Annual Report (foreign Private Issuer) (40-f)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 40-F

(Check One)

Registration statement pursuant to Section 12 of the Securities Exchange Act of 1934

Annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934


For the fiscal year ended October 31, 2014		Commission file number: 001-35100

QUEST RARE MINERALS LTD. –

MINÉRAUX RARES QUEST LTÉE

(Exact name of registrant as specified in its charter)

Canada

1000

N/A

(Province or other jurisdiction

of incorporation or organization)

(Primary

Standard

Industrial

Classification

Code Number

(if applicable))

(I.R.S. Employer
Identification Number)

1155 University Street, Suite 906

Montreal, Québec, Canada H3B 3A7

(514) 878-3551

(Address and Telephone Number of Registrant’s Principal Executive Offices)

Torys LLP

1114 Avenue of the Americas

New York, New York 10036

Attention: Andrew J. Beck

(212) 880-6000

(Name, Address (Including Zip Code) and Telephone Number (Including Area Code) of Agent For Service in the United States)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


Title Of Each Class		Name Of Exchange On Which Registered
Common Shares		NYSE MKT LLC

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

For annual reports, indicate by check mark the information filed with this Form:


x Annual Information Form		x Audited Annual Financial Statements

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 78,829,196.

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes ¨ No ¨

DOCUMENTS FILED PURSUANT TO GENERAL INSTRUCTIONS

In accordance with General Instruction B.(1) of Form 40-F, Quest Rare Minerals Ltd. (the “Corporation” or “Registrant”) hereby incorporates by reference Exhibits 99.1 through 99.3 as set forth in the Exhibit Index attached hereto.

In accordance with General Instruction C.(2) of Form 40-F, the Corporation hereby incorporates by reference: (i) Exhibit 99.1, the Corporation’s audited annual financial statements as at October 31, 2014 and 2013, including the report of the auditors with respect thereto and (ii) Exhibit 99.2, management’s discussion and analysis for the fiscal year ended October 31, 2014.

In accordance with General Instruction D.(9) of Form 40-F, the Corporation has filed written consents of certain experts named in the foregoing Exhibits as Exhibits 99.8 through 99.13, as set forth in the Exhibit Index attached hereto.

FORWARD-LOOKING STATEMENTS

Certain of the information contained in this Annual Report on Form 40-F, including the documents incorporated herein by reference, may contain “forward-looking information”. Forward-looking information and statements may include, among others, statements regarding the future plans, costs, objectives or performance of the Corporation, or the assumptions underlying any of the foregoing. In this Annual Report on Form 40-F, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. Forward-looking statements and information are based on information available at the time and/or management’s good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Corporation’s control. These risks, uncertainties and assumptions include, but are not limited to, those described under the section “Risk Factors” in the Corporation’s Annual Information Form for the fiscal year ended October 31, 2014 (the “AIF”), which is filed as Exhibit 99.3 to this Annual Report on Form 40-F, and could cause actual events or results to differ materially from those projected in any forward-looking statements.

The Corporation’s forward-looking statements contained in the exhibits incorporated by reference into this Annual Report on Form 40-F are made as of the respective dates set forth in such exhibits. In preparing this Annual Report on Form 40-F, the Corporation has not updated such forward-looking statements to reflect any subsequent information, events or circumstances or otherwise, or any change in management’s beliefs, expectations or opinions that may have occurred prior to the date hereof, nor does the Corporation assume any obligation to update such forward-looking statements in the future, except as required by applicable laws.

RESOURCE AND RESERVE ESTIMATES

The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”), which references the guidelines set out in the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) Standards on Mineral Resources and Mineral Reserves, adopted by the CIM council, as may be amended from time to time by the CIM. These definitions differ from the definitions in the SEC Industry Guide 7 (“Industry Guide 7”) under the United States Securities Act of 1933, as amended. Under SEC Industry Guide 7, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time of the reserve determination.

In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under Industry Guide 7 and normally are not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases.

Accordingly, information contained in this Annual Report on Form 40-F and the documents incorporated by reference herein containing descriptions of the Corporation’s mineral deposits may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.

CURRENCY

Unless otherwise indicated, all dollar amounts in this Annual Report on Form 40-F are in Canadian dollars. The exchange rate of Canadian dollars into United States dollars, on October 31, 2014, based upon the noon buying rate payable in Canadian dollars as certified for customs purposes by the Bank of Canada, was U.S. $1.00 = CDN$1.1275.

TAX MATTERS

Purchasing, holding, or disposing of securities of the Registrant may have tax consequences under the laws of the United States and Canada that are not described in this Annual Report on Form 40-F.

DISCLOSURE CONTROLS AND PROCEDURES

At the end of the period covered by this report, an evaluation was carried out, under the supervision of and with the participation of the Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Corporation’s disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Corporation’s disclosure controls and procedures were adequately designed and effective in ensuring that: (i) information required to be disclosed by the Corporation in reports that it files or submits to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in the reports filed by the Corporation under the Exchange Act is accumulated and communicated to the Corporation’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

During the process of review and evaluation, it was determined that the Corporation’s disclosure controls and procedures are operating effectively as at October 31, 2014.

It should be noted that while the Corporation’s Chief Executive Officer and Chief Financial Officer believe that the Corporation’s disclosure controls and procedures provide a reasonable level of assurance that they are effective, they do not expect that the Corporation’s disclosure controls and procedures or internal control over financial reporting will prevent all errors and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING AND ATTESTATION

REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

The Corporation’s management is responsible for establishing and maintaining internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). An evaluation, under management supervision, was carried out on the effectiveness of the Corporation’s internal control over financial reporting as at October 31, 2014 using the framework and criteria established by the Internal Control-Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 Framework). Based on this evaluation, management has concluded that internal control over financial reporting was effective as at October 31, 2014.

This annual report does not include an attestation report of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to the rules of the Securities and Exchange Commission that permit the Corporation to provide only management’s report in this annual report.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

During the period covered by this Annual Report on Form 40-F, no changes occurred in the Registrant’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

BENEFIT PLAN BLACK-OUT PERIODS

This Section is not applicable.

AUDIT COMMITTEE FINANCIAL EXPERT

The information provided under the heading “Information on Audit Committee” contained in the Corporation’s AIF is incorporated by reference herein. In the opinion of the Board of Directors, all members of the Audit Committee are independent (as determined under Rule 10A-3 of the Exchange Act and the rules of the NYSE MKT) and are financially literate. The Board has determined that Michael Pesner is the audit committee financial expert, in that he has an understanding of generally accepted accounting principles and financial statements; is able to assess the general application of accounting principles in connection with the accounting for estimates, accruals and reserves; has experience preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting issues comparable to the breadth and level of complexity of issues that can reasonably be expected to be raised by the Corporation’s financial statements; has an understanding of internal controls and procedures for financial reporting; and has an understanding of audit committee functions.

CODE OF ETHICS

The Board of Directors of the Corporation adopted a written Code of Business Conduct and Ethics (the “Code”) on July 15, 2009 by which all employees, officers and directors of the Corporation are required to abide. In addition, the Board of Directors encourages a culture of ethical business conduct and believes the Corporation’s high-caliber management team promotes a culture of ethical business conduct throughout the Corporation’s operations, and management is expected to monitor the activities of the Corporation’s employees, consultants and agents in that regard. The Code requires that employees report any observed breach of the Code to the Corporation’s Chief Executive Officer or to the Chairman of the Audit Committee.

It is a requirement of applicable corporate law that directors and officers who have an interest in a material transaction or material agreement with the Corporation disclose that interest and, in the case of directors, abstain from voting in respect of same. These requirements are also contained in the Corporation’s by-laws, which are made available to the directors and officers of the Corporation.

All amendments to the Code, and all waivers of the Code with respect to any of the employees, officers or directors covered by it, will be posted on the Corporation’s website, submitted on Form 6-K and provided in print to any shareholder who requests them. A copy of the Code is available on the Corporation’s website at www.questrareminerals.com. A copy of the Code is also available to shareholders on request from the Secretary of the Corporation. Shareholders wishing to receive a copy of the Code should contact the Secretary of the Corporation at 1155 University Street, Suite 906, Montreal, Québec H3B 3A7, telephone (514) 878-3551.

PRINCIPAL ACCOUNTING FEES AND SERVICES – INDEPENDENT AUDITORS

The information provided under the heading “Information on the Audit Committee – External Auditor Fees” contained in the Corporation’s AIF is incorporated by reference herein. Ernst & Young LLP acted as the Corporation’s independent auditor for the fiscal years ended October 31, 2014 and 2013.

PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES PROVIDED BY INDEPENDENT AUDITORS

The information provided under the heading “Information on the Audit Committee – Pre-Approval Policies and Procedures for Audit Services” and “Information on the Audit Committee – External Auditor Fees” contained in the Corporation’s AIF is incorporated by reference herein. All of the services in respect of the Corporation’s external auditor service fees as disclosed in the Corporation’s AIF were approved by the Corporation’s Audit Committee.

OFF-BALANCE SHEET ARRANGEMENTS

The Corporation does not have any off-balance sheet arrangements.

DISCLOSURE OF CONTRACTUAL OBLIGATIONS

The following table lists as of October 31, 2014 information with respect to the Corporation’s known contractual obligations (stated in Canadian dollars).


Contractual Obligations	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
Long-Term Debt Obligations		—		—		—		—		—
Capital (Finance) Lease Obligations		—		—		—		—		—
Operating Lease Obligations⁽¹⁾	$	932,221	$	310,465	$	407,558	$	214,197		—
Purchase Obligations		—		—		—		—		—
Other Long-Term Liabilities Reflected on Balance Sheet under Canadian GAAP		—		—		—		—		—

Total	$	932,221	$	310,465	$	407,558	$	214,197		—

(1)	Please refer to Note 11 of the Corporation’s audited consolidated financial statements as at October 31, 2014, attached hereto as Exhibit 99.1.

AUDIT COMMITTEE

The information provided under the heading “Information on the Audit Committee” contained in the Corporation’s AIF is incorporated by reference herein. The Board has a separately designated standing Audit Committee established in accordance with Rule 10A-3 under the Exchange Act and the rules of the NYSE MKT. In the opinion of the Board of Directors, all members of the Audit Committee are independent (as determined under Rule 10A-3 of the Exchange Act and the rules of the NYSE MKT) and are financially literate.

The members of the Audit Committee do not have fixed terms and are appointed and replaced from time to time by resolution of the Board of Directors. The Audit Committee meets with the Chief Executive Officer and Chief Financial Officer and the Corporation’s independent auditors to review and inquire into matters affecting financial reporting, the system of internal accounting and financial controls, as well as audit procedures and audit plans. The Audit Committee also recommends to the Board of Directors the auditors to be appointed. In addition, the Audit Committee reviews and recommends to the Board of Directors for approval the annual financial statements, and the related management’s discussion and analysis, and undertakes other activities required by regulatory authorities.

