Vibeholder......from the MD&A


Manufacturing Services

The manufacturing services revenues decreased by $1,304,927 for the first six months of 2012 compared to the same period In the prior year. Even though the Company’s revenue declined, its gross margin percentage Increased by approximately 2.8 percent from 31.6 percent in the previous period to 34.4 percent. The Company was able to achieve this Improvement by purchasing raw material at a reduced rate and by working with its customers to complete orders before LCM moved facilities to accommodate Its new furnaces. Despite Company's efforts to minimize the effect of the move, the Company's sales volumes decreased for the six month period ended June 30, 2012 compared to the prior period. LCM sold 91 metric tonnes of NdFeB and SmCo in first six months of 2012 compared to 168 metric tonnes of NdFeB and SmCo for the same period in 2011. The decrease in volume can be attributed to having an exceptionally good year in 2011 as well as the competition gaining certain market share in 2012. The decrease in revenue is also due to falling prices of REOs from previous period, as the second quarter of 2011 saw a short-term price increase. The Company anticipates its production to be higher than prior years once the new furnaces are fully commissioned and assuming a supply or raw material can be sourced at competitive rates. If the Company Is unable to source acceptable raw material before production from the SKK mine has been achieved, revenues may remain similar to prior years. Revenues from the sale of NiMH material from GWTI remained relatively the same period to period at approximately $330,000 for the first six months of the year.


(1) Revenues have remained relatively stable from quarter to quarter due to the company's production capacity at LCM being the constraint. The 4th quarter of 2011 saw a reduction due to customers using up their own inventories in anticipation of REO pricing falling and the 2nd quarter of 2011 saw a marked increase due to prices of REOs increasing dramatically during this time frame and increased customer demand. Revenues in the 2nd quarter of 2012 were not as strong as in previous quarters mainly due to the move undertaken at the LCM facility to accommodate their new furnaces. Once the new furnaces are fully commissioned at LCM, the Company anticipates revenues to increase as long as the Company is able to find a supply of REO to produce its products and the price of REO remains stable.