Frontier Rare Earths and Korea Resources Corporation Significantly Expand Strategic Partnership to Develop the Zandkopsdrift Rare Earth Project

TORONTO, Oct. 23, 2012 /CNW/ - Frontier Rare Earths Limited (TSX: FRO) ("Frontier")  announced today that it has entered into a new agreement with Korea Resources Corporation ("Kores") to significantly expand the scope of their strategic partnership, which is focused on the financing and development of Frontier's Zandkopsdrift rare earth project in South Africa ("Zandkopsdrift"). Kores is the Korean Government-owned mining and natural resource investment company whose mandate is to ensure that Korean industry has secure access to strategically important mineral resources.

Highlights:

• Kores option to increase its participation up to a 50% or equal interest with Frontier in Zandkopsdrift (see note 1), together with an off-take right and obligation for up to 50% of production from Zandkopsdrift
  
  
• Kores to arrange project finance for entire Zandkopsdrift development on best available market terms
  
  
• Kores to provide pro rata funding for the portion of Zandkopsdrift development costs not covered by the project finance
  
  
• Kores to provide technical and operating experience for the design, construction and operation of Zandkopsdrift facilities
  
  
• Frontier and Kores to cooperate in relation to downstream opportunities in the area of rare earth metals, alloys and magnets

James Kenny, President and CEO of Frontier Rare Earths commented: "We believe that the agreement reached with Kores to significantly expand our current joint venture arrangements is a strong vote of confidence in both the potential of the Zandkopsdrift project and the management of Frontier. We have developed an excellent working relationship with Kores over the past 12 months, and have a very high regard for their management team, organisation and capabilities. Working together with Kores we believe that Frontier will be very well placed to meet our objective of becoming the next major producer of separated rare earths outside of China."

Background

Following the signing in December 2011 of a definitive strategic partnership agreement between Frontier and Kores (the "Strategic Agreement") Kores acquired an initial 10% interest in Zandkopsdrift, along with an off-take right and obligation for 10% of rare earth production from Zandkopsdrift for a cash consideration of C$23.8m. Payment for this initial 10% interest is due on November 30, 2012.

As previously announced, in August 2012 Kores approached Frontier with a proposal to significantly increase its potential interest in Zandkopsdrift.  Following extensive negotiations Frontier and Kores have now reached agreement (the "Revised Strategic Agreement") to amend the terms and significantly broaden the scope of the Strategic Agreement.

Revised Strategic Agreement

Subject to Kores arranging project finance for the capital costs of construction and development of the proposed mining and processing operations at Zandkopsdrift and committing to provide its pro rata share of the portion of capital costs not covered by such project finance, Kores, under the terms of the Revised Strategic Agreement, will have the right to increase its interest in Zandkopsdrift up to 50% (see note 1 below), and become an equal partner with Frontier in Zandkopsdrift, providing it with an off-take right and obligation for up to 50% of rare earth production from Zandkopsdrift.

The principal commercial terms of the Revised Strategic Agreement are as follows:

Kores acquisition of further interest in Zandkopsdrift to become equal partners with Frontier
Kores will have the right to acquire an additional interest in Zandkopsdrift (the "Equal Partnership Option") following the filing by Frontier of a NI 43-101 compliant report containing the results of a positive Definitive Feasibility Study on Zandkopsdrift (the "DFS Report") currently scheduled for Q4 2013. Following the exercise of this option, Kores would, subject to the satisfaction by it of the conditions of the Equal Partnership Option, as set out below, acquire the same shareholding in Zandkopsdrift as Frontier (see further details in note 1). The key provisions and conditions of the Equal Partnership Option are as follows:

Acquisition of further 10% interest in Zandkopsdrift and 10% interest in Frontier

As an alternative to the Equal Partnership Option, Kores will have the right to acquire a further 10% interest in Zandkopsdrift following the filing of the DFS Report (the "10% Option"). The consideration payable by Kores for the 10% Option will be based on the discounted cash flow valuation of Zandkopsdrift as set out in the DFS Report and will be payable to Frontier in cash. Subject to the acquisition by Kores of this additional 10% interest in Zandkopsdrift, Kores will then be entitled to subscribe for up to a 10% shareholding in Frontier, based on the prevailing market price for Frontier's shares on the Toronto Stock Exchange at that time.

Alternative Strategic Investor

In the event that an alternative strategic investor ("ASI") acquires a 20% interest or more in Zandkopsdrift or, in certain limited circumstances, a 20% interest or more in Frontier, prior to the exercise by Kores of the Equal Partnership Option or the 10% Option, the Equal Partnership Option will terminate and be replaced by an option under which Kores can acquire a further 10% interest in Zandkopsdrift (the "ASI Option") for a consideration calculated on an IMV basis.  The ASI option will be available to Kores as an alternative to the 10% Option and under no circumstances in addition to the 10% Option. The EV for the purposes of the ASI Option will be calculated on a similar basis to the Equal Partnership Option, except that the VWAP calculation will be based on the 15 trading days immediately after the public announcement that an ASI acquisition has taken place.

Off-take

Kores will enter into a definitive off-take agreement with Frontier under which it will have the right and obligation to purchase a share of rare earth production from Zandkopsdrift proportionate to its direct interest in Zandkopsdrift from time to time, as follows:

• Off-take of 50% of Zandkopsdrift rare earth production if Kores exercises the Equal Partnership Option.
• Off-take of 31% of Zandkopsdrift rare earth production if Kores acquires an additional 10% interest in Zandkopsdrift and a 10% interest in Frontier
• Off-take of 10% of Zandkopsdrift rare earth production if Kores only holds the 10% interest in Zandkopsdrift that has already been acquired and does not exercise any further options under the Revised Strategic Agreement.