Audit Committee Charter

A copy of the Charter of the Audit Committee of the Corporation is annexed as Schedule A to the Corporation’s AIF and is available in printed copy to any shareholder who provides the Corporation with a written request to the Chief Financial Officer at 1155 University Street, Suite 906, Montreal, Québec, Canada H3B 3A7.

NYSE MKT CORPORATE GOVERNANCE

The Corporation’s common shares are listed on the NYSE MKT. Section 110 of the NYSE MKT Company Guide permits NYSE MKT to consider the laws, customs and practices of foreign issuers, and to grant exemptions from NYSE MKT listing criteria based on these considerations. A company seeking relief under these provisions is required to provide written certification from independent local counsel that the non-complying practice is not prohibited by home-country law. A description of the significant ways in which the Corporation’s governance practices differ from those followed by domestic companies pursuant to NYSE MKT standards is as follows:

Shareholder Meeting Quorum Requirement: NYSE MKT minimum quorum requirement for a shareholder meeting is one-third of the outstanding shares of common stock. In addition, a company listed on NYSE MKT is required to state its quorum requirement in its by-laws. The Corporation’s quorum requirement is set forth in its by-laws, which provides that a quorum for the transaction of business at any meeting of shareholders shall be two persons present in person, each being a shareholder entitled to vote thereat or a duly-appointed proxy or proxyholder for an absent shareholder so entitled, holding or representing in the aggregate not less than five percent (5%) of the issued and outstanding shares of the Corporation carrying voting rights at the meeting of shareholders.

Proxy Delivery Requirement: NYSE MKT requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to SEC proxy rules. The Corporation is a “foreign private issuer” as defined in Rule 3b-4 under the Exchange Act, and the equity securities of the Corporation are accordingly exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Exchange Act. The Corporation solicits proxies in accordance with applicable rules and regulations in Canada.

Shareholder Approval Requirements: NYSE MKT requires a listed company to obtain the approval of its shareholders for certain types of securities issuances, including private placements that may result in the issuance of common shares (or securities convertible into common shares) equal to 20% or more of presently outstanding shares for less than the greater of book or market value of the shares. In general, the rules of the Toronto Stock Exchange are similar, but there are some differences including the threshold for shareholder approval set at 25% of outstanding shares. The Corporation will seek a waiver from NYSE MKT’s shareholder approval requirements in circumstances where the securities issuance does not trigger such a requirement under the rules of the Toronto Stock Exchange.

The foregoing are consistent with the laws in Canada.

In addition, the Corporation may from time-to-time seek relief from NYSE MKT corporate governance requirements on specific transactions under Section 110 of the NYSE MKT Company Guide by providing written certification from independent local counsel that the non-complying practice is not prohibited by the Corporation’s home-country law, in which case, the Corporation shall make the disclosure of such transactions available on its website at www.questrareminerals.com. Information contained on the website of the Corporation is not part of this Annual Report.

MINE SAFETY DISCLOSURE

Not applicable.

UNDERTAKINGS

The Registrant undertakes to make available, in person or by telephone, representatives to respond to inquiries made by the staff of the SEC, and to furnish promptly, when requested to do so by the staff of the SEC, information relating to the securities registered pursuant to this Annual Report on Form 40-F or transactions in said securities.

CONSENT TO SERVICE OF PROCESS

The Registrant filed an Appointment of Agent for Service of Process and Undertaking on Form F-X with respect to the class of securities in relation to which the obligation to file the Form 40-F arises.

Any change to the name or address of the agent for service of process of the Registrant shall be communicated promptly to the SEC by an amendment to the Form F-X referencing the file number of the Registrant.

SIGNATURES

Pursuant to the requirements of the United States Securities Exchange Act of 1934, as amended, the Registrant certifies that it meets all of the requirements for filing on Form 40-F and has duly caused this Annual Report on Form 40-F to be signed on its behalf by the undersigned, thereto duly authorized.


QUEST RARE MINERALS LTD. – MINÉRAUX RARES QUEST LTÉE

By:		(s) Peter J. Cashin
		Name: Peter J. Cashin
		Title: President and Chief Executive Officer

Date: January 29, 2015

EXHIBIT INDEX


Exhibit		Description

		Annual Information

99.1		Audited annual consolidated financial statements as at October 31, 2014 and 2013, including the report of the auditors with respect thereto

99.2		Management’s discussion and analysis for the year ended October 31, 2014

99.3		Annual information form for the year ended October 31, 2014

99.4		Certification of Chief Executive Officer as required by Rule 13a-14(a) under the Exchange Act

99.5		Certification of Chief Financial Officer as required by Rule 13a-14(a) under the Exchange Act

99.6		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.7		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

		Consents

99.8		Consent of Ernst & Young LLP

99.9		Consent of William J. Lewis

99.10		Consent of Richard Gowans

99.11		Consent of Rimant (Ray) V. Zalnieriunas

99.12		Consent of Sam Shoemaker Jr.

99.13		Consent of Jane Spooner

Exhibit 99.1

Consolidated Financial Statements

Quest Rare Minerals Ltd.

For the years ended October 31, 2014 and 2013

MANAGEMENT’S REPORT

Responsibility for Financial Information

Quest Rare Minerals Ltd. [“Quest”] management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this Annual Report. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards [“IFRS”] as issued by the International Accounting Standards Board and include some amounts that are based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the consolidated financial statements are presented fairly in all material respects.

Quest’s policy is to maintain systems of internal accounting, and administrative and disclosure controls reinforced by standards of conduct and ethics set out in written policies to provide reasonable assurance that the financial information is relevant, accurate and reliable, and that assets are appropriately accounted for and adequately safeguarded.

The Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements. The Board carries out this responsibility principally through its Audit Committee. The Audit Committee is appointed by the Board and is composed of independent outside directors. The Committee meets periodically with management and external auditor to review accounting, auditing and internal control matters. These consolidated financial statements have been reviewed and approved by the Board of Directors on the recommendation of the Audit Committee.

The consolidated financial statements have been audited by Ernst & Young LLP, the independent auditor, in accordance with the Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board [United States] on behalf of the shareholders. The external auditor has full and free access to the Audit Committee.

Internal Control over Financial Reporting

Quest’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Quest’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

Quest’s internal control over financial reporting includes those policies and procedures that [i] pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of Quest’s assets; [ii] provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of Quest and [iii] provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Quest’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management conducted an evaluation of the effectiveness of Quest’s internal control over financial reporting based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission [1992 Framework] [COSO].

Based on the evaluation, the management concluded that Quest’s internal control over financial reporting was effective as of October 31, 2014.


(Signed) Peter Cashin		(Signed) Mark Schneiderman
President & CEO		CFO

REPORT OF INDEPENDENT REGISTERED PUBLIC

ACCOUNTING FIRM ON FINANCIAL STATEMENTS

To the Shareholders of

Quest Rare Minerals Ltd.

We have audited the accompanying consolidated financial statements of Quest Rare Minerals Ltd. [the “Company”], which comprise the consolidated statements of financial position as at October 31, 2014 and 2013, and the consolidated statements of comprehensive loss, changes in equity and cash flows for each of the years in the two-year period ended October 31, 2014, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board [United States]. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as at October 31, 2014 and 2013, and its financial performance and its cash flows for each of the years in the two-year period ended October 31, 2014 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Emphasis of Matter

Without qualifying our opinion, we draw attention to note 1 in the consolidated financial statements which indicates that the Company incurred a net loss and total comprehensive loss of $10,972,714 during the year ended October 31, 2014. These conditions, along with other matters as set forth in note 1, indicate the existence of a material uncertainty that raises substantial doubt about the Company’s ability to continue as a going concern.

Montréal, Canada

January 20, 2015

¹	CPA auditor, CA, public accountancy permit no. A122227

Quest Rare Minerals Ltd.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION


	October 31,			October 31,
	2014			2013
	$			$
ASSETS
Current assets
Cash and cash equivalents [notes 9 and 13]		1,281,706			7,269,170
Investments [note 13]		950			1,600
Prepaid expenses and deposits		424,992			413,560
Commodity taxes and other receivables		207,323			594,525
Tax credits receivable [note 9]		4,727,861			6,985,244

		6,642,832			15,264,099

Non-current assets
Tax credits receivable [note 9]		3,910,225			3,237,225
Exploration and evaluation assets [note 6]		59,188,089			58,400,176
Other non-current assets [note 7]		312,391			—

Total assets		70,053,537			76,901,500


EQUITY AND LIABILITIES
Current liabilities
Loan facility [note 9]		4,338,793			—
Accounts payable and accrued liabilities [note 12]		961,274			3,357,441
Premium liabilities		—			282,519

Total liabilities		5,300,067			3,639,960


Equity
Share capital [note 10]		80,935,251			79,436,141
Warrants [note 10]		601,543			59,948
Contributed surplus [note 10]		21,530,007			21,106,068
Deficit		(38,313,331	)		(27,340,617	)

Total equity		64,753,470			73,261,540



Total equity and liabilities		70,053,537			76,901,500

Going concern uncertainty [note 1]

See accompanying notes

Quest Rare Minerals Ltd.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Years Ended October 31,


	2014 $			2013 $
EXPENSES
Professional fees [note 12]		480,999			581,530
Investor relations [notes 8 and 12]		922,847			1,483,624
Administration expenses [notes 8 and 12]		1,525,976			1,291,443
Impairment of exploration and evaluation assets [note 6]		8,184,128			979,723

		11,113,950			4,336,320


Operating loss		(11,113,950	)		(4,336,320	)


Finance income		118,240			235,705
Finance expense [note 9]		(258,873	)		—
Unrealized loss on investments held for trading [note 13]		(650	)		(8,150	)
Premium liabilities related income		282,519			126,876

		141,236			354,431



Net loss and comprehensive loss for the year		(10,972,714	)		(3,981,889	)


Net loss per share
Basic and fully diluted		(0.16	)		(0.06	)


Weighted average number of outstanding shares
Basic and fully diluted		70,690,245			63,467,345

Going concern uncertainty [note 1]

