Orbite: Rare Earth Elements from Clay or Coal Ash

ORBITE: A STRATEGIC RARE EARTH ELEMENTS PRODUCER

Prepared by Marcel C么t茅, Partner, SECOR Guillaume Caudron, Senior Manager, SECOR Joannie Tanguay, Consultant, SECOR

September 2012 Version 1

MONTREAL :: NEW YORK :: PARIS :: QUEBEC :: TORONTO :: VANCOUVER

TABLE OF CONTENTS DISCLAIMER AND GENERAL INTRODUCTION ................................................................................... 2 Disclaimer ................................................................................................................................................ 2 General introduction ............................................................................................................................ 3 The Study ............................................................................................................................................. 3 The Methodological Framework .................................................................................................... 3 Document Structure .......................................................................................................................... 3

1. EXECUTIVE SUMMARY ............................................................................................................... 4 2. RARE EARTH ELEMENTS 101....................................................................................................... 6 3. MAIN APPLICATIONS OF REES ................................................................................................... 8 Magnets .................................................................................................................................................. 8 Alloys ........................................................................................................................................................ 9 Polishing powders .................................................................................................................................. 9 Catalysts ................................................................................................................................................ 10 Other applications .............................................................................................................................. 10

4. REE MARKET: GROWING DEMAND IN A CHINA-CONTROLLED MARKET ..................................... 11 Growing REE demand for strategic industries ................................................................................ 11 China’s increasing domination of the market ............................................................................... 12 World dependence on China .......................................................................................................... 14

5. ORBITE ALUMINAE AS A POTENTIAL REE SUPPLIER ..................................................................... 16 Orbite’s rare earth elements: by-products of alumina production ........................................... 16 Orbite’s closed-loop hydrochloric acid regeneration process .................................................. 17 Orbite may become a strategic player on the REE market ....................................................... 18

6. CONCLUSION ........................................................................................................................19 ABOUT…...................................................................................................................................20 About Orbite......................................................................................................................................... 20

ADDITIONAL INFORMATION ......................................................................................................... 21

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DISCLAIMER AND GENERAL INTRODUCTION DISCLAIMER Some statements contained in this document are forward-looking. These forward-looking statements relate to Orbite’s future financial conditions, intentions, expectations, beliefs, and operational or business results. These statements may be current expectations and estimates relating to markets in which Orbite operates and assumptions regarding these markets. In some instances, these statements require management to make assumptions, and there is a significant risk that these assumptions may not be correct. The words “may,” “would,” “could,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” and other similar expressions, as they relate to Orbite or its market, often identify forward-looking statements. Such statements reflect SECOR’s current beliefs and are based on information currently available. These statements are subject to important risks, uncertainties that are difficult to predict, market versatility, and assumptions that may prove inaccurate. The results or events predicted in forward-looking statements may differ substantially from actual results or events. SECOR and Orbite disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

No reliance may be placed for any purpose whatsoever on the information and opinions contained in this document or on their accuracy or completeness. No representation, warranty or undertaking, expressed or implied, is given as to the accuracy or completeness of the information and opinions contained in this document by SECOR or Orbite, their employees or its affiliates, and no liability is accepted by such persons for the accuracy or completeness of any such information and opinions. Nothing contained herein can be relied upon as a promise or representation as to past or future performance.

Orbite’s Revised Preliminary Economic Assessment published on May 31, 2012 (PEA), is preliminary in nature and it includes Inferred Mineral Resources of aluminous clay as they relate to alumina, metals oxides and earth rare elements that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There is no certainty that the conclusions reached in the PEA will be realized. Mineral Resources that are not Mineral Reserves have not demonstrated economic viability.

The information of a scientific or technical nature relating to REEs discussed herein has been reviewed and approved by Marc Filion, Eng., a “qualified person” pursuant to National Instrument 43-101 – Standards of Disclosure of Mineral Projects (NI 43-101). Mr. Filion is a consultant employed by Orbite, and as such, is not independent pursuant to NI 43-101.

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Disclaimer and General Introduction…

GENERAL INTRODUCTION THE STUDY This study is an analysis of the global market for rare earth elements (REEs) and the opportunity it presents for Orbite Aluminae. Orbite will produce REEs as by-products of its alumina production, which uses a new proprietary process to extract alumina from aluminous clay.

