Mr. Randall Scott reports

RARE ELEMENT ANNOUNCES POSITIVE ECONOMIC RESULTS FROM PRE-FEASIBILITY STUDY AT BEAR LODGE

Rare Element Resources Ltd. has released the results of a positive prefeasibility study (PFS) for the Bear Lodge project, Wyoming. The PFS was commissioned to provide a technical document for the resource model, present the technical activities for the rare earth exploration program, provide a detailed process description and present an economic analysis of the rare earth resources. The results of the PFS show that the Bear Lodge project is technologically feasible with robust returns on invested capital.

Randall Scott, president and chief executive officer, stated: "We are very encouraged with these results. The PFS was designed to provide an engineering and economic assessment of the viability of the Bear Lodge project and, more specifically, the Bull Hill rare earth element (REE) open-pit mine, and these results clearly demonstrate the solid economics of this project. We feel that conservative economic data were utilized in this report so to receive such positive results clearly shows the merit of the Bear Lodge project, and we will continue on with the development of a bankable feasibility study. Additionally, we will be finalizing a National Instrument 43-101 technical report in the near term, and that report will be filed with regulatory agencies. The NI 43-101 technical report will include the updated mineral reserve and resource estimates that will encompass those drill results from the 2011 exploration season for which we already have received assay results."

Highlights

The Bear Lodge PFS addressed all aspects for the development of the project including infrastructure, open-pit mining, mineral concentration and hydrometallurgical processing. Roche Engineers Inc. was the independent consulting group which carried out the PFS on behalf of the company. Other consulting groups which provided information and expertise included Ore Reserves Engineering, John T. Boyd Company, Mountain States R&D International, Hazen Research Laboratories and IMCOA, an independent industrial minerals research firm based in Perth, Australia.

                         ECONOMIC SUMMARY
                                              
                            Nominal case        Maximum case
                                 Model 1             Model 2
Rare earth oxide
concentrate price                 $17.36              $17.36
Internal rate of return            44.9%               99.3%
NPV at 8 per cent           $1.7-billion        $4.0-billion
NPV at 10 per cent          $1.3-billion        $3.4-billion
NPV at 12 per cent          $1.0-billion        $2.9-billion
Payback of initial
capital                        two years            one year

Capital costs
Mine (including
replacement capital)                  $60.8-million
Physical upgrade plant                $66.4-million
Hydromet and tailings
storage                              $133.8-million
Owner's costs and other               $95.7-million
Contingency (25 per cent)             $89.2-million
Initial capital                      $375.2-million
Total capital                        $445.9-million

Operating costs (life of mine)
Mine/PUG ($/t ore)                $54.17              $46.26
Hydromet ($/t ore)               $174.30             $191.57
General and administrative
($/t ore)                         $26.26               $9.17
Total operating cost             $254.73             $247.00

                               PROJECT SUMMARY

                              High-                               Low-
Mine recoverable              grade       Oxide       Oxide      grade
resources (ore type)          oxide   carbonate   stockwork      oxide

Cut-off grade (per cent
rare earth oxide)              1.5%        1.5%        1.0%       0.5%
Average grade (per cent
rare earth oxide)              3.7%        3.5%        1.1%       0.7%
Total recovered ore
(thousand tonnes)             3,490       2,842       1,582      8,510(i)

Waste (thousand tonnes)                              60,716
Total tonnes (thousands)                             77,140
Strip ratio                                            7.67
Mine life                  19 years                10 years
Permits/baseline        three years             three years
Project construction      two years               two years

Production rate 
(t REO/y)                    10,400                  32,886
Concentrate (t at 45
per cent REO/y)              23,111                  73,080
Estimated RE recovery         81.2%                   81.2%
                                                 
(i) Stockpiled                           

Note: Results are on a prefederal-tax-rate basis.

Financial analysis

The economic analysis that was performed for the PFS on the Bear Lodge project was conducted with both a nominal (model 1) and a maximum (model 2) production schedule. The nominal production schedule was considered as the base case. The major factors differentiating the nominal case with the maximum case are the mine life and production schedule. The nominal case addresses production of 23,111 tonnes per annum of concentrate production at 45 per cent REO (rare earth oxide) for a mine life of 19 years while the maximum case provides for production of 73,080 tpa of concentrate at 45 per cent REO for a mine life of 10 years.

Total life-of-mine capital costs for the project have been estimated at $445.9-million including a 25-per-cent contingency of $89.2-million. The initial capital cost is $375.1-million. This includes $127.2-million for the PUG (physical upgrade) plant and mine (including replacement capital) and $133.8-million for the hydromet plant. Initial capital expenditures are assumed to span the first four years, with infrastructure heavily weighted in the first two years, and plant construction heavily weighted in the second two years. There has been a trend toward increasingly higher equipment prices and input costs that have resulted in higher capital expenditures throughout the mining industry over the past years.