See accompanying notes

Quest Rare Minerals Ltd.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY


											Contributed
	Share capital					Warrants					surplus			Deficit			Total
	#		$			#		$			$			$			$
Balance – November 1, 2012		61,864,684		77,498,615			—		—			21,092,317			(23,358,728	)		75,232,204
Issuance of shares under flow-through arrnagements [note 10]		4,065,360		1,742,297			—		—			—			—			1,742,297
Issuance of shares and warrants [note 10]		1,012,000		433,714			506,000		72,286			—			—			506,000
Issuance of shares for stock options [note 10]		295,000		132,905			—		—			(88,655	)		—			44,250
Stock-based compensation [note 10]		—		—			—		—			31,323			—			31,323
Share issue costs [note 10]		—		(371,390	)		—		(12,338	)		—			—			(383,728	)
Share issue costs - options issued to brokers [note 10]		—		—			—		—			71,083			—			71,083
Net loss and comprehensive loss for the year		—		—			—		—			—			(3,981,889	)		(3,981,889	)

Balance – October 31, 2013		67,237,044		79,436,141			506,000		59,948			21,106,068			(27,340,617	)		73,261,540

Issuance of shares and warrants [note 10]		11,025,485		2,150,926			11,025,485		825,955			—			—			2,976,881
Issuance of shares for stock options [note 10]		316,667		37,453			—		—			(5,786	)		—			31,667
Issuance of shares for option and lease agreement [notes 7 and 10]		250,000		51,250			—		—			—			—			51,250
Stock-based compensation [note 10]		—		—			—		—			307,736			—			307,736
Share issue costs [note 10]		—		(740,519	)		—		(284,360	)		—			—			(1,024,879	)
Share issue costs - units issued to brokers [note 10]		—		—			—		—			121,989			—			121,989
Net loss and comprehensive loss for the year		—		—			—		—			—			(10,972,714	)		(10,972,714	)

Balance – October 31, 2014		78,829,196		80,935,251			11,531,485		601,543			21,530,007			(38,313,331	)		64,753,470

Going concern uncertainty [note 1]

See accompanying notes

Quest Rare Minerals Ltd.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended October 31,


	2014 $			2013 $
OPERATING ACTIVITIES
Net loss		(10,972,714	)		(3,981,889	)
Items not impacting cash:
Impairment of exploration and evaluation assets		8,184,128			979,723
Unrealized loss on investments held for trading		650			8,150
Premium liabilities related income		(282,519	)		(126,876	)
Stock-based compensation		204,684			(86,799	)

		(2,865,771	)		(3,207,691	)
Net change in non-cash working capital items		(427,223	)		1,501,810

Net cash flows used in operating activities		(3,292,994	)		(1,705,881	)


INVESTING ACTIVITIES
Investment in exploration and evaluation assets [note 6]		(8,950,014	)		(23,428,924	)
Government credits		—			3,589,711
Increase in non-current assets		(261,141	)		—
Disposal of investments		—			4,000,000

Net cash flows used in investing activities		(9,211,155	)		(15,839,213	)


FINANCING ACTIVITIES
Proceeds from the issuance of shares and warrants		2,976,881			506,000
Proceeds from the issuance of shares under flow-through arrangements		—			2,235,948
Proceeds from exercise of share options [note 10]		31,667			44,250
Share issue costs [note 10]		(830,656	)		(395,904	)
Increase in loan facility [note 9]		4,338,793			—

Net cash flows from financing activities		6,516,685			2,390,294


Net decrease in cash and cash equivalents		(5,987,464	)		(15,154,800	)
Cash and cash equivalents, beginning of period		7,269,170			22,423,970

Cash and cash equivalents, end of period		1,281,706			7,269,170

Going concern uncertainty [note 1]

See accompanying notes

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

1. NATURE OF OPERATIONS AND GOING CONCERN

Quest Rare Minerals Ltd. [“Quest” or the “Parent”] was incorporated under the Canada Business Corporations Act on June 6, 2007. The registered office of Quest is located at 1155 University Street, Suite 906, Montreal, Québec, H3B 3A7. Quest is a publicly-listed Corporation and its shares are listed on both the Toronto Stock Exchange and NYSE MKT [formerly NYSE Amex] under the symbol “QRM”.

Quest is a Canadian-based exploration and evaluation company which, together with its wholly-owned subsidiary, QTM Extraction Ltd [“QTM” or the “Subsidiary”], is focused on the development of its Strange Lake rare earth deposit in northeastern Québec and the identification and discovery of new rare earth element (“REE”) deposit opportunities. The Parent and its Subsidiary [collectively the “Corporation”] has been advancing several projects in certain of Canada’s premier exploration areas as described in note 6. The Corporation’s exploration program to date has led to the discovery of a new rare earth element deposit on the Corporation’s Strange Lake property in northeastern Québec. The development of this Strange Lake deposit is now the key focus of the Corporation. QTM was incorporated as a vehicle to hold and operate the Corporation’s assets related to the processing of ore as part the Corporation’s Strange Lake project.

Going Concern

These consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assume that the Corporation will continue in operation for the foreseeable future and will be able to realize its assets and discharge its obligations in the normal course of operation. In assessing whether the going concern assumption is appropriate, management takes into account all available information about the future, which is at least, but not limited to twelve months from the end of the reporting period. The use of these principles may not be appropriate.

To date, the Corporation has not earned significant revenue and is considered to be in the exploration and evaluation stage.

The investment in, and expenditures on, exploration and evaluation assets comprise a significant portion of the Corporation’s assets. Mineral exploration and development is highly speculative and involves inherent risks. Realization of the Corporation’s investment in these assets is dependent upon the renewed legal ownership of the licenses, and whether an economically viable operation can be established.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

The Corporation’s current committed cash resources are insufficient to cover expected expenditures in fiscal 2015 and its planned Pre-feasibility study on Strange Lake. The Corporation’s ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as they become due. There can be no assurance that management will be successful in securing adequate financing. In addition, while the Corporation’s Preliminary Economic Assessment (“PEA”) and future development activities in relation to its Strange Lake project look promising, there can be no assurance that the results of its planned Pre-feasibility study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.

The Corporation reported a net loss and total comprehensive loss in the years ended October 31, 2014 and 2013 of $10,972,714 and $3,981,889, respectively. These recurring losses and the need for continued financing to further develop its Strange Lake project indicate the existence of a material uncertainty that raises substantial doubt as to the Corporation’s ability to continue as a going concern.

These consolidated financial statements do not include any adjustments to the carrying values of assets and liabilities that might be necessary, if the Corporation is unable to continue as a going concern. Such adjustments could be material.

2. BASIS OF PREPARATION

Statement of Compliance

The Corporation’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments held for trading that have been measured at fair value.

The Board of Directors approved these consolidated financial statements on January 20, 2015.

Functional and presentation currency

These consolidated financial statements are presented in Canadian dollars, which is the Parent’s and the Subsidiary’s functional currency.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Basis of consolidation

The consolidated financial statements include the financial statements of Quest Rare Minerals Ltd. and the Subsidiary as described in note 1. All intra-group balances, income and expenses and unrealized gains and losses, resulting from intra-group transactions are eliminated in full on consolidation.

Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the date of the consolidated financial statements.

The Corporation has identified the following critical accounting policies under which significant judgments, estimates and assumptions are made and where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future periods.

[a] Exploration and evaluation assets – Judgment and estimate

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through future exploitation or sale. Such circumstances include the period for which the Corporation has the right to explore in a specific area, actual and planned expenditures, results of exploration, whether an economically-viable operation can be established and significant negative industry or economic trends. Management judgment is also applied in determining the lowest levels of exploration and evaluation assets grouping, for which there are separately identifiable cash flows [cash generating units], generally on the basis of areas of geological interest [note 6].

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at October 31, 2014, the Corporation determined that the continued decline in the market prices of REEs and in the market capitalization of the Corporation constituted an indicator of impairment and completed an impairment assessment of its Strange Lake mining property to determine whether the carrying amount exceeded the recoverable amount. The impairment assessment included calculating the exploration and evaluation assets’ value in use based on numerous assumptions including underlying mineral resources, production estimates, timing of construction and life of the mine, long-term prices of underlying REEs, capital requirements, operating costs and operational performance, discount rates and foreign exchange rates. The results of the impairment review determined that the recoverable amount exceeded the carrying value and that the Strange Lake property was not impaired at October 31, 2014. Any changes in the economic assumptions used or the geological information produced during the development and operation of a mine, could materially affect the estimated recoverable amount of the exploration and evaluation assets, which could result in an impairment in the future and such could be material.

With respect to its Misery Lake and Alterra–Strange Lake mining properties, the Corporation determined, as at October 31, 2014, that indicators of impairment existed on each property based on the fact that, in both cases, no exploration or evaluation expenditures are planned in the near future, and also, with respect to Alterra–Strange Lake, because no joint venture agreement with the joint venture partner has been signed. As such, the Corporation performed impairment assessments on both mining properties and in each case estimated the recoverable amount of the exploration and evaluation assets at nil due to the fact that no commercially viable deposits have been discovered. As such, for the year ended October 31, 2014, the Corporation recorded impairment losses in respect of Misery Lake and Alterra–Strange Lake amounting to $7,106,609 and $909,390 respectively [note 6].

[b] Valuation of refundable tax credits and mining duties credits – Judgment

The Corporation is entitled to refundable tax credits and mining duties credits on qualified mining exploration expenses incurred in the province of Québec. Management judgment is applied in determining whether the mining exploration expenses are eligible for claiming such credits. Those benefits are recognized when the Corporation estimates that it has reasonable assurance that the tax credits will be realized.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

[c] Share-based compensation – Estimate

The estimation of share-based compensation at fair value at the date of grant requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The fair value of each option is evaluated using the Black-Scholes pricing model at the date of grant. The Corporation has made estimates as to the volatility, the expected life of options, and expected forfeitures. The expected life of the option is based on historical data. The expected volatility is based on the historical volatility of comparable companies, over the period of the expected life of the stock option [note 10]. These estimates may not necessarily be indicative of future actual patterns.

3. PRINCIPAL ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements.

Cash and cash equivalents

Cash and cash equivalents consist of cash and highly-liquid short-term investments with maturities of less than three months from the date of acquisition that are readily convertible to known amounts of cash at any time and that are subject to an insignificant risk of change in value. Due to the liquid nature of these financial assets, the Corporation has elected to classify them as held-for-trading and changes in fair value are recorded in the statements of comprehensive loss. As at October 31, 2014, the Corporation had cash equivalents in the amount of $151,810 bearing interest at 0.80% [2013 – $5,388,467 bearing interest at 1.50%].

Exploration and evaluation assets

Exploration costs related to mining properties and exploration expenditures, which include acquisition costs as well as costs relating to research and analyzing exploration data, conducting geological studies, exploratory drilling and sampling, examining and testing extraction and treatment methods, compiling pre-feasibility and feasibility studies and related share-based compensation costs, are capitalized on the basis of areas of geological interest, net of tax credits, until the mining properties to which they relate are placed into production, or impaired. These costs will be amortized over the estimated useful life of mining properties following commencement of production or written off if impaired. General exploration costs not related to specific mining properties or those incurred before the Corporation has obtained legal rights to explore an area are expensed as incurred.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

From time to time, the Corporation may acquire or dispose of a property pursuant to the terms of an option agreement. Due to the fact that options are exercisable entirely at the discretion of the option holder, option payments are recorded when the payments are made or received.