“Orbite: a strategic rare earth elements producer,” is part of a series of five white papers. Topics addressed in the additional four reports include:    

The High-purity alumina market and Orbite’s competitive advantages Orbite’s red mud remediation and mineral recovery process Orbite: a strategic scandium producer Orbite: a strategic gallium producer

All five reports present a strategic view of the various markets and products Orbite is targeting outside of smelter-grade alumina (SGA), which has been fully covered by the PEA. 1

THE METHODOLOGICAL FRAMEWORK Using existing studies, public data, reports from experts, and information and data provided by Orbite, this white paper presents a point of view on Orbite’s rare earth element market potential based on collected data and SECOR’s analyses. This study presents a strategic, rather than technical point of view.

DOCUMENT STRUCTURE The study is comprised of the following four sections: 

Introduction to rare earth elements and their complex production process.



Overview of the main applications of rare earth elements, including: magnets, alloys, polishing powders, catalysts, phosphors, glass additives and ceramics.



Current status of the rare earth elements market, which is almost entirely controlled by China yet facing increasing global demand.



Potential opportunities for Orbite Aluminae as a strategic supplier of rare earth elements.

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Orbite NI 43-101 Revised Technical Report, prepared by Roche and Genivar (May 30, 2012)

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1. EXECUTIVE SUMMARY Rare earth elements (REEs) are critical for manufacturing numerous products in various industries such as high technology and green technologies, as well as aerospace and defence. 





The category REE includes 17 elements that are considered strategic by various industries and are subject to a complex production process: 

REEs include the 15 different lanthanide elements, plus scandium and yttrium; the latter has important properties such as magnetism, luminescence, and strength.



REEs are actually plentiful in the earth’s crust, however low concentration levels typically limit the profitability of REE mining.



REE production can be time-consuming and expensive. The process involves ore mining and crushing, floatation, metallurgical cracking of the REE-bearing minerals, and extraction of rare earth oxides. The oxides are then transformed into rare earth metals, and eventually used in various applications.

REEs are used in a wide range of applications: 

Magnets, generally used in electrical motors and generators, enable the miniaturization of electronic devices such as laptops and cellphones, and represent a major portion of REE usage. The bestknown magnets are neo-magnets and samarium-cobalt magnets.



REEs are also used in alloys (metals and batteries) to improve selected properties. Demand for battery alloys is being driven largely by the sale of electric vehicles worldwide.



High-quality surface (e.g. televisions, panel displays, monitors, mirrors) polishing applications are also among important REE uses.



REEs are used in catalysts for both the oil industry (fluid cracking) and the automotive industry (automobile catalytic converters).



Other important applications include phosphors (for devices requiring colour in the light exhibited), glass additives, and ceramics.

Global REE markets are experiencing significant growth but are constrained by China’s dominant position as the supply source : 

Worldwide demand for REEs is driven by technological advancements, as well as an overall increase in consumer buying power of these new technologies, especially among the middle-class in emerging markets.



China controls 97 percent of global REE production, and the Chinese government is highly involved in supporting its domestic industry, but does so while also imposing restrictive export quotas on REEs.



Countries like the United States and Japan, which rely on China for 91 percent and 82 percent of their REE needs, respectively, are concerned about REE supply security and are actively looking to diversify their supply sources.



Although its main business is alumina production, Orbite has developed a unique proprietary extraction process to recover other valuable materials, including 11 rare earth elements, including scandium, plus gallium.

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1. Executive Summary…

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Given Orbite’s production optimization and high recovery rate (90+ percent compared to a 60-70 percent industry average recovery rate ), its process offers a lower cost and greater REE capacity to supply industrial demand. 2



Based on the extraction process that Orbite successfully demonstrated at its pilot plant on an industrial scale, it should be well positioned to become a strategic low-cost REE supplier:



Most importantly, Orbite could be an important strategic alternative for REE buyers, especially those located in the Americas, to ensure a sustainable and affordable supply.

Orbite announces 93% oxide extraction and separation rates for certain rare earths and rare metals confirming the significance of its alumina production project. Press release 21 June 2012

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2. RARE EARTH ELEMENTS 101 Rare earth elements (REEs) are gaining in importance around the world. They are a key component in a broad range of products and in various industries such as high technology, clean energy, as well as aerospace and defence. The REE category includes a set of 17 elements: the 15 lanthanides, plus scandium and yttrium.

Scandium and yttrium are included with the lanthanides as REEs because they have similar properties and are often found in the same ores.

