DRAFT Developing Zandkopsdrift a world-class rare earth project Frontier Rare Earths Limited February 2012 TSX:FRO
Safe Harbour Statement Forward-looking information Certain statements contained in or incorporated by reference into this presentation constitute “forward-looking statements”. Officers and representatives of Frontier Rare Earths Limited (the “Company”) may, in their remarks or in response to questions regarding this presentation, make certain statements which are “forward-looking statements” and are prospective. Forward-looking statements are neither promises nor guarantees, but are subject to risks, uncertainties and assumptions that may cause the actual results, performance or achievements of the Company, or developments in the Company’s business or its industry, to differ materially from the anticipated results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements are based on management’s beliefs and opinions at the time the statements are made or presented, and undue reliance should not be placed on any of these forward-looking statements. There should be no expectation that these forward-looking statements will be updated or supplemented as a result of changing circumstances or otherwise, and the Company does not intend, and does not assume any obligation, to update these forward-looking statements. February 2012 2 │
Topics The Rare Earths Market Frontier Rare Earths and Background to the Zandkopsdrift Project Preliminary Economic Assessment and Project Development Plans Korea Resources Corporation Joint Venture Outlook 3 │
Rare Earths – Overview Series of 15 chemically similar elements that occur and are recovered together Distribution of elements varies from deposit to deposit Two distinct categories based on atomic weight: Light Rare Earths and Heavy Rare Earths Each element has a range of distinctive physical properties which allow them to be used in a variety of technological applications Magnetic, optical, electrical, catalytic and metallurgical Underpin the “green” technology economy Hybrid motor and battery technology Energy efficiency Wind power Consumer electronics Defense Transport Most have no substitutes and are indispensable in many applications 4 │
Rare Earths – Uses Biggest, fastest-growing use is for magnet applications which, together with phosphors and metal alloys, accounts for >80% of demand by value Value of RE usage by application 40% 37% 35% 31% 30% 25% 20% 14% 15% 10% 5% 4 % 4% 5% 3% 2% 0% Magnets Phosphors Metal Alloys Catalysts Ceramics Polishing Other Glass Source: Roskill 5 │
Rare Earth Market Developments China Chinese Export Quota 70,000 Continued restructuring of export quota system, forced industry consolidation and clampdown on illegal mining & processing 60,000 likely to have significant price implications Tonnes REO 50,000 China has confirmed only 15-20 years reserves of heavy and 40,000 medium REOs and are expected to be a net importer of these elements by 2015 30,000 Chinese export quotas have been reduced significantly since 2005 20,000 2012 quotas appear to have stabilised at c.30kt per annum, 10,000 however: 0 2005 2006 2007 2008 2009 2010 2011 2012E 2012 quota applies to a wider range of products First -time introduction of quotas for heavy (13%) and light REOs (87%) which is likely to increase the shortage of these critical rare earths outside China Rest of World Plans by several countries including China, Japan, South Korea and US announced to stockpile rare earths Major industrial users seeking to lock in long-term supply/partnership from credible potential producers i.e. Frontier/KORES, Lynas/Siemens Although FoB China prices have declined in recent months, there has been a significant increase in REO prices over the last 12 months 6 │
Rare Earths – Supply/Demand Forecasts Demand CAGR projected at 7-10% through 2015 and beyond China’s domestic demand increasing faster than domestic supply Supply deficit widely forecast Circa 70t of REO required from non-China sources by 2015 and 115kt by 2020 Significant opportunity for new producers of separated rare earth oxides outside of China 275,000 Global Supply and Demand (tonnes REO) 250,000 225,000 200,000 175,000 150,000 125,000 100,000 75,000 50,000 25,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2015f 2020f China supply ROW supply China demand ROW demand Total demand Source: Roskill,Freedonia Group 7 │
