450 million.

COX: Gotcha.  And this $450 million should you use it, will take you all the way through to alloys, is that right?

SMITH: No, that would take us all the way through magnets.

COX: And when you’re back, up and operating, what elements will you actually be extracting, what will be the stopping point?

SMITH: I can tell you precisely what we will produce.  We’ll produce cerium, lanthanum, neodymium, praseodymium, samarium, europium, and gadolinium.  There is only one question in our mind right now.  We do have dysprosium in our ore body, at very low concentrations, but we are looking at what the cost would be to put in the solvent extraction facilities and produce dysprosium out of our ore body.  We’re trying to balance that versus what the price forecasts are for that material.  When you have very low ore grades as everyone else who’s claiming to have discovered rare earths is going to find out when they get into the processing side, it’s a whole new equation when you talk about processing.

COX: Right.  Interesting.  So basically what AMT then is bringing is the technology and the know-how on the backend.

SMITH: And the marketing.  They have the contacts already in place.  Now they do produce ferrite magnets in the United States.  So they do produce magnets, it’s just they –

COX: Just not that juicy, special rare earth kind.

SMITH: Not the rare earth permanent magnets.

COX: And when you talk about magnets with them, they’re neodymium- iron-boron, they’re not samarium-cobalt, correct?

SMITH: That’s correct.  Samarium-cobalt is a very important sector of the market as you know, mostly for defense purposes, but it’s a very small market.

COX: Do you have any plans for new products?

SMITH: We do. For the last seven years as we’ve had a group of people in our technology group working on process technologies.  We’ve also had another group of people working on intellectually protected products and processes, for cerium in particular.  The reason behind this is if you take a look at the light rare earth deposits, which is what Mountain Pass is classified as, and what Bayan Obo is classified as, and what Mount Weld is classified as, the primary component is cerium.  However, CRT production has continued to decline, the use of cerium as a glass polishing agent has continued to decline, and no significant  new uses were coming in.   We want to literally sell every pound of rare earth that we pull out of the ground.

So we focused on big volumetric uses of cerium, and we have come up with some patented products, and patented technologies that will be using rare earth products primarily based on cerium.  If our up coming process tests are successful, which we have every reason to believe they will be, we will have a market for our cerium that will be very, very promising.  What that does for us, and it all goes back to our absolute commitment to be the lowest cost producer, is that by including cerium in our product mix, and selling the cerium, we now get to spread our manufacturing costs over a much larger number of units of production.

COX: So will you license that technology, or will you actually build the technology yourself?

SMITH: We will do both, we will license it, and we will build and operate some of that ourselves.

COX: OK.  Are you allowed to say anything more about this technology?

SMITH: I would love to say more about it.  We think it has a whole lot of win-win propositions to it.  This is a technology that we’re commercializing in the copper and nickel industries right now.  As the copper and nickel industries start to experience higher and higher arsenic levels in their ores, they need to have a way to pull that arsenic out so that they can recover as much of the copper and nickel that they’re trying to produce as possible.  Our product and our process does that, and it does it extremely well.

The other area that we focused on is water treatment.  And we have a product that will go out for sale in the fourth quarter of this year through Cascade Designs, who has been one of our partners in this research effort.  I will be available to the backpacking industry.  We’re also trying to make it available to our soldiers in our military.  The U.S. military asked us to figure out if there was a way to clean up arsenic laden water so our soldiers are safe.  We worked on that, we perfected that, and we can remove arsenic very, very well.  But we started to take a look at how well it could do at removing other contaminants from the water.  And to really put it into summary form, we haven’t found anything it doesn’t remove yet.

In fact as far as we can tell, the biggest problem anybody will have with this water filtration product and process is that you’ll have to take vitamin supplements because there is literally nothing in the water when you’re done.  It’s on the order of distilled water.

COX: There’s still H2 and O.

SMITH: There is, yes.  That’s about all there is.  Which we’re happy to report.  So we plan to start  a very strong marketing effort on that product and that process as well.  We’ll be in the backpacking industry, we’re hoping to serve the military, and as part of our corporate culture which Molycorp has a long history of, we also want to help other people in the world, and so we’re trying to introduce this product and process to some of the Third World countries to try to improve their water quality as well.

COX: How does that compare to other things like SteriPEN and the hand pumps, and the other competing devices for water purification right now?

SMITH: Number one, ours will actually remove many if not all of the heavy metals.  Ours will also deal with biological activity in the water, it removes viruses in the water, it will remove mustard gas, sarin gas.  There really is nothing that our material has not removed yet, and it removes contaminants to what the water industry refers to as a log four level of removal – which is 99.99% removal.  There aren’t any other products that we are aware of that can make that claim on that many items that it can remove from the water.  So it’s kind of a one stop shop so to speak, as opposed to having multiple filters that perform different functions all lined up in sequence.

COX: Is it bigger, lighter, heavier?

SMITH: The size we’re looking at for the military is roughly a six inch long cartridge that is about one to one and quarter inches in diameter, very small, very light.

COX: I see.  Is it going to have a nice little Molycorp thing on it, or just –

SMITH: Absolutely, it’s going to have Molycorp on there.  [LAUGHTER]

COX: Right.

SMITH: Our dream, Clint, is to some day follow the Intel business marketing model where every computer you open says Intel inside.

COX: Molycorp inside.

SMITH: Yes.  And we’ll have to work on the copyright for that, I’m sure.  But, we would love to have a little sticker on there that says Molycorp inside.

COX: Right, right.  Switching gears a bit, who are your biggest competitors?

SMITH: Chinese.  But you can also say too that we have a 57 year history in this industry.  So we know the Chinese processors and producers, since their very beginning.  We have very good relationships with all of the Chinese producers and processors.  And we really enjoy exchanging technologies, where it’s appropriate.  One of the things that we have committed to the Chinese government as of late, and we’re going to make a stronger commitment to that in October, is helping the Chinese understand how to deal with environmental, health and safety issues.  That is something that the United States is pretty far along on with, and I think we can really help the Chinese get through that learning curve fast, and get them operating properly very quickly.

COX: How often do you go to China?

SMITH: I will be there three times this year.  I anticipate that it’s going to be a three or four time a year routine from now on.

COX: Have the Chinese ever come to Mountain Pass?

SMITH: Absolutely.  They’ve come to Mountain Pass and we have another group of visitors from China coming in October.

COX: When you get back to actually mining, how are you going to do that?  Are you just going to keep drilling down, or are you going to blow out the sides, how are you going to expand the operation?

SMITH: Great question.  The thirty year mine plan that we have approved by the State of California, and the Environmental Impact Report that was associated with it, suggests that at then end of the 30 year mine permit, the current pit, which is about 55 acres in disturbance at the surface, and roughly 400 feet deep, will become a surface pit that will be 110 acres in size, and I believe it will be somewhere in the neighborhood of 500 feet deep.

The ore body is a very, very well proven ore body.  It has served its purpose for 57 years.  We haven’t found the bottom of it yet.  Keep in mind too that the approved 30 year mine plan said that at the end of that 30 years we would have a 110 acre disturbance at the surface, but that was assuming 2000 tons per day of ore coming into the mill.  We’ll only be feeding 900 tons of ore into the mill every day to achieve our 20,000 tons of production a year so our surface disturbance will be far less than predicted.

COX: Is there any possibility of going beyond the 20,000 tons?

SMITH: Absolutely, there is.  Our current permits allow us to process up to 2000 tons of ore per day.  So if we’re only doing 900 tons per day, and producing 20,000, the math is pretty simple, it just ratios right up.  We can produce over 40,000 tons of product from that facility with existing permits.  We have taken a quick look at what the capital requirements would be for the larger production levels, and it is very surprisingly incremental.  Once you reach a certain point of volume, the incremental capital is surprisingly low to increase your production.

COX: Yep.  Will you be accepting any material from outside of Mountain Pass?