Lanthanides are divided by weight into “light” and “heavy” groups. Heavy rare earths have higher atomic numbers and so are slightly denser than the light REEs. REEs can be found in a variety of minerals, but bastnaesite and monazite ores have the highest concentrations. Monazite tends to contain two to three times more heavy elements than bastnaesite, but has significant radioactive thorium content. REEs can also be found in other types of deposits such as aluminous clays.

RARE EARTH ELEMENTS RARE EARTH ELEMENTS

MAJOR END USES

Lanthanum (La)

Auto and aircraft catalysts, hybrid engines, metal alloys, optical lenses, phosphors

Cerium (Ce)

Auto catalysts, petroleum refining, metal alloys, glass polishing

Praseodymium (Pr) Light lanthanides Neodymium (Nd)

Magnets, metal alloys for aircraft engines Magnets, lasers, auto catalysts, petroleum refining, laptop hard drives, headphones, hybrid engines

Promethium (Pm)

Nuclear power batteries, portable x-ray sources, lasers

Samarium (Sm)

Magnets

Europium (Eu)

Phosphors, red and blue colour for television and computer screens

Gadolinium (Gd)

Magnetic resonance imaging (MRI), metal alloys

Terbium (Tb)

Phosphors, permanent magnets, metal alloys

Dysprosium (Dy)

Permanent magnets, hybrid engines, lasers

Holmium (Ho) Heavy lanthanides Erbium (Er)

Glass colouring, lasers Phosphors, fibre optics, lasers

Thulium (Tm)

Medical x-ray devices

Ytterbium (Yb)

Lasers, steel alloys

Lutetium (Lu)

Catalysts in petroleum

Scandium (Sc) Nonlanthanides Yttrium (Y)

Metal alloys, lighting, lasers Fuel efficiency, lasers, microwave communication devices, garnets, metal alloys

Source: Congressional Research Service, DOI, US Geological Survey, Circular 930-N

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2. Rare Earth Elements 101‌

Despite their appellation, rare earth elements are actually relatively abundant in the earth’s crust. However, they are usually found in very low concentrations, which make them impractical to mine. The process of extracting and transforming REEs into manufactured products tends to be long and expensive, which means that only a limited number of ore types are actually processed.

The normal REE production process consists of five steps. First, ore containing REE is mined. Next, the ore is separated into individual rare earth oxides. To achieve this, the ore is ground into small particles and then ore bearing minerals are separated from non-essential minerals through a floatation process where the ore floats to the top of the flotation cells and is then extracted. Flotation works best with coarse grade REEbearing minerals. Floating fine-grain particles is relatively difficult and so it lowers the overall efficiency of the process. The concentrated REEs are separated using acid solvents, followed by countercurrent solvent extraction to separate the individual REE. At this stage, the REEs are converted in either hydroxide or oxide form. These oxides or hydroxides are then refined into rare earth metals. Finally, the rare earth metals are transformed into alloys to be used in commercial applications.

SCHEMATIC REE PRODUCTION PROCESS

Source: Institute for the Analysis of Global Security

Rare earth elements are in high demand for their magnetic, luminescent, and strength properties, and many products would not exist without these elements. REEs have been used in the high-tech industry for many years. Clean energy and military applications are also increasingly important markets for REEs. For many applications, REEs’ super-magnetic strength is essential to achieve high miniaturization. They are also a key component in technology designed to reduce energy dependence.

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3. MAIN APPLICATIONS OF REES REEs’ magnetic and conductive properties make them critical for commercial and military applications. The United States Department of Energy and the European Union have included rare earths on their critical elements lists, and both are working on strategies to diversify their supply to lessen their dependence on China, which essentially monopolizes global REE production.

REE DEMAND FOR VARIOUS APPLICATIONS Worldwide, in tonnes

32,000

Magnets

48,000 28,000

Alloys

35,000 20,000

Polishing powders

30,500 30,000 28,500

Catalysts Phosphors

8,000 13,000 11,000 11,000

Glass additives Ceramics

2010 / Total demand 134,000 tons

5,000 19,000

2015F / Total demand 185,000 tons

Source: Industrial Minerals Company of Australia (IMCOA)

MAGNETS Rare earth magnets represent about 20 percent of the global magnet market. Future demand for rare earth magnets is expected to grow by 10 to 16 percent per year according to a recent report from the Congressional Research Service. There are two kinds of rare earth magnets: neodymium-iron-boron magnets (also called “neo-magnets”) and samarium-cobalt magnets. Both enable the miniaturization of electric devices.

