Greenland Minerals and Energy : RE prices on the rise

Company Announcement, July 4th, 2017

Rare Earth Market Prices Rise, Sector Outlook Improves, Kvanefjeld Project Well‐Positioned

• Rare earth (RE) prices are increasing steadily in response to improving fundamentals
• Reforms to the rare earth industry in China have been substantive, with positive impacts, the result of industry consolidation and a crackdown on illegal production
• China's Rare Earth Industry Development Plan for 2016‐2020 (the Plan) provides a road map for continued reform in China, and insight into future global industry structure
• As the Plan is implemented RE supply will be increasingly constrained, shortages will develop and there will be a need for new mine developments outside China
• China's downstream processing technology, capacity, and market presence means it continue to have a dominant influence on the evolution of the industry
• Demand has returned, with strong outlook for the markets for permanent magnets and catalysts (Nd, Pr, Tb, Dy, and La)
• Demand growth is being driven by the electrification of transport systems (electric vehicles, train systems) and, new and clean technologies, many of which are closely linked to government policies worldwide
• These government policies are aiming to reduce pollution associated with carbon emissions, promote clean technologies, energy efficiency and renewables
• GMEL's Kvanefjeld Project ideally placed for the next phase of sector growth; positioned at the interface of sustainable new primary supply with Chinese downstream processing technology and international market presence

Rare Earth Industry Outlook

Greenland Minerals and Energy Ltd's ('GMEL' or 'the Company') Kvanefjeld Project is one of very few advanced rare earth projects globally and is well‐positioned to be internationally important point of primary rare earth (RE) supply in what continues to be a rapidly evolving market. Kvanefjeld is projected to be a significant, cost‐competitive producer of all key rare earths including neodymium, praseodymium, terbium and dysprosium.

As the future structure of the RE industry becomes clearer, largely due to Chinese reforms, the projected demand outlook is increasingly strong. Demand growth is underpinned by government policy (notably China and India) that is pushing to reduce pollution associated with carbon emissions, and promote clean, energy efficient technologies.

This is driving strong growth in the permanent magnet sector to which RE's are essential. Hybrid and electric vehicles, wind turbines, industrial robots (manufacturing) and a growing range of energy efficient technologies all utilise permanent magnets.

GMEL is currently working with strategic partner and 12.5% shareholder Shenghe Resources Holding Co Ltd (Shenghe) to connect Kvanefjeld to the growing international RE market through leading downstream processing technology. Owing to Kvanefjeld's scale, favourable production profile across all key REs and long projected mine life, successful development will see Greenland become a globally significant, long‐term supplier of these important metals.

Rare Earth Prices

After a long period of consolidation through 2016 RE prices have been on the increase since the start of 2017. For the magnet metals (especially neodymium, praseodymium and terbium) and lanthanum the price increases have been significant (Figure 1).

Using January 1 2016 as a base, the price of terbium oxide is up over 40%, the prices of lanthanum oxide is up nearly 30% and for praseodymium and neodymium oxide up around 20%.

Prices have not moved in response to a short term stimulus to the market, rather prices are moving to reflect underlying changes to the supply and demand dynamics for rare earths. Demand is increasing and China's Rare Earth Industry Development Plan for 2016 - 2020 will see continuing tightening of rare earth supply.

It has taken until the end of 2016 for the improved market dynamics to be reflected in RE prices because of the level of stock of intermediate RE products that had built up in the supply chain since 2012. The sharp fall in demand after the price spike in 2011 was not matched by a cutback in

production and significant stocks of intermediate products developed as a consequence, particularly through illegal supply networks.

Figure 1. Indexed rare earth prices (source: the Association of China Rare Earth Industry ACREI).

Rare Earth Supply - An Evolving Backdrop

China established its dominant position in the RE processing industry on the back of a secure and abundant domestic source of RE raw materials coupled with a commitment to developing downstream processing technology and capacity. Over the last decade the Chinese Government has taken a number of strategic steps to protect the dominant position of its domestic RE industry.

Acknowledging that domestic reserves of REs were being depleted at an unsustainable rate, from 2005 the Chinese Government steadily reduced quotas allocated to exporters of rare earths. In 2005 export quotas totalled ~65,000 tonnes.

In 2010 the volume of allocated export quotas [~30,000t] was, for the first time, set below expected demand. This precipitated panic in the market and the RE pricing bubble of 2011 was the result.

The 2011 price bubble stimulated mining and processing outside of the official channels in China and compromised Government efforts to date to conservatively utilise what were increasingly being regarded as long term strategic assets.

The Chinese Government responded with a number of initiatives with the objective of reasserting control over its domestic rare earth industry. These steps include:

1. Consolidation of the industry into 6 major state run regional entities.
2. Elimination of export quotas and tariffs and the introduction of an export licenses
3. Curbing production occurring outside of the formal production quota system [the steady decline in prices has helped to organically curb this unauthorized production]

While it has taken some time for the impact of these changes to be felt, a general tightening of the supply of RE is now occurring as a result and it is clear that developments in China will continue to drive the evolution of the RE market.

China's Next Five Year Plan - Towards Integration

In October 2016 China's Ministry of Industry and Information Technology issued its Rare Earth Industry Development Plan (Plan) for the period to 2020. The key objectives of the Plan are to:

* Limit RE mine production to no more than 140,000 tpa

• Reduce separation plant capacity by a third
• Ensure that 90% of RE operations are in compliance with increasingly stringent environmental regulations, and
• Ensure that the proportion of REs exported as raw materials is significantly reduced

Once implemented the Plan will restrict rare earth production from domestic raw materials and will further restrict RE raw mineral exports.

This is a very significant long term development for the RE industry and there is already evidence that Chinese RE producers have refined their strategic approach in response.

As the objectives of the Plan are achieved it will become increasingly difficult for Chinese processors to guarantee secure long term domestic supplies of RE raw materials. Companies will have to develop new sources of raw materials outside of China to guarantee long term supplies for existing separation plants and to underwrite investments in capacity or technology. Chinese RE processors will need to be prepared to invest in, or facilitate the financing of, RE mining projects overseas.

The Plan will create the circumstances whereby a select few ex‐China mines (primary supply) will be integrated with leading Chinese processors to ensure that sufficient RE products are available to end‐user industries.