SMITH: We have talked about that internally.  And with the right arrangements tolling arrangements accepting other ores is a possibility.  However, you need to understand that you don’t just accept a new ore into your processing facilities, you have to run this through significant testing to demonstrate processability.  Assuming all that works out well, we are looking at the idea of making sure that our production facilities always have the potential to produce more rare earths than what we’re bringing in from our existing open pit.  So the answer is yes, but it’s a complicated yes.

COX: So is your end goal to take the company public, or will Molycorp remain private?

SMITH: Excellent question.  Again we have private equity investors who are always looking for exit strategies.  However, we really like our private equity investors because they are committed to an average seven year life on the things that they buy.  I think a very natural exit strategy for this company is going to be to go public.  There’s a lot of other options too, selling to other mining companies, consolidating with somebody else, having another group of private equity investors come in, simply financing what we need to do, and keeping the company private.  So we have a lot of options, but I think a very likely scenario is that we will go public.

COX: Is there  any timeframe on that?

SMITH: No specified time frame.  We certainly want to keep our options open at all times, but we also have to recognize what the IPO market looks like, and when the deal closed last September 30, 2008, until just recently, there really wasn’t any IPO market out there.

COX: Right.

SMITH: That is improving dramatically, and we’re certainly taking a hard look at it.

COX: Is the U.S. leadership aware of rare earths and their strategic importance?

SMITH: I want to say a resounding yes to that.  I’ve been going out to Washington, D.C., every other week for about nine months now.  I will readily admit that when I go into an office to talk to one of the members of Congress or the Senate, or the White House, or any of the agencies in the executive branch, there is very little knowledge to start with on rare earths.  However, they all have accepted the presentations that we provide with absolute open arms.

We’re starting to see a building of action now as a result of this newfound knowledge.  As an example, the Department of Defense has a strategic stockpile of materials, and rare earths are currently not in that stock pile at all.  I have reason to believe because of discussions that I’ve had with members of Congress and the Senate, and the Department of Defense, that there is a new view being developed on what the strategic stockpile is all about, and that it really needs to be viewed from a supply chain concept.   If they view it from a supply chain concept there is absolutely 100% certainty on my behalf that rare earths will be part of that strategic stockpile.

COX: So what are the biggest changes you see coming for the industry?

SMITH: You know Clint, there’s a lot of hype out there right now on rare earths, and it’s rather concerning to me because I think there’s going to be a lot of people out there that are going to have expectations that are not going to be met.  We’ve been in this industry for a long time, we know what it takes to permit a facility, we know what it takes to define a resource, we know what it takes to put feasibility studies together, and to actually build facilities.  We know what it takes to figure out how to put the processing steps together to actually pull these individual elements out, and believe me, that takes a significant period of time.

So when I hear junior exploration companies out there today who have just taken surface samples or put their first trench into a potential deposit; say that they will be producing rare earths in two years, I get very concerned because I think their shareholders who are buying in right now are going to be very disappointed in two years.  That’s what concerns me, if we build up a bunch of hype and we don’t produce what we say we’re going to produce, where does that really lead us?  The industry loses credibility.  I’ve  been on a personal mission as of late to ensure that we bring honesty and integrity to our industry, because without it, we’re not going to survive.

COX: I agree.  Who are the typical end users for Molycorp products?

SMITH: We have catalyst producers.  We have glass polishing companies.  We have medical companies.  Anybody that uses a permanent rare earth magnet is involved in our industry in one form or another.  We have literally sold to every rare earth user in the world from Mountain Pass.  We don’t necessarily have the intentions to do that once we restart, because we’re only going to be 20,000 tons of production in a 120,000 to 150,000 tonne market .  We will be a significant player, but we won’t be able to make promises to all customers, and the ones that we do make promises to, we want to keep, and we want to perform on.

COX: That old-fashioned, keep your promise thing.

SMITH: Absolutely.  We think it works, it’s historically worked very well, we’d like to stick to it.

COX: So besides the water treatment, and the arsenic removal, besides your own in-house applications, what are some of the more significant new applications that you see being developed or currently being developed in rare earths right now.

SMITH: What’s interesting is I don’t know that I see a whole lot of new rare earth products necessarily being developed.  We see the same ones being used, but see them being used in more applications.  You can really get specific by talking about  the magnet again.  The rare earth magnets, their growth has been double digit rates for seven or eight years now. It’s predicted to be double digit growth rates for the next ten years at least, and that’s because these powerful light weight magnets have been shown to perform exactly the way they were designed to perform.  They’ve allowed all of our cell phones to become as small as they are now.  They’ve allowed speakers to become two inch by two inch speakers that put out better sound than the old ones that were three feet tall, and a foot wide.  They are phenomenal.  They’re being used in electric bikes, hybrid cars, wind power turbines and literally by every electronic device.  Your computer has a hard disk drive with a permanent magnet in it.

I think we’re going to continue to see the use of these magnets grow because they are light weight and they are extremely powerful.  They clearly increase the efficiency of a lot of these systems.

COX: So many companies are looking for rare earths right now.  Are you satisfied with Mountain Pass or will you be looking for other rare earth properties as well?

SMITH: We are absolutely satisfied with Mountain Pass.  It has a long, long life to it, well in excess of a hundred years based on 20,000 tons of production a year.  But we also recognize that we are a mining and technology company, and when you’re in the mining or natural resource industry, it is always a good idea to make sure that you have additional resources to pursue, once that time comes.  So we don’t have to put a lot of effort into exploration right now, because Mountain Pass is so strong and so rich, and so big.  But we know that it’s in our best interest, and in our customers’ best interests to continually be looking for additional deposits.  And we have some activities ongoing right now.

COX: What would you say are some of the biggest misconceptions about rare earth mining?  It seems there are more misconceptions than conceptions!

SMITH: Yeah, [LAUGHTER] , I’m thinking of all of them, and being overwhelmed with the misconceptions.  I’m going to go right back to the misconception, we discussed earlier.  It’s really not so much a market misconception as it is a rare earth resource misconception.  Rare earths are not like copper or gold, or iron ore.  When you discover rare earths you only have part of the equation done.  You have to figure out how to process those rare earths.  It is a very, very complex chemical, and chemical engineering issue that has to be resolved.

I can’t even believe the number of people who are reporting rare earths in their exploration efforts everywhere in the world.  When you take a look at the data just at a very high level, most of those rare earth levels are being reported at significantly less than one percent.  We use a five percent cutoff for our ore grade to define it.  I would like to note that we are undertaking a 43-101 compliant resource study right now.  It should be done somewhere around the first of November.  We have asked our consultant to provide us advice on what should be used for the cutoff level, and I do believe that we will use a cutoff level below five percent.  Probably something in the range of two percent.  It doesn’t take a scientist to figure out that when you do that, your resource is going to grow.  And ours will grow significantly.

So the misconceptions to me are, this industry isn’t like other minerals.  There is a huge processing question mark on every single deposit that’s found out there.  There are going to be many deposits that are discovered that are not processable.

COX: I agree.  Have there been any particular people who have influenced your understanding of the rare earth in this market?

SMITH: Dudley Kingsnorth and Judith Chegwidden have been absolutely instrumental in my understanding of the market, the issues associated with rare earths, and the misconceptions with rare earths.  Those are two of the primary people, and then what’s really, really nice, Clint, is that when our group of private equity investors bought this facility, every single person that was an employee at that facility the day before the deal closed, was an employee the day after the deal closed.  And we are blessed with people that have 30 plus years of experience, and the people at our facility teach me more about rare earths every day.  There is a tremendous amount of history and institutional knowledge about the rare earth industry, and the markets, right at our facility.  Can I put another plug in for our guys?  As of today gone, we have gone 1,528 days without a lost time accident at our facility.  We are exceptionally proud of that, that’s well over four years.

COX: Excellent.  What’s been the biggest surprise you’ve experienced in the business so far?

SMITH: My biggest surprise, and I hate to keep emphasizing this over and over again, is the fluff that can be created in an industry  There’s generally no history by the people who are creating the fluff.  They have no experience in the industry, no processing experience at all.  How people take advantage of the moment has been devastating to my sense of integrity.  It really bothers me.