They are used in small motors (e.g. computer disc drives, electric windows in cars), large motors (e.g. electric cars), generators (e.g. wind turbines), and other applications such as magnetic resonance imaging and loudspeakers/headphones.

Neo-magnets are more powerful and more commonly used than samarium-cobalt magnets. They are also known to be more reliable and more efficient, which is especially important for offshore wind turbines. Neomagnets are made primarily of neodymium and praseodymium, but they also contain smaller proportions of dysprosium and terbium. Samarium-cobalt magnets are mainly used in the defence sector, particularly for navigation tools.

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3. Main Applications of REEs…

ALLOYS REEs are also frequently used in metallurgy in small amounts to obtain or improve selected properties of alloys. Cerium and lanthanum are used in pyrophoric alloys for flint ignition devices. Yttrium, lanthanum, and cerium are used in heat-resistant superalloys to increase their performance. In other alloys, termed “mischmetal” (mixed metals), lanthanum, cerium, neodymium, and praseodymium improve stability.

According to the United States Geological Survey (USGS), the most commonly used REE in metal alloys is cerium, which accounts for slightly more than 50 percent of the REEs used in metal alloys. Metal alloys also account for 14 percent of the total cerium consumption, all applications combined. Scandium is mainly used for aluminium-scandium alloys, mostly in the aerospace industry.

Besides metallurgy, REEs are also used in battery alloys, in particular nickel-metal hybrid (NiMH) batteries for hybrid electric vehicles; the growing demand for electric vehicles worldwide is putting pressure on the REE supply. REEs are used in the negative electrode of NiMH batteries, which contain a broad range of materials. These materials (including REEs) are used to store hydrogen within the lattice of the electrode. The main REEs involved in this application are lanthanum and cerium, with smaller proportions of neodymium, praseodymium and samarium present. Currently, 75 percent of the total consumption of samarium is dedicated to battery alloys.

ELECTRIC VEHICLE SALES Worldwide

3 000 000

2 500 000

Battery electric vehicles

2 000 000

Plug-in hybrid electric vehicles 1 500 000

1 000 000

Hybrid electric vehicles 500 000

0

Source: Pike Research

2011

2012F

2013F

2014F

2015F

2016F

2017F

POLISHING POWDERS The main REE used in polishing powder applications is cerium, although smaller proportions of lanthanum, neodymium, and praseodymium may also be used. Polishing powders made of REEs are sprayed onto glass during the process of chemical dissolving and mechanical abrading operations. REE usage allows for high-

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3. Main Applications of REEs‌

quality surface polishing, common in the manufacturing of products such as panel displays, televisions, monitors, and mirrors.

CATALYSTS Catalyst applications account for about 20 percent of total REE usage. Catalysts are mainly used for fluid cracking in petroleum refining, and in smaller proportions for automobile catalytic converters. Fluid cracking allows for the transformation of heavy hydrocarbons into lighter hydrocarbon fractions. The success of this process depends on controlled temperature and pressure conditions, which in turn depend on the performance of the catalyst. REEs in automotive catalytic converters are not used in the main catalyst, but as a protective coating for the main catalytic elements to guarantee clean combustion, reduce emissions, and improve energy efficiency.

The global concentration of REEs in catalysts averages 3.5 percent. According to the USGS, the main rare earth oxides used in catalysts are lanthanum (66 percent), cerium (32 percent), neodymium (0.8 percent), and praseodymium (0.06 percent). Catalyst manufacturing accounts for almost half of all lanthanum oxide use, the large majority of which is used in fluid cracking. However, catalysts account for around 20 percent of the total consumption of cerium oxide, which is primarily used for automobile catalytic converters.

OTHER APPLICATIONS The main REE involved in phosphor applications is yttrium. Other REEs involved are cerium, lanthanum, europium, terbium and gadolinium. According to the USGS, 100 percent of europium consumption and 90 percent of terbium consumption is dedicated to phosphor applications. Phosphors are used in various applications where colour in the light is required, such as light-emitting diodes (LEDs), compact fluorescent lamps (CFLs), plasma displays, and liquid-crystal displays (LCDs).

REEs are also used as glass additives for colourizing, decolourizing, absorbing ultraviolet light, and altering refractive index functions. The main REE used for this kind of application is cerium, although smaller proportions of neodymium and praseodymium are also involved.

