Report of Environmental Assessment and Reasons for Decision EA1011-001 Avalon Rare Metals Inc. Nechalacho Rare Earth Element Project July 26, 2013 Executive Summary This report describes the environmental assessment process, summarizes the evidence and sets out the conclusions and decision of the Mackenzie Valley Environmental Impact Review Board (the Review Board) on the Nechalacho Rare Earth Element Project (the Project), an underground rare earth element mine. The developer for this Project is Avalon Rare Metals Inc. (the Developer). The Review Board considered all evidence and information on the public record in reaching its decision according to Section 128 of the Mackenzie Valley Resource Management Act. The Review Board finds that the Project is likely to cause significant adverse impacts on the environment and has prescribed measures to mitigate adverse environmental impacts from the Project so that they are no longer significant. The Review Board’s decision depends on the implementation of the commitments made by the Developer and the measures set out in this Report of Environmental Assessment (REA). In the Review Board’s opinion, it is therefore important that the Developer, appropriate regulatory authorities and government agencies ensure that the commitments listed in Appendix C and described throughout this document and the measures listed in Appendix A are all fulfilled. Proposed Development The Nechalacho Rare Earth Element Project (the Project) consists of two distinct sites: the Nechalacho mine site, on the North shore of the East Arm of Great Slave Lake, and the Hydrometallurgical plant site at Pine Point, approximately 85 km east of Hay River on the South shore of Great Slave Lake. The Developer proposes to build an underground mine at the Nechalacho mine site, near Thor Lake, and to extract and process the ore that is enriched in rare earth elements. It also proposes to: • process ore to create a rare earth element concentrate; • dispose of tailings on site; • release treated effluent; • construct an 8 km road from the mine site at Thor Lake to the shore of Great Slave Lake; • construct seasonal docking facilities on Great Slave Lake; • barge the concentrate across Great Slave Lake to Pine Point; and Page 1 of 220 EA1011-001: Avalon Rare Metals, Inc., Nechalacho Rare Earth Element Project Report of Environmental Assessment and Reasons for Decision • close and reclaim the site. The Hydrometallurgical plant site located at Pine Point will further process the rare earth element concentrate. At this site, the Developer proposes to: • construct and operate a Hydrometallurgical facility to extract the rare earth elements from the concentrate; • construct a five kilometre access road from Great Slave Lake to the plant site; • construct seasonal docking infrastructure on Great Slave; • deposit tailings to existing open pits; • release effluent to the Presqu’ile aquifer; • transport the concentrate by rail to the United States; and • close and reclaim the site. Review Board findings The Review Board carefully considered evidence from Parties to the assessment including: the Yellowknives Dene First Nation, the Lutselk’e Dene First Nation, the Deninu Kue First Nation, the Akaitcho IMA Office, the North Slave Metis Alliance, the NWT Metis Nation, the Fort Resolution Metis Council, Blachford Lake Lodge, Federal Government departments and the Government of the Northwest Territories. The Review Board finds that the Project is likely to cause three different significant adverse environmental impacts: • water quality impacts to the local water shed at the mine site; • wildlife impacts; and • socio-economic impacts. The Review Board provided a series of measures and suggestions to mitigate significant adverse environmental impacts and public concern, and improve the monitoring and management of potential impacts. The Review Board heard other concerns by parties about radiation, barging, fish habitat, atmospheric discharges, Blachford Lake Lodge and closure. The Review Board finds that the Developer’s commitments and the existing regulatory framework will adequately address these other concerns. Water Quality Impacts The Review Board heard from parties about potential impacts from the Nechalacho mine site to water quality in the downstream environment. In order to reduce the likelihood of significant impacts to water quality the Review Board requires a measure to protect water quality for use by humans, fish and wildlife. Page 2 of 220 The Review Board agrees with parties that the site specific water quality objectives proposed by the Developer must be further refined during the water licencing phase. But in order to ensure that significant adverse impacts to water quality do not occur, and that parties’ expectations regarding water quality and use in the Project area are met, the Board has recommended the imposition of water quality objectives expressed as narrative statements. These water quality objectives define the level of change to water quality that can take place without significant impacts occurring. The Board has also prescribed a measure regarding water quality and monitoring at the Hydrometallurgical plant site which will ensure that impacts to water quality from the Project are not significant. Wildlife The Review Board heard concerns about caribou from many parties throughout the course of this environmental assessment. The Review Board is mindful that barren ground caribou are currently at low population levels and that harvest restrictions to Aboriginal and non-Aboriginal people are in force to address the decline in the number of Bathurst caribou over the last decade. The Review Board finds that the Project is likely to cause significant adverse impacts to caribou and has recommended measures requiring the Developer prepare and implement a wildlife habitat protection plan and a monitoring program for wildlife. These plans and associated best practices and mitigation will reduce the predicted adverse impacts so that they are no longer likely to be significant. Socio-economic The Developer made efforts to engage communities and Aboriginal organizations throughout this environmental assessment, and has supported traditional knowledge studies. The Board heard concerns from parties who were uncertain about how the Developer would ensure that Aboriginal people and NWT residents would benefit from the Project and how it would reduce adverse social impacts. Key issues for parties were employment and training. The Developer has made commitments to address these concerns but has not committed to entering into a socio-economic agreement with the GNWT. Therefore, even with these commitments, the Review Board finds that significant adverse social and economic impacts from the Project are likely. In order to address these impacts, the Review Board requires that the Developer sign a socio-economic agreement with the GNWT to formalize its commitments and other mitigation measures and ensure they are implemented and reported. Page 3 of 220 EA1011-001: Avalon Rare Metals, Inc., Nechalacho Rare Earth Element Project Report of Environmental Assessment and Reasons for Decision Barge Operations The Review Board heard concerns from parties that proposed barging operations, and accidents related to barging, could impact the waters of Great Slave Lake and affect traditional use of the area. These concerns centered on the impacts from spills of fuel and rare earth element concentrate. The Review Board finds there is a risk of fuel spills, but it is mitigated through the existing regulatory framework that requires the barging contractor to have a spill response plan. The risk of significant impacts is further mitigated by the spill response capabilities of the Canadian Coast Guard. With regards to spills of concentrate, the Review Board accepts the Developer’s evidence that the material is inert and does not pose a risk to the environment. Regardless, the Review Board heard that if concentrate is spilled into Great Slave Lake, it would cause public concern. The Review Board notes that the Developer has committed to clean up any spills of concentrate. The Review Board provides a suggestion for a spill contingency plan to address a spill of concentrate. The Review Board also provides suggestions for the Developer to describe proposed barging activities each spring before operations begin and to report on annual barging activities each fall. Radiation The Review Board heard concerns from parties regarding the presence of low levels of uranium and thorium associated with the rare earth element deposit and the potential impacts on the environment and people. The evidence indicates that the levels of radiation resulting from the presence of uranium and thorium at the Project sites and in the concentrate are expected to be too low to pose any significant risk to the environment or people. Page 4 of 220 Table of Contents Executive Summary.............................................................................................................................................. 1 List of Figures ......................................................................................................................................................... 9 List of Tables ........................................................................................................................................................... 9 List of Abbreviations ........................................................................................................................................