ELECTIO

Rare Earth Metals (REM)

Contents
Introduction Ocial Partner of the PGA of South Africa About us Worlds rst REM trading platform Worlds rst with liquidity Worlds rst REM trading app What are REMs? What do we use REMs for? Almost Everything. A global monopoly Supply and Demand In the News Supply chain issues Page 3 Page 4 Page 6 Page 8 Page 11 Page 13 Page 14 Page 16 Page 18 Page 20 Page 22 Page 24 Electio REM products The opportunity Why invest in REMs? Client security Electio Regulatory Framework Delivery Vs Payment (DVP) Tangible asset/ Commodity What is a bonded warehouse? Bank/ Custodian Regulated Administrator Electios Carbon Neutral Promise Opening your account Managing your account Page 26 Page 29 Page 30 Page 31 Page 32 Page 33 Page 34 Page 35 Page 36 Page 39 Page 40 Page 42 Page 43

The market for rare earths may double by the middle of the decade.
2011 report by Ernst & Young LLP

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Introduction
While investor condence is generally considered to be at an all time low by most analysts and the global economic outlook bleak, trading traditional asset classes can often be associated with far too much risk. Time and time again, investors look to alternative investments when market conditions are poor for traditional asset classes. Historically, when stock markets crash, property markets usually suer a similar crash. In these conditions, investors increasingly run to commodities as a safe haven. Nothing demonstrates this better than oil and gold. Since 1997, the price of gold has rocketed from $150 to its current levels of $1700. Similarly, oil has risen from $40 to $110 in just ve years. But has the ten-year gold rally come to an end? Many analysts say yes. The purchase of commodities continues to be seen as a safer option by many professional investors, relying as it does on the most basic of trading principles: supply and demand. What if we could no longer build aeroplanes, satellites, wind turbines or mobile phones? What if a monopoly over an entire industry was in place and this monopoly could dramatically aect the way we operate on a global scale? The Rare Earth Metals (REM) market is often described with many dierent names and abbreviations, such as: Critical Materials; Critical Earth Elements; and; Rare Earth Elements to name a few. At Electio we believe in keeping things straight forward and clear and for that reason you will see one name and abbreviation used consistently: Rare Earth Metals (REMs). REMs are often described as the most valued commodities on earth. They are used to build, create and manufacture almost everything we use and rely upon on a daily basis.

China, supplier of 95 percent of the 17 elements known as (REMs), has clamped down on mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher
(Goldman Sachs, Australia)
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At Electio Alternative Investments we understand the patience and strategic thinking behind lining up the perfect golf shot . This is why we are delighted to announce that Electio has been selected as the Ocial Alternative Investment Partner of the Professional Golfers Association of South Africa (PGA). In the same way that professional golfers always carry dierent clubs in preparation for the shots they may have to take under any condition, a smart investor will always have diverse assets in his portfolio so that he is prepared for any nancial climate.

OFFICIAL ALTERNATIVE INVESTMENT PARTNER

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Ocial Alternative Invement Partner of the PGA of South Africa

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About us
Electio Alternative Investments was founded by a group of like-minded high net worth investors as a niche investment platform enabling judicious investors to diversify their portfolios into the Alternative Investment Sector. Aided by trade-on-the-move technology, Electio oers a leading-edge trading space, backed by the necessary market knowledge and expertise to give investors what they want and give credence to its ambition to become Africas leading alternative investment provider. Fundamental to the Electio model is our use of technology in an online trading space in which investors have: the ability to monitor their investments on the move; liquidity and an online platform facilitating 24/7 trading; access to REM investments; the means to diversify investments for an optimal portfolio and spread risk; enhanced protection and safeguards for non-traditional asset classes

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Worlds r REM trading platform

At Electio we view technology as one of the most important aspects of our business. Our dedication to fostering an aspirational brand has seen us develop the worlds rst REM trading platform. This creates a marketplace for Electio customers to buy and sell REMs simply and eciently within the same platform. * This allows you to: Buy and transfer REMs View your trading account history View the payment history for your account Contact customer support View todays trading price at the touch of a button Request additional access for a representative or advisor to view your account Restrict additional users permission levels as you wish

*All trades are subject to liquidity in markets.