In ceramic applications, the main REE is yttrium. Smaller proportions of lanthanum, cerium neodymium, and praseodymium are also used. Key uses of REEs in ceramics include pigments, refractory properties, semiconductor devices, and dental ceramics.

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4. REE MARKET: GROWING DEMAND IN A CHINACONTROLLED MARKET REEs are critical to various commodities in the modern world. Demand for high-tech products is steadily growing in industrialized countries but increasing even more rapidly in emerging markets where the buying power of the middle class continues to expand. This is especially true for the BRIC countries (Brazil, Russia, India, and China).

GROWING REE DEMAND FOR STRATEGIC INDUSTRIES REEs are also extremely important to various strategic industries including energy, high technology, and defence. REEs are present in consumer electronics and electric vehicles, and are also used in clean-energy devices such as wind turbines. Highly critical REE applications include defence-related weapons and equipment such as unmanned vehicle systems, destroyers, cruise missiles, and night-vision goggles. Other military uses include advanced optic technologies, radar and radiation detection equipment, advanced communication systems, and guidance and control systems. Because REEs are critical both for civilian and military purposes, control of the majority of the supply by a single country could present significant international relations challenges.

The United States has some REE reserves and limited domestic REE production. One new mine, Mountain Pass, is expected to begin full-scale mining and production next year. Unfortunately, they are only processing light REEs since their deposit does not hold significant heavy REEs. According to the Congressional Research Center, 100 percent of the United States’ heavy REEs are imported, except for the small portion obtained from REE recycling 3. Being completely reliant on imports is a concern in itself, but the fact that 91 percent of these imports come from a single country, China, is even more problematic. The United States is not the only country in this situation. Japan, an important player in high-technology and automotive industries, is also facing REE supply challenges. According to the Congressional Research Center, 82 percent of Japan’s REE imports come from China.

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Rare Earth Elements: The Global Supply Chain, prepared by Marc Humphries – Congressional Research Service (September 6, 2011) Version 1

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4. REE Market: Growing Demand in a China-Controlled Market…

RARE EARTH OXIDES SUPPLY AND DEMAND In tonnes

200 000

Total Demand China Demand 150 000

ROW Supply China Supply

100 000

50 000

0

2005

2006

2007

2008

2009

2010

2011

2012F 2013F 2014F 2015F

Source: Industrial Minerals Company of Australia (IMCOA)

CHINA’S INCREASING MARKET DOMINATION China has not always been the dominant supplier of REEs. From the 1950s until the 1980s, the United States was the main worldwide REE producer. But in the late 1970s, the Chinese government identified its high potential for REE production and started to invest massively in research and development, allowing the Chinese to develop more efficient REE mining techniques. Consequently, in the 1980s the annual growth rate of China’s REE production averaged 40 percent over successive years, and it is now the dominant player with 97 percent of worldwide REE production. Interestingly, much of that production is from a single mine, Bayan Obo, in inner Mongolia.

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4. REE Market: Growing Demand in a China-Controlled Market…

RARE EARTH ELEMENTS – WORLD PRODUCTION AND RESERVES 2010

RARE EARTH ELEMENTS

United States

MINE PRODUCTION

ECONOMIC RESERVES

% OF TOTAL

METRIC TONNES

METRIC TONNES

% OF TOTAL

0

0

13,000,000

11

China

130,000

97.3

55,000,000

48

Russia

0

0

19,000,000

17

Australia

0

0

1,600,000

1.5

India

2,700

2

3,100,000

3

Brazil

550

0.4

Low

0

Malaysia

350

0.3

Low

0

Canada

0

0

3,400,000

3

Other

0

0

18,700,000

16.5

Total

133,600

100.0

113,800,000

100.0

Source: US Department of the Interior, Mineral Commodity Summaries, USGS 2010, Congressional Research Service, SECOR analysis Note: Reserves above mentioned are only economic reserves, they do not include sub economic reserves estimated at 50 million metric tonnes

Not surprisingly, the Chinese government’s involvement was critical to the country’s rise within the REE market. In the 1980s when China was building up its REE mining industry, many unprofitable Chinese mines were subsidized by the government to stay in business. Today the government continues to support the industry with government-run “state key laboratories” and numerous REE research facilities, including the world’s largest REE research institute.

China’s domestic consumer market also contributes to increasing REE demand. In particular, China’s interest in clean technologies (e.g. wind turbines) is driving internal demand for REEs as new applications take up a greater proportion of its REE production, putting substantial pressure on the supply available to foreign countries.

