May 8, 2012 / 5:23 PM / in 5 years

Avalon shares skid after feasibility study delayed

TORONTO (Reuters) - Shares of Avalon Rare Metals Inc (AVL.TO) fell to their lowest level in nearly three years on Tuesday, a day after the rare earth exploration company delayed a feasibility study on its flagship Nechalacho project in Canada's Northwest Territories.

The delay will push back initial production at the rare earth mine to late 2016, the company said, sending the stock skidding more than 26 percent to C$1.58 on the Toronto Stock Exchange on Tuesday, its lowest point since July 2009.

Shares later recovered slightly to C$1.62, but are still down more than 35 percent so far this year.

Avalon said late on Monday that it needs more time to complete metallurgical studies at the Nechalacho project and delayed the long-awaited feasibility study until the second quarter of 2013.

Critics of the company have questioned the costs associated with developing and operating the Nechalacho mine, which is located in a remote region of northern Canada. Development costs for the mine and rare earth separation facility in the United States are pegged at about $1.2 billion.

Rare earths are essential for making technology items like smartphones and hybrid vehicles. Prices of the group of 17 metals skyrocketed last year as China, which then produced some 95 percent of global supply, repeatedly clamped down on exports.

Prices have since softened and are expected to fall further as Molycorp Inc MCP.N ramps up production at its Mountain Pass mine in California and Lynas Corp Ltd (LYC.AX) brings new supply online from its Mount Weld project in Australia.

Reporting by Julie Gordon, editing by Dave Zimmerman

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