Avalon Rare Metals hits year high on analyst rating

TORONTO, Feb 17 (Reuters) - Shares of Avalon Rare Metals were up more than 9 percent early on Thursday afternoon after Mackie Research initiated coverage on the rare earth exploration company with a 'speculative buy' rating.

Mackie Research analyst Matt Gowing said he sees Avalon as undervalued and set a C$10.50 target price for its shares.

They hit a year high of C$8.29 on the Toronto Stock Exchange on Thursday before retreating to C$8.11. They have risen more than 140 percent in the past six months.

The Toronto-based company is developing the Nechalacho rare earth project, also known as Thor Lake, in Canada's Northwest Territories.

'We think that the market is not anywhere close to where the valuation of the mine should be,' said Gowing, noting that the Avalon recently updated Nechalacho's resource size and identified new higher-grade material.

Rare earths are an essential ingredient in much modern technology, from smartphones to flatscreen TVs.

More than 95 percent of the global supply of the group of 17 rare earths comes from China, which sparked supply worries in 2010 by tightly restricting exports.

Gowing said that high rare earth oxide prices have boosted the value of the company's deposit and noted that he sees more upside potential for heavy rare earth oxide prices.

Avalon hopes to start production at Nechalacho in 2015, with plans to produce around 10,000 tonnes a year. Output can be expanded and will depend on sales volumes.

Building a mine at Nechalacho mine and a facility to process and separate the rare earths will cost around C$1.3 billion.

Gowing said Avalon will need to sign a major offtake agreement in the near future to ensure funding to develop the mine.

($1=$0.98 Canadian)

(Reporting by Julie Gordon; editing by Peter Galloway) Keywords: AVALON SHARES/ ([e-mail]; [phone]; Reuters Messaging: [e-mail]) COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.