The de facto Chinese monopoly on the supply of REEs has proven to be a politically sensitive issue. This was highlighted by the suspension of REE shipments to Japan in the wake of recent intensification of the longterm dispute between China and Japan over the Senkaku Islands in the East China Sea. At about the same time, China stated it would also gradually start putting restrictions on all export quotas, citing environmental preservation requirements. As a final move, China announced incentives for foreign companies—especially high-tech and green-tech companies—to relocate facilities to the country in exchange for improved access to rare earth elements. As expected, this heightened concerns for a number of foreign countries.

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4. REE Market: Growing Demand in a China-Controlled Market…

WORLD DEPENDENCE ON CHINA China’s dominance extends beyond mining. In fact, it currently controls most of the REE supply chain, which is highlighted in the magnet supply chain illustrated below. According to the U.S. Government Accountability Office, China produces about 95 percent of rare earth ores, 97 percent of rare earth oxides, 100 percent of refined rare metals, 89 percent of rare earth alloys, and between 60 and 75 percent of magnets 4.

CHINA’S INVOLVEMENT IN THE RARE EARTH SUPPLY CHAIN Illustration of the permanent magnet case

1. Mine rare earth one

China produces about 97% of rare earth ore

2. Separate ore into oxides

According to industry, China produces about 97% of rare earth oxide

3. Refine oxides to metal

Refined metal is available exclusively from China

4. Form metals into alloys

According to industry, China produces 89% of rare earth alloys

4. Manufacture magnets/other components

According to industry, China produces 75% of NdFeB magnets and 60% of SmCo magnets

Source: Government Accountability Office

Relying on a single country for such a strategic input could create serious risks for disruption of the world’s supply of rare earth materials especially as China’s export quota levels are increasingly restrictive year after year. Additionally, and as illustrated by the chart on the next page, significant price increases are taking place due to China’s market dominance. In 2012, the United States, Japan, and the European Union initiated a formal complaint to the World Trade Organization accusing China of unfair business practices regarding rare earths and two other strategic minerals. Not only might this dispute bring additional geopolitical uncertainty, but it may also lead to further Chinese restrictions.

As mentioned, the dependence on China is one of the main reasons for significant price increases for some rare earth oxides. Prices for certain rare earth oxides skyrocketed in 2010 and 2011, although some have decreased since the beginning of 2012. Export restrictions from China and the lack of a diversified supply source in the short term could lead to additional and significant price fluctuations, which in turn will create an urgent need to diversify supply sources.

Rare Earth Elements: The Global Supply Chain, prepared by Marc Humphries – Congressional Research Service (September 6, 2011) 4

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4. REE Market: Growing Demand in a China-Controlled Market…

SELECTED RARE EARTH OXIDE FOB PRICES 2008–2020+, US $/kg 8 6 23

2008 2009

Lanthanum

102

2010

20 10 10

2011 2012-2015

4 4 22

Forecast

2016-2019 2020+

100

Cerium 15 5 5 27 15 46

Praseodynium

197 136 78 70 27 15 48 233

Neodymium 138 78 70 5 5 17

Samarium

103 39 13 10 474 464 553

Europium

2,857 2,924 975 600 10 6 22

Gadolinium

147 83 36 20 659 352 537

Terbium

2,353 2,319 1,525 1,200 113 105 229

Dysprosium

1,454 1,410 713 500 15 13 26 139

Yttrium

88 30 20

Source: Metal Pages, Matamec, Bloomberg, DMC, Secor Analysis

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5. ORBITE ALUMINAE: A SOLUTION TO REE SUPPLY PROBLEMS While Orbite’s main business is alumina production, it has the potential to become a sustainable solution to the Chinese/REE problem. The company has developed a unique, proprietary alumina production process that is not only cost-competitive but, in contrast with the Bayer process traditionally used by the industry to extract alumina from bauxite, it does not generate red mud. While developing its process, Orbite discovered that it also allowed for the recovery of high-purity commercial-grade silica, hematite, magnesium, gallium, and at least 11 rare earth elements as by-products 5. Furthermore, its process can extract heavy rare earth elements, which are found in Orbite’s aluminous clay deposit in the Gaspé region of Quebec.

