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Message: Industry Bulletin: Automotive Sector Focused on Meeting the Demand for Environmentally-Friendly, Fuel-Efficient Vehicles

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Industry Bulletin: Automotive Sector Focused on Meeting the Demand for Environmentally-Frie... Fuel-Efficient Vehicles

posted on Sep 27, 07 06:30AM

Dear Shareholder:

In our on-going efforts to provide you with broader communications and industry information, we are pleased to issue this Industry Bulletin discussing the ever-increasing application of rare earths as an enabler for new and exciting environmentally-beneficial technologies.

As most Avalon shareholders are aware, rare earth elements are critical to new fuel-efficient automotive technologies and Avalon's Thor Lake project represents one of the few significant potential non-Chinese sources of supply in the world. The following recent announcements confirm the trend for accelerating growth in demand for Hybrid Electric Vehicles.

Toyota Commitment to Champion Hybrids

It took Toyota Motor Corp six years to sell 10,000 hybrid vehicles in Canada after it rolled out its first Prius in 2000. It will take around 12 months to sell the next 100,000 vehicles if this year's sales momentum continues. Furthermore, four out of every 10 Camrys now sold in British Columbia is a hybrid version.

With growing interest in Toyota and its innovative product line, the Company aims to boost sales 11% globally by 2009 in its bid to overtake industry leader General Motors. Toyota President Katsuaki Watanabe said in a recent news conference that "Toyota will focus on product quality, introduce new gas-electric hybrid technologies and boost sales globally" to meet this goal.

A clear example of Toyota's strategy being put into practice is its mid September announcement that Toyota Canada will be trimming the price of its Prius Hybrid by about $2,000 or 6% and adding approximately $2500 in standard features – despite its struggle to keep up with demand. There will also more be hybrid models to come. Parent company, Toyota Motor Corp in Japan is increasing capacity in its plants that manufacture hybrids, with the aim of selling one million hybrids globally - or about 10% of its world-wide sales by 2010 or 2011.

http://www.theglobeandmail.com/servlet/story/LAC.20070918.RTOYOTA18/TPStory/?query=toyota

European Car Manufacturers

In an attempt to increase its market share for fuel efficient and emission reducing vehicles, European car makers profiled their respective new and technological offerings at the Frankfurt Auto Show earlier this month.

Mercedes Benz confirmed that Canadian drivers will be able to buy its two-mode rear drive hybrid system that Mercedes developed in conjunction with BMW and General Motors in the form of its ML 450 Hybrid. The biggest news however was BMW premiering its first production gasoline-electric hybrid and the world's first sports-utility-like coupe … the X6 ActiveHybrid.

Building off GM's E-Flex system that was debuted in January 2007, in its Chevrolet Volt, Opel profiled its Flextreme, which pairs the E-Flex electric motor and lithium-ion battery pack to a 1.3 litre diesel engine. Not to be outdone, Volvo introduced its Volvo Recharge, a plug-in hybrid, while Porsche, Volkswagen, Daimler-Chrysler and Peugeot Citroen also introduced their latest entrants into the race for market share in this fast growing segment of the automotive sector.

http://www.thestar.com/article/254897

Hymotion

Not only are sales of hybrid cars taking off, but there is also a fast-growing interest in the plug-in concept. Municipalities and states across the United States have launched plug-in hybrid pilot projects, and one was recently announced in Toronto. Politicians at all levels continue to call for the development of a plug-in hybrid market as a way to help
reduce U.S. dependence on foreign oil and to reduce emissions of greenhouse gases. It has become a bi-partisan cause and the subject of much study.

Hymotion, based in Concord, Ontario, develops battery packs for the Prius, based on more powerful, longer lasting Lithium-ion technology. The Company has become expert in retro fitting the cars into 'plug-in Hybrids, meaning the car can be charged by plugging it into a standard 120 volt electrical socket.

Hymotion is currently focused on the aftermarket – retrofitting existing Priuses, as well as Ford Escapes and other hybrids. The goal is to push down cost, make the battery packs smaller, lighter. There are already 35 systems in the field and another 30 will be delivered in the coming few months. The company is targeting production of up to 2,000 units in 2008. One pilot project alone being considered in California could result in a single order for 1,000 battery packs.

http://www.thestar.com/article/250045

Avalon is well positioned to benefit from the new demand for REEs for new energy efficiency technologies through its large REE resources at the Thor Lake deposit near Yellowknife in the Northwest Territories, Canada. Thor Lake is unique in its exceptional enrichment in the Heavy Rare Earths such as terbium and dysprosium as well as the light rare earth neodymium which are all key to this technology. These elements are highly enriched at Thor Lake and because of their relative scarcity, they are now among the highest priced with dysprosium oxide selling for US$85/kg, neodymium oxide selling for US$31.30/kg and terbium oxide selling for $US575/kg.

Avalon also owns a large lithium resource at its Separation Rapids property in Northwestern Ontario and is continuing to investigate the feasibility of producing lithium chemicals for the rapidly growing lithium ion battery market.

If you have any comments or questions, please do not hesitate to post them on Avalon's official investor relations hub at http://www.agoracom.com/ir/Avalon .

Regards,

AGORACOM Investor Relations