COX: Yes – I feel your pain.  Thank you Mark Smith for a fantastic interview.

CLINT COX: I am interviewing Mark Smith, CEO of Molycorp Minerals, LLC, now a private company. Why don’t we start with when and how did you get interested in the rare earth market?

SMITH: Clint, I had the very fortuitous fortune of being a lawyer for Unocal at one point in my life and Molycorp had some permitting, some environmental permitting issues that they were dealing with and I was asked by the Unocal law department to go and help Molycorp with those issues. They happened at the Mountain Pass Rare Earth Mine at Mountain Pass, California, and that’s when I got to start working with them, and I’ve always looked at that facility as being an absolute crown jewel with the right ownership and the right tender loving care.

COX: So I take it that you guys now have the right ownership with the right tender loving care.

SMITH: We feel we do. Yeah, we have a great group of private equity investors who have looked at this asset very hard, did a lot of due diligence on it, looked at all the rare earth markets, came to a conclusion that they could take this asset and reach its potential and they are very committed to doing so. And I think it’s exactly what this asset needed.

COX: While you’re talking about them, let’s jump ahead to what rare earth experience does each team member that bought Mountain Pass bring to Molycorp Minerals? You’ve got Resource Capital Fund, Pegasus Partners, Goldman Sachs group, Traxys North America and the Carint Group (which I’m not familiar with). Can you say what each one of these bring to the table?

SMITH: Well, Resource Capital Funds, of course, is a boutique private equity group that does nothing other than invest in mining and minerals. So what they bring to the table is expert mining and mining engineering, geology qualifications and I would also like to say for the record, that they are an absolutely wonderful shareholder because we can tap into that organization any day, anytime, and they can bring to us a wealth of knowledge about mining projects and mineral resources all over the world. So we never have to reinvent the wheel on anything. So they have just been outstanding. The person from Resource Capital Funds that was primarily responsible for the negotiations was a gentleman by the name of Ross Bhappu, who is Chairman of our Board of Directors. And it’s interesting to note that Ross’s father was a metallurgist and he actually did quite a bit of metallurgy consultation for Molycorp down at the Questa molybdenum mine in New Mexico. So Ross actually had a very close acquaintance so to speak, or a close connection with the Molycorp organization for a long period in his life.

The next shareholder I’d like to talk about who also has a very close connection with Molycorp is Traxys. The president and CEO of Traxys of course is Mark Kristoff. He’s on our board of directors. He was also primarily responsible for negotiating on behalf of the group of private equity investors. Mark’s father was actually the vice president of marketing and sales for Molycorp at one point in time. I believe one of his very first trips to a mine was a trip to the Mountain Pass facility in California. So Mark has known these facilities for a very long period of time, too. Now, in addition to Mark having that close connection through his father and kind of growing up in the Molycorp organization, Mark runs Traxys, which is a metals trading organization. They do about $4 billion worth of metals trading a year, and I think there’s no finer organization to work with in terms of finding customers and landing deals for our products. So they are an excellent addition to our organization.

We also have Goldman Sachs. What Goldman Sachs, brings to the table is obviously excellent financial sense. If I recall correctly, I believe Goldman Sachs had invested quite heavily into Lynas Corporation at one time as well and so they had a background and a history in the rare earth sector, at least for a period of time. I think they came in with their eyes wide open so to speak, in terms of what the potential for this market was and the potential for this resource.

Pegasus Capital is a private equity group that likes to focus on, I guess what would be called green technology type companies. And when they understood the connection between the rare earth minerals and the green technologies or clean energy technologies that all of us are so excited about right now, like hybrid vehicles, compact fluorescent light bulbs and, wind power generation, they became an investor as well. And we take great pride in having Pegasus as an investor because they only like to invest in clean green type entities. As management, we took this that as a really good sign of confidence in our ability to run the facility and to operate it safely.

The other group, Carint, was a group of private individuals, with a very small portion of the ownership, and then I have a small interest in the company as well. It’s a very diverse group of shareholders. We have outstanding, full dialogue on just about every issue that confronts the company, and I feel very, very confident at the conclusion of all those discussions that we reach very good decisions because of the diversity and broad view that everybody brings to the table for those discussions.

COX: What was the original driving force behind the deal? How did it come together? How did you guys decide to do this?

SMITH: Well, a little bit of interesting background here, too. When this group of private equity investors got together and put an offer in front of Chevron for this asset, I was actually the president and CEO of Chevron Mining at the time, and Chevron Mining owned and operated the Mountain Pass asset and the Questa moly mine. We had three coal mines and we were in the process of trying to open up an additional coal mine up in Wyoming. We had some other businesses as well, but those were the primary ones. When we received the offer letter from this group of investors, within 30 days there was actually, and I can’t remember the exact number anymore, it was either seven or nine, offer letters from different parties who were interested in this asset. We have no idea why it all happened in a 30-day period. But when I was wearing my Chevron hat and these multiple offers came in a very, very short time basis; we thought we may have something here. We wanted to figure out why there’s was such an interest.

We ultimately decided to enter into a bidding process for the assets, as opposed to just grabbing one letter and assuming that it was better than another. So we entered into confidentiality agreements with all the parties. We went through a first phase where they were able to do a limited amount of due diligence on the facility and on the people. At the same time Chevron was able to do a limited amount of due diligence on all the parties that were interested. We asked everyone to submit a phase one bid if they were interested at the conclusion of this limited due diligence period As part of that phase one bid, one very important point that we required was that there could not be a financing contingency associated with it. And that narrowed down the group of interested parties very, very quickly to three, and we started working then with the three parties to go through a second round of bidding on the asset, where more information was divulged to each of them. We of course got to do more due diligence on them.

There were many considerations that we looked at as part of that round two. It was not simply the price of the assets. We looked at price, we looked at the commitment to the people that were working at those assets, their commitment to the environment, their commitment to bringing the business back on line and putting the capital and a very simple term, tender loving care, back into this business so it could reach its full potential. We looked at all of those considerations and ranked the bids in round two. This group of private equity investors came to the top very quickly. That all occurred probably about late February of 2008. The initial letters that I talked about earlier, were all received in roughly August of 2007.

So we went through those two rounds of bidding and by the end of February, we had narrowed it down to this group and we started the negotiation process with this group of investors. We had reached a definitive agreement with this group of private equity investors in roughly June of 2008 when the agreement was signed by all parties. We then worked to close the deal, and the deal was ultimately closed on September 30, 2008. Long explanation, but it’s such a fascinating story that I wanted to get into some of these details.

COX: Were you surprised at all that the deal was closed, given the market at the time? There was chaos for a couple weeks before that deal closed. And with these guys being involved, I was actually very surprised that the deal went through.

SMITH: Very good point. However , we knew who the investors were, and we knew how much due diligence that they had done on the market, the forecasts for the future. When you look at the track record of this group of investors you discover that their average holding time for an investment is seven years. That was very, very attractive to us because it meant we weren’t simply selling this asset to a group of investors who were then going to turn around and flip it to somebody else and just try to make a profit. They were committed to the facility and to getting it back up and running at its full potential. So yes, there were a lot of issues and questions that were raised right at the end of the deal when it was closed, but we felt confident on the our side of the table that we were dealing with people who were values based and were going to carry forward on this deal, regardless of what the economic situation turned into at that time.

COX: That’s interesting. So how has the rare earth market changed since the deal was completed?

SMITH: Well, as you know, it didn’t do too well from September 2008 through about June 2009. So for roughly a nine-month period, the market really struggled. Prices went down over 50% on some of the rare earth commodities. Volumes were literally stagnant. I mean, people just weren’t even buying material anymore. But that’s the beauty of having this group of investors own the company. They have the financial wherewithal to get through issues like that. They supported our ongoing production as we were what I call, perfecting our processes, and have been extremely supportive through the entire, almost one year now that we’ve been in existence.

COX: So Mark, can you walk us through a brief history of Mountain Pass?