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Worlds r with liquidity

Our global scale and reach allows us to connect buyers and sellers across all market jurisdictions. Our customers enjoy online access to their accounts and all the information they need to make an informed decision. This is why Electio is proud to be in the unique position of being the rst to oer liquidity. This exibility to buy and transfer REMs is an industry rst within the REM market*.
*Subject to trading volumes and liquidity

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Worlds r REM trading app

At Electio we understand a third of all internet access is mobile, which is why we have developed the worlds rst REM trading app.

The Electio REM trading app allows you to:

Buy and transfer REMs View your trading account history View the payment history for your account Contact customer support View todays trading price at the touch of a button Request additional access for a representative or advisor to view your account Restrict additional users permission levels as you wish

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What are REMs?

As dened by The International Union of Pure and Applied Chemistry (IUPAC), Strategic Earth Metals are a set of 17 chemical elements in the periodic table, specically the 15 lanthanides plus scandium and yttrium. REMs have extraordinary properties and are hence indispensable in the world of modern technology. They help increase eciency, productivity and accuracy of components. They have been highlighted as critical by the US government. They are vital to everyday life, scarce by their nature and very dicult to extract. The extraction and, in particular, the processing of REMs is extremely capital intensive, ranging from $100 million to $1 billion of capital expenditure depending on the location and production capacity. The estimated nancial investment needed just to prove the resource (i.e exploration and drilling) can be up to $50 million.

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What do we use REMs for? Almo Everything.

In the modern world we now use REMs on a daily basis without even realising it. They are now key in the technology industry and comprise the key components of everything from mobile phones or laptop computers to emulsion paints and medical implants. There is no doubt that some of the worlds industries depend heavily on them. Many of these REMs are also essential in the production of green energy alternatives such as wind turbines, electric cars and energy ecient light bulbs. As an industry set to expand exponentially over the coming decades, it is easy to see why a secure supply of these metals is of paramount importance Also, with current population growth estimated to grow from 7.9billion to 11.9billion by 2025, RSEMs are paramount to sustainable, safe growth and commercial evolution.

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National Security
Nuclear technology Satellites Missiles Radars Lasers Night vision Communication systems

Renewable Energy
Electric car batteries Solar cells Wind turbines Hybrid cars Carbon capture storage pods Geographical surveying equipment

Technology
Computer chips LCD screens Disk drive manufacturing Medical implants Aircraft turbines Mobile phone batteries Laptop computer chips

Other uses
Dying of ceramic glass Super alloys Fuel catalytic convertors X-ray lms Fluorescent lighting Fuel additives and catalysts Doping agent for optical equipment Paint

A global monopoly
China eectively controls the current global supply of REMs, which is a well documented and major concern for Western economies. In the UK, a Science and Technology Committee report warns: The UK will need to secure supplies of (REMs) or future economic growth will be put at risk. The Royal Society of Chemistry, which contributed to the report, says: emissions targets could be missed if the UK fails to formulate a plan for (REMs). As demand for rare metals increased, following the development of newer technologies requiring them, China began to steadily reduce the supply of these metals. In the second half of 2010 China suddenly announced they were cutting their export quota by 72 percent, and announced that they have only limited resources.

Currently China:
Supplies over 95% of global REMs Is expected to consume most of the supply Has reduced export quotas by an average of 12% per year since 2005 As an example, there is currently no known substitute for one of the 17 REMs known as yttrium. Without yttrium, you cant make the refractory molds needed to make jet-engine turbine blades. If you cant make jet-engine turbine blades, you dont have jet engines or power turbines. The price points for REMs including the likes of yttrium are predicted by most nancial analysts to rise in the face of unalterable demand. An act was recently tabled in the US to take all necessary initiatives to reintroduce a domestic rare earth supply chain so as to ensure a secure source of these vital metals. However, new mining set ups are prohibitively expensive and are likely to push the prices up further.