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the exploration and evaluation assets exceed their recoverable amount. The recoverable amount is the higher of the exploration and evaluation asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, exploration and evaluation assets are grouped at the lowest levels for which there are separately identifiable cash flows [cash-generating units], generally on the basis of areas of geological interest. Impairments are reviewed for potential reversals at each reporting date and reversed if there is an indication that there has been a change in the estimates used to determine the recoverable amount. The impairment loss is only reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Although management has taken actions to verify the ownership rights for mining properties in which the Corporation owns an interest in accordance with industry standards for the current exploration phase of these properties, these procedures give no assurance to the Corporation as to title. The title to property may be subject to unrecognized prior agreements and not compliant with regulatory requirements.

Share-based compensation

The Corporation has two distinct share-based incentive programs for directors, executives, key employees and service providers.

[a] Options

The Corporation has stock option plans under which options to acquire the Corporation’s common shares may be granted to its directors, officers, employees and consultants. The plans do not feature any options for a cash settlement.

Where employees are rewarded using share-based payments, the fair values of employees’ services are determined by reference to the fair value of the equity instruments granted. The fair value of each option is evaluated using the Black-Scholes pricing model at the date of grant. Each tranche in an award with graded vesting is considered a separate grant with a different vesting date and fair value. All share-based remuneration is recognized as an expense or exploration and evaluation asset with a corresponding increase to contributed surplus. For stock-based awards issued to non-employees, the awards are measured at the fair value of the services rendered at the date on which the services are provided.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense in prior periods if share options ultimately exercised are different from that estimated on vesting. Upon exercise of share options, the proceeds received are allocated to share capital.

[b] Restricted and Deferred Share Units

Restricted share units [“RSUs”] and Deferred share units [“DSUs”] may be granted to directors, executives and employees as part of their long-term compensation package, entitling them to receive, either common shares or cash based on the Corporation’s share price at the relevant time.

All RSUs and DSUs granted are classified as equity instruments in accordance with IFRS as their terms provide for settlement in either equity or cash at the sole discretion of the Corporation. The Corporation currently intends to settle RSUs and DSUs by issuing equity. For RSUs and DSUs that are expected to be settled with equity, an amount equal to compensation expense is initially credited to contributed surplus and transferred to share capital if and when the share unit is exercised. At the end of each reporting period management performs a review of historical payouts under each share unit plan and where it concludes that, in future, share units may reasonably be expected to be settled with cash, then an amount equal to the fair value at grant date of these vested units is transferred from contributed surplus and classified as a liability. Until the date of settlement, the liability associated with cash-settled share units, if any, is remeasured at the fair value at each reporting period end, with any changes in the fair value recognized as a charge to stock-based compensation.

The value of stock-based compensation recognized in respect of RSUs and DSUs is measured based on the closing price of the Corporation’s common shares on the Toronto Stock Exchange at the date of grant and is based on the RSUs and DSUs that are expected to vest.

If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share units expected to vest. Estimates are subsequently revised, if there is any indication that the number of share units expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognized in the current period. No adjustment is made to any expense in prior periods if share units ultimately exercised are different from that estimated on vesting.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

[c] Broker compensation units and broker compensation options

Share-based payments for non-employee services, including broker compensation units and broker compensation options, are measured at the fair value of the goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. If the Corporation cannot estimate reliably the fair value of the goods or services received, the entity shall measure their value, and the corresponding increase in equity, indirectly, by reference to the fair value of the equity instruments granted.

Exploration tax credits

The Corporation is entitled to refundable tax credits on qualified expenditures. The refundable tax credits have been applied against the exploration and evaluation assets when such expenditures are incurred provided that the Corporation has reasonable assurance those credits will be realized.

Taxes

Current income taxes

Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date.

Current income tax relating to items recognized directly in other comprehensive loss or equity is recognized in other comprehensive loss or equity. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Deferred income taxes

Deferred income tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized. Deferred income taxes are not recognized for temporary differences which arise for initial recognition of an asset or liability that affects neither the accounting nor taxable profit or loss at the time of the transaction.

Deferred income tax assets and liabilities are measured on an undiscounted basis at the tax rates that are expected to apply when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred income tax assets and liabilities are presented as non-current.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that future taxable profit will be available to allow the deferred tax asset to be recovered.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally-enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

Commodity taxes

Expenses and exploration and evaluation assets are recognized net of the amount of commodity taxes except where the commodity taxes incurred are not recoverable from the taxation authority, in which case, the commodity taxes are recognized as part of the cost of exploration and evaluation assets or as part of the expense item as applicable.

Share capital

Proceeds from share units are allocated between common shares and common share purchase warrants by calculating the fair value of the warrants using the Black-Scholes option pricing model and pro rating the relative fair value to share capital and warrants. On the exercise of the warrants, the Black-Scholes related amounts are transferred from warrants to share capital.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Flow-through shares and premium liabilities

Where a portion of the Corporation’s exploration activities is financed by flow-through share arrangements, under the terms of flow-through share agreements, the tax deductions of the related Canadian exploration expenditures [“CEE”] are renounced in favour of the investors. Accordingly, flow-through proceeds are allocated between the offering of the common shares and the premium liabilities associated with the sale of tax benefits when the common shares are offered. The amount allocated to share capital is based on the fair value of the common shares and the residual amount of the proceeds received from the investor for the flow-through shares is recognized as premium liabilities and the premium liabilities are reversed in the statements of comprehensive loss as the Corporation spends the flow-through proceeds.

Issuance costs

Costs incurred in connection with the issuance of units and flow-through shares are allocated based on the fair value of each component of the units and the flow-through shares and netted against each such component.

Revenue recognition

Operator fee income is recorded as earned, and finance income is recorded on an accrual basis using the effective interest method.

Financial instruments

Financial assets are classified as either financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments or available-for-sale financial assets, as appropriate. Financial liabilities are classified as financial liabilities at fair value through profit or loss or other liabilities. The Corporation determines the classification of its financial assets or liabilities at initial recognition. When financial assets or liabilities are recognized initially, they are measured at fair value. The subsequent measurement of financial assets and liabilities depends on their classification.

The Corporation’s financial assets and liabilities are classified and measured as follows:


	Classification	Measurement
Cash and cash equivalents	Held for trading	Fair value
Tax credits and other receivables	Loans and receivable	Amortized cost
Investments	Held for trading	Fair value
Accounts payable and accrued liabilities	Other liabilities	Amortized cost

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Fair values of financial instruments carried at fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal market or most advantageous market for the asset or liability. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices or dealer price quotations [Level 1], without any deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques [Level 2]. Such techniques may include using recent arm’s length market transactions; reference to the current fair value of another instrument that is substantially the same; a discounted cash flow analysis or other valuation models.

Other techniques [Level 3] use inputs not based on observable market data.

Investments at fair value through profit or loss

Financial assets or liabilities classified as held-for-trading are included in the category financial assets or liabilities at fair value through profit or loss. Financial assets or liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. Gains or losses on these items are recognized in the net loss.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Corporation has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. These instruments are measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initially recognized amount and the maturity amount. This calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts. For investments carried at amortized cost, gains and losses are recognized in net loss when the investments are derecognized or impaired, as well as through the amortization process.

Other liabilities

Other liabilities are recognized initially at fair value net of any directly-attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest method. Other liabilities are presented as current if payment is due within twelve months. Otherwise, they are presented as non-current liabilities. Finance costs are recognized in the statements of comprehensive loss using the effective interest method.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Impairment of financial assets

The Corporation assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets carried at amortized costs are impaired. A financial asset or a group of financial assets carried at amortized cost is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows [excluding future credit losses that have not been incurred] discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced and the amount of the loss is recognized in net loss. Objective evidence of impairment of held-to-maturity investments and loans and receivables exists if the counter-party is experiencing significant financial difficulty, there is a breach of contract, concessions are granted to the counter-party that would not normally be granted, or it is probable that the counter-party will enter into bankruptcy or a financial reorganization.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously-recognized impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognized in net loss, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Foreign currency

Transactions in foreign currencies are translated at the exchange rates prevailing at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates at the reporting date. All differences that arise are recorded in net loss. Non-monetary assets measured at historical cost in a foreign currency are translated using the exchange rates at the date of the initial transactions.

Leases

The Corporation’s leases are classified as operating leases as the Corporation does not assume substantially all of the risks and rewards. Payments made under operating leases are recognized in net loss on a straight-line basis over the term of the lease, unless such payments can be offset and deducted against the eventual purchase of the asset in which case such payments are capitalized in other non-current assets [note 7].

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Net loss per share

Net loss per share computations are based upon the weighted average number of common shares outstanding during the period.

Diluted earnings per share amounts are calculated by dividing the net income attributable to ordinary shares by the weighted average number of common shares outstanding during the period plus the weighted average number of common shares that would be issued on conversion of all the dilutive potential ordinary shares into common shares. When the Corporation reports a loss, the diluted net loss per common share is equal to the basic net loss per common share due to the anti-dilutive effect of the outstanding warrants, share options and similar instruments.