SMITH: Yes, a very illustrious history, I might add. In the late ’40s, there were a couple of prospectors that were out in the area, and the hot commodity at the time was uranium. They were actually looking for uranium. And lo and behold, they’re walking through this area, the high mountain desert and they get a couple clicks on their Geiger counter. Nothing that got them excited from the standpoint of uranium.,but there was something that was different there, and they had no idea what it was. So they grabbed a sample of this material, took it back into Las Vegas, to the USGS office there and asked them, “What is this?” And USGS said we’re going to have to take a couple of weeks to figure it out. They did all their analytical work and found out that it was bastnaesite, and told the prospectors, “This is bastnaesite, this is some of the richest bastnaesite we’ve ever seen in our lives, this looks like this could be something”. So the prospectors filed their claims.

COX: Was this the Birthday Claim?

SMITH: Yes, the Birthday Claim, is where it started. That was in 1948 when the claims were filed, and then I believe it was about that same time, shortly after they filed those claims, Molycorp, Incorporated, which was a publicly traded company on the New York Stock Exchange at the time, purchased those claims from the prospectors and then started to put together their mining plans.

In 1952, Molycorp started mining the rare earth deposit at the surface outcrops, and put in small processing facilities. Now at the time, what was really interesting about this is that the understanding of rare earths was not at its best. The use of rare earth was extremely limited. As a matter of fact, the major use at the time was for the flint in lighters. It was the lanthanum, cerium mischmetal that was used, and that was the product that was produced out there for many, many years.

Then in the late, mid to late ’60s is when the colored television became the hot item in every household. And with the color televisions, the way they were manufactured at the time, they needed europium in order to create the red color, the red phosphor in the screen. Mountain Pass had europium in its ore body, and Mountain Pass at one point in time, was mining the bastnaesite from the pit, exclusively to recover the europium. The europium is probably about 0.1%, maybe even a little less of that ore body. So we learned a lot of lessons during that time. Europium was at a price by the way, that justified all the mining and all the processing costs to only recover the europium.

But what we learned as we look back in history, is that the rare earth industry has had that problem, where one of the rare earth elements, or maybe two, will all of a sudden become very, very popular and everybody wants to buy them. The problem is, what do you do with the rest of them because they’re all in the ore body, and you have to take them out and separate each one. What do you do with those other materials while they’re not as high in demand? You end up stockpiling them is what you do. And that’s been a historic problem within the rare earth mining industry and at Mountain Pass in particular, where you were stockpiling large quantities of material while you were selling other quantities of material.

By the late 1980s, the facility was being run for more than just europium. Cerium was becoming popular as a glass polishing agent and Lanthanum was beginning its illustrious history in the FCC catalyst industry. So now you’re starting to talk about some very large volumetric uses of the more prevalent rare earths that we had in the bastnaesite ore, and things started to even out a little bit more. We had a lot more units to spread production costs out over. We weren’t stockpiling materials so feverishly anymore. And the industry looked quite a bit better at that time.

In the late ’80s, early ’90s, Mountain Pass was supplying the world with probably about 70% of its rare earth needs. However, the market was only about 40,000 tons a year back then. And so when we say 70%, it sounds like a large percentage, but it’s not a huge amount of tonnage compared to today’s market, which is upwards of 125,000 tons. Mountain Pass continued to operate.

It had some environmental issues that it confronted in the ‘mid to late ’90s. They didn’t help Mountain Pass’s economic situation, but the environmental issues certainly weren’t the reason for the facility to stop mining. There were also, of course, the Chinese found rare earths in their country, and started to exploit those resources and really brought their products out to the market at much lower prices than what the industry had seen for quite some time. Again, it didn’t help our situation, but that isn’t what ultimately caused us to stop mining.

Interestingly enough, what caused the facility to stop mining in 2002 was the fact that we had no more capacity in our tailings basin. And we didn’t have a permit to build a new tailings basin. We had started the permitting process for the facility back in 1989 thinking that by 2002, when the tailings basin capacity would be realized, we would have a new permit and we would be able to build a new tailings facility. We were about two years off. We got our final permit, our 30-year mine plan and our approved environmental impact report in 2004. So it took us 15 years to get our 30-year permit. But Clint, as bad as that may sound, it wasn’t the state of California that was causing that long time period.

We were having troubles deciding exactly what we wanted the facility to look like. What was considered state of the art in the late ’80s versus what was considered state of the art in the late ’90s in the rare earth industry really changed dramatically. So most of the cause for the delays in the permitting were really our own. But we did finally come to a conclusion on what we wanted the Mountain Pass site to look like, what we wanted it to produce, and how we were going to build it, and then we got the permit issued in 2004. By that time, we didn’t have any place to put tailings, so we had no choice but to stop the mining of ore.

We never stopped selling products because we had quite a bit in inventory In fact, we had two very large inventories of material which could be sold “as is” and were sold “as is”, but they also had the potential to be processed further so that we could realize added value by producing higher purity products. In about September of 2007, the facility restarted their solvent extraction units using a lanthanum concentrate material that had previously been stockpiled. The lanthanum concentrate was basically lanthanum and neodymium and praseodymium, and it was material that europium had been removed from. We started to reprocess that material with the idea that it was going to be a low rate of processing because we were trying to perfect our solvent extraction processing capabilities. We needed to show that we had the capability to produce high purity rare earth oxides. By high purity, I mean greater than 99% purity levels, which we had not done before in our business, because when we were at the peak of our production in the late ’80s and early ’90s, pure was upper 80 percentile –

COX: Right. It wasn’t necessary.

SMITH: The Chinese have really increased customer expectations in this regard and we knew that we had to change our product purity levels. We’ve been working on the solvent extraction side of our business since September of 2007 and I am extremely proud of our people on site because they truly have perfected this process. We’re now realizing recovery rates in excess of 98% in our solvent extraction processes, and we are today producing a greater than 99% purity didymium oxide and selling that on the market.

COX: Didymium being a praseodymium and neodymium –

SMITH: Correct During a recent trip to Europe, I discovered at a rare earth museum that at one time, didymium was considered an element until a very famous chemist over in Austria discovered that in fact, didymium consisted of praseodymium and neodymium.

COX: Where was that?

SMITH: Treibacher.

COX: Treibacher?

SMITH: Yes. We’ve been doing business with Treibacher for a long time. It was my first trip to their facilities. We met some really great people there and we look forward to an ongoing, long-term business relationship with them as well.

In April of this year, our board of directors approved the next capital project where we plan to take a very significant stockpile of concentrated bastnaesite, about 70% concentrate, and we’re going to process it from cracking through solvent extractors. We will be focused on perfecting the cracking process during this part of the project.

COX: So the cerium never goes through the solvent extraction. Everything else.

SMITH: That’s correct. And we have a new, innovative process that our technology group has come up with. They started in the lab, went to a bench scale, and then we actually built a small pilot scale unit and increased our production levels and continued to scale the process up. Everything has worked very well and now we’re going to take it up to a commercial level production rate. As a result, we will now have cerium in our product suite, along with the lanthanum and the didymium and our production levels will go up by 50% at that time.

COX: OK, so 3,000 tons per year in 2010. How many tons do you have of the bastnaesite concentrate?

SMITH: We have about 12 and a half thousand tons of material. We will be producing at about 3,000 tons per year. We’re only going to run that for two years at which point the bastnaesite concentrate product will be depleted. Now, you’ll probably notice that the math doesn’t quite work out there.

COX: Yeah, I wasn’t going to bring that up, but now that you –

SMITH: As part of our process for the next two years, we’ll have a rare earth fluoride material that we aren’t going to work on. We’re going to store and save it for full restart at the facility in 2012.

COX: How does that help with a full restart?

SMITH: It doesn’t help one way or the other. It just gives us more time to perfect the rare earth fluoride processing, which is a science all to itself. We’re trying to make sure we don’t take on any more projects than what we can successfully manage.

END PART 1

Clint Cox: Please describe the history of your involvement with the Rare Earth industry.