Frontier Overview Frontier's flagship asset is the Zandkopsdrift Rare Earth project World-class deposit in terms of size, rare earth grade, distribution and value Preliminary Economic Assessment confirms Zandkopsdrift’s significant potential PEA is the only integrated NI 43-101 compliant study covering mining through separation of REOs NPV 11% of $3.7bn generating a post-tax IRR of 53% and 2 year payback from production start Supports Frontier’s objective to become a major low cost producer of separated REOs by 2015 Definitive joint venture signed with Korea Resources Corporation (KORES) in Dec ’11 Frontier is the only rare earth junior advancing a major rare earth resource outside China with a definitive strategic partnership agreement in place KORES forming a consortium expected to include Samsung Group, GS Caltex, Daewoo Shipbuilding & Marine Engineering Group and AJU Group to participate in the Frontier Joint Venture Pre feasibility Study scheduled Q3 2012 and Definitive Feasibility Study Q3 2013 Strong financial position: c. $38m cash and fully funded through Pre & Definitive Feasibility Studies Experienced Board, management and technical teams Well developed corporate and product strategy 8 │
Zandkopsdrift Project Location Project well-situated in the Northern Cape Province, South Africa’s oldest mining region Excellent mining and related infrastructure available Close to N7 highway from Cape Town (c.450 km) 35km to nearest railhead (Bitterfontein) 300km north of deep water port of Saldanha Bay Strong support in in local communities for the development of the Zandkopsdrift Frontier controls c.60,000 ha prospecting right area and owns c.4,500 ha of land on which the Zandkopsdrift rare earth deposit and carbonatite complex is situated 9 │
Zandkopsdrift Project Area Zandkopsdrift carbonatite Gravel road to N7 complex N7 tarred road to Cape Town Exxaro Resources Namakwa Sands Mine Bitterfontein rail head (~45 km) (~44 km by road) 10 │
11 │ Zandkopsdrift Deposit
Zandkopsdrift Project Overview A world-class rare earth deposit Carbonatite complex and one of the largest known rare earth deposits globally with approx. 950k TREO Significant higher grade “Central Zone” identified within the deposit (average in situ grade 3.1% TREO ) extending from surface and amenable to preferential mining Zandkopsdrift principally contains “conventional” RE minerals (97% monazite) for which commercial extraction processes exist Metallurgy now well understood, and utilises established extractive processes Rare earth minerals in many new projects have never had commercial processes developed, which is key to development time, costs and process risk Potential for rapid development and production start-up Good regional infrastructure will also facilitate development Targeting annual production of circa 20,000 tonnes of separated rare earths commencing in H2 2015 12 │
PEA Financial Highlights PEA Financial Highlights Post-Tax Net Present Value @ 11% discount rate $3.65bn Post-Tax NPV &IRR NPV attributable to Frontier Rare Earths $3.60bn Post -Tax Internal Rate of Return 52.5% Pre-Tax Net Present Value @ 11% discount rate $4.3bn Pre -Tax NPV & IRR Pre-Tax Internal Rate of Return 57.6% Average annual revenue $1.1bn Revenue and Cashflow After-tax free cashflow in full production $711m Total construction capex excluding contingencies $910m Capital Expenditure Start-up costs excluding contingency $27m Project payback from commencement of full production 2 years “Basket price” per kg of separated REO from Zandkopsdrift $58.23 Revenue and cost/kg Separated REO Total cash operating cost/kg separated REO $13.08 13 │
Zandkopsdrift Project Rare Earth Operations and Infrastructure Mining, flotation and cracking Mining, flotation and cracking plants to produce mixed rare plants to produce mixed rare earth carbonate earth carbonate Rare earth carbonate Rare earth carbonate transported 300kms by road (N7) transported 300kms by road (N7) to Saldanha Bay to Saldanha Bay Saldanha Bay Rare Earth Saldanha Bay Rare Earth Separation Plant Separation Plant Koeburg Nuclear Power Station Koeburg Nuclear Power Station 14 │
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