Developments in the Rare Earth sector.

SMM (Shanghai Metals market) printed $62.185.04 / MT (including VAT) Yesterday

Praseodymium-neodymium oxide Price

The SMM platform is the only publication where Rare Earth prices are publicly available.
The prices published are spot prices that apply to the Chinese market based on the point
of delivery in China. Liquidity is such that prices are arbitrary if price discovery is used, as
the price can be based on only 1 or 2 daily transactions. This isn't a criticism of SMM. The
nature of the Rare Earth market is minimal compared to other extracted minerals. The
price paid by buyers external to China is much higher than the published Chinese prices,
but the actual prices achieved are opaque and not publicly available.

In China, None-spot prices for forward delivery are determined by the two biggest
producers of NdPr oxide, which are the China Rare Earth Group and the China Northern
Rare Earth Group. The Chinese government consolidated these companies from 6
smaller companies in the last few years. Prices for delivery of NdPr Oxide in September
increased by 4.4% compared to August, after being flat the previous three months and
declining dramatically the month before. SMM Spot prices have increased by almost 25%
in the same period as producers restrained supplies and held to their prices despite
resistance from end users

Chinese quota increases and consequent overproduction have impacted market
confidence. The overproduction has been brought about by forecasts of Electric vehicle
production that have been widely overstated in the short term, with price increases in
energy prices resulting from global events such as Covid, the Ukraine and Middle East
wars a]ecting consumer confidence in the transition economy. Sales have been further
impacted by the dramatic depreciation of electric cars when they come up for resale,
compared to IC engine vehicles, disincentivising buyers from buying new EVs, at least in
the short term. Opinions vary, but the most realistic opinion is that initially purchased EVs
are now coming onto the used market. At the same time, EV production is being hyped
and ramped up by manufacturers. The market for EVs is still in its infancy, and the high
total availability of EVs and the still limited demand has created a significant imbalance.
Excessive depreciation of EVs can be considered a teething problem, which will be
resolved as the market size for EVs increases dramatically and rapidly

Governments are backpedalling from their initial policy implementation dates, but they
are not, nor will they eliminate them.

Unforeseen world events have generated an oversupply/demand imbalance, impacting
the current NdPr pricing compared to that forecast. However, the estimates are still
based on expected undersupply/demand imbalances being experienced in the future.
Forecasts never align with estimated timelines due to unforeseen events that cannot be
included in economic models, skewing the estimates away from the expected from the
expected timelines. However, what we know strongly supports the idea that the NdPr
supply gap will continue to increase unless there is a dramatic increase in the supply. The
project economics over the last twelve months have ensured that the supply gap will
grow, inevitably leading to higher prices.

The following factors are rarely discussed, but the imbalances will not be caused purely
by a general increase of demand over supply but also by individual countries' realisation
that their interests are being compromised by the present rare earth pricing, which was
brought about either deliberately as a reaction to East/West tensions or inadvertently due
to unforeseen market conditions caused by global events.

According to the US Geological Survey, the Earth's estimated rare earth reserves are
equal to 110 million tons. Of this, 44 million MTs are estimated to be in China. From 2022
to 2023, global Total Rare-Earth mine production increased by 17% from 300,000 MTs to
350,000 MTs. China accounted for 210,000 MTs of the 300,000 MTs (70%) in 2022 and
240,000 MTs of the 350,000 MTs in 2023, a slightly reduced percentage at 68.5%. The
di]erential is made up by increased supply from Canada, whose production increased
from 12,000 MTs to 38,000 MTs in the same period. These numbers show dramatic growth
in TREO production, albeit overdone in 2023/24

This year's pricing lows and the impact they are having on the whole industry, especially
Chinese producers, and how this may negatively afect their Chinese strategic interests
have been recognized by the Chinese government. Prompted by numerous Chinese
entities declaring dramatically reduced profits and, in many cases, huge losses, such as
those highlighted in an article in the Nikkei Asia in July this year

Recognising the current situation's danger, the Chinese government have stated that "the
state will take control of rare-earth resources to ensure national resource security and
industrial security.". Also, it said that "Those who manage rare-earth resources "shall
implement the lines, principles, policies, decisions and arrangements of the Party and
the State," this directive e]ectively puts the Chinese Rare Earth industry under state
control. This policy will be enforced starting October 1st, 202