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Industry and Information Bulletins

Industry Bulletin: Rare Earth Magnets now Playing an Important Role in Wind Energy Production

May 27, 2008

In our ongoing efforts to provide you with broader communications and industry information, we are pleased to issue this Industry Bulletin to provide several highlights from the Magnetics 2008 Conference, held in Denver, Colorado, May 15-16, and attended by Avalon's VP, Corporate Development, Ian London. Of particular interest to our readers is the reported steady increase in demand for rare earth permanent magnets for an ever-growing list of applications, especially their emerging role in renewable energy production. You already know about the growing use of rare metals such as indium and gallium in new solar energy technology, and now we learn that rare earth magnets using are key to improving energy generation from wind turbines and the development of larger, more efficient wind farms.

Rare earth magnet applications now go well beyond hybrid vehicles and consumer electronics, into strategic defense applications, medical instrumentation and renewable energy technology. Dr Gareth Hatch, of Dexter Magnetic Technologies Inc, delivered an extensive review entitled Going Green: The Growing Role of Permanent Magnets in Renewable Energy Production and Environmental Protection. Hatch's presentation described wind, small hydro and ocean/tidal power applications and permanent magnet devices used for energy efficiency.

The power generated by a wind turbine is directly proportional to the sweep area of the blades and the cube of wind-speed. Accordingly, to generate more electricity, wind turbines are getting larger with blade spans increasing to 124 metres (2007) for some 5 MW units, and standing some 114 metres tall.

Innovative new designs now call for permanent magnet, direct drive turbines connected to permanent magnet generators (eliminating the need for gear boxes), all accomplished with the application of Neodymium-Iron-Boron rare earth magnets known as "Neo magnets". These new designs increase the mechanical efficiency and reliability of these units, reduce the energy losses in the machines' internal operations and reduce the risk of failures and servicing requirements. Some newer wind turbine-generators require 2000 kilograms of Neo magnets per unit.

http://www.magneticsmagazine.com/mag-conf08/Presentation%20PDFs/Dexter.pdf

Overall, demand for permanent magnets is predicted to grow at an average annual rate of at least 4 – 6%. Walt Benecki, a respected consultant to the magnet industry, predicted that "by 2020, the total market for permanent magnets will grow to over US$20 billion as compared to last year's (2007) US$9 billion. More directly relevant to Avalon are projections for Neo magnet demand to rise from 63,000 tons (2007) to 120,000 tons (2020), a 90 % increase that could rise with new applications (such as wind turbines) creating additional demand. On a dollar basis, factoring in the increase in commodity prices, sales of Neo magnets are projected by Benecki to increase by 172% from approximately $5.25 billion to $14.25 billion over the same period.

http://www.magneticsmagazine.com/mag-conf08/Presentation%20PDFs/Walt%20Benecki.pdf

While China currently supplies over 95% of the world's REE needs, it is generally recognized that China's cost and raw material availability advantage will begin to erode due to wage and material price inflation, electricity supply issues, pollution, local export restrictions and exchange rates. Benecki projected that "Chinese domination of world REE production will drop to approx. 75% from its current 95% level, with North American and Australian production representing 25%". Another speaker noted that "even with new North American and Australian production, REE demand will continue to outpace supply" from which one can infer that prices for REE continue to be strong.

http://www.magneticsmagazine.com/mag-conf08/Presentation%20PDFs/WebMagnetics.pdf

There was also much discussion around the strategic aspects of rare earths and magnet production, prompted by the National Academy of Science statement that "the predominance of U.S. importation of rare earths from a single country coupled with China's own growing demand for minerals, represents potential for restrictions regarding future U.S. access to rare earths at any price."

Rapidly rising fuel costs are stimulating a huge surge in demand for renewable energy alternatives including both wind and solar. Avalon is well positioned to benefit from the new demand for rare metals for both of these emerging applications, through its large rare metals resources at Thor Lake, Northwest Territories. The Lake Zone deposit, which is currently being drilled, contains exceptional enrichment in neodymium and other REEs needed for permanent magnets. It also contains high levels of gallium and other rare metals such as tantalum, niobium and zirconium needed for many other emerging high-tech applications. Gallium and niobium have both been used in certain Neo magnet formulations.

For further information about Avalon and its Thor Lake project, please visit Avalon's website at http://www.avalonventures.com

If you have any comments or questions, please do not hesitate to post them on Avalon's official investor relations hub at http://www.agoracom.com/IR/Avalon .

Regards,

AGORACOM Investor Relations