4. RECENT ACCOUNTING PRONOUNCEMENTS

The Corporation adopted the following new standards in preparing these consolidated financial statements:

a) IFRS 10 Consolidated Financial Statements

The IASB issued a new standard, IFRS 10, Consolidated Financial Statements (IFRS 10), which establishes the principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 establishes control as the basis for consolidation and defines the principle of control. An investor controls an investee if the investor has power over the investee, exposure or rights to variable returns from its involvement with the investee and the ability to use its power over the investee to affect the amount of the investor’s returns. The Corporation adopted IFRS 10 effective November 1, 2013, which was applied retrospectively. The adoption of IFRS 10 did not have an impact on the Corporation’s consolidated financial statements.

b) IFRS 11 Joint Arrangements

The IASB issued a new standard, IFRS 11, Joint Arrangements (IFRS 11), which establishes the principles for financial reporting by parties to a joint arrangement. IFRS 11 supersedes IAS 31, Interests in Joint Ventures and SIC Interpretation 13, Jointly Controlled Entities – Non Monetary Contributions by Venturers. The standard defines a joint arrangement as an arrangement where two or more parties have joint control, with joint control being defined as the contractually agreed sharing of control where decisions about relevant activities require unanimous consent of the parties sharing control. The standard classifies joint arrangements as either joint operations or joint ventures and the classification determines the accounting treatment. The Corporation adopted IFRS 11 effective November 1, 2013, which was applied retrospectively. The adoption of IFRS 11 did not have an impact on the Corporation’s consolidated financial statements as the Corporation has no joint arrangements.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

c) IFRS 12 Disclosure of Interests in Other Entities

The IASB issued a new standard, IFRS 12, Disclosure of Interests in Other Entities (IFRS 12), which integrates and provides consistent disclosure requirements for all interests in other entities such as subsidiaries, joint arrangements, associates and unconsolidated structured entities. The standard requires an entity to disclose information regarding the nature and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. The Corporation adopted IFRS 12 effective November 1, 2013, which was applied retrospectively. The adoption of IFRS 12 did not have an impact on the Corporation’s consolidated financial statements.

d) IFRS 13 Fair Value Measurement

The IASB issued a new standard, IFRS 13, Fair Value Measurement (IFRS 13), which provides a standard definition of fair value, sets out a framework for measuring fair value and provides for specific disclosures about fair value measurements. IFRS 13 applies to all IFRS that require or permit fair value measurements or disclosures. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Corporation adopted IFRS 13 effective November 1, 2013, which was applied retrospectively. The Corporation determined that this new standard has no significant impact on the Corporation’s consolidated financial statements.

e) IFRS 2 Share-based Payment

The IASB issued Amendments to IFRS 2, Share-based Payment. The amendments changed the definitions of “vesting condition” and “market condition” in the Standard, and added definitions for “performance condition” and “service condition”. It also clarified that any failure to complete a specified service period, even due to the termination of an employee’s employment or a voluntary departure, would result in a failure to satisfy a service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with a grant date on or after July 1, 2014. The amendment did not have a significant impact on the Corporation’s consolidated financial statements.

f) IAS 28 Investments in Associates and Joint Ventures

The IASB issued a revised standard, IAS 28, Investments in Associates and Joint Ventures (IAS 28), which prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The Company adopted IAS 28 effective November 1, 2013 which was applied retrospectively. The adoption of the revised IAS 28 did not have an impact on the Corporation’s consolidated financial statements as the Corporation has no investments in associates and joint ventures.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

The following pronouncements are issued but not yet effective for the year ended October 31, 2014:

a) IFRS 9 Financial Instruments

The final version of IFRS 9, Financial instruments (IFRS 9) was issued by the IASB in July 2014 which reflects all phases of the financial instruments project and replaces IAS 39, Financial Instruments: recognition and measurement (IAS 39). The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for the Corporation on November 1, 2018. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before February 1, 2015. The Corporation is currently evaluating the impact of this standard and amendments on its consolidated financial statements.

b) Amendments to IAS 36 Impairment of Assets

IAS 36, Impairment of Assets (IAS 36) was amended by the IASB in May 2013. The amendments require the disclosure of the recoverable amount of impaired assets when an impairment loss has been recognized or reversed during the period and additional disclosures about the measurement of the recoverable amount of impaired assets when the recoverable amount is based on fair value less costs of disposal, including the discount rate when a present value technique is used to measure the recoverable amount. This amendment to IAS 36 will be effective for the Corporation on November 1, 2014 and must be applied retrospectively. The adoption of this amendment is expected to have no impact on the Corporation’s consolidated financial statements.

c) IFRIC 21 Levies

IFRIC 21, Levies (IFRIC 21) was amended by the IASB in June 2013. IFRIC 21 provides guidance on the accounting for levies within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The main features of IFRIC 21 are: (i) the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by legislation, and (ii) the liability to pay a levy is recognized progressively if the obligating event occurs over a period of time. IFRIC 21 is effective for the Corporation on November 1, 2014 and must be applied retrospectively. The adoption of this standard is expected to have no impact on the Corporation’s consolidated financial statements.

d) Annual Improvements 2010-2012 Cycle

In the 2010-2012 annual improvements cycle, the IASB issued seven amendments to six standards, which included an amendment to IFRS 13 Fair Value Measurement. The amendment to IFRS 13 clarifies in the Basis for Conclusions that short-term receivables and payables with no stated interest rates can be measured at invoice amounts when the effect of discounting is immaterial. This amendment to IFRS 13 will be effective for the Corporation on November 1, 2014 and must be applied retrospectively. The Corporation is currently evaluating the impact of the amendment on its consolidated financial statements.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

5. INCOME TAXES

A reconciliation of income tax charge applicable to accounting loss before income tax at the weighted average statutory income tax rate to income tax charge at the Corporation’s effective income tax rate for the years ended October 31 is as follows:


	2014 $			2013 $
Loss before income tax		(10,972,714	)		(3,981,889	)

Income tax recovery at the combined Federal and
Provincial tax rate 26.98% [2013 – 26.68%]		(2,960,399	)		(1,062,368	)
Stock-based compensation		55,223			(23,158	)
Premium liabilities related income		(76,223	)		(40,817	)
Other non-deductible expenses or non-taxable revenues		11,691			(84,991	)
Effect of changes in tax rates on temporary items		163,780			84,415
Other		314,839			149,781
Changes in valuation allowance		2,491,089			977,138

Tax recovery at an effective income tax rate		—			—

The deferred tax assets and liabilities of the Corporation consist of the following:


	2014 $			2013 $
Deferred tax assets
Non-capital loss carry-forwards		5,215,460			4,088,892
Share issue costs		301,311			265,501
Investments		5,673			5,523

		5,522,444			4,359,916

Deferred tax liabilities
Mining properties and deferred costs		(1,545,662	)		(2,874,223	)

Net deferred tax assets		3,976,782			1,485,693
Unrecognized deferred tax assets		(3,976,782	)		(1,485,693	)

Net deferred tax liabilities		—			—

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at October 31, 2014, the Corporation’s remaining exploration expenditures pursuant to flow-through share arrangements was nil [October 31, 2013 – $1,571,890].

Tax loss carry-forwards

At October 31, 2014, the Corporation had non-capital loss carry-forwards in the amount of $19,331,000 which are available to reduce future years’ taxable income. These non-capital loss carry-forwards expire as follows:


	Non-capital losses $
2027		24,000
2028		278,000
2029		602,000
2030		1,975,000
2031		3,388,000
2032		4,650,000
2033		4,411,000
2034		4,003,000

		19,331,000

In addition, the Corporation has investment tax credits in the amount of $3,750,000 which are available to reduce future taxable income and expire between 2029 and 2033.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

6. EXPLORATION AND EVALUATION ASSETS

During the year ended October 31, 2014, the Corporation maintained the following properties:

November 1,
2013
$

Expenditures
$

Tax credits
$

Write-down
$

October 31,
2014
$

Québec

Strange Lake

Acquisition

170,375

—

170,375

Exploration

48,539,549

5,963,464

1,684,074

—

56,187,087

Misery Lake

Acquisition

1,911,891

—

(1,911,891

)

—

Exploration

4,134,707

1,158,445

(98,434

)

(5,194,718

)

—

Other

Acquisition

—

Exploration

—

16,860

(1,257

)

(15,603

)

—

54,756,522

7,138,769

1,584,383

(7,122,212

)

56,357,462

Ontario

Other

Acquisition

—

Exploration

—

350

—

(350

)

—

350

—

(350

)

—

New Brunswick

Other

Acquisition

—

Exploration

—

18,448

—

(18,448

)

—

18,448

—

(18,448

)

—

Nova Scotia

Other

Acquisition

—

Exploration

—

1,056

—

(1,056

)

—

1,056

—

(1,056

)

—

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

November 1,
2013

Expenditures

Tax credits

Write-down

October 31,
2014

Newfoundland and Labrador

Strange Lake

Acquisition

—

Exploration

—

Misery Lake

Acquisition

—

Exploration

—

Alterra – Strange Lake

Acquisition

157,870

—

(157,870

)

—

Exploration

751,520

—

(751,520

)

—

Voisey’s Bay

Acquisition

180

—

(180

)

—

Exploration

6,509

—

(6,509

)

—

Other

Acquisition

—

Exploration

—

125,983

—

(125,983

)

—

916,079

125,983

—

(1,042,062

)

—

Total Properties

55,672,601

7,284,606

1,584,383

(8,184,128

)

56,357,462

Stock-based compensation [note 10e]

2,727,575

103,052

—

2,830,627

58,400,176

7,387,658

1,584,383

(8,184,128

)

59,188,089

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

During the year ended October 31, 2013, the Corporation maintained the following properties:


	November 1, 2012		Expenditures			Tax credits			Write- down			October 31, 2013
	$		$			$			$			$
Québec
Strange Lake
Acquisition		171,302		(927	)		—			—			170,375
Exploration		32,504,287		17,397,572			(1,362,310	)		—			48,539,549
Misery Lake
Acquisition		1,890,499		21,392			—			—			1,911,891
Exploration		3,914,029		592,602			(371,924	)		—			4,134,707
Other
Acquisition		—		—			—			—			—
Exploration		—		143,920			(67,273	)		(76,647	)		—

		38,480,117		18,154,559			(1,801,507	)		(76,647	)		54,756,522

Ontario
Other
Acquisition		—		—			—			—			—
Exploration		—		40,469			—			(40,469	)		—

		—		40,469			—			(40,469	)		—

New Brunswick
Other
Acquisition		—		—			—			—			—
Exploration		—		145,633			—			(145,633	)		—

		—		145,633			—			(145,633	)		—

Nova Scotia
Other
Acquisition		—		—			—			—			—
Exploration		—		63,919			—			(63,919	)		—

		—		63,919			—			(63,919	)		—

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013


	November 1, 2012			Expenditures			Tax credits			Write- down			October 31, 2013
	$			$			$			$			$
Newfoundland and Labrador
Strange Lake
Acquisition		157,054			—			—			(157,054	)		—
Exploration		177,656			6,055			—			(183,711	)		—
Misery Lake
Acquisition		(2,250	)		—			—			2,250			—
Exploration		190			—			—			(190	)		—
Alterra–Strange Lake
Acquisition		90,728			67,142			—			—			157,870
Exploration		751,572			(52	)		—			—			751,520
Voisey’s Bay
Acquisition		180			—			—			—			180
Exploration		6,509			—			—			—			6,509
Other
Acquisition		—			—			—			—			—
Exploration		—			314,350			—			(314,350	)		—

		1,181,639			387,495			—			(653,055	)		916,079

Total Properties		39,661,756			18,792,075			(1,801,507	)		(979,723	)		55,672,601

Stock-based compensation [note 10e]		2,609,453			118,122			—			—			2,727,575

		42,271,209			18,910,197			(1,801,507	)		(979,723	)		58,400,176

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at October 31, 2014 a total of $675,566 of expenditures on exploration and evaluation assets were unpaid and included in accounts payable and accrued liabilities [October 31, 2013 – $2,340,974]. These amounts have been excluded from the statements of cash flows.