The nominal base case and the maximum case both assumed an average price of $17.36 per kilogram (kg) of bulk-mixed RE concentrates with an average grade of 45 per cent TREO (total rare earth oxide). This price is a three-year trailing average of prices from the Metal-Pages bulletin. Recognizing that the output concentrate produced from the Bull Hill mine is a basket mix of individual rare earth oxides, a discount of 40 per cent was assumed for the pricing in the economic models.

The economic analysis also calculated that the break-even cash flow price for RE concentrate is $4.42 per kg, which is 75 per cent below the $17.36 price used in the models. The price required to achieve an IRR (internal rate of return) of 30 per cent is approximately $11.70, which is 33 per cent lower than the price assumed for both cases.

Mine design and mining operations

The mine will be operated as a conventional truck-shovel open-pit mine. The PFS determined that the scope of the development of the Bear Lodge project should consist of two components: the open-pit mine operations and PUG (physical upgrade) plant on site at the Bull Hill mine and the hydromet plant (hydrometallurgical) at Upton, Wyo., adjacent to the railway line. Upton is located approximately 40 miles from Bull Hill mine. The PUG plant is designed to maximize the rare earth ore and produce a preconcentrate using a gravity separation, and screening and wash process. This preconcentrate will be transported to the hydromet plant at Upton, Wyo., where a rare earth concentrate will be produced.

The PUG plant is designed to process up to 1,000 tpd (tonnes per day) of high-grade oxide material, and 1,000 tpd of oxide carbonate and stockwork material which will be blended to meet mine pit production plans and market demands. The PUG process employs a series of crushing, attritioning, washing and screening methods to concentrate the RE fines and reduce the physical mass. Harder stockwork ores are used as the attritioning media to break up the clay-like oxide ores. There are areas of the Bull Hill mine that contain variable amounts of weathered oxide ores and other areas that contain intermittent stockwork. Each of these ore types has a different upgrade percentage and mass reduction in the PUG circuit. These product streams from the different ore types will combine to produce a preconcentrate with the overall processing strategy to maximize the RE grade and recovery, and minimize the mass or tonnage of the preconcentrate that is transported to the hydromet plant.

The hydromet plant has been designed with two parallel circuits to process the preconcentrate from the PUG plant. The nominal REO (rare earth oxide) production rate is anticipated to be 10,400 tonnes per year. The hydromet process will use a hydrochloric acid solution, heated to 90 C to leach the REE from the concentrate. Iron is then precipitated from the solution, and calcium and manganese are extracted by an ion exchange process. The REE are finally precipitated as carbonates through the use of sodium carbonate.

Both the nominal base case and the maximum case utilized only the Bull Hill deposit. Rare Element has been exploring additional deposits that, thus far, have not been determined to contain mineral reserves nor resources. As the company continues to advance the Bear Lodge project, exploration will continue at the outlying deposits where drilling has indicated that HREEs (heavy rare earth elements) appear to be more prevalent. If these deposits are found to contain economically feasible mineral reserves and resources, then there would be the opportunity to either prolong the life of the mine or increase annual production of REO concentrate.

The life-of-mine operating costs for the nominal base case have been estimated at $54.17 per tonne of ore for the mining and PUG costs, $174.30 per tonne of ore for the hydromet plant, and $26.26 per tonne of ore for general and administrative costs, for a total operating cost of $254.73. The maximum case life-of-mine operating costs are $46.26 per tonne for the mining and PUG operating costs, $191.57 per tonne for the hydromet plant costs, and $9.17 per tonne for G&A, for total costs of $247.00 per tonne.

Markets for rare earths

Rare Element has been and continues to negotiate with some highly recognized companies for potential offtake partnerships.

Rare earth elements are key components of the green energy technologies and other high-technology applications. Some of the major applications include hybrid automobiles, plug-in electric automobiles, advanced wind turbines, computer hard drives, compact fluorescent light bulbs, metal alloys in steel, additives in ceramics and glass, and petroleum-cracking catalysts. China currently produces more than 96 per cent of the 124,000 tonnes of rare earths consumed worldwide annually, and China has been reducing its exports of rare earths each year. The rare earth market is projected to grow rapidly as these green technologies are implemented on a broad scale. Rare earths are critical and enabling metals for the green technologies.

Jaye T. Pickarts, PE, serves as the chief operating officer of the company as an internal, technically qualified person. Technical information in this news release has been reviewed by Mr. Pickarts and has been prepared in accordance with Canadian regulatory requirements that are set out in National Instrument 43-101.

We seek Safe Harbor.