Dudley Kingsnorth: In 1990 I was head-hunted by Ashton Mining Ltd (who jointly owned the Argyle Diamond Mine with Rio at the time and have subsequently been taken over by Rio) to manage the Mt Weld Rare Earths Project; which I did until 2000. Since then I have maintained an interest in the rare earths industry by maintaining contact with the people I met during that period when the rare earths industry went through a roller coast ride as it adjusted to the entry and subsequent domination by China. I have written the last three editions of Roskill’s “The Economics of Rare Earths and Yttrium” (2001, 2004 and 2007) which has enabled me to remain abreast of developments. Currently, I am an independent rare earths consultant which keeps me abreast of current and future developments through the companies and people with whom I work and consult.

Cox: Please talk about the most notable changes in the history of the industry, with particular reference to China.

Kingsnorth: The most notable changes in the industry over the past few years may be considered in two parts:

1. The growing dominance of China over the past twenty to thirty years. This commenced in the 1980s with the separation of the rare earths as a by-product of the Bayan Obo Iron Ore Mine in Inner Mongolia. Today 40-50% of the world’s rare earths are sourced from this mine; constituting over 60% of the global supply of light rare earths. Then in the 1990s ionic clays became the dominant source of heavy rare earths; such that today this is the source of over 85% of the global supply of heavy rare earths.

2. The problem of ‘balance’ – in which the ratio of the rare earths mined/processed does not comply with the ratio of demand – has undergone several changes. In the 1950s and 1960s europium, for use in the phosphors in the ‘new’ color TVs, was the driver of the industry, with the Mountain Pass in the USA the major supplier. In the 1980s and early 1990s the demand for cerium for TV and computer monitors, where it is used to polish the screens and as a decolorizer, drove the demand; which, in turn helped the Bayan Obo Mine, with its high cerium content, to become the major force in global rare earths supply. Today, it is the rapidly increasing consumption of neodymium, praseodymium and dysprosium in the production of rare earth magnets that is driving demand. Tomorrow it could well be the consumption of europium, terbium and yttrium in the manufacture of phosphors that could dictate the patterns and sources of rare earths production.

Cox: How intentional are the Chinese about their long term REE plans? Are REEs a national or regional priority in China?

Kingsnorth: It is my belief that the Chinese authorities at all levels are utilizing their rich rare earths endowment, not only their resources but their technology and expertise, as a key instrument in the achievement of their goal to find jobs for the millions of people that will move from an agricultural environment to and urban one between now and 2020. Due to their unique properties and their use in minor quantities rare earths provide significant leverage in the creation of jobs in the manufacture of electronic, automotive and catalytic items. Accordingly, I do not believe that China’s motives are ideologically or directly financially founded. This is best illustrated by the fact that the authorities at all levels are putting an increasing range of caveats with respect to ‘adding value’ on the current and future development of rare earth resources. Several Provinces, through the controlling interest they hold in rare earth enterprises, are now making value adding manufacture, such as LCDs and electric motors, a pre-condition for continued access to their rare earth resources.

Cox: In the larger context of their manufacturing base, how aware are the Chinese of REE?

Kingsnorth: They are keenly aware of their strategic importance and are using that to expand their manufacturing base.

Cox: Recently, there have reports that the Chinese REE resources are finite, as a consequence of which they are limiting supply to an extent that the West may be starved of REEs within 5 years. Can you comment?

Kingsnorth: First I would comment that the Chinese rare earths industry currently supplies in excess of 95% of global demand for rare earths; which in itself raises issues of sovereign risk. There appears to be some general consensus amongst the Western major manufacturers of LCDs, mobile phones, computers, electric motors, etc. that there is a reluctance to place more than 60-70% of their manufacturing capability within China. This indicates that subject to the normal caveat of ‘reasonable pricing’ these Western companies would support non-Chinese projects in order to achieve this goal.

Over the past two years several Chinese officials have raised issues about supply from Bayan Obo (where there could be supply constraints in the medium term associated with the shift to a new mining area where the rare earths concentration is lower and the time required to develop suitable methods of recovering the million of tons of rare earths contained within the tailings ponds) and, more importantly, the supply of heavy rare earths from the ionic clays of Southern China which are finite and cause significant environmental damage during their processing.

It is the combination of sovereign risk and the uncertainties associated with the supply that are creating the opportunities for non-Chinese rare earth projects. Based upon the comments made by the Chinese officials and a conservative forecast growth in demand of 8-11%pa there could be a potential shortfall of 30-40,000tpa in 2012, which would need to be filled by the current potential but un-committed non-Chinese rare earth projects, as shown in the figure below:

I suppose, the next question is would China starve the West of rare earths and allow prices to increase to record levels if these projects did not come on-stream? The simple answer is no; the Chinese authorities are pragmatists and would not allow this to happen for the following reasons:

1. If prices were to rise to really high levels (in historical terms the current prices are not high in real terms) then the temptation for illegal mining and processing to re-commence in China would be almost unstoppable, leading to chaos, environmental problems and a sharp fall in prices. The authorities wish to remain in control.

2. High prices would drive more dollars to the search for substitutes; particularly in Japan.

3. China could be subject to action by the WTO.
In summary, I believe that China will ensure that there are adequate supplies, albeit at higher although not outrageous prices, but the real price would be the shift of more manufacturing to China.

So, as I noted at a recent conference the time has come for the would be non-Chinese rare earth projects to step up to the plate and deliver on their promises to meet this potential shortfall!

Cox: Please describe the differences between the US, Japan and Europe’s concept of REEs:

Kingsnorth: Very few people within the USA appear to understand the role that rare earths play in our society today i.e. put simply, the fact that the most efficient electric motors contain rare earth magnets is of little relevance when the purchasing decision is made on the basis of price.

In Japan:
“Oil is the blood of industry,
Steel is the rice of industry
Rare earths are the vitamins of industry.”

Outside China, Japan is the major investor in rare earths application R&D.

In Europe they are aware of the importance of rare earths, but lack the resources to address the lack of diversity of supply. Nevertheless, there are R&D programs associated with rare earth applications.

Cox: How important are India and Russia to the REE industry?

Kingsnorth: They do have the potential to play a key role in meeting the potential shortfall identified above. However, past performance suggests that their impact will be minimal.

Cox: Turning to China; please comment on the relationship between end users and that country.

Kingsnorth: For many non-Chinese users it is not a preference but a question of ‘no choice’ of supply. Although there have been significant improvements in the reliability of supply from China, many companies still have some way to go to meet Western standards of quality control. Nevertheless, it needs to be acknowledged that it is an issue of which the industry is well aware and is committed to continuous education/improvement.

Cox: What are the 3 greatest risks for the REE sector?

Kingsnorth:
• Overpricing, due to Chinese supply constraints and taxes, will foster substitution.
• Poor environmental management in China could lead to a boycott of products that are not produced by ‘green’ companies.
• A break-out in supply in China due to high prices which will drive down prices in the medium term which will force cut-backs in research and quality control.

Cox: What are the chances of making a brand new discovery that changes the market?

Kingsnorth:
• In the next 5 years minimal, possibly in 5-10 years.
• Developing a commercial process is the key, for example it has taken over 15 years for Lynas and its predecessors to develop a commercial extraction process for Mt Weld.

Cox: Will end users partner with exploration companies to expedite the development of alternative sources of rare earths?

Kingsnorth: Not directly, but through supply chain management with other users.

Cox: Describe the current relationship between end users and REE exploration companies.

Kingsnorth: The major end-users are coming to realize that they need to have a full understanding of their supply source – right to the mine site. So, they are becoming more ‘interested’, but for most the idea of contracting at the top of the supply chain is not an option. However, they do have an ‘interest’ in how their suppliers source their raw materials, such that it could impact on their purchasing decisions; an ‘interest’ that I see increasing as China increases its grip on the market. In other words, I foresee a greater interest in totally transparent supply chains from mine to customer on the part of the major rare earth consuming manufacturers

Cox: Will REE exploration companies outside China be able to compete? What will it take for them to be profitable?

