Ann: $58m Funding to Completion of Feasibility St, page-40

re: Ann: $58m Funding to Completion of Feasib... The funding transaction should be looked at from 4 aspects:

1. Dilution

Every exploration and development company dilutes equity to secure funding. At face value it is not that material whether you dilute at a shareholder equity level or asset level. In fact, diluting at the asset level early on during exploration and development can be advantageous as it is generally associated with long term and knowledgeable capital - not the impatient mistress of the market which will punish the share price at the drop of a dime. There is obviously the issue of calculating the cost of capital relating to the free carry to production and associated off-take. Considering that 16% of the expected capex is $14.4m, the premium paid relative to the market valuation does compensate for this. The 16% off-take at cost is hard to value but it should be remembered that the REE sector is a race and anything other than 1st place in terms of being the first supplier of HREE outside of China may result in project delays, sub-commercial off-take agreements or a project being shelved.

2. Off-take

NTU has not lost control over 36% of its off-take. They have secured 70% of Browns Range production at commercial terms which would be the outcome of negotiations held either now or at a later date. 16% of the off-take is the right of conglin at cost. Once again, the dynamic of the REE sector is that metallurgy is everything and poses the biggest risk. Part of ticking the metallurgy box is engaging with off-take partners so they can test your product and make sure it is compatible and conversely NTU needs to ensure their product specs match. The earlier this occurs the less likely any delays are caused by metallurgical issues - such as the ones being faced by most other hopefuls. We all agree that NTU has some distinct advantages over its peers due to metallurgy and distribution - securing off-take at this early stage is a result of those advantages and it is what you would expect and want. There is no point developing a mine and securing finance if you have no one to sell your product too.

3. Payments

There is nothing unusual or sinister about Conglin Yue staging his payments for the 16% Browns Range stake. Don't forget, he is on the line potentially for $24m in April this year as the full underwriter of the rights issue. It seems only normal that any business man in that position would hang on to the funds until it is needed as why would anyone in their right mind give away interest owing to them for a sum that large. The 16% stake is only divested upon payment.

Many have criticised that the deal could of been better, done at higher prices, avoided dilution etc etc. Lets not forget that despite the low capex and simplistic nature of the Browns Range operation, NTU still requires over $50m to complete exploration, feasibility studies, engineering work, bulk metallurgical test work, cover overheads etc etc before it can make a decision to construct and then they need $90. A large portion of the capital will be used in metallurgical test work and bulk samples, including the hydromet stuff. Securing finance in this sector and at such an early stage is not a simple task so the notion that they should have shopped this around until they got offered the sweat heart deal is just nonsense and shows a shallow understanding of the REE sector.

Raising $58m for any junior is a great result and this deal was done far better than many other companies out there who are further advanced. The situation would be a lot worse if NTU has to come to the market two or three times a year asking for $10-15m, and immediately being seen as cum raise. Funding constraints would also delay activities as mgmt would be hamstrung by capital and living hand to mouth so to speak. NTU might never come to the equity markets again, especially considering if the free attaching oppies to the rights get exercised, bringing in $18m.

4. Upside Valuation

There appears to me to be nothing but upside in value at this point. Wolverine will have its resource upgrade and Gambit West will see a maiden resource announced. On the size of resource, NTU has always stated that Browns Range will be operating using a central processing plant which will feed on multiple smaller 'pod' like deposits. The prospectivity of Wolverine and Gambit West match the best expectations if not better. Maybe a little slow coming but nothing wrong with quality or size. Don't forget NTU still has John Galt 100%. so any off-take lost at Browns Range to Conglin @ cost can easily be made back by increasing production at Browns Range or if John Galt gets going - which will be very high grade.

Remember people, this is a race to the finish. The window has shut in the LREE sector, and look how devastating that has been on LREE juniors. The same thing will occur in the HREE space and it is only prudent that NTU take all action necessary to ensure that they are the winner. Going that extra mile to ensure development remains on track requires a bit of give and take in the deals along the way, but in a few years time the fine details of this transaction will matter little if this funding and off-take agreement becomes the life blood of the company and forms the platform for growth.