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Supply and Demand

Market share
Global demand and supply shifts are altering the dynamics within the REM market, presenting both challenges and opportunities. Global demand is expected to reach 200,000 MT by 2015, (US Congressional research report, 2012) To provide most of our power through renewables would take hundreds of times the amount of rare earth metals that we are mining today, (Thomas Graedel, Clifton R. Musser professor of Industrial Ecology and professor of Geology and Geophysics at the Yale School of Forestry & Environmental Studies)

And other Rare Earth Metals are essential for solar cells, cell phones, computer chips, medical imaging, jet engines, defence technology, and much more.

Every megawatt of electricity needs 200 kilograms of neodymiumor 20 percent of one ton, he said. So if every big wind turbine produces one megawatt, ve turbines will require one ton of neodymium. If wind is going to play a major part in replacing fossil fuels, we will need to increase our supply of neodymium, (Peter Kelemen, Arthur D. Storke Memorial professor of Geochemistry at the Earth Institutes Lamont-Doherty Earth Observatory)

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A recent MIT study projected that neodymium demand could grow by as much as 700 percent over the next 25 years; demand for dysprosium, also needed for wind turbines, could increase by 2,600 percent. China currently supplies 97 percent of global Rare Earth Metal demand, and 100 percent of heavy rare earth metals such as terbium and dysprosium, used in wind turbines. In 2005, it began restricting exports to preserve resources and protect the environment, causing prices to soar. Today, the US is 100 percent dependent on imports for REMs. However, from the mid-1960s through the 1980s, Molycorps Mountain Pass mine in California was the worlds main source of REMs. As the US share of REM production declined, China used government support, research and development, training programmes, cheap labour and low prices to develop its supply chain, increasing its share of REM production from 27 percent in 1990 to 97 percent in 2011. In March 2012, the US, Japan and the European Union lodged a complaint with the World Trade Organization over Chinas limits on rare earth exports. The US, South Africa, Canada, Australia, Brazil, India, Russia, Malaysia, and Malawi also have deposits of REMs, and while the US Geological Survey expects global reserves and as yet undiscovered deposits of REMs will be able to meet future demand, new mines may take up to ten years to develop, and resources in remote areas will likely be much more dicult to extract.

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In the News
Dysprosium oxide, used in lasers, has jumped 338 per cent since January .. Even prices for the most common rare earths, such as lanthanum, used in hybrid car batteries, have risen sharply (Investment Banking Times, December 2011) These ores, called (REMs), can be rened into 17 rare earth metals, most of which were of little interest until the past decade. In recent years, however, demand has surged because the metals and their compounds are used in almost every modern electronic device, from at-screen televisions to mobile phones, as well as hybrid cars, wind turbines and even defence missiles (Financial Mail on Sunday, April 2012) REM shortages can threaten the growth of Western Europe, so the EU has now launched a campaign against the shortage (Spiegel online, February 2012) Electric cars to be hit by supply disruptionsthats the verdict of a new report from the US Department of Energy entitled 2011 Critical Materials Strategy, which looks at supply challenges for ve rare earth metals. These metals were found to be near critical (US Department of Energy 2011 Critical Materials Strategy) Dysprosium, along with terbium, europium, neodymium and yttrium, have been reported as already reaching critical levels of short-term supply (2011 Critical Materials Strategy US DoE) Theres no substitute for yttrium. Without it, you cant make the refractory moulds needed to make jet-engine turbine blades. If you cant make jet-engine turbine blades, you dont have jet engines or power turbines. The price points for these SEMs will reect true scarcity and unalterable demand. People will bite the bullet and pay what they have to in order to get the yttrium (Financial Times, November 2011) Industrial buyers are in shock after witnessing the price of REMs, such as cerium oxide jumping 475 per cent in just ve months, amid falling supplies (Financial Times, November 2011) REMs are the economic and technological foundation of a safe and secure nation. To possess them imparts independence, immunity to coercion, and the tools to invoke scientic advancement (James B. Hedrick, US government mineral resources advisor)