Kingsnorth: At current prices non-Chinese projects appear to be profitable from the feasibility study results published to date. So it appears that they will be profitable, but will probably not be able achieve the margins of their counterparts in China.
As long as the current export tax and quota system remains in place, which effectively distorts the market, and they are supported by the non-Chinese consumers then the non-Chinese companies will be able to survive.

Cox: How would you describe the present state of the rare earth market?

Kingsnorth: “We live in interesting times”. The key to a dynamic future for the rare earths industry is the successful development of non-Chinese rare earth suppliers, who will give the confidence required by industry to continue to research and use this unique group of elements

Cox: What do you think is the most common misperception about rare earths?

Kingsnorth: Rare earths are the play things of university research departments. The industry as a whole has a responsibility to educate the general public about the unique role that rare earths play in our society today.

Cox: Will the Japanese stockpile REE?

Kingsnorth: The Japanese have always taken the opportunity to stockpile strategic materials when the conditions are appropriate i.e. as long as the purchases do not trigger major price increases. From the trade statistics it appears that Japan has been stockpiling rare earths over the past 2-3 years.

Cox: Will the US stockpile REE?

Kingsnorth: Not that I am an American citizen, it is a question that I suggest you raise with your local Member of Congress or Senator. As you are aware over the last few years the US Government has made a conscious decision to sell down the stocks of strategic materials. However, more recently the US Department of Defense appears to be putting ‘USA made’ policies in place, which may lead to a rebirth of the REE industry in the USA.

Cox: What are the 4 most important things to know about each REE?

Kingsnorth:

• The current and future (potential) applications.
• Growth of each application.
• Propensity for substitution.
• The balance between supply and demand for that REE.

Cox: Could you name the three people who have most influenced your association with the rare earths industry?

Kingsnorth:
• Barry Kilbourne (dec’d) of Molycorp who devoted his career to promoting a better understanding of rare earths. “Cerium – A Guide to its Role in Chemical Technology” and “A Lanthanide Lanthology”, both of which are well regarded references today are testament to his dedication.
• Peter Gundy, the founder of Neo Material Technologies (formerly AMR Technologies) whose commitment to the industry and the wellbeing of the people and communities within which the company works in China has raised the general standards of the industry as a whole.
• Rob Duncan of Lynas Corporation whose dedication to the understanding of the complex orebody at Mt Weld has played a key role in its progression from exploration play to producer (in 2009).

Clint Cox: When did you join Rare Element Resources (RES)?

Donald Ranta: Beginning of October 2007.

Cox: What is your mining background?

Ranta: 35+ years in the mining industry; I began as an exploration geologist and had steadily increasing responsibilities in exploration and in the evaluation of projects–worked for Kennecott Copper, Gulf Mineral Resources, AMAX/Climax Molybdenum, Phelps Dodge as head of North American Exploration, and Echo Bay Mines as VP worldwide exploration. About ten years ago I entered an entrepreneurial phase in my career by contributing to the start-up of four companies, three of which are continuing to progress, and then I joined RES.

Cox: What was attractive about the RES story?

Ranta: The high-quality of the people associated with the company; the excellent opportunities of the Bear Lodge property for both rare-earth elements and for gold.

Cox: How did you get interested in the Rare Earth Elements (REE)?

Ranta: I had toured Molycorp’s Mountain Pass Mine some years ago, and had followed the exploration activities at a number of alkalic systems for many years. The opportunity of learning more about alkalic systems and REE deposits, along with a substantial gold play on the same property was a compelling draw to join RES.

Cox: What role do the REE play in today’s society?

Ranta: An ever-increasing role. China is the leader in this area and they have set up a large research facility to test and develop new uses for the unique properties of rare earths. Magnets, hybrid vehicles, and refrigeration are some of the current uses but the biggest R&D successes for rare-earths are probably yet to come.

Cox: What are some of the other metals commonly associated with REEs?

Ranta: Iron, copper, uranium, thorium, palladium, platinum, etc

Cox: Please provide some detail about the recent assay results you received for Bear Lodge.

Ranta: The highlight of the recent assay results is an aggregate true thickness of 111.9 feet over four separate mineralized intervals averaging 4.69% REO in drill-hole RES07-1. The rare-earth mineralization encountered in drill-hole RES07-1 is contained within three well-defined carbonatite dikes, and one FMR (iron-manganese-rare-earth element) dike, which all intrude a body of heterolithic intrusive breccia of the Southwest Bull Hill target. This geologic setting is similar to that hosting other REE intercepts on the Bear Lodge property. Two additional core drill holes, RES 07-2 and RES 07-3, were completed during the 2007 rare-earth drill program, and REE assay results for these drill holes are pending. All intervals with visual REE mineralization have been sent to the metallurgical testing laboratory and will be used if the assays are adequate.

Cox: What are the biggest challenges for the Bear Lodge project?

Ranta: We know that significant occurrences of REEs are on the Bear Lodge property based on 24 drill holes; now we have to determine how much bigger it is via additional drilling; and are there multiple deposits on the property? We are also working on finding the best way to process the REE-bearing material and economically extract the metals, including from both the near-surface oxidized (FMR) material and the deeper non-oxidized carbonatites. We are assembling all the drill-hole information into a digital database so that an NI 43-101-compliant resource estimate can be made. Once all of this is well along we can look more in depth at the issues of marketing and sales of potential REE products.

Cox: Describe the minerals present at Bear Lodge.

Ranta: Rare-earth mineralization in the near-surface oxidized dikes consists of very fine-grained bastnaesite-group rare-earth minerals complexly intergrown with gangue minerals often occurring in hexagonal bodies up to a few centimeters in diameter.
Rare-earth mineralization in the non-oxidized carbonatites also commonly occurs within hexagonal pseudomorphic bodies, but the mineral constituents are coarser-grained and consist of the strontium-rare-earth-carbonate mineral, ancylite, which is intergrown with strontianite and minor barite.

Cox: Are the gold and REEs found together or separately at Bear Lodge?

Ranta: Gold occurrences at Bear Lodge that have been recently drilled are adjacent to and nearly surround the REE-mineralized area at Bull Hill. Some weakly anomalous gold is found in the area of the Bull Hill REE mineralization.

Cox: What is the current status of the metallurgy for Bear Lodge?

Ranta: A number of preliminary tests had been run on the REE mineralization including leaching and flotation with a hot-flotation step, but neither of the first two test programs provided definitive results. Beneficiation tests are currently being conducted by MSRDI of Tucson, Arizona, primarily on both mixed and non-oxidized rare-earth mineralized samples to determine the feasibility of producing commercial rare-earth concentrates. Building on the previous metallurgical test work, they will investigate a number of conventional and non-conventional processing methods such as concentrating (or removing) the larger weight percentage of the gangue by appropriate processing techniques leaving behind smaller weight percentage of the valuable minerals in the residue (tailings).

Cox: Do you have any cost estimates for how much it would take to get Bear Lodge into production?

Ranta: Not at this time, but our goal, following successful metallurgical testing, resource estimation, and expansion of the mineralized zone, will be to determine order-of-magnitude operating and capital costs.

Cox: How will you acquire the funds needed for ongoing operations?

Ranta: We are backed by a well-connected finance team that has always been able to raise the funds necessary to Rare Element. We have $2 million in the bank now and expect another $750,000 in 2008 from warrant exercises. If we need to finance more, it is market dependent, but has not been a problem in the past.

Cox: What is the timeline for developing Bear Lodge?

Ranta: It is totally dependent on completing the technical work noted above, and following up with marketing and sales investigations.

Cox: How has the Bear Lodge project changed over the last year?

Ranta: During 2007, Rare Element continued to explore the Bull Hill area carbonatite dikes with core drilling of three holes. Confirmation drilling of two holes at the Bull Hill Southwest target, which contains the historical resource, successfully collected larger amounts of carbonatite samples, which are being used to continue metallurgical studies of this known area of rare-earth mineralization. The Company has confidence that MSRDI will investigate a variety of concentration methods to determine which methodology works best for both the mixed and non-oxidized rare-earth occurrences at the Bear Lodge property.

In addition Newmont has drilled 15 holes testing and expanding the gold mineralization.

Cox: What are common misperceptions about rare earths?

Ranta: Probably their name – that they are “rare”. They are very abundant on earth and mining companies are finding occurrences of them all the time. Because of rare-earths’ physico-chemical properties, they are not often concentrated in exploitable deposits. Those same properties also make it difficult to concentrate rare-earths in laboratory or plant settings. Deposits such as Bear Lodge with a high grade of approximately 3.8% REEs are very unusual.

Cox: Talk about China and REEs.

Ranta: China produces nearly 100% of the world REE supply. Their near monopoly on production allows them to increase tariffs and prices on their products. The Chinese government recently increased export tariffs on Chinese rare-earths to between 15 and 25%. Is China a reliable supplier of REEs at reasonable prices for the long term?

Cox: Who is most concerned about China?

Ranta: Users of rare-earth elements produced by China, because of their near monopoly.

Cox: What deposits are currently being looked at worldwide?

Ranta: Mountain Pass, California; Bear Lodge, Wyoming; Mt. Weld, Australia; Nolans Bore, Australia; Olympic Dam, Australia; Hoidas Lake, Saskatchewan; Thor Lake, Northwest Territories; Palabora, South Africa; Bayan Obo etc in China.

Cox: Are there any significant stockpiles of rare earths in the world today?

Ranta: The tailings dam at Bayan Obo in China or one of the other mines there may be considered a stockpile.

Cox: What is the history of the Bear Lodge deposit?

Ranta: The first prospecting activity in the Bear Lodge area probably took place in the late 19th century when gold prospectors worked placers and small veins in the Bear Lodge Mountains. Thorium and REE mineralization was recognized in 1949 and resulted in a flurry of prospecting activity. The lack of a readily available market for these minerals in the 1950’s caused active exploration to cease. The US Geological Survey studied the Bear Lodge Mountains in the 1970s and reported that one of North America’s largest disseminated REE deposits is found there, according to MH Staatz (1983) in Profession Paper 1049-D.

Hecla Mining Company explored the Bear Lodge rare-earth mineralization in the late 1980s, identifying a swarm of carbonatite dikes at the Bull Hill Southwest target. Hecla drilled 12 core holes into the system intercepting multiple rare-earth concentrations in nearly every hole; earlier, four holes drilled by Duval and Molycorp also had intercepted rare earths. Based on the 16 holes with rare-earth intercepts completed by 1991, Hecla estimated a REE resource, which is considered historical, of 3.9 million metric tonnes (4.3 million tons) averaging 3.8% rare-earth oxides (not compliant with requirements of NI 43-101).

Rare Element has explored the Bull Hill area carbonatite dikes with core drilling of three holes in 2004, two holes in 2005, and three holes in 2007. All but two holes (RES 04-3 and RES 05-1) encountered significant intercepts of oxidized (FMR) and non-oxidized carbonatite dikes that host rare-earth mineralization. The Company’s drill holes were designed to confirm the presence of high-grade REE mineralization, to tighten drill-hole spacing within the mineralized zone, to expand the known mineralized zone of the Bull Hill Southwest target, to gather metallurgical test samples, and to test other REE targets. The historical grades and thicknesses of rare-earth-bearing mineralization defined by Hecla as occurring in FMR and carbonatite dikes have been verified by Rare Element’s recent drilling programs. Metallurgical test work has been previously conducted at two laboratories and a new metallurgical testing program is ongoing using samples from the 2007 drilling program.

Cox: Describe the geology that allows for the presence of this deposit.

Ranta: The Bear Lodge Mountains are composed of the upper levels of a mineralized Tertiary alkaline-igneous complex that has intruded and domed the surrounding Paleozoic and Mesozoic sedimentary rocks in the early Tertiary (approximately 38-50 million years ago). A few large Precambrian rock inclusions are found within the complex and host some of the gold mineralization. The alkaline complex has surface dimensions of approximately 4.5 by 10 km (2.8 by 6 miles) elongate in a northwesterly orientation, with a number of small intrusive outliers cutting sedimentary rocks outside the complex. Rare-earth-element mineralization occurs in the north-central core of the Bear Lodge dome, which consists of multiple intrusions of phonolite, trachyte, and other alkaline igneous rocks, and a variety of associated breccias and diatremes.

Extensive rare-earth occurrences in well-defined near-surface FMR (iron oxide-manganese oxide-REE) dikes and deeper carbonatite (a high-carbonate igneous rock) dikes are surrounded by a number of more widely distributed gold occurrences. One swarm of dikes, striking northwesterly and dipping steeply to the southwest, intrudes a body of heterolithic intrusive breccia of the Bull Hill diatreme. FMR (iron oxide-manganese oxide-rare earth) dikes and veins are interpreted to be intensely oxidized and leached equivalents of the carbonatite bodies that have been strongly weathered from surface to about 120 m (400 ft) deep and moderately weathered another 30 m (100 ft) or so. Carbonatite dikes are interpreted to transition toward the surface into FMR and range in size from veinlets to large dikes approaching 15 m (50 ft) in width. Virtually all of these REE occurrences in the Bear Lodge area are controlled by Rare Element Resources’ claims.

Drill holes in the Bull Hill Southwest target have penetrated the dike swarm including one main thick dike ranging up to 15 m (50 ft) in true thickness, but the dikes have been demonstrated to pinch and swell in both strike and dip directions. The dike swarm has been traced with drill holes up to 240 m (800 ft) along strike and 300 m (1000 ft) down dip, and the dikes appear open down dip and in a southeasterly direction.

Cox: What is the current status of permitting at Bear Lodge?

Ranta: Environmental and permitting activities are being coordinated by Newmont for both gold and REE exploration. A systematic program of drill testing for grade and tonnage of a potentially large gold system is expected to proceed once a new exploration permit is in place allowing much greater flexibility for drill-hole locations than is currently available. Newmont’s permitting efforts are progressing in order to allow an expanded drill program on up to 200 acres. This permit also would allow much greater flexibility for the locating of drill holes for REE exploration. Permit approval could occur later in 2008.

Cox: Which area are you most excited about?

Ranta: The Bull Hill Southwest target is the most advanced with a historical resource, open for expansion in several directions, and, thus, the highest priority. Additional work here would most likely provide the greatest benefit, and metallurgical testing is being done on material from here. The Bull Hill Northwest target has an historical Hecla drill hole with excellent REE results, which has not been adequately offset and explored. The Potential Carbonatite Plug target indicated by an REE-mineralized carbonatite stockwork zone is interpreted to lay at depth southwest of Bull Hill Southwest. The stockwork zone was detected in past holes drilled by the Company, Hecla, and Molycorp. It is interpreted to be a carapace, or shell, over a potential large plug-like intrusive body of carbonatite. This plug is hypothesized to be the feeder structure for the Bull Hill dike-swarm and other carbonatite dikes in the vicinity. Because of its possible size, the potential for a large mineralized plug is one of the most attractive REE exploration targets in the district.

Cox: What are the most significant uses for REE?

Ranta: Industrial uses include:
• Catalysts, including petroleum cracking & auto emissions
• Rechargeable batteries, super magnets
• Hydrogen storage, nuclear reactors, magnetic refrigeration
• Metal-alloying, ceramics & glass additives
• Fiber optics, lasers, phosphors, computer memory

Consumer product uses include:
• About 20 kilograms of REEs in every hybrid car
• TVs, computers, cell phones, DVD players, cameras
• Nickel-metal-hydride batteries, fluorescent lighting
• Medical Magnetic Resonance Imaging equipment
• Car catalytic converters, computers & electrics

Cox: Are there any advantages to the mineral ancylite?

