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Institutional Equity Research Earnings Update November 15, 2011

Metals & Minerals

Stock Rating:

Frontier Rare Earths Limited

Sector Outperformer – Speculative

Catalysts Are Finally Coming Into View

Sector Weighting:

Market Weight 12-18 mo. Price Target FRO-TSX (11/15/11) Key Indices:

C$7.30 C$1.35

We believe that delivery of significant catalysts and maintaining the project schedule over the next six months will be imperative for Frontier to regain significant investor interest. This is a time when significant returns could be made, though there is a fair amount of risk on the table at this point.

FRO ended Q3 with $43.5MM in cash on the balance sheet, enough to fund it well into the prefeasibility study and pilot plant metallurgical testing. In Q4, we are expecting a definitive agreement to be announced with Korea Resources regarding the potential financing of the project.

Over the next 4-5 months, we are also expecting a revised resource calculation for the Zandkopsdrift project located in South Africa, as well as the publishing of a scoping study. Introducing the first capital and operating metrics around the project will be the largest catalyst for the stock.

We have assumed a conservative RE price forecast and capital/operating cost estimates for the project. The stock currently is trading at 0.18x NAV; if it were to rerate with peers at 0.4x NAV, but with a 30% liquidity discount, this would represent a 69% return from current levels.

None

3-5-Yr. EPS Gr. Rate (E) 52-week Range Shares Outstanding Float Avg. Daily Trading Vol. Market Capitalization Dividend/Div Yield Fiscal Year Ends Book Value 2011 ROE (E) LT Debt Preferred Common Equity Convertible Available

NM C$0.80-C$3.75 105. 5M 19.4M Shrs NM $139.0M Nil / Nil December $0.52 per Shr NM NA Nil $54. 4M No

Earnings per Share

Prev

Current

($0.02E) --

($0.03A) ($0.06E) ($0.02E)

NM NM

NM NM NM

($0.03E) --

($0.01A) ($0.03E) ($0.02E)

NM NM

NM NM NM

2010 2011 2012 P/E 2010 2011 2012

Cash Flow per Share 2010 2011 2012 P/CF 2010 2011 2012

Stock Price Performance

Source: Reuters

Company Description Frontier Rare Earths is developing the Zandkopsdrift deposit in South Africa. While in the early stages of development this project may come into production before many of its peers. www.frontierrareearths.com/

Matthew Gibson 1 (416) 956-6729

Matthew.Gibson@cibc.com

Ian Parkinson 1 (416) 956-6169 Ian.Parkinson@cibc.ca

Find CIBC research on Bloomberg, Reuters, firstcall.com and ResearchCentral. cibcwm.com

All figures in US dollars, unless otherwise stated.(C$1.024:US$1)

11-112939 © 2011

CIBC World Markets does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. See "Important Disclosures" section at the end of this report for important required disclosures, including potential conflicts of interest. See "Price Target Calculation" and "Key Risks to Price Target" sections at the end of this report, where applicable. CIBC World Markets Inc., P.O. Box 500, 161 Bay Street, Brookfield Place, Toronto, Canada M5J 2S8 (416) 594-7000


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

Frontier Rare Earths Limited

Sector Outperformer - Speculative

FRO-TSX 11/15/11 12- To 18- Month Price Target: Metals & Minerals Sector Weighting: P/CF

P/E

EV/EBITDA

Frontier Avalon Molycorp

0.2x 0.4x 0.4x

NEG NEG 12.5x

NEG NEG 15.5x

NEG NEG 13.4x

2010A

2011E

2012E

2013E

NEG NEG NEG

NEG NEG 17.0x

NEG NEG 12.5x

NEG NEG 3.2x

Key Financial Metrics

2010A

2011E

2012E

2013E

EPS ($) CFPS ($) P/E P/CF EV/EBITDA FCF Yield Income Statement

(0.03) (0.01) NM NM NM -0.9% 2010A

(0.06) (0.03) NM NM NM -2.1% 2011E

(0.02) (0.02) NM NM NM -1.6% 2012E

(0.04) (0.03) NM NM NM -2.4% 2013E

2.0 (1.0) (1.0) (2.9) (2.9)

1.0 (7.1) (6.3) (6.3) (5.5)

1.0 (4.2) (4.2) (4.2) (4.2)

1.0 (6.2) (6.2) (6.2) (6.2)

89.1 16.4 105.5 (0.03) (0.01)

89.1 16.4 105.5 (0.06) (0.08) 2013E

174.1 16.4 190.5 (0.02) (0.02) 2014E

174.1 16.4 190.5 (0.04) (0.04) 2015E

17.49 16.60 120.32 122.85 18.00 1,392.57 54.99 1,055.70 688.08 107.60

23.32 16.60 90.24 92.14 18.00 1,856.76 73.32 1,407.60 917.44 80.70

17.49 12.45 75.20 76.78 13.50 1,392.57 54.99 1,055.70 688.08 67.25

2012E

2013E

2014E

-

-

-

2015E 5,570.5

Frontier Avalon Molycorp

Revenue EBITDA EBIT EBT Reported Income Basic S/O Options / Warrants Fully Diluted S/O EPS ($) EBITDA/Share ($) CIBC Forecast US$/kg US$/kg US$/kg US$/kg US$/kg US$/kg US$/kg US$/kg US$/kg US$/kg

Company Profile Frontier Rare Earths is developing the Zandkopsdrift deposit in South Africa. The project is expected to be an open-pit mine capable of supporting 20,000 tpa of rare earth concentrate production by as early as 2015. Investment Thesis FRO has the potential to be one of the next significant rare earth projects to go into production outside of China. The deposit has favorable weightings to elements within the rare earth complex tied to the highest growth industries, and should have capital and operating cost advantages over other deposits currently being developed by junior rare earth companies. While more detailed work needs to be completed, we believe that the project will be fast tracked to production ahead of many other junior rare earth plays. This world-class deposit also holds growth potential, as it is open in several directions and the land package contains over 30 other targets. Outlook Preliminary economics on the project are expected to be released by Q1 2012. This combined with drilling results, resource upgrades and more detailed metallurgical work, should provide catalysts for the stock and de-risk the project significantly over the coming 12 months. Cash Flow

2010A

2011E

2012E

2013E

Net Income + Depreciation + Other +Change in working capital Funds from operations - Capital expenditures Free cash flow Free CFPS Operating free cash flow

(3) 0 (1) 2 (4) 0 (4) (0.01) (4)

(6) 0 3 (2) (2) 12 (14) (0.03) (14)

(4) 0 0 0 (4) 20 (24) (0.02) (24)

(6) 0 0 0 (6) 350 (356) (0.03) (356)

Cash Balance Reserves & Resources

57.0 Tonnes (mm)

Zandkopsdrift (95%) M+I Inferred Operating Summary

27.6 19.0 2012E

Zandkopsdrift (95%) Production (tonnes) Cash Costs ($/tonne) Production Profile 25,000 20,000

36.0 557.2 Grade TREO (%) RE Contained (mt) 3.22 2.93 2013E

251.1

888 555 2014E

2015E

5,571 400

-

-

-

-

-

-

REO Production (000 t)

15,000

4.0% 2.0%

2017E

6.0%

2016E

8.0%

2015E

0 2013E

5,000

12.0% 10.0%

2014E

10,000

14.0%

Expected Revenue Breakdown By Metal

NAV Valuation Mining assets Zandkopsdrift (95%) Total Balance Sheet Items Cash Long Term Debt Net asset value (C$) 1. 12% real discount rate on assets, CIBC price forecasts and after tax.

Alkane

Lynas

Molycorp

Avalon

Rare Element

Great Western

Tasman Metals

Quest

Arafura

Frontier

0.0% Greenland Minerals

EV / Expected Production (%)

Lanthanum Cerium Praseodymium Neodymium Samarium Europium Gadolinium Terbium Dysprosium Yttrium Realized Price (US$/kg) Operating Metrics REO Production (000 t) EV / Production Capacity

Matthew Gibson, (416-956-6729) Matthew.Gibson@cibc.ca Ian Parkinson, (416-956-6169) Ian.Parkinson@cibc.ca

Market Weight

All figures in Canadian millions, except per share data. Key Multiples (2012E) P/NAV

P/CF Multiples

2

C$1.35 C$7.30

Neodymium 27.0%

$mm

$/Shr.

1,355 1,355

7.12 7.12

36

0.19

-

-

1,391

7.30

Heavy Rare Earths Light Rare Earths

Samarium 0.7% Europium 18.4%

Praseodymium 7.7%

Gadolinium 1.8% Terbium 4.0%

Cerium 12.3% Lanthanum 9.9%

Dysprosium 11.9% Yttrium 6.2%

Source: Company Reports, Bloomberg, Reuters, and CIBC World Markets

Ytterbium 0.2%


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

What’s The Timeline Look Like? A combination of overall market sentiment combined with a lack of consistent news from Frontier (FRO-SO-S) has hurt the company’s share price considerably in 2011. While the stock seems to be staging the early signs of a comeback, management will have to deliver on significant milestones in order to win investor interest back. Below we have outlined what we believe is the likely development timeline for the Zandkopsdrift deposit, factoring in a conservative 6-8 month delay due to the current demand for rare earth metallurgical testing that has slowed down other developers in the space.

Exhibit 1. Path To Production Timeline

Milestones/Catalysts Signing of definitive partnership agreement with KORES on Zandkopsdrift

Q4 2011

Drill results from latest round of infill and exploration drilling totaling 20,000 metres H1/12 export quota announcement from China

Q1 2012

A new resource calculation for Zankopsdrift, likely not much larger but will have tighter drill spacing and better certainty Release of the Scoping Study that will put capital, operating cost and production metrics into the public domain for the first time.

End of 2012

End of 2013

Completion of the Preliminary Feasibility study (PFS) which will lower the risk around costs and flow sheet design. Completion of metallurgical testwork at a pilot plant scale which will feed into the Bankable Feasibility Study. Receipt of permits to construct the mine and separation plant. Financing of the project with some help from KORES

2014 2015/2016

Construction activities will begin on the mine and separation plant Commissioning of the mill, cracking and separation plants and ramp up to full production.

Source: Company reports and CIB C World Markets I nc.

The timeline above combined with our conservative forecast for long-term rare earth prices form the backbone of our valuation for Frontier. There are, however, many milestones yet to achieve and the risk inherent in the stock is currently high. In Figure 2, we outline our valuation’s sensitivity to further delays, beyond what we have already projected.

Exhibit 2. NAV Sensitivity To Start Date And Discount Rates

Discount Rates

Production Start Date 2017

2016

2015

2014

2013

18.0%

2.81

3.21

3.75

4.53

5.75

16.0%

3.57

4.04

4.65

5.50

6.75

14.0%

4.58

5.12

5.81

6.72

7.99

12.0%

5.93

6.54

7.30

8.28

9.55

10.0%

7.77

8.46

9.28

10.29

11.56

8.0%

10.32

11.07

11.94

12.96

14.18

Source: CIB C W orld Markets Inc.

3


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

As can clearly be seen in the exhibit above , the market is currently pricing in an extremely high discount rate and more than a two-year delay in project startup, assuming of course that our operating and capital estimates are correct. Our $400/tonne milled operating cost and US$700MM initial capital cost estimate are likely overly conservative given what other comparable projects are currently being built for. For example, Lynas (LYC-AUS) is building a similar-scale mine, mill, and separation operation, with costs expected to run $569MM.

Exhibit 3. NAV Sensitivity To Operating And Capital Estimates

Initial Capital Expenditures (US$ 000)

Operating Costs (US$/t milled) 750

550

400

250

100

1,000,000

(0.35)

3.45

6.29

9.14

11.99

900,000

(0.02)

3.78

6.63

9.48

12.33

800,000

0.32

4.12

6.97

9.82

12.67

700,000

0.66

4.46

7.30

10.15

13.00

600,000

0.99

4.79

7.64

10.49

13.34

500,000

1.33

5.13

7.98

10.83

13.68

400,000

1.67

5.47

8.32

11.16

14.01

Source: CIB C W orld Markets Inc.

Price Target Calculation We use a 1.0x NAV multiple based on our NAV12% calculation. This methodology is consistent with that applied to other base metals names in our universe, although we use a slightly higher discount rate in this case to reflect the early-stage nature of Zandkopsdrift and the risks involved.

Key Risks To Price Target Zandkopsdrift is an earlier-stage project and has not completed preliminary engineering or metallurgy study yet. Should recoveries, process methodology or costs deviate substantially from our estimates (currently based on comparable projects), our price target would be affected. Political issues around Black Empowerment and the ownership of mineral exploitation rights could also impact our NAV, should they deviate significantly from our assumed ownership of the project. Our long-term rare earth oxide price forecast is higher than the three year trailing average and below current spot prices for most elements. A deviation of prices from our forecast would materially impact our valuation and price target for the company. Currently, we assume that the market will value rare earth projects based on a 1.0x NAV methodology; given the strategic nature of the resources, they may trade as uranium, another strategic metal, does, where stocks can trade at a multiple of their NAVs. Should this occur, our price target calculation would be materially impacted.

4


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

Our EPS estimates are shown below:

1 Qtr.

2 Qtr.

3 Qtr.

4 Qtr.

Yearly

2010 Current 2011 Prior 2011 Current

----

----

----

----

($0.03A) ($0.02E) ($0.06E)

2012 Prior 2012 Current

---

---

---

---

-($0.02E)

Our CFPS estimates are shown below:

5

1 Qtr.

2 Qtr.

3 Qtr.

4 Qtr.

Yearly

2010 Current 2011 Prior 2011 Current 2012 Prior

-----

-----

-----

-----

($0.01A) ($0.03E) ($0.03E) --

2012 Current

--

--

--

--

($0.02E)


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

IMPORTANT DISCLOSURES: Analyst Certification: Each CIBC World Markets research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report. Potential Conflicts of Interest: Equity research analysts employed by CIBC World Markets are compensated from revenues generated by various CIBC World Markets businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers. In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

Important Disclosure Footnotes for Frontier Rare Earths Limited (FRO) 2a 2c 2e

6

Frontier Rare Earths Limited is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months. CIBC World Markets Inc. has managed or co -managed a public offering of securities for Frontier Rare Earths Limited in the past 12 months. CIBC World Markets Inc. has received compensation for investment banking services from Frontier Rare Earths Limited in the past 12 months.


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

Important Disclosure Footnotes for Companies Mentioned in this Report that Are Covered by CIBC World Markets Inc.: Stock Prices as of 11/15/2011: Avalon Rare Metals Inc. (2a, 2c, 2e) (AVL-TSX, C$3.29, Sector Outperformer) Molycorp, Inc. (2a, 2c, 2e, 2g) (MCP-NYSE, $33.14, Sector Outperformer)

Companies Mentioned in this Report that Are Not Covered by CIBC World Markets Inc.: Stock Prices as of 11/15/2011: Lynas Corporation Limited (LYC-AUS, A$1.11, Not Rated) Important disclosure footnotes that correspond to the footnotes in this table may be found in the "Key to Important Disclosure Footnotes" section of this report.

7


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

Key to Important Disclosure Footnotes: 1 2a 2b 2c 2d 2e 2f

CIBC World Markets Corp. makes a market in the securities of this company. This company is a client for which a CIBC World Markets company has performed investment banking services in the past 12 months. CIBC World Markets Corp. has managed or co -managed a public offering of securities for this company in the past 12 months. CIBC World Markets Inc. has managed or co -managed a public offering of securities for this company in the past 12 months. CIBC World Markets Corp. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Inc. has received compensation for investment banking services from this company in the past 12 months. CIBC World Markets Corp. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months.

2g

CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months.

3a

This company is a client for which a CIBC World Markets company has performed non -investment banking, securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, securities-related services from this company in the past 12 months.

3b 3c

CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from this company in the past 12 months.

4a

This company is a client for which a CIBC World Markets company has performed non -investment banking, non-securities-related services in the past 12 months. CIBC World Markets Corp. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months.

4b 4c

CIBC World Markets Inc. has received compensation for non-investment banking, non-securities-related services from this company in the past 12 months.

5a

The CIBC World Markets Corp. analyst(s) who covers this company also has a long position in its common equity securities. A member of the household of a CIBC World Markets Corp. research analyst who covers this company has a long position in the common equity securities of this company. The CIBC World Markets Inc. fundamental analyst(s) who covers this company also has a long position in its common equity securities. A member of the household of a CIBC World Markets Inc. fundamental research analyst who covers this company has a long position in the common equity securities of this company. CIBC World Markets Corp., CIBC World Markets Inc., and their affiliates, in the aggregate, beneficially own 1% or more of a class of equity securities issued by this company. An executive of CIBC World Markets Inc. or any analyst involved in the preparation of this research report has provided services to this company for remuneration in the past 12 months. A senior executive member or director of Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., or a member of his/her household is an officer, director or advisory board member of this company or one of its subsidiaries.

