Quest Rare Minerals' Files B-Zone Preliminary Economic Assessment (PEA) to SEDAR.com for Public Consultation

TORONTO, ONTARIO--(Marketwire - Sept. 27, 2010) - Quest Rare Minerals Ltd. (TSX VENTURE: QRM.V) -

Highlights:

--  Wardrop Engineering Final PEA report has been filed to  www.SEDAR.com for
    public review and consultation 
--  Study results show positive cash-flow, a strong Internal Rate of Return
    and strong Net Present Value metrics at discount rates of up to 20% for
    a potential mining operation at Strange Lake 
--  The mine model calls for an open-pit production rate of 4,000 tonnes per
    day, requiring a capital expenditure (CAPEX) of $563.4 million
    (including a 25% contingency), a payback in the fourth year of
    production and a minimum mine life of 25 years 
--  Rare Earth Oxide (REO) prices used in the study were reduced by 40% from
    $36.00/kg to reflect recent published projections in a NI43-101
    compliant Prefeasibility study ($21.94) and were validated using 2007
    three-year trailing average prices, calculated based on the distribution
    of the metals associated with the B-Zone deposit 
--  The project economics were found to be most sensitive to changes in REO
    metal pricing and less sensitive to changes in project capital and
    operating costs 

Quest Rare Minerals Ltd. (TSX VENTURE: QRM.V) is pleased to announce that it has received the Final report of a positive Preliminary Economic Assessment (PEA) of Quest's Strange Lake B-Zone Rare Earth Element (REE) and has filed it for public consultation on www.SEDAR.com under Quest's company profile. The report, prepared by Quest's independent consultants, Wardrop Engineering Inc., A Tetra Tech Company (Wardrop), shows positive cash-flow, a strong Internal Rate of Return and strong Net Present Value metrics at discount rates of up to 20% for a potential mining operation at Strange Lake. The Strange Lake property is in northeastern Quebec, approximately 175 km northeast of Schefferville, Quebec and 125 km west of the Voisey's Bay Ni-Cu-Co mine in Labrador. The Wardrop PEA Report has also been posted on Quest's website home page at www.questrareminerals.com.

The Wardrop study utilizes an open-pit mining operation model and a Total Rare Earth Oxide (TREO) price deemed conservative, as it is similar to the 2007 trailing three-year average price. Accepted consensus is that REE prices have increased since 2007. For this study, the total tonnes of concentrate produced of TREO, Nb2O5 and ZrO2 were considered marketable and contribute to revenues in the financial model.

Wardrop applied a conventional Truck and Shovel open-pit mining operation model to the Strange Lake B-Zone deposit at a production rate of 4,000 tonnes per day (tpd), using the 1.0% Total Rare Earth Oxide (TREO) cut-off presented in the Preliminary Resource Estimate previously reported by Quest (see Press Release : April 7, 2010: 40.4 million tonnes grading 1.161% TREO, 2.07% zirconium oxide (ZrO2), 0.25% niobium oxide (Nb2O5) and 0.053% hafnium oxide (HfO2), see cautionary statements below). Total operating costs per tonne of ore milled are estimated to be C$102/t. Under these project parameters, detailed in Table 3 below, the B-Zone operation would pay back capital expenditure (CAPEX) and have a positive accumulated cash flow in the fourth year of operation, show positive pre-tax cash-flows of up to C$368.2 million per year, an Internal Rate of Return (IRR) of 36.4% and a Pre-Tax Net Present Value (NPV) of C$1.41 billion at a 12% discount rate. The project remains strongly positive when applying up to a 20% discount rate (see Table 1). Life-of-Mine Total Pre-Tax cash-flows of more than C$7.97 billion have been calculated.

      Table 1 - Pre-Tax Net Present Value (NPV) Calculation - Strange 
                             Lake B-Zone Deposit                      
                                                                      
     -----------------------------------------------------------------
     Discount Rate  Pre-Tax and Pre-Finance Net Present Value ($CAN)  
           6%                        $3,149,211,228                   
           8%                        $2,383,979,541                   
          10%                        $1,825,703,831                   
          12%                        $1,410,907,859                   
          15%                         $969,415,008                    
          20%                         $521,691,996                    
     -----------------------------------------------------------------

A minimum 25 years of production life for the mine is envisaged. CAPEX of C$563.4 million will be required for establishment of the mine, mill/concentrator, site utilities and storage, road and slurry pipeline construction to the Labrador coast, tailings facilities and infrastructure development required for the operation. A 25% contingency cost ($99.3 million) was included in calculating total project expenditures. At full production, the operation would produce more than 22,600 t of TREO concentrate, more than 4,800 t of Nb2O5 concentrate and nearly 40,200 t of ZrO2 concentrate annually. It has been estimated that TREO will contribute 58% of the revenues of the mining operation.