All of the rare earth production to be purchased by the Kores under the off-take agreement will be on a take-or-pay basis and based on prevailing international rare earth market prices at the time of purchase.  Frontier will have full flexibility to seek other customers/partners for the balance of rare earth production.

Other Key Terms
The other key terms of the Strategic Agreement remain unchanged under the Revised Strategic Agreement, and are summarised below:

Acquisition of initial 10% interest in Zandkopsdrift
The terms for the 10% interest in Zandkopsdrift that has been acquired by Kores and off-take rights for 10% of rare earth production are unchanged, with payment of the purchase price of C$23.8m due on 30 November 2012.  Since July 3 2012 Kores has been and continues to be responsible for a 10% share of all operating costs and expenses related to Zandkopsdrift.

Technical and Operating Assistance
Kores will provide such technical, operating and other assistance relating to the design, planning, construction and operation of a rare earth mining and processing operation at Zandkopsdrift as may be agreed between Frontier and Kores.

Downstream Opportunities
Frontier and Kores will investigate and jointly pursue rare earth related downstream business opportunities including, but not limited to, rare earth metals, alloys, magnets and other rare earth related products.

Notes:

The entitlements of Kores to shareholdings in the Frontier Subsidiaries, and its potential future entitlements under the various options in the Revised Strategic Agreement, are as follows:

About Frontier Rare Earths Limited (TSX: FRO): Frontier Rare Earths Limited (www.frontierrareearths.com) is a mineral exploration and development company principally focused on the development of rare earths projects in Africa.  Frontier's flagship asset is the Zandkopsdrift rare earth project, which is located in the Northern Cape Province of South Africa and is one of the largest, highest grade undeveloped rare earth deposits worldwide. Frontier has a direct 64% interest and a 85% economic interest in Zandkopsdrift following the acquisition by KORES of an initial 10% interest. In March 2012 Frontier filed a Preliminary Economic Assessment ("PEA") on the Zandkopsdrift project prepared in accordance with National Instrument 43-101. The results of the PEA indicate that the proposed development of the Zandkopsdrift Project is both technically feasible and economically robust with a low risk profile. In conjunction with the PEA a mineral resource estimate for Zandkopsdrift confirmed 42.5m tonnes at an average grade of 2.23% containing approximately 940,000 tonnes total rare earth oxides (applying a 1% cut-off) and with 78% of the mineral resource in the indicated category. Mineral resources that are not mineral reserves do not have demonstrated economic viability. Fiona Harper, Pr.Sci.Nat, was the independent qualified person from Venmyn Rand (Pty) Ltd responsible for the PEA.

Frontier is listed on the main board of the Toronto Stock Exchange and currently has 89,562,781 shares outstanding. Frontier is well funded, with approximately $28m cash (excluding the $23.8m to be received from Kores under the Strategic Agreement) and no debt, and this strong working capital position is expected to be sufficient to finance the proposed work programme of the Company and the completion of a Preliminary Feasibility Study and a Definitive Feasibility Study for Zandkopsdrift (scheduled for completion in Q4 2013).

About Kores (www.Kores.or.kr): Korea Resources Corporation ("Kores") is wholly-owned by the Korean government and has a stated objective of becoming a global top 20 mining company by 2020 principally through international investments and joint ventures.  Kores is charged with a policy mandate to further Korea's access to strategically important mineral resources.  Kores exclusively carries out the Korean government's mineral resources policy objectives by engaging directly or indirectly through joint ventures or in the form of investments, in overseas exploration, development and production of strategically important mineral resources, and managing Korea's stockpile of rare mineral resources. Kores works closely with all major Korean industry groups and plays an active role in assembling consortia of Korean companies to selectively participate with Kores in commercial ventures. The Korean government has designated rare earths as a strategic raw material for Korea's future economic growth and has undertaken considerable work to identify the most prospective sources of future rare earth supply worldwide.

Forward Looking Statements - Certain information set forth in this news release may contain forward-looking statements that involve substantial known and unknown risks and uncertainties. Readers can identify many of these statements by looking for words such as  "will", "intends", "projects", "anticipates", "estimates", "achieving", or similar words or the negative thereof. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond the control of the Company, including, but not limited to, the impact of general economic conditions, industry conditions, commodity prices, availability of financing for the Company and the Company's ability to raise additional capital, results of feasibility studies, dependence upon regulatory approvals, the estimation of mineral resources and the realization of mineral reserves based on mineral resource estimates and estimated future development, if any, and possible variations of ore grade or recovery rates; the Company development, if any, and possible expectations regarding competition from other producers globally, possible customer and supplier relationships, anticipated trends and challenges in the Company regarding competition; mineral resource estimates and supply outlook and growth opportunities, the future price of and future demand for rare earth elements, title disputes or claims including Black Economic Empowerment initiatives, and the timing and possible outcome of pending regulatory and permitting matters.

Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. There can be no assurance that the plans, intentions or expectations upon which these forward-looking statements are based will occur.  The forward-looking statements contained herein are made as of the date of this news release and are expressly qualified in their entirety by this cautionary statement. Actual results may differ materially from those anticipated. Readers are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein. Frontier disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, except as required by applicable law.

SOURCE Frontier Rare Earths Ltd.