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Supply chain issues

The supply chain for Rare Earth Metals generally consists of mining, separation, rening, alloying, and manufacturing (devices and component parts). A major issue for REM development in the United States is the lack of rening, alloying, and fabricating capacity that could process any future REM production. An April 2010 Government Accountability Oce report illustrates the lack of US presence in the REM global supply chain at each of the ve stages of mining, separation, rening oxides into metal, fabrication of alloys and the manufacturing of magnets and other components. According to the GAO report, China produces about 95% of the REM raw materials, about 97% of REM oxides, and is the only exporter of commercial quantities of REMs. As an example, special magnets that operate at the highest temperatures include small amounts of REMs, which are currently only available from China. Around 90% of the REM alloys are produced in China (with some minor production in the US), thus, even if US SEM production ramps up, much of the processing and metal fabrication would still occur in China.

Demand from companies around the world

*Please note the above brand names are used for illustrative purposes only.

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Electio REM products

Before oering REMs to our clients, Electio conducted over 12 months of market analysis both externally and internally through our large client database to determine how and when professional investors would wish to trade REMs. We found clients considered diversication to be at the top of their wish list and the general consensus was clients would feel more vulnerable holding one type of REM. For this exact reason, Electio has designed trades to be executed in baskets to diversify risk across a number of dierent metals. Holding more than one type of REM aims to spread your risk across the market and is less focused on the individual performance of a specic metal. As you will see below, Electio has also structured its baskets so they have specic sector or industry focus. This allows clients to not only diversify the types of REM but also diversify the sectors and industries those REMs are used in.

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Green Energies Basket Erbium Oxide Lanthanum Oxide Neodymium Oxide Yttrium Oxide

Defence Basket Ytterbium Oxide Neodymium Oxide Cerium Oxide Gadolinium Oxide

Technology Basket Erbium Oxide Dysprosium Oxide Praesodynium Oxide Ytterbium Oxide

Smartphone basket Europium Oxide Terbium Oxide Dysprosium Oxide Erbium Oxide

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The opportunity
Electio has created a full service solution for private clients to: Buy REMs Hold REMs, and Sell REMs The below are some of the key attributes to purchasing REMs through Electio: 2-5 year recommended hold period 3 years bonded warehouse storage Insured at full market value Simple buying process Security of a regulated administrator Security of a regulated custodian (i.e a bank) Simple exit option through Electio platform*1 Take physical ownership of your asset if desired*2 Global demand predicted to increase by 8-12% pa until 2015 (Houses of Parliament department of Science and Technology research note, June 2011) China controls 97% of world exports - export quotas will fall to 65% by 2014 (Chinese Government Export Quota, May 2011)

*1: Subject to market conditions and liquidity. *2: Client would be responsible for any taxes due dependant on delivery jurisdiction.

Why inve in REMs?

The simple answer: supply and demand. Experts agree global demand for REMs is set to soar in the next 5-10 years and worldwide, exponential sales growth is forecast for consumer electronics and electronic vehicles - all of which rely on REMs for production. Demand for REMs is further enhanced by the looming deadlines many nations have agreed to lower their carbon emissions by, as they move to greener sources of energy production, such as wind and solar - technologies heavily reliant on REMs. These governmental pledges were further endorsed by a swathe of new commitments made recently at a United Nations Conference on Sustainable Development in Brazil (rio+20). In January 2012, the US Energy Department warned limited supplies of the ve REMs used in green technologies would pose a threat to production by 2015. David Sandalow, assistant secretary for policy and international affairs at the Department, said: Demand for rare earth materials has grown more rapidly than that for commodity metals such as steel. A unique phenomenon is occurring in the REM industry that experts have described as the perfect storm for business. While REM demand increases, uncertainty about the industrys ability to keep up with supply continues to make headlines. China currently controls over 95 percent of the worlds supply of REMs but has been restricting export quotas.

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In July 2010 China reduced these quotas by 40 percent. In March, the US, EU and Japan asked the World Trade Organization for a review of Chinas policies, accusing it of attempting to give its own high-tech industries a competitive edge over the rest of the world. Although China only has about 40 percent of global estimated REM deposits - and there are several projects worldwide underway to extract the ore - it seems unlikely production will be able to satisfy current demands any time soon. In fact, China itself could become a net importer of REMs by 2014, according to Mark Smith, CEO of Colorado-based REMs mining company Molycorp. Recent reports in the media suggested China has begun buying and stockpiling REMs, taking advantage of current low prices. Experts believe REM shortages are likely in the coming years, The Daily Telegraph recently reported. It also quoted PricewaterhouseCoopers as likening the REM supply situation to a ticking timebomb. In a recent Critical Metals report, REM expert, Jack Lifton, said The critical REMs will maintain strong demand and associated pricing. Certain REMS have oered staggering returns over the past four years

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Client security

At Electio we believe we have developed the safest and most secure trading and holding structure for REMs globally. We are proud of the structure we have developed including: Electio Regulatory Framework Delivery vs Payment (DVP) Tangible asset/ commodity Electio Platform Regulated administrator Bank/ Custodian Bonded warehouse Insurance

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Electio Regulatory Framework

Electio has incorporated many operational and management practices and principles akin to those found in regulated markets in an eort to, among other things, Distinguish itself from other market participants by establishing itself as a more professional, secure and viable business Provide greater condence and security to its clients and other stakeholders Position itself for its long term expansion and growth initiatives and aspirations

Delivery Vs Payment (DVP)

Delivery versus payment or DVP is a common form of settlement for securities and commodities. The process involves the simultaneous delivery of all documents necessary to give eect to a transfer of securities in exchange for the receipt of the stipulated payment amount. Ideally, title to an asset and payment are exchanged simultaneously. Electio has the resources and scale to oer clients the ability to receive delivery/ title of their purchased REMs in exchange for payment. This means there is no order period or waiting period.* *Subject to banking hours, warehouse hours and Electios Terms & Conditions.

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Tangible asset / Commodity

While investor condence remains low, Electio believes you should physically own what you are paying for. REMs are a physical, tangible asset/ commodity that can be physically delivered to a warehouse of the clients choosing if required.

What is a bonded warehouse?

Given the physical nature of REMs, Electio stores clients purchased REMs in secured bonded warehouse in reputable jurisdictions. A bonded warehouse is a building or other secured area in which dutiable goods may be stored and managed or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. In the latter case, a customs bond must be posted with the government. This system exists in all developed countries of the world. Below are some of the key attributes of a bonded warehouse: Delivery to and storage at load port Ocean transportation if required Discharge and storage at the destination port Customs formalities Delivery to nal destination if required High security Title certications

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Bank/ Cuodian
Bermuda Commercial Bank (BCB) - a fully licensed and regulated bank - provides global custody services to funds, trusts, corporate entities and individuals through its international correspondent network. BCB operates in 85 countries and can hold equities, debt instruments, commercial paper, commodities and metals, for or on behalf of its clients. Below are some key facts about BCB: Established by an act of Parliament in 1969 Licensed and regulated by the Bermuda Monetary Authority Previously part owned by Barclays Bank Listed on Bermuda Stock Exchange One of only four licensed banks in Bermuda BCB is a member of the SWIFT (Society of Worldwide Interbank Financial Telecommunication) network The REMs of Electios clients are under the custody of BCB. This world-rst arrangement for custody of REMs oers enhanced service and security with investor peace-ofmind as the fundamental cornerstone of our client relationships.

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Regulated Adminirator
Beacon Fund Services (Beacon) provides comprehensive and sophisticated management, consulting, administration, accounting and other related services to a wide range of oshore and domestic hedge funds, and other international entities with over $10BN of assets under administration.

