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Avalon Rare Metals' Investors find Value in Advanced Stage Nechalacho REE Deposit

Avalon Rare Metals' (TSX:AVL, OTCQX:AVARF) primary asset is its 100% owned, advanced stage Nechalacho Rare Earth Deposit located in the Northwest Territories of Canada. Not more than a year ago rare earth elements (REE) were on the radar of just a few analysts. Rare earth companies like Avalon worked tirelessly to communicate the coming global shortage of REEs. Today, the REE market is on fire, and Avalon believes that Nechalacho is one of the highest quality, undeveloped REE deposits in the world, unique in its exceptional enrichment in the heavy rare earths.

Resource Intelligence: The last time we talked, a year ago, your main deposit had been established and it was one of the biggest rare earth deposits known in the world with a large portion of the more valuable heavy rare earths. You announced a new resource estimate in January for the Nechalacho deposit based on your 2009 summer drilling. Can you talk a bit about the size of the upgrade, where you were and where you are now?
Don Bubar: Yes, in January we disclosed the results of definition drilling from 2009 and how much of that large inferred resource could now be classified as indicated. We actually increased the indicated resources in the Nechalacho Basal Zone by 102% to nine million tonnes grading 1.86% TREO. Of course, it didn't increase the total resources, but it was a big step forward in that we now know we have more than enough tonnage to support the prefeasibility study. So, now the engineers can start to do the mine development planning and engineering for this study.
It was very encouraging that we had very few misses in that infill drilling, so we're proving up excellent continuity in the resource there. We're also more confident now that further infill drilling elsewhere will have similar success in turning those inferred resources into indicated resources.

RI: What's the near-term goal for your Nechalacho deposit?
DB: To complete a prefeasibility study and our target for that is Spring, 2010.

RI: What is the geometry of the deposit like?
DB: If you look at the overall geometry of the resource, it's kind of a flat-lying layer cake with layers of varying grades. The Upper Zone is a broad lower-grade zone and the Basal Zone is proving to be the high-grade "sweet spot". It's the layer near the bottom of the package with a relatively high enrichment of the more valuable heavy rare earths.

RI: Is the Basal Zone your main focus for development?
DB: Yes. The heavy rare earths are really the story here and that's what you want to find in a rare earth deposit to have a reasonable chance of having an economically feasible deposit. Heavy rare earths really juice up the value of the ore and they are the rare earths with real supply concerns going forward. Light rare earths are really not that rare. That's important because you can't selectively extract heavy rare earths from the light rare earths. You produce all fifteen or so rare earths as a group in whatever proportion they occur and then you separate them afterwards. So in a light rare earth deposit with a low proportion of heavy rare earths you can't produce more heavies -you're stuck producing predominantly the light, less valuable REEs.

RI: Can you give some examples of what heavy rare earths might be used for today as opposed to a light rare earth?
DB: A couple of the really key applications that are sustaining strong demand are in electronics, specifically rare earth phosphors that are used to create the colours in any display screen such as TVs and computer monitors. The Blackberry also relies on rare earth phosphors. There is no substitute for them.
The other important use is in certain types of rare earth magnets. The neodymium-iron-boron magnet has become the high strength magnet of choice in a lot of electric motors such as those in the hybrid car. In high heat environments magnets are subject to demagnetization, which can be a problem with hybrid vehicles, for example, where you have a combustion engine under the hood throwing off a lot of heat. The heavy rare earths can be added to that magnet formulation to create a heat resistant magnet. So with changing technology, heavy rare earths are now vital to many new applications in increasing quantities.

RI: So let's talk a bit about the deposit. We know it is rich in heavy rare earths, we know they are more valuable than the light rare earths, we know that new technologies demand HREEs. Do we have any sense of the target value of Nechalacho?
DB: Yes. Although the prices are not as accessible as gold and base metals, there are services that track them. Once you know the distribution of lights vs. heavies, it tends to remain constant throughout that deposit, so you can then take the individual prices and individual grades for each of the rare earths and work out an average value per kilo for your particular distribution. In our case, that higher proportion of heavy rare earths makes for a higher value of that basket on a dollars per kilo basis. So whereas a lot of light rare earths deposits are looking at $10 to $14 per kilo, we're looking at around $20 per kilo and up, roughly speaking.

RI: Can we translate that into a value per tonne of ore?
DB: Yes, based on a 2.0% TREO average grade, we think it will be somewhere in the $400 to $500 per tonne range depending on where the prices for the individual metals end up.

RI: What would operating costs for a deposit like Nechalacho add up to?
DB: Right now we think it will be around $200-$250 a tonne. That is to mine it, mill it to a mineral concentrate and then do a second step called hydrometallurgy, which will extract the rare earths into solution and then take them out into a mixed rare earth carbonate product that still requires further processing after that.

RI: And you have nine million tonnes just in the one indicated category, so it sounds like even at this stage of drilling you have a clear idea of value prior to the feasibility stage. Judging by your share price there is a lot of investor interest in Avalon right now. Why do you think that is?
DB: There was a lot of interest this year initially awakened by the Dines Letter back in May when it produced that piece on rare earths. Avalon was identified there as one of the stocks to buy as a way to get exposure to the rare earths. There has been a lot of subsequent publicity in the mainstream media and further commentary by analysts out there that have continued to raise the profile of rare earths with the investing public.

RI: How do the local Thor Lake people see the potential of a mine here?
DB: There is a lot of interest in this project among the local communities for a few reasons: It's different from what they're used to, which is primarily gold and diamonds and the elements are important in green technology. Also, the resource is large and offers the potential for a long life operation, which resonates well with any community. We're also getting quite a bit of interest because of the potential for other value-added, spin-off type industries. The Northwest Territories has generally been a jurisdiction where the mines have been developed and the product just leaves without any further value-added industries. Rare earths offer excellent possibilities in that regard.

RI: What lies between today and a mine at Thor Lake and Nechalacho?
DB: A bankable feasibility study is the next big task. Two major components to that are market development and identifying customers and, secondly, doing the environmental impact assessment that is integral to securing operating permits. It's a challenging process in the NWT. We are off and running on it already, but it is going to take some time. We think we are looking at a four year process from here to get to the finish line, on a feasibility study.

Milestones:

* Winter drilling completed
* Complete prefeasibility study by Q2 2010
* Production by 2014

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