Mr. Tracy Moore reports

CANADA RARE EARTH ACQUIRES ADDITIONAL CAPABILITIES, EXPERTISE AND RELATIONSHIPS TO PROCESS RARE EARTHS

Canada Rare Earth Corp. has entered into an agreement dated Sept. 1, 2015, to acquire the assets of CEC Rare Earth Corp. (REC), an affiliated private British Columbia company. Peter Shearing is a director of both the company and REC, and is therefore considered to be a non-arm's-length party to the transaction. As part of the acquisition, REC's members of management will be engaged as consultants to Canada Rare Earth, and REC will no longer be directly involved in the rare earth industry.

The acquisition of the assets of REC will enhance the company's ability to develop and commercialize rare earth properties with the ultimate goal of processing and refining rare earths derived from its properties and from other sources. The REC assets include REC's expertise, connections and business arrangements, including all of the assets, contracts and business arrangements owned or entered into by REC that relate to exploring for, mining, concentrating, sourcing, treating, separating and selling rare earths in all forms and at all stages. More specifically, the REC assets include but are not limited to cash, receivables, contracts, letters of intent, memorandums of understanding, consulting arrangements and rights associated with supplying expertise to many aspects of the rare earth industry, together with rights to earn interests in rare earth projects.

The consideration to be paid by the company to REC or at the direction of REC for the REC assets is as follows:

1. 24,178,000 common shares to be issued by the company, subject to an escrow agreement, pursuant to which shares will be released from escrow over 18 months after issuance;
2. Distributions from future contract proceeds and dividends derived from the REC assets including: (i) 5 per cent of the first $70-million (U.S.) of non-refundable gross cash collected for the implementation and execution of contracts and business arrangements, and the disposition of REC assets; (ii) for the 12-year period following closing of the acquisition, 5 per cent of the non-refundable gross cash collected for the implementation and execution of contracts and business arrangements, and the disposition of REC assets, plus 10 per cent of dividends derived from REC assets (this second royalty may be acquired by the company at any time during the three years following completion of the acquisition for $15-million (U.S.) less 50 per cent of royalties paid in this regard); and (iii) 3 per cent of the first $70-million (U.S.) of non-refundable gross cash collected for the implementation and execution of contracts and business arrangements, and the disposition of REC assets (this third royalty may be acquired by the company at any time during the two years following completion of the acquisition by the issuance of 15,712,000 common shares);
3. Vesting of previously issued stock options to acquire 712,500 shares of the company and continuing until Nov. 8, 2017, the exercise period of another 4,287,500 previously granted stock options, all of which are exercisable at 10 cents per share;
4. The immediate termination without penalty of the contract for REC to provide vertical integration implementation services.

Commenting on the rare earth sector in general and on the acquisition of the REC assets specifically, Tracy A. Moore, chief executive officer, explained: "The success in finding minable quantities of rare earths and the ability to produce a rare earth concentrate does not in itself lead to or allow the creation of a viable business. The separation of the rare earth concentrate into the individual rare earth elements is absolutely key to commercialization. China separates approximately 90 per cent of the world's supply of individual rare earths, and therefore, existing and prospective sources of rare earths must either sell their concentrate, directly or indirectly, to a small, closely connected group of purchasers within China, or they must develop their own means of separation, independent of China. Unfortunately, separation is considered a lost art (and chemical science) outside of China, and there are significant risks with either reinstating mothballed separation facilities or in developing new and unproven techniques and technologies at scale.

"Finding and mining, and even concentrating rare earths is not particularly unusual or difficult; however, the downstream processing of the ore/concentrate into oxides is problematic, both technically and commercially. By and large, for the past 20 years, separation of rare earths from concentrate into individual oxides has taken place primarily within China by a limited number of closely connected separators. These separators and other very important aspects of the Chinese rare earth industry are in the midst of consolidation by six large state-owned organizations, which report to the Chinese central government in Beijing."

Mr. Moore continued: "Hence, for rare earth deposits situated outside of China, there are three choices for separation: (1) sell the concentrate to the Chinese oligopoly (and lose control of the rare earths while failing to optimize the commercial potential of the rare earths); (2) refurbish a mothballed refinery with its outdated processing techniques and technology (with less-than-optimum processing efficiency, greater costs and lower profitability); or (3) develop one or more new separation approaches and technologies (which have all the risks of developing new technologies, and simultaneously placing the mining and concentrating assets at risk). Canada Rare Earth is extremely fortunate to have arranged a fourth and viable alternative. Through the acquisition of the REC assets and the engagement of its consultants, Canada Rare Earth is now directly connected with one of the most experienced designers, builders and operators of rare earth separation refineries in China and therefore the world."

Canada Rare Earth's strategy for over two years has been the simultaneous development of sourcing rare earths, developing separation capabilities, approaching prospective customers for the separated, individual rare earths and approaching financiers. The significant accomplishment of connecting Canada Rare Earth with a capable designer, builder and operator, and with several of its prospective separation refineries is an important cornerstone to the company's business strategy and implementation.

We seek Safe Harbor.