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SOMBA K'E/YELLOWKNIFE - Developments to Avalon Rare Metals Inc.'s pre-feasibility study for its Nechalacho rare earth elements deposit at Thor Lake have greatly increased the projected profitability of the project.

Updates to the mineral exploration and development company's mineral reserve estimate and higher rare earths market prices, have contributed to "a significant improvement in the anticipated economics" of the project, the company announced July 7.

"While higher levels of profitability based on a higher price assumption was not an unexpected result, a significant part of the improved economics arises from the higher grade heavy rare earth sub-zones discovered in 2010," Avalon president and CEO Don Bubar said in a statement.

Among the differences between the original pre-feasibility study released in June 2010 and the updated version is a 20-year mine life with an average of 2,000 tonnes-per-day, instead of an 18-year mine life with a four-year ramp-up of production from 1,000 tonnes per day to 2,000. The extended mine life is based on the deposit's probable mineral reserve estimate of 14.5 million tonnes of total rare earth oxides.

The average price for total rare earth oxides went from $21.94 per kilogram to $46.33 per kilogram in the updated study, which Bubar said is still a relatively conservative price assumption, used to account for an expected decrease from the current levels as new supply comes into the market.

The total project capital costs went up in the updated pre-feasibility study from $900 million to $902 million.

The original study, conducted by independent consultants Roscoe Postle Associates Inc., produced numbers that were "marginal in terms of profitability, but not high enough to excite people from an investment standpoint," Bubar said. "The project looks more attractive now than it did a year ago."

Avalon estimates the present net value of the project is $1.27 billion after tax.

A bankable feasibility study is expected to be completed for the project by late 2012, and is to include the construction of a separation plant and refinery.

Nechalacho is located about 100 km southeast of Yellowknife. According to Avalon's website, it is the company's primary asset and is described as one of the highest-quality undeveloped rare earth element deposits in the world. Nechalacho is one of the few potential sources of valuable "heavy" rare earth elements outside of China, and includes europium, terbium and dysprosium. These elements can be used for lasers, fluorescent lamps, electric motors and batteries.

Shares of Toronto-based Avalon closed at $6.27 Monday on the Toronto Stock Exchange.

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