Ranta: Ancylite is the principal rare-earth mineral, which is intergrown with strontianite, in non-oxidized carbonatite dikes of the Bear Lodge property. Ancylite is a carbonate and, as such, is easily amenable to acid leaching once it is concentrated. It contains about 43% total REE, so it has less total REE than bastnaesite, which contains about 75% total REE. Our current metallurgical testing program should provide a more complete answer to the question.

Cox: Are there any significant world deposits known to contain ancylite?

Ranta: I am in the process of learning about the mineralogy of different REE deposits around the world. At this time I do not know of any other deposits with ancylite as the principal rare-earth mineral.

Cox: How much thorium is present in the minerals?

Ranta: Preliminary analysis has indicated a range from a few ppm up to a few hundred ppm thorium in the REE-mineralized material at Bear Lodge. Thorium-bearing minerals in thorium-rare-earth element veins and dikes tend to be stable under natural conditions and concentrate as detrital, relatively insoluble, resistate minerals, even in low pH conditions. Thorite and thorianite have been identified at Bear Lodge, and it is uncertain if any thorium occurs in REE minerals.

Cox: Who do you rely on for your REE market research?

Ranta: Only limited market research has been done by RES. We use several sources such as conferences, several websites, industry experts, the Mining Journal, Metal-Pages Ltd. – from which we get the regular price updates, and various other industry participants like ourselves that put such information on their websites.

Cox: What is the biggest advantage of Bear Lodge?

Ranta: An identified and historically estimated resource of high-grade REO with significant expansion potential located in an easily accessible area with excellent infrastructure nearby; also located in Wyoming which is a state that is friendly to mining and mineral development.

Cox: What is the biggest challenge at Bear Lodge?

Ranta: Initially the biggest challenge is to determine the amenability to metallurgical extraction of rare earths from the relatively high-grade rare-earths mineralization on the Bear Lodge property.

Cox: What has surprised you the most about the rare earths?

Ranta: My biggest surprise is to learn about how rare it is to find economic deposits of rare earths and secondly how widely they are used and the potential for expanding those uses. Also it is surprising that China currently produces nearly all of the rare earths used worldwide.

Clint Cox: How did you get interested in the Rare Earth Elements (REE)?

Don Bubar: It followed from an initial interest in the rare metals lithium and tantalum. After we acquired Thor Lake as an additional rare metals asset, it soon became apparent that (because of the enrichment in the HREE) that the REE represented the best near term development opportunity for this polymetallic rare metals resource.

Cox: What role do the REE play in today’s society?

Bubar: An evermore important role in many emerging “green” and “clean” technologies. I think we are just seeing the tip of the iceberg with these unique elements and many more new applications will emerge as new supply sources such as Thor Lake are brought on stream.

Cox: Describe the minerals present at Thor Lake.

Bubar: The deposits at Thor lake contain virtually every documented REE mineral species of economic importance. These include bastnaesite, xenotime, monazite, synchiste, parasite, allanite and fergusonite. In the Lake Zone we are finding sub-zones enriched in fergusonite, a rare yttrium-niobium-tantalum oxide mineral that preferentially concentrates the lanthanides of mid-atomic number from Neodymium through Dysprosium. Unlike xenotime, it has no associated thorium and instead is closely associated with zircon. We think it will it will make a superb quality REE mineral product.

Cox: What is the current status of the metallurgy for Thor Lake?

Bubar: Lots of work was done historically on the xenotime and bastnaesite mineralization in the North T deposit. Some work was done for tantalum in the Lake Zone ores in 2001-2002, which succeeded in producing a bulk tantalum-niobium-REE concentrate by flotation methods. At the present time, we are initiating a test program at SGS Lakefield Research to continue this work and optimize the process to produce a concentrate relatively enriched in fergusonite and the heavy REE.

Cox: What is the timeline for production?

Bubar: 3-5 years, with the mid-point of that range (2012) being the most likely date for initial production of concentrate. In 2008, we plan to complete a pre-feasibility study on the Lake Zone resource.

Cox: What do you see as the upside to the rare earth market over the next 3 to 5 years?

Bubar: Certainly the rapid expansion of the markets for rare earth magnets of different formulations in various applications especially in fuel efficient cars is the biggest upside. Other emerging technologies such as magnetic refrigeration also loom as important new markets. I am a big believer in the principle that increasing supply of heavy rare earths will greatly expand their markets.

Cox: What do you see as the greatest risk for the rare earth market?

Bubar: Substitution by other alternative materials in high volume markets is always the greatest threat for any raw material. For the REE magnets. this is a long term risk as there are no substitutes known at present.

Cox: What are common misperceptions about rare earths?

Bubar: There is a lot of confusion amongst the general public about rare earths as a commodity group. The relative of abundance of the lights vs. heavies and the fact that they all occur together in a given deposit requiring sequential separation and the economic consequences of this, are the biggest public misunderstandings about REE.

Cox: What is the history of the Thor Lake deposit?

Bubar: Thor Lake is a classic example of a unique mineral resource found before its time. It is enriched in many different rare metals in a number of distinct zones. Early work in the 70’s was focused on tantalum and niobium. Then the North T was discovered as a rich beryllium resource and this potential became the focus of development work through the 80’s. A bit of work was done in the late 80’s for yttrium and REE, but it was not until Avalon got involved in 2005 that the REE became the primary focus of economic interest in the property.

Cox: Where will the ore from Thor Lake be processed?

Bubar: Unknown at present but a number of scenarios will be considered. Like most mineral deposits where the minerals of economic interest occur in low concentrations, the most likely scenario is a concentrator on site, with concentrates being shipped elsewhere for refining.

Cox: What are the biggest potential uses for REE?

Bubar: Expanded uses of magnets for magnetic refrigeration and efficient power generation plus new uses in specialty alloys, glass and ceramics.

Cox: The Thor Lake site seems to be fairly complex to understand – how would you explain it in the most simple terms?

Bubar: I would describe it as a very large polymetallic rare metals resource consisting of a number of distinct mineralized zones where rare metals have been variably enriched, likely due to multiple mineralizing events. It appears to be unique in a global context and likely of considerable future strategic value because of its uniqueness.

Cox: What is the biggest advantage of Thor Lake?

Bubar: It’s exceptional enrichment in the heavy rare earths, very large size and near surface flat-lying geometry. It also has many potential valuable by-products.

Cox: What is the biggest challenge at Thor Lake?

Bubar: It’s relatively remote location in the Northwest Territories and the operational challenges that come along with it. Permitting is always a challenge for greenfields projects these days and the NWT is no exception in this regard, where on-going aboriginal land claim negotiations introduce a further complicating factor.

Cox: What has surprised you the most about the rare earths?

Bubar: Their remarkable versatility and the explosive growth in demand for the rare earth magnets.

Cox: Thanks, Don!

Clint Cox: Describe the current state of the Rare Earth market.

Don Bubar: Tight. Demand is growing while supplies are increasingly constrained. Potential new non-Chinese supply sources of LREE are still at least a year or two away from production and they cannot alone fill the growing demand. Potential new sources of HREE are fewer and even further away from production. Prices are likely to stay buoyant for a few years.

Clint Cox: Talk about China and REEs.

Don Bubar: For the global market to grow, new sources of supply are needed. The Chinese also recognize this. They also recognize the need for new supply sources to emerge that are enriched in HREE.

Clint Cox: Who is most concerned about China?

Don Bubar: Japan. REE are vital to many Japanese industries, yet they have no domestic sources of supply of raw materials and they are totally reliant on China.

Clint Cox: Describe the difference between the HREEs & LREEs.

Don Bubar: Like Gold and Silver…both precious and typically found together but like silver, the far greater abundance of the LREE compared to the HREE makes them much less valuable.

Clint Cox: Which elements are you most excited about?

Don Bubar: Terbium, dysprosium and especially lutetium. Lutetium is already extremely valuable (at several thousands of dollars per kg) and has many exciting potential applications that are not being exploited because of its rarity. It is virtually absent in most REE deposits but is enriched at Thor Lake and could add enormous value to the ore.