Rare Element Shareholders,

We received some very good news last week in the form of announcements from China further reducing their exports of Rare Earth Elements. It was not that they are limiting the exports of Rare Earths - that has been happening for a while now - it is that China made a large reduction in the amounts of REEs that they will allow companies to export outside of China.

We expected China to reduce the REE export quotas by 6% to 7% this year, but the Chinese have reduced them by about 40%.

Below is a short analysis of some of the actions by China recently that we expect to cause further increases in REE prices.

Our REE resource tonnage has increased significantly this year and we expect it to grow further. Our infrastructure is excellent, and our metallurgical results continue to impress us. Our $4.5 million REE exploration program is now well underway and we have also found that the community is very supportive of the project.

Regards,

Mark T. Brown CA
CFO & Director
Rare Element Resources Ltd.


By Dudley Kingsnorth, IMCOA and consultant to Rare Element:

Developments in China
There have been a number of announcements in the past week which come as a surprise. We have no particular insight except to believe that the intent of these moves appears to be to maximise the 'value add '(locking in China as a supplier), before the many pending non-Chinese rare earths projects are committed:

Export Quotas
It appears that the export quotas for 2010 have been reduced by 40% compared with 2009. This is a far greater reduction than forecast; I had forecast that the reductions would be of the order of 6-7% in the coming years. Nevertheless, the impact is likely to be far reaching:

• Chinese Rare Earth Export Quotas for 2010 are now significantly less than ROW consumption; the export quotas for 2010 total 30,250t REO compared with ROW forecast demand of 50-55,000. Total ROW production capacity is currently 10-12,000t at best, which indicates a shortfall this year of at least 10-15,000t.
• Prices are likely to rise significantly. With the benefit of hindsight, looking at prices (metal pages) over the past 6 weeks it appears that many people recognised that the quotas would be reduced significantly, as prices have risen by 10-20%.
• The Chinese producers will focus on the export of the higher value rare earths to get the maximum value from their quotas. So, this should help Rare Element Resources, Molycorp, Lynas etc. sell cerium.

Price Fixing
It appears that China will attempt to exercise some control over rare earth prices in some provinces in the South of China. This appears contrary to WTO rules; which I believe to be a significant development. However, if there is adverse reaction, worldwide, the mechanism may be withdrawn or watered down to some form of 'guidance'.

Resources Tax
Having been set an example by Australia it appears that China may introduce a Resources Tax (of 5%), which will probably be passed onto customers. This represents another 'free kick' to non-Chinese producers.