Below are some key facts on Beacon:

Beacon is licensed and regulated by the Bermuda Monetary Authority (BMA) under the Investment Funds Act 2006 Established in 1995 Over $10 billion USD of assets under administration The REMs of Electios clients are under the custody of Bermuda Commercial Bank (BCB). The appointed authorized agent of BCB is Beacon Fund Services, a regulated administrator, responsible for the management and administration of BCBs custody arrangements related to REMs of Electios clients which includes conrmation of bar-codes, storage, insurance and custody in respect thereof. This is another world rst and another important part of the service and security Electio prides itself on.

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Electios Co2 Neutral Promise

Electio has built its entire business model on sustainable initiatives. There is obviously a Co2 eect on the environment due to the mining and shipping of REMs and in this regard Electio has created an automatic Co2 neutral promise with each basket of REMs purchased. For every basket traded by a client through Electio, Electio will purchase at its own cost one Veried Carbon Unit or VCU (equivalent to one metric tonne of Co2) and retire this credit on behalf of the client to eectively eliminate any Co2 which may have been generated by the mining and shipping.

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Opening your account

Complete application form and provide 2 forms of identication.

We set-up an Electio account in your name and assign you a Electio account number.

The trade price is locked down before payment is made.

We email you the Contract Note which conrms the quantity and price of REMs purchased.

We send you conrmation of payment and trade direction by way of the Trade Notication.

Your platform access is granted once we have emailed you your login details for iPhone app, iPad and computer.

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Managing your account

The Electio Client Liaison Team is just a phone call or email away and ready to answer your queries.

We send you monthly REM news.

We allocate you a broker to keep you updated as often as you request.

You will receive general Electio electronic newsletter feed.

We will send you important announcements via Electios online platform and iPhone app.

We will invite you to corporate days at major sporting and sponsored events.

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Johannesburg

Unit 20, 1 Melrose Boulevard Melrose Arch, Johannesburg South Africa 2193 Telephone: +27 (0) 11 684 1747 email: [email protected]

balance your decision

This document is for professional inveors and advisors only and not intended for diribution to the general public. There is no guarantee of performance and/or price and pa or projected performance and/or price is not necessarily indicative of future performance and/or price.

Dubai
Oce #1702, One by Omniyat One Business Bay, Fir Al Khail Street Dubai, UAE Telephone: +971 4447 0990 email: [email protected]

This document does not conitute a prospectus, oer, invitation or solicitation for the sale of rategic earth metals (REMs) nor should it be conrued to conitute any invement advice. It is not intended to provide the sole basis for any evaluation of REMs or any other inrument or product which may be discussed in it. Purchase of REMs can only be made by completing the order form of Electio and/or its aliates and/ or its agents and agreeing to Electios terms and conditions referenced therein. A copy of the Electio terms and conditions may be obtained from Electio and/or from Electios website (www.electio-inve.com) at no charge.

An invement in REMs involves a degree of risk. Prospective inveors should consider carefully the risk factors described in the Electio terms and conditions and their own circumances, before deciding to inve in REMs. In making an invement decision, inveors mu rely on their own examination of the REMs and Electios terms and conditions, including the merits and risks involved. No assurance can be given that the performance and/or price of REMs will be maintained or increase.

Qatar
Level 22, Tornada Tower Al Funduq Street, We Bay Doha, Qatar Telephone: +974 4429 2554 email: [email protected]

This document may not be used for the purpose of an oer or solicitation for the sale of REMs by any person in any jurisdiction (i) in which such oer or solicitation is not authorized, or (ii) in which the person making such oer or solicitation is not qualied to do so, or (iii) to any person to whom it is unlawful to make such oer or solicitation.

Inveors intereed in acquiring REMs should inform themselves as to: (i) the legal requirements within the country of their nationality, residence, ordinary residence or domicile for such acquisition; (ii) any foreign exchange rerictions or exchange control requirements which they might encounter on acquisition or disposal of the REMs; and (iii) the income tax and other taxation consequences which might be relevant to the acquisition, holding or disposal of the REMs.

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