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Industry Bulletin: Report on Hong Kong Minor Metals & Rare Earth 2008 Conference Highlights and REE marketing trip to Japan

September 26, 2008

In our ongoing efforts to provide you with broader communications and industry information, we are pleased to issue another Industry Bulletin discussing recent trends in the markets of various rare and strategic metals. This edition reports on some of the highlights from Metal-Pages' Minor Metals & Rare Earths 2008 conference, held in Hong Kong between September 3rd and 6th and a subsequent marketing trip to Japan.

Hong Kong Conference

The Hong Kong conference attracted 150 delegates from around the world. Don Bubar, Avalon's President & CEO, provided a progress report on Avalon's Thor Lake Heavy Rare Earth Deposit. Mr. Bubar's presentation can be found on Avalon's website at: . Some highlights from other presentations at the conference on rare earth elements included the following:

A comprehensive report on China's rare earth industry policies and outlook on the market was provided by Mr. Huang Jiaohong, of the Baotao Research Institute of Rare Earths, China, who reported on increasing regulation of the rare earth industry in China, resulting in restrictions on new developments, foreign investment and export quotas of rare earths as well as increased export tariffs.

Dudley Kingsnorth, of Industrial Minerals Company of Australia, provided an update on rare earth markets highlighting the increasing demand for rare earths in magnet applications growing at a rate of 15-25% per annum. He also commented on the tightening of supplies from China while re-assuring the audience that "China will not starve the rest of world for REE". Nevertheless, he also noted that supplies for specific rare earths such as neodymium and dysprosium could remain tight until new supply sources come on-stream.

Jeffrey Hogan, Vice President of Neo Material Technologies, provided a detailed summary of rare earth applications which, in addition to magnets, emphasized their growing use in phosphors both in compact fluorescent and LED lighting. These require the use of yttrium, europium and terbium, a scarce heavy rare earth, for which a supply deficit is forecast.

Matthew James, Vice President of Corporate Development of Lynas Corporation provided an update on the development of the Mount Weld rare earths project in Western Australia, reporting that initial production is forecast for Q4 of 2009 at a rate of 10,500tpa TREO growing to 21,000tpa by 2011. Mine development is well advanced and construction is underway on process plant facilities in Malaysia. Capital costs are now estimated at AUD $415 million and funding is in place.

Japan Marketing Trip

Following the conference, Mr. Bubar traveled to Tokyo, Japan at the invitation of Japan Oil, Gas and Metals National Corporation ("JOGMEC") to give a presentation on the Thor Lake project. This was attended by more than 50 people from end-users of rare earths, trading houses, government and the press. The presentation was covered by the Japan Metal Bulletin and the Tokyo bureau of Thomson Reuters.

With an annual consumption of TREO currently estimated at 35,000tpa, Japan is the world's largest market for rare earths outside of China. Its industrial consumers are entirely reliant on Chinese suppliers and have made it clear that they would welcome new non-Chinese supply sources, especially for the heavy rare earths which are of increasing importance to the magnets, lighting and electronics industries.

Following the JOGMEC presentation, Avalon attended a series of private meetings with both end-users and trading houses interested in new supply sources of rare earths, especially heavy rare earths, for which the Thor Lake deposit is rapidly gaining an international profile.

A recurring theme heard from end-users was the importance of the heavy rare earth dysprosium in magnet formulations, primarily for the heat resistant properties it imparts. Interestingly, this property is not just relevant to automotive applications in hybrid cars, but also in a wide array of electrical appliances. One example cited was air conditioners, where the use of rare earth magnets can reduce energy consumption by 50%!

An industrial-sized air conditioners use a lot of these magnets