ORBITE’S RARE EARTH ELEMENTS

Source: Orbite Aluminae

ORBITE’S RARE EARTH ELEMENTS: BY-PRODUCTS OF ALUMINA PRODUCTION Orbite plans to extract high-value elements and rare earths as by-products of its alumina production process.

In June 2012, Orbite recovered the first commercial samples of REEs from a large aluminous clay deposit it owns near the town of Grande-Vallée, in the Gaspé area of eastern Québec. The deposit is particularly interesting considering that up to 22 percent of the clay consists of valuable heavy rare earth elements (HREE). The company plans to start REE production as a by-product of its high-purity alumina (HPA) production at its HPA plant, which is currently under construction and will be commissioned in Q1 2013.

Additionally, Orbite intends to offer its HPA facility for REE separation services to other producers. That said, its main production of REEs should come as the by-product of its smelter-grade alumina (SGA) 5

Gallium, not considered as a rare earth element, is covered in a separate document.

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5. Orbite Aluminae as a Potential REE Supplier…

production, expected to start in 2014 and produce 540,000 tonnes per year of SGA. As the below table indicates, over 1,000 tonnes per year is expected to be produced upon full commissioning of the SGA production facility. Bottom line: Orbite will be the first North American company to extract heavy rare earths from a North American deposit on a commercial scale.

ORBITE’S RARE EARTH ELEMENTS PRODUCTION ESTIMATES

Based on an annual average production of 540,000 tonnes of SGA with a 90% recovery rate for REE RARE EARTH ELEMENTS

PURITY

TONNES/YEAR

Scandium

99.99%

57.7

Yttrium

99.999%

131.6

Lanthanum

99%

187.4

Cerium

99%

388.0

Praseodymium

99%

48.5

Neodymium

99%

167.9

Samarium

99%

31.7

Europium

99.9%

5.9

Gadolinium

99%

25.1

Dysprosium

99%

22.2

99.9%

12.0

-

1,078.0

Erbium Total

Source: Orbite NI 43-101 Revised Technical Report, Secor analysis Note: Above-mentioned numbers are for one plant. Orbite plans to build 10 plants, therefore total quantities should be eventually multiplied by 10.

ORBITE’S CLOSED-LOOP HYDROCHLORIC ACID REGENERATION PROCESS REEs, whose presence in Orbite’s aluminous clay deposit has been confirmed, are produced as a by-product of Orbite’s alumina extraction process. In the extraction process, the aluminous clay is first crushed and milled, then leached with hydrochloric acid. The aluminum chloride solution is then extracted, precipitated as aluminum chloride hexahydrate, and then calcinated to yield aluminum oxide, the plant’s main product. But then the solution is further treated through an acid recovery loop which removes ferric chloride and the hydrochloric acid, which is regenerated and reused in the leaching process. The remaining solution has a high concentration of magnesium, gallium, alkali, and rare earths chlorides. Magnesium and alkali chlorides are then removed from the solution, leaving rare metals and rare earth elements behind. They are separated and removed, using proven solvent extraction techniques.

The REE recovery rate of Orbite’s process exceeds 90 percent, and is significantly higher than the current industry average of 60-70 percent. This high recovery rate is achieved by combining Orbite’s hydrochloric acid leaching process with known technologies used to extract selected value-added elements.

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5. Orbite Aluminae as a Potential REE Supplier…

The proprietary process developed by Orbite accelerates concentration of REEs in the iron acid recovery loop and facilitates their separation at an earlier stage of the process compared to traditional techniques.

Orbite’s process for producing REEs as a by-product of alumina production is simpler, and consequently expected to be more economical than traditional processes. Orbite’s technology has also been successfully proven in a commercial scale pilot plant for all elements.

ORBITE MAY BECOME A STRATEGIC PLAYER ON THE REE MARKET Given the strategic issues surrounding REE supply and the urgency of supply diversification, Orbite has the capacity to become a significant player in reducing China’s domination of the REE industry. Orbite’s low REE production costs will also make it a reliable supplier of REEs, even if prices drop significantly.

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6. CONCLUSION Rare earth elements are required in various products and industries including high technology, clean energy, and defence. They are sought after for their magnetic, luminescent, and strength properties. Key REE applications include permanent magnets, metal and battery alloys, polishing powders, catalysts, phosphors, glass additives, and ceramics. Rare earth elements are actually abundant in the earth’s crust, however they are rarely concentrated enough to make REE mining profitable.

REE demand is currently driven by the growing middle class in emerging countries. Supply in the REE market is currently dominated by China, which accounts for 97 percent of the REE production. This reliance on China for the supply of REEs gives rise to serious concerns for most industrial countries, and in particular the United States, the European Union, and Japan. Export restrictions on REEs recently imposed by China highlight this danger, and have caused REE oxide prices to increase drastically and raised urgent supply concerns for the rest of the world.

Orbite’s proprietary process concentrates and extracts REEs as by-products of its alumina production. Using the aluminous clay found in its deposit in the Gaspé region of Quebec, the company’s clean technology enables the recovery of various valued-added elements, including 11 rare earth elements. Orbite can be an important part of the solution to international concerns regarding future REE supply shortages and price volatility, and is especially well positioned to be a strategic supplier in North America.

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ABOUT ABOUT ORBITE Orbite Aluminae Inc. is a high-tech Canadian company whose unique technologies could have a significant impact on the aluminum industry. These technologies allow for the environmentally sustainable extraction of smelter-grade alumina, high-purity alumina, and high-value elements, including rare earths, from locally sourced aluminous clay.

Orbite has exclusive mining rights on its 6,441-hectare Grande-Vallée property, the site of an aluminous clay deposit 32 km northeast of Murdochville, and a 28,000 sq. ft. high-purity alumina production facility in CapChat, both in the Gaspé region. The Revised Preliminary Economic Assessment on Orbite Aluminae – Metallurgical Grade Alumina Project dated May 30, 2012 and effective as of November 24, 2011 and the amended and restated 2010 Field Work Grande-Vallée Property NI 43-101 Technical Report dated August 21, 2011, which are available on Sedar (www.sedar.com), identified an indicated resource of 1 billion tonnes of aluminous clay in part of the deposit. The higher-quality smelter grade alumina—containing less iron and silicon impurities—produced using Orbite’s process has been independently utilized by internationally renowned facilities such as INRS and SINTEF to produce high-quality aluminum.

The Company also owns the intellectual property rights to a unique Canada and US patented process for extracting alumina from aluminous ores and for which other international patents are also pending. Orbite plans to offer smelter grade alumina (SGA) and high-purity alumina (HPA) and license its technologies to well-qualified producers aiming to reduce their costs and environmental footprint. www.orbitealuminae.com

ABOUT SECOR SECOR is the largest independent strategy and organizational consulting firm in Canada. It has helped top management teams plan and implement their corporate strategies. SECOR relies on over 150 professionals and has offices in Montréal, New York, Paris, Quebec City, Toronto and Vancouver.

For over 35 years SECOR has been helping businesses succeed. Its clients include leading national and global companies as well as medium-sized organizations, governments, departments and agencies. In this time, the firm has developed methodologies and insights based on its experience with the most innovative and successful corporations.

As architects of strategy and transformation, we make strategy happen. We operate according to an alternative model for success in consulting based on customer intimacy. We offer personalized and collaborative support to senior executives who want to dramatically improve performance. www.secorgroup.com Version 1

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ADDITIONAL INFORMATION 

China’s Rare Earth Elements Industry: What Can the West Learn?, prepared by Cindy Hurst – Institute for the Analysis of Global Security (March 2010)

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China’s Rare Earth Industry and Export Regime: Economic and Trade Implications for the United States, prepared by Wayne M. Morrison and Rachel Tang – Congressional Research Service (April 30, 2012)

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China’s Rare Earths Industry and its Role in the International Market, prepared by Lee Levkowitz and Nathan Beauchamp-Mustafaga – US-China Economic and Security Review Commission (November 3, 2010)

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Global Drivers for Rare Earth Demand, prepared by Suzanne Shaw & Judith Chegwidden – Roskill Information Services (August 2012)

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Rare and Minor Metals Company Review Exploration, Development & Production, prepared by Resource Capital Research (March 2011)

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Rare Earth Elements – Critical Resources for High Technology, prepared by the US Department of the Interior & US Geological Survey (2002)

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Rare Earth Elements – End Use and Recyclability, prepared by Thomas G. Goonan – US Department of the Interior & US Geological Survey (2011)

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Rare Earth Elements: The Global Supply Chain, prepared by Marc Humphries – Congressional Research Service (September 6, 2011)

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Orbite Aluminae Initiating Coverage, prepared by Jacob Securities Equity Research (November 23, 2011)

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Orbite NI 43-101 Revised Technical Report, prepared by Roche and Genivar (May 30, 2012)

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