During the year ended October 31, 2014, management revised the estimated tax credits receivable and reduced them by $2,053,383 with a corresponding increase in exploration and evaluation assets based on the eligibility of such credits. The reduction in the estimated tax credits receivable followed Revenu Québec’s assessment of the 2012 tax credit claim and related in large part to expenses incurred by the Corporation in fiscal years ended October 31, 2011, 2012 and 2013 for bench-scale testing, product testing, metallurgical testwork and pilot plant testing not being considered qualifying expenditures.

During the year-ended October 31, 2014, significant changes occurred in the following properties:

Strange Lake, Québec

The Corporation’s 100%-owned Strange Lake property is situated within the George River belt located 220 km northeast of Schefferville, Québec and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine, and covers an area of approximately 9,367 hectares. The property is a rare earth mineralized zone and consists of 211 mining claims, all of which are in Québec. During the year-ended October 31, 2014, 293 claims covering 13,113 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property.

Misery Lake, Québec

The Corporation’s 100%-owned Misery Lake property is located approximately 120 km south of Strange Lake and consists of 170 mining claims in Québec and covers an area of 8,334 hectares. During the year ended October 31, 2014, 754 claims covering 36,522 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. No further expenditures are planned on this project and, as a result, for the year ended October 31, 2014, the Corporation recorded an impairment loss of $7,106,609 on the property [note 2].

Alterra–Strange Lake, Newfoundland and Labrador

On June 15, 2010, the Corporation entered into an exploration and option agreement with Search Minerals Inc. [“Search”] and Alterra Resources Inc. [“Alterra”], a wholly-owned subsidiary of Search, pursuant to which the Corporation had an option to acquire up to a 65% undivided working interest in 30 mining claims.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at October 31, 2014, the Corporation had issued a total of 80,000 common shares under this agreement, had incurred a total of $751,520 in exploration expenditures and earned a 50% undivided interest.

During the year ended October 31, 2013, the Corporation did not exercise its option under the exploration and option agreement to earn an additional 15% undivided interest in the working claims and as a result, this option has now lapsed. As at October 31, 2014 a 50:50 joint venture with Search or Alterra had not been formed. No further expenditures are planned on this project and, as a result, for the year ended October 31, 2014, the Corporation recorded an impairment loss of $909,390 on the property [note 2].

Voisey’s Bay, Newfoundland and Labrador

During the year-ended October 31, 2014, all 18 claims of the Corporation’s 100%-owned Voisey’s Bay property were allowed to lapse. As a result, the Corporation wrote off acquisition costs of $180 and deferred exploration expenditures of $6,509.

Other, Québec, Newfoundland and Labrador, Nova Scotia, Ontario and New Brunswick

Acquisition and exploration expenditures allocated to “Other” projects represent the costs incurred on potential projects.

Based on its ongoing and analysis of these potential projects and their accumulated expenditures, the Corporation decided to write off all of the incurred mining acquisition costs and deferred exploration expenditures incurred during the year ended October 31, 2014.

7. OTHER NON-CURRENT ASSETS

On November 5, 2013, QTM entered into an option agreement with La Société du Parc Industriel et Portuaire de Bécancour (the “SPIPB Agreement”). Under the SPIPB Agreement, QTM has the right to purchase land in the Bécancour Port industrial site to build a processing facility for the ore from Strange Lake. The option was for a period of one year and could be extended by QTM for up to an additional three years to November 2017 in six increments of six months each. QTM could cancel this agreement at any time.

Payments made under the SPIPB Agreement may be offset and deducted against the eventual purchase price once the option is exercised. QTM therefore has capitalized the option payments as they are made until such time as either its option is exercised, cancelled or allowed to lapse by the Corporation.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at January 20, 2015, the Corporation is in the process of extending and re-negotiating the SPIPB Agreement. Under the proposed changes, the Corporation will have the right to purchase a smaller parcel of land in the Bécancour Port industrial site, more suited to its updated plans for its processing facility and at a reduced price. All payments made under the SPIPB Agreement, together with those under the revised agreement will be combined, offset and deducted against the eventual price of the land purchase once the new option is exercised.

On September 12, 2014, QTM entered into an option and lease agreement with 154639 Canada Inc. (the “Fraenkel Agreement”). Under the Fraenkel Agreement, QTM has the right to purchase another piece of land in the City of Bécancour to build a rare earth production facility for the ore from Strange Lake. The option is for a period of three years from March 1, 2015 and can be extended by QTM indefinitely in increments of one year each. QTM can cancel this Agreement at any time after March 1, 2016.

In consideration for the Fraenkel Agreement, Quest issued 250,000 common shares to the sole shareholder of 154639 Canada Inc.

Lease payments made under the Fraenkel Agreement may be offset and deducted, against the eventual purchase price, once the option is exercised, as follows:

•

75% of lease payments made until the earlier of the date of purchase or February 28, 2018, and

•

50% of lease payments made from March 1, 2018 until the date of purchase.

QTM therefore capitalizes the portion of the lease payments eligible to be offset and deducted as they are made, until such time as either the option is exercised, cancelled or allowed to lapse by the Corporation.

A breakdown of other non-current assets as at October 31, 2014 are as follows:


	2014 $
SPIPB Agreement – lease payments		261,141
Fraenkel Agreement – option payments		51,250

Total		312,391

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

8. EXPENSES BY NATURE

The following is a breakdown of the nature of expenses included in investor relations and administration expenses for the year ended October 31:


	2014 $		2013 $
Investor relations:
Advertising		44,084		156,794
Conferences		16,467		41,552
Consulting services		97,744		169,200
Dues and subscriptions		14,712		19,638
Investor relations fees		48,642		49,810
Listing and stock transfer fees		126,141		99,114
Meetings		77,595		182,705
Printing and filing		144,737		83,981
Salaries and other employee benefits		278,886		469,543
Travel related costs		66,869		194,436
Other		6,970		16,851

Total		922,847		1,483,624

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013


	2014 $		2013 $
Administration expenses:
Salaries and other employee benefits		574,775		546,776
Directors’ fees		223,333		215,000
Directors’ and Officers’ Insurance		103,626		103,196
Rent		172,011		184,758
Travel costs		35,984		46,060
Telephone and internet		16,966		10,582
IT Services		70,329		77,963
Education & training		2,241		7,633
Moving expenses		33,524		—
Recruitment costs		5,008		53,247
Repairs and maintenance		532		6,645
Other office expenses		62,353		105,652
Bank charges		13,271		12,261
Foreign exchange loss		7,339		8,469
Stock-based compensation [note 10e]		204,684		(86,799	)

Total		1,525,976		1,291,443

9. LOAN FACILITY

The Corporation is entitled to receive Québec Resource Tax Credits (“QRTC”) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.

In order to monetize the QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec (“the Loan Facility”) on September 11, 2013, as amended on May 5, 2014, under which the Corporation can borrow up to $4,339,000, representing a proportion of the estimated 2012 QRTC. Amounts drawn down under the Loan Facility must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% [October 31, 2014 and 2013 – 8.5%]. The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at October 31, 2014, a deed of hypothec in the amount of $4,339,000 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking hypothec on the Corporation’s present and future tax credits.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

As at October 31, 2014, $4,338,793 had been drawn down pursuant to this Loan Facility [October 31, 2013 – nil]. During the year ended October 31, 2014, interest expense pursuant to this Loan Facility amounted to $254,698 [2013 – nil].

The Loan Facility contains certain financial and non-financial covenants which were met as at October 31, 2014.

On November 27, 2014, the Corporation received $4,168,780 from Revenu Québec for the 2012 QRTC. The payment was made directly to Investissement Québec and applied against the Loan Facility balance. The remaining balance of the Loan Facility in the amount of $170,013 was settled in full by the Corporation on November 28, 2014. On December 4, 2014, Investissement Québec revoked the letter of credit and released all hypothecs pursuant to the Loan Facility.

10. SHARE CAPITAL

Authorized

Common

An unlimited number of no par value shares.

Preferred

An unlimited number of shares issuable in series, non-voting, conditions to be determined by the Board of Directors.

[a] Common shares

Issuances during the year ended October 31, 2014

[i] On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing 11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value [note 10 [c]]. Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles its holder to purchase one additional common share at a price of $0.40 until July 17, 2017. The warrants commenced trading on the Toronto Stock Exchange (TSX) under the stock symbol “QRM.WT”.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Further, on July 17, 2014, the Corporation issued 613,008 broker compensation units, entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit entitles its holder to one common share of the Corporation and one common share purchase warrant. Each common share purchase warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units was $121,989, allocated to contributed surplus with the debit to share issue costs.

The fair value of the warrants and the broker compensation units was determined based on the Black-Scholes option pricing model using the weighted average assumptions as follows:


Assumption	Share Portion of Broker units			Warrants and Warrant Portion of Broker units
Risk-free interest rate		1.00	%		1.00	%
Expected volatility		80	%		77	%
Dividend yield		Nil			Nil
Expected life [in years]		2.0			3.0
Share Price	$	0.25		$	0.25
Fair value at grant date	$	0.10		$	0.10

In connection with this financing, the Corporation paid cash commissions to agents of $165,512, issued broker compensation units of $121,989 and incurred other professional fees and expenses of $737,378 for a total of $1,024,879 which has been prorated between the share capital and warrants of $740,519 and $284,360 respectively.

As at October 31, 2014, none of the broker compensation units issued had been exercised.

[ii]

During the year ended October 31, 2014, the Corporation issued 316,667 common shares at an average exercise price of $0.10 per share for a total cash amount of $31,667 for stock options exercised, and an amount of $5,786 related to exercised stock options was transferred from contributed surplus to capital stock.

[iii]

On September 26, 2014, the Corporation issued 250,000 common shares at a price of $0.205 per share for a total non-cash consideration of $51,250 in connection with the Fraenkel Agreement [note 7].

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Issuances during the year ended October 31, 2013

[i]

On July 25, 2013, the Corporation completed a private placement by issuing 4,065,360 flow-through shares at a price of $0.55 per share, for gross proceeds of $2,235,948. Of the total proceeds received for the flow-through shares, $1,742,297 was allocated to common shares and $493,651 to premium liabilities.

In addition, on July 25, 2013, the Corporation issued 1,012,000 units at a price of $0.50 per unit, for gross proceeds of $506,000. Each unit is comprised of one common share and one-half of a common share purchase warrant; each whole warrant entitles its holder to purchase one additional common share at a price of $0.80 until January 25, 2015. If at any time prior to the expiry date of the warrants, the weighted average price of the Corporation’s common shares on the Toronto Stock Exchange exceeds $1.20 for a period of not less than 20 consecutive trading days, the Corporation may reduce the period during which the warrants may be exercised, such that the warrants will expire on the date which is 30 days after the date on which the Corporation sends a notice to warrant holders. An amount of $72,286 related to common share purchase warrants was allocated to warrants [note 10[c]].