REO Concentrate Product and Pricing Assumptions

Wardrop has based the current study on a beneficiation, leach and solvent extraction process to produce a single 99.0% TREO concentrate and two non rare earth oxide concentrates, namely ZrO2 and Nb2O5. The metallic concentrate at Strange Lake will be a mixed carbonate, phosphate and silicate. Mitsui Mining and Smelting of Japan (1992) concluded that the main concentrate minerals are kainosite, monazite, which is a complex phosphate, and bastnasite, a carbonate fluoride. It may be possible for the single TREO concentrate to be converted to individual rare earth oxides, and Quest is currently undertaking metallurgical test work with Hazen Research to make this determination.

Metal pricing used in the study is based on 2010 projections reported for a similar Rare Earth project and was validated using trailing three-year average pricing. The following metal pricing is used in the financial analysis (in US$): TREO - $21.94/kg, Nb2O5 - $45.00/kg and ZrO2 - $3.77/kg (Table 2). If three-year average pricing for TREO were used for the metal distribution in the B-Zone, a TREO price of approximately US$36.00/kg would result and the IRR would increase to more than 50%. The TREO metal price selected for the economic analysis was reduced to US$21.94 to equal a previously published projection from a NI 43-101 compliant 2010 study for TREO. This represents a 39% reduction from the 2010 Strange Lake optimized price. While this is not necessarily an accurate price for the specific Strange Lake TREO, it can be accepted as a conservative price. An exchange rate of $1US = $1.04CAN was used in the study.

Sensitivity Analysis

Sensitivity analysis of the model indicates that the operation would be most sensitive to changes in metal pricing and least sensitive to changes in operating costs (see Figure 1).

Varying the metal price assumptions for the PEA Model by +/-25% from the base-case resulted in changes to the IRR to 27.0% and 44.1%, respectively. An additional sensitivity test was applied to the model by removing to revenue contribution from the non-REE oxides. This lead to a reduction of the IRR to 18.7%, still considered an acceptable return.

Table 2 - Rare Earth Oxide Pricing Used for the Strange Lake PEA Study

                --------------------------------------------
                    REO          US$/kg        Price Source 
                --------------------------------------------
                   La2O3     $      4.26      2007 3-Yr Ave.
                   Ce2O3     $      2.77      2007 3-Yr Ave.
                   Pr2O3     $      23.24     2007 3-Yr Ave.
                   Nd2O3     $      24.52     2007 3-Yr Ave.
                   Sm2O3     $      3.59      2007 3-Yr Ave.
                   Eu2O3     $     335.74     2007 3-Yr Ave.
                   Gd2O3     $      10.29     2007 3-Yr Ave.
                   Tb2O3     $     573.46     2007 3-Yr Ave.
                   Dy2O3     $      88.55     2007 3-Yr Ave.
                   Ho2O3     $      25.50          2007     
                   Er2O3     $      55.00          2007     
                   Tm2O3     $      90.00          2007     
                   Yb2O3     $      25.00          2007     
                   Lu2O3     $     500.00          2007     
                   Y2O3      $      8.74      2007 3-Yr Ave.
                --------------------------------------------

Figure 1 - IRR Sensitivity to Capital Costs, Operating Costs and Metal Oxide Prices

http://media3.marketwire.com/docs/IRRSensitivity.pdf

"The Wardrop study results confirm that the B-Zone deposit has the potential to be a long-term provider of critical Heavy Rare Earths to world markets," stated Peter J. Cashin, President and Chief Executive Officer of Quest. "The financial-model estimates presented in the PEA are extremely conservative, as they apply discounted, historical average metal pricing. Project economics improve substantially if current TREO prices are used. Additionally, bullish forward projections for rare earth oxide pricing could only further improve the financial outlook for the Strange Lake project. Our on-going drilling of the Strange Lake deposit continues to expand the size of the higher-grade surface resource reported in April 2010. This upgraded data will be incorporated into our economic model once a revised Resource Estimate for the deposit is completed, which we expect will take place in early 2011", added Mr. Cashin.

Wardrop General Project Description

The project includes an open pit mine site located at Strange Lake (see Figure 2) and a processing operation located on the coast in close proximity to the existing operation at Voisey's Bay, east of Strange Lake. Previous Strange Lake feasibility studies produced by Iron Ore Company of Canada (IOC) and Kilborn Engineering contemplated that Schefferville, Quebec would be the primary location for treating the ore. The facilities located at Schefferville have since been removed and a new harbour facility to support the Vale Inco Newfoundland & Labrador Ltd. Voisey Bay nickel operation has been built at Anaktalak Bay by Vale. This harbour is located 125 km from the Strange Lake mine site. An access road to Anaktalak Bay along an existing esker is favourable as the road can be constructed, given that an abundance of required sub-structure material is naturally available. This layout was deemed to be the most efficient conceptual mine-concentrator layout available to Quest and Wardrop and would be the most-cost effective of several options considered in the development of the PEA model.

For this project, Wardrop determined that the mining operation will use a conventional Truck and Shovel open-pit mining method. The mine will provide mill feed of ore at a rate of 4,000 TPD starting from the middle of the second year of mine life. The Strange Lake deposit is close to surface with minimal overburden cover.

The overall mining sequence was developed in three phases: one initial pit phase (Phase I) and two pushback phases (Phase II and Phase III). The mine development for the ore and the waste will progress using 12 m high benches (see Figure 3). The mine phases are designed to access the higher-grade ore closer to surface as early as possible in the mine life.

Figure 2 - Conceptual Layout of Infrastructure, Strange Lake B-Zone Open-Pit Operation

http://media3.marketwire.com/docs/conceptuallayout.pdf

The project includes consideration for the mill and tailings to be constructed on the coast at Anaktalak Bay. The project includes a mill operating from a barge and tailings storage on the coast. The mill construction could benefit from the experience gained in the development of Cominco's past-producing Polaris zinc operation. The final TREO product would be shipped to market or stored during periods when shipping lanes are closed.

Wardrop has compared the cost of trucking the ore against pumping it from the mine to the mill. The preliminary results indicate that the pumping option offers superior financial results.

The mine plan has been based on use of diesel equipment with diesel generators to provide electrical power at the mine, crusher, mill and camp facilities.

Processing concepts are based on earlier flow-sheets which include a flotation circuit, acid leach/baking and a solvent extraction process producing a single TREO product. Significant cost savings are included in reagent consumption, as the Vale by-product of sulphur pastilles from its Long Harbour facility in Newfoundland provides a cheaper source of sulphuric acid compared to the supply of liquid sulphuric acid.

Opportunities exist for future process optimization based on recent results by Hazen Research (see Press Release : August 12, 2010). These results indicate improved whole-ore recoveries through leaching. Other potential opportunities for improvements are currently being studied; they include coarser grinding, reductions in acid consumption, improved beneficiation, and the use of a single solvent to recover all the rare earth oxides. Hazen Research has reported in its preliminary studies that the total acid consumption for baking and leaching was about 875 kg/t compared to 1 t/t at other sites. Subsequent testing on Strange Lake ore has achieved high REE recoveries even at substantially lower acid consumption and coarser grind size.

Figure 3 - Strange Lake B-Zone Deposit Open-Pit Shell Outline Model and Development Sequence

http://media3.marketwire.com/docs/StrangeLakeBZone.pdf

Quest continues to advance the 2010 B-Zone definition drill program and return favourable drill results (see Press Release: September 16, 2010). Results from this program will be used to formulate an upgraded resource estimate for the deposit. The new resource will be used to make a decision to proceed to a pre-feasibility study of the B-Zone. In addition, Quest plans to commence Pilot Plant-scale metallurgical testing on the mineralization and to prepare for environmental baseline and preliminary engineering studies in 2011.

Quality Control

Mr. Peter Cashin, P. Geo., is the qualified person on the Strange Lake Project under National Instrument 43-101 and was responsible for this news release and has approved the disclosure of the technical information contained herein.