5b 6a 6b 7 8 9

10

Canadian Imperial Bank of Commerce ("CIBC"), the parent company to CIBC World Markets Inc. and CIBC World Markets Corp., has a significant credit relationship with this company.

11 12

The equity securities of this company are restricted voting shares. The equity securities of this company are subordinate voting shares.

13

The equity securities of this company are non-voting shares.

14

The equity securities of this company are limited voting shares.

8


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

CIBC World Markets Inc. Price Chart

No rating history data found for Frontier Rare Earths Limited

9


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

CIBC World Markets Inc. Stock Rating System Abbreviation

Rating

Description

SO

Sector Outperformer

Stock is expected to outperform the sector during the next 12-18 months.

SP

Sector Performer

Stock is expected to perform in line with the sector during the next 12-18 months.

SU

Sector Underperformer

Stock is expected to underperform the sector during the next 12-18 months.

NR

Not Rated

CIBC World Markets does not maintain an investment re commendation on the stock.

R

Restricted

CIBC World Markets is restricted*** from rating the stock.

Stock Ratings

Sector Weightings** O

Overweight

Sector is expected to outperform the broader market averages.

M

Market Weight

Sector is expected to equal the performance of the broader market averages.

U

Underweight

Sector is expected to underperform the broader market averages.

NA

None

Sector rating is not applicable.

**Broader market averages refer to the S&P 500 in the U.S. and the S&P/TSX Composite in Canada. "Speculative" indicates that an investment in this security involves a high amount of risk due to volatility and/or liquidity iss ues. ***Restricted due to a potential conflict of interest.

Ratings Distribution*: CIBC World Markets Inc. Coverage Universe (as of 15 Nov 2011)

Count

Percent

Sector Outperformer (Buy)

162

46.2%

Sector Performer (Hold/Neutral)

147

41.9%

Sector Underperformer (Sell)

28

8.0%

Restricted

13

3.7%

Inv. Banking Relationships

Count

Percent

Sector Outperformer (Buy)

154

95.1%

Sector Performer (Hold/Neutral)

129

87.8%

Sector Underperformer (Sell)

25

89.3%

Restricted

12

92.3%

Count

Percent

Ratings Distribution: Metals & Minerals Coverage U niverse (as of 15 Nov 2011)

Count

Percent

21

63.6%

Sector Outperformer (Buy)

Sector Performer (Hold/Neutral)

9

27.3%

Sector Underperformer (Sell)

3

Restricted

0

Sector Outperformer (Buy)

Inv. Banking Relationships

20

95.2%

Sector Performer (Hold/Neutral)

9

100.0%

9.1%

Sector Underperformer (Sell)

2

66.7%

0.0%

Restricted

0

0.0%

Metals & Minerals Sector includes the following tickers: ADV, AVL, AVM, BAN, CCO, CS, DML, FM, FRO, GC E, GMO, HBM, III, IMN, IVN, KAT, LIF.UN, LUN, MCP, ML, MNB, NML, PDN, QUX, RIO, S, SGQ, TCK.B, TCM, TKO, UEC , UUU, WRN. *Although the investment recommendations within the three-tiered, relative stock rating system utilized by CIBC World Markets Inc. do not correlate to buy, hold and sell recommendations, for the purposes of complying with NYSE and NASD rules, CIBC World Markets Inc. has assigned buy ratings to securities rated Sector Outperformer, hold ratings to securities rated Sector Performer, and sell ratings to securities rated Sector Underperformer without taking into consideration the analyst's sector weighting.

Important disclosures required by IIROC Rule 3400, including potential conflicts of interest information, our system for rating investment opportunities and our dissemination policy can be obtained by visiting CIBC World Markets on the web at http://researchcentral.cibcwm.com under 'Quick Links' or by writing to CIBC World Markets Inc., Brookfield Place, 161 Bay Street, 4th Floor, Toronto, Ontario M5J 2S8, Attention: Research Disclosures Request.

10


Catalysts A re Finally Coming I nto View - Nove mbe r 15, 2011

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Catalysts Are Finally Coming Into View for Frontier Rare Earths