Further, on July 25, 2013, the Corporation also issued broker compensation options entitling the agents for the private placement to purchase a maximum of 203,094 common shares of the Corporation at a price of $0.50 until January 25, 2015. The total fair value of broker options was $71,083, allocated to contributed surplus. The fair value of broker options was determined based on the Black-Scholes option pricing model using the weighted average assumptions as follows:


Risk-free interest rate		1.25	%
Expected volatility		76	%
Dividend yield		Nil
Expected life [in years]		1.5
Share price	$	0.72
Fair value at grant date	$	0.35

As at October 31, 2013, none of the broker options issued had been exercised.

In connection with the private placement, the Corporation paid cash commissions to agents of $224,996, issued broker compensation options of $71,083 and incurred other professional fees and expenses of $171,905 for a total of $467,984 which has been prorated between the share capital, warrants and premium liabilities of $371,390, $12,338 and $84,256 respectively.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

[ii]

During the year ended October 31, 2013, the Corporation issued 295,000 common shares at an average exercise price of $0.15 per share for a total cash amount of $44,250 for stock options exercised, and an amount of $88,655 related to exercised stock options was transferred from contributed surplus to capital stock.

[b] Stock options

On March 2, 2012, the Board of Directors adopted the 2012 Stock Option Plan for directors, officers and employees of, and service providers to, the Corporation [the “2012 Plan”]. The 2012 Plan replaces the Corporation’s 2007 Stock Option Plan [the “2007 Plan”]. Since March 2, 2012, all stock options granted by the Corporation are granted under the 2012 Plan and no further stock options have been granted under the 2007 Plan. Options currently outstanding under the 2007 Plan may continue to be exercised in accordance with the 2007 Plan.

The aggregate number of common shares in respect of which options may be outstanding at any time under both the 2012 Plan and 2007 Plan cannot exceed 10% of the issued and outstanding common shares of the Corporation at such time. Options granted under the 2012 Plan will vest immediately unless the Board of Directors, at its discretion, sets a “vesting schedule”, that is, one or more dates from which an option may be exercised in whole or in part. Under the 2012 Plan, the maximum period during which an option may be exercised is ten years from the date on which it is granted. Upon the exercise of options in accordance with the 2012 Plan and the payment of the consideration for the foregoing shares, such additional common shares will be issued as fully paid and non-assessable.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

The outstanding options (excluding broker units or options [note 10a], as at October 31, 2014 and 2013 and the respective changes during the years then ended, are summarized as follows:


	Year ended October 31, 2014					Year ended October 31, 2013
	Number of options #			Weighted average exercise price $		Number of options #			Weighted average exercise price $
Outstanding, beginning of year		4,675,834			3.12		5,353,334			3.08
Granted		755,000			0.47		127,500			0.86
Exercised		(316,667	)		0.10		(295,000	)		0.15
Expired/cancelled		(946,668	)		1.21		(510,000	)		3.81

Outstanding, end of year		4,167,499			3.31		4,675,834			3.12

The weighted average share price of options exercised during the year was $0.49 [2013 – $1.05].

The following options are outstanding and exercisable as at October 31, 2014.


Options outstanding
Range of exercise price $	Number outstanding #	Weighted average remaining contractual life (in years)	Weighted average exercise price $	Number exercisable #	Weighted average exercise price $
0.00 to 0.749	750,832	4.37	0.47	510,829	0.52
0.75 to 1.499	50,000	3.29	0.97	50,000	0.97
1.50 to 2.249	205,000	5.79	2.11	205,000	2.11
2.25 to 2.999	885,000	5.49	2.71	885,000	2.71
3.75 to 4.499	1,526,667	6.01	4.44	1,526,667	4.44
4.50 to 5.249	500,000	5.97	4.69	500,000	4.69
5.25 to 5.999	250,000	6.19	5.72	250,000	5.72

0.00 to 5.999	4,167,499	5.57	3.31	3,927,496	3.49

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

The fair value of stock options granted during the year ended October 31, 2014 and 2013 was estimated at their respective grant dates using the Black-Scholes option pricing model, using the following weighted average assumptions:


	2014			2013
Risk-free interest rate		1.48	%		1.56	%
Forfeiture rate		4.88	%		3.07	%
Expected volatility		97	%		97	%
Dividend yield		Nil			Nil
Expected life [in years]		5			5
Share price	$	0.47		$	0.86

Fair value at grant date	$	0.33		$	0.63

[c] Warrants

The outstanding warrants as at October 31, 2014 and 2013 and the respective changes during the years then ended are summarized as follows:


	Year ended October 31, 2014				Year ended October 31, 2013
	Number of warrants		Weighted average exercise price		Number of warrants		Weighted average exercise price
	#		$		#		$
Outstanding balance, beginning of year		506,000		0.80		—		—
Granted		11,025,485		0.40		506,000		0.80
Exercised		—		—		—		—
Expired		—		—		—		—

Outstanding balance, end of year		11,531,485		0.42		506,000		0.80

As at October 31, 2014, the warrants outstanding had a weighted average life of 2.64 years.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

[d] Restricted and Deferred Share Unit Plans

On March 9, 2012, the Board of Directors adopted the Restricted Share Unit [“RSU”] Plan and the Deferred Share Unit [“DSU”] Plan to complement the 2012 Stock Option Plan. Under these plans, RSUs may be granted to executives and key employees, and DSUs may be granted to directors and key executives, as part of their long-term compensation packages.

RSUs vest over the period of a “Performance Cycle”, defined as the service period from the date of grant of the unit to the end of the Corporation’s second fiscal year after the fiscal year in which the unit was granted [a period of up to three years]. DSUs vest immediately, and DSU awards can be settled only when the holder ceases to be an employee of the Corporation.

RSUs and DSUs entitle the holder to receive a payout, at the Corporation’s discretion in either: [i] common shares, on the basis of one common share per RSU or DSU vested in the holder’s account or [ii] cash, based on the Corporation’s share price at the relevant time. The value of the cash payout, if elected by the Corporation, is determined by multiplying the RSUs and DSUs vested at the payout date by the average closing price of the Corporation’s shares over the last ten days prior to the payout date. DSU awards can be settled only when the holder ceases to be an employee of the Corporation.

Each of the RSU and DSU Plans provides that a maximum of 750,000 common shares can be issued thereunder. All RSUs and DSUs granted are classified as equity instruments in accordance with IFRS as their terms provide for settlement in either equity or cash at the sole discretion of the Corporation.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

The outstanding RSUs and DSUs as at October 31, 2014 and 2013 and the respective changes during the years then ended are summarized as follows:


	Restricted Share Units
	Number of units		Fair value at grant date		Number of units			Fair value at grant date
	#		$		#			$
	Year ended October 31, 2014				Year ended October 31, 2013
Outstanding, beginning of year		—		—		125,000			1.73
Granted		110,000		0.48		—			—
Exercised		—		—		—			—
Expired/cancelled		—		—		(125,000	)		1.73

Outstanding, end of period		110,000		0.48		—			—

Units exercisable		—		—		—			—


	Deferred Share Units
	Number of units		Fair value at grant date		Number of units		Fair value at grant date
	#		$		#		$
	Year ended October 31, 2014				Year ended October 31, 2013
Outstanding, beginning of year		150,000		1.73		150,000		1.73
Granted		175,000		0.48		—		—
Exercised		—		—		—		—
Expired/cancelled		—		—		—		—

Outstanding, end of period		325,000		1.06		150,000		1.73

Units exercisable		—		—		—		—

The RSUs cancelled during the year ended October 31, 2013 related to units which lapsed when a vesting condition, set by the Board of Directors, was not met. As a result, during the year ended October 31, 2013, an amount of $25,121 was credited to administration expenses and $6,280 was credited to exploration and evaluation assets in respect of stock-based compensation expense reversed with a corresponding reduction of $31,401 to contributed surplus.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

[e] Stock-based compensation

For the year ended October 31, 2014, the amount of stock-based compensation expense from all sources, included in administration expenses in the statements of comprehensive loss, is $204,684 [2013 – ($86,799)]. Included in exploration and evaluation assets was a stock-based compensation expense of $103,052 [2013 – $118,122].

11. COMMITMENTS AND CONTINGENCIES

Operating leases and purchase commitments

As at October 31, 2014, the Corporation had commitments under operating leases requiring annual rental payments, including any lease payments under the option and lease agreements in note 7, as follows:


	$
2015		310,465
2016		246,842
2017		160,717
2018		130,403
2019		83,794

		932,221

Guarantees

The Corporation’s mining and exploration activities are subject to various federal, provincial and local laws and regulations governing the protection of the environment as well as obtaining permits necessary for the Corporation’s operations. These laws and regulations are continually changing and generally becoming more restrictive. The Corporation believes that it conducts its operations so as to protect public health and the environment, and its operations are materially in compliance with all applicable laws and regulations and therefore it will be granted the required permits. The Corporation has made, and expects to make in the future, expenditures to comply with such laws and regulations.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

12. RELATED PARTY TRANSACTIONS

All of the following related party transactions occurred in the normal course of operations.

[a]	The Corporation retains the services of certain directors of the Corporation to carry out professional services. For the year ended October 31, 2014, the total amount charged for services by directors of the Corporation and recorded in exploration and evaluation assets was $75,000 [2013 – $75,000].

[b]

During the year ended October 31, 2014, the Corporation incurred fees in the amount of $440,421 with a law firm in which an officer and director of the Parent is a partner, of which $142,699 was recorded in professional fees, $19,893 was recorded in investor relations, $248,437 was recorded in share issue costs and $29,392 was recorded in exploration and evaluation assets [2013 – $573,552, of which $234,354 was recorded in professional fees, $19,586 was recorded in investor relations, $75,399 was recorded in share issue costs and $244,213 was recorded in exploration and evaluation assets]. As at October 31, 2014, an amount of $14,917 [October 31, 2013 – $52,731] owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees.

[c] Compensation of key management personnel and Board of Directors

Excluding the amounts reported above, during the years ended October 31, 2014 and 2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:


	2014		2013
	$		$
Salaries, employee benefits		799,434		717,877
Directors’ fees		223,333		215,000
Stock compensation		218,874		22,832

Total		1,241,641		955,709

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

13. FINANCIAL INSTRUMENTS

Principles of risk management

The Corporation’s objectives when managing capital are to safeguard its ability to continue its operations as well as its exploration programs. As such, the Corporation has relied primarily on the Loan Facility and the equity markets to fund its activities. In order to carry out planned exploration and to pay for administrative costs, the Corporation will spend its existing working capital and raise additional funds as needed. The Corporation has not used term debt financing and has not paid any dividends. As well, the Corporation does not have any externally-imposed capital requirements, either regulatory or contractual, to which it is subject.

The prices of minerals fluctuate widely and are affected by many factors outside of the Corporation’s control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may impact on the Corporation’s ability to raise equity financing for its capital requirements.

The Corporation’s investments are classified as follows:

October 31, 2014

October 31, 2013

Classification

Fair
value
level

Carrying
value
$

Fair
value
$

Carrying
value
$

Fair
value
$

Financial assets

Canadian stocks

Held-for-trading

950

1,600

The Corporation does not enter into financial instrument agreements, including derivative financial instruments, for speculative purposes.

Quest Rare Minerals Ltd.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended October 31, 2014 and 2013

Credit risk

Credit risk is the risk of financial loss to the Corporation if a counter-party to a financial instrument fails to meet its contractual obligations; the Corporation’s maximum exposure to credit loss is the book value of its financial instruments.

The Corporation is not exposed to any significant credit risk as at October 31, 2014. The Corporation’s cash and cash equivalents is deposited with a major Canadian chartered bank and are held in highly-liquid investments.

Liquidity risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they come due. All of the Corporation’s financial liabilities are due within one year. The Corporation manages liquidity risk through the management of its capital structure.

As at October 31, 2014, the Corporation had a total of $1,281,706 in cash and cash equivalents.

Market risk analysis

Market risk is the risk that the fair value of the future cash flows of a financial instrument will fluctuate because of changes in market prices. The Corporation’s primary market exposures are to interest rate risk.

Interest rate risk

Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate due to changes in market interest rates.

Subsequent to the repayment of the Loan Facility, the Corporation is exposed to interest rate risk only on its cash and cash equivalents. The Corporation’s cash and cash equivalents carry interest and therefore, the Corporation is exposed to a variation of interest rates on amounts earned and payable. Based on its exposures to cash and cash equivalents as at October 31, 2014 and assuming that all other variables remain constant, an increase or decrease of 100 basis points of the interest rate during the year would result in a increase or decrease of $1,282 respectively in comprehensive loss before income taxes.

The rates as at October 31, 2014 for Canadian and U.S. funds ranged from 1.20%-1.50% [2013 – range of 1.20%-1.50%] and 0.10% [2013 – 0.10%], respectively.

Exhibit 99.2

MANAGEMENT’S DISCUSSION AND ANALYSIS

As at January 20, 2015

The following management’s discussion and analysis (“MD&A”) of the results of operations and financial condition of Quest Rare Minerals Ltd. and its wholly-owned subsidiary QTM Extraction Ltd. (collectively “Quest” or the “Corporation”) covers the year ended October 31, 2014, unless otherwise noted. It should be read in conjunction with the audited consolidated financial statements and related notes as at and for the years ended October 31, 2014 and 2013.

The audited consolidated financial statements for the years ended October 31, 2014 and 2013 have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). All amounts are expressed in Canadian dollars unless otherwise noted.

Forward-Looking Statements

Certain of the information contained in this document may contain “forward-looking statements”. Forward-looking statements may include, among others, statements regarding the Corporation’s future plans, costs, objectives or economic performance, or the assumptions underlying any of the foregoing, including those concerning the Corporation’s Strange Lake B-Zone Rare Earth Element (“REE”) property. In this document, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether such future performance will be achieved. Forward-looking statements are based on information available at the time and/or management’s good faith belief with respect to future events and are subject to known or unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Corporation’s control. These risks and uncertainties include, but are not limited to, those described under the heading “Risk Factors” in the Corporation’s Annual Information Form for the fiscal year ended October 31, 2013, which is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov, and could cause actual events or results to differ materially from those projected in any forward-looking statements. The Corporation does not intend, nor does it undertake any obligation, to update or revise any forward-looking statements contained in this MD&A to reflect subsequent information, events or circumstances or otherwise, except if required by applicable law.

CORPORATE OVERVIEW

Quest is a Canadian exploration and evaluation company focused on the development of its important Strange Lake REE deposit in northeastern Québec and the engineering and construction of a processing facility in southern Québec.

Quest’s objective is to become a major stable global supplier of rare earth products. It has a preliminary agreement for the supply of zirconium product, and is continuing discussions with major industrial users of REE in Europe and North America. Quest is poised to establish a major new North American industrial sector of global importance, able to address the chronic Heavy Rare Earth Element and Yttrium (HREE+Y) supply deficit over a long period of time.

Exploration Strategy

The Corporation’s 2009 exploration program led to the discovery of a major new REE deposit, the B-Zone, on the Corporation’s Strange Lake property. In September 2010, the Corporation completed a mineral resource estimate as well as a Preliminary Economic Assessment of the Strange Lake B-Zone deposit. Drilling on 60 m by 80 m centres over the defined limits of the deposit in the summer of 2010 allowed Quest to develop a revised Indicated and Inferred Resource Estimate in April 2011. The report was used as the basis to develop a program of definition drilling and to commence a pre-feasibility study program at Strange Lake in 2011. Quest believes Strange Lake has the potential to be one of the world’s largest and highest-grade HREE mining projects.

Strange Lake Rare Earth Mining Property, Québec

The Strange Lake mining property comprises a total of 211 claims all located in Québec. The property, located 220 km northeast of Schefferville and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine (Figure 1), covers an area of 9,367 hectares. During the year ended October 31, 2014, 293 claims covering 13,113 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. The project area is accessible by fixed-wing aircraft or helicopter from Schefferville, Québec, or from Nain or Happy Valley-Goose Bay, Newfoundland and Labrador. Vale’s nickel-copper mine at Voisey’s Bay is the closest mine, located approximately 125 km east of Strange Lake, on the Labrador coast. Exploration work on the Strange Lake Project has been focused around the Strange Lake B-Zone REE deposit discovered by Quest in 2009 and around additional REE showings identified by Quest crews on the property.

Quest’s exploration strategy combines prospecting and strong geological expertise with the use of leading-edge geophysical and geochemical techniques to search for mineral deposits. The Corporation also believes in conducting exploration through joint ventures with other mining firms, in order to share exploration risk and to benefit from its partners’ capabilities in mine development and production.

Figure 1 – Property Location Map, George River Area Mining Properties,

Québec and Newfoundland and Labrador

LOGO

Further Operational Improvements and Industry Partnerships

Quest has identified and continues to work toward the implementation of a number of additional operational improvements to the base case assumptions presented by the updated Preliminary Economic Assessment (PEA) filed in April 2014, which are intended to further reduce project capital and operating costs and increase product yields.

Strategic Business Plans

The updated PEA assumes that Quest will execute and operate all aspects of the Strange Lake project within a single corporation. However, Quest recognizes that there may be certain financial advantages to structuring the project in separate corporate entities. These entities would include a mining company, a transport and logistics company, a materials-processing company and a separation and refining company, either as wholly-owned subsidiaries of Quest or as joint ventures with industrial partners. There are a number of potential advantages to such an arrangement, including the opportunity to partner with specialized processing or transportation and logistics providers.

Process Improvements

On September 4, 2014, Quest announced the results for the production of a high purity rare earth and yttrium oxide concentrate from its new and substantially improved process flowsheet outlined in the updated PEA press release issued in April 2014 for the Strange Lake Project.

The mixed rare earth oxide was produced as part of Quest’s ongoing metallurgical testing program at SGS Mineral Services – Lakefield site (SGS), and represents the successful completion of the majority of the bench scale testing for the improved process.

Presented in Table 1 below is the analysis of the mixed oxide from SGS. The analysis was confirmed by a highly reputed third party laboratory, Activation Laboratories Ltd. The mixed oxide contained 98.4% total rare earth oxide (TREO), of which approximately 37% is heavy rare earth oxide (HREO). HREO content is a function of the HREO distribution in the mineral sample that was fed through the process. According to Quest’s production plan, higher HREO content mineralized material will be processed in the first 23 years of production, with about 45% HREO expected in the final product mix.

Table 1 – Composition of the mixed rare earth oxide produced in recent process testing (SGS Analysis)


Oxide	La₂O₃			CeO₂			Pr₆O₁₁			Nd₂O₃			Sm₂O₃			Eu₂O₃			Gd₂O₃			Tb₄O₇			Dy₂O₃
Analysis		13.20	%		30.62	%		3.33	%		12.00	%		1.95	%		0.14	%		2.70	%		0.55	%		3.64	%


Oxide	Ho₂O₃			Er₂O₃			Tm₂O₃			Yb₂O₃			Lu₂O₃			Y₂O₃			TREO*			LREO**			HREO***
Analysis		0.78	%		2.34	%		0.33	%		1.82	%		0.24	%		24.80	%		98.40	%		61.10	%		37.30	%

(*) - Total Rare Earth Oxides (TREO+Y) include: La₂O₃, CeO₂, Pr₆O₁₁, Nd₂O₃, Sm₂O₃, Eu₂O₃, Gd₂O₃, Tb₄O₇, Dy₂O₃, Ho₂O₃, Er₂O₃, Tm₂O₃, Yb₂O₃, Lu₂O₃ and Y₂O₃.

(**) - Light Rare Earth Oxides (LREO) include: La₂O ₃, CeO₂, Pr₆O₁₁, Nd₂O₃ and Sm₂O₃.

(***) - Heavy Rare Earth Oxides (HREO+Y) include: Eu₂O₃, Gd₂O₃, Tb₄O₇, Dy₂O₃, Ho₂O₃, Er₂O₃, Tm₂O₃, Yb₂O₃, Lu₂O₃ and Y₂O₃.

Industry Partnerships

Quest has begun discussions aimed toward establishing an industry partnership with rare earth separation/refining companies. Quest would acquire separation technology and the related intellectual property and the partner in return would assist in the process of building the separation facility at Bécancour, Québec. The updated PEA assumes that a separation plant is built at the same time as the metallurgical plant.

It is the objective of the development team to reduce the CAPEX of the Strange Lake project to just under $1 billion through further project optimization.

In addition, the development plan is sufficiently flexible to allow for expansion of production capacity to meet future rare earth supply demand.

Process Summary

The substantially improved process flowsheet developed and tested at SGS to produce the mixed rare earth oxide concentrate, which will form the feed to the rare earth separation plant, included the following process steps:

•

Beneficiation (flotation), which reduced the mass of material treated by approximately 50%, and results in smaller process plant footprint at Bécancour and reduced energy requirements when compared to the 2013 PFS flowsheet

•

Selective sulphation roasting and leaching, which targets recovery of REE+Y to solution, with minimum recovery of impurity elements, including Al, Fe, and Zr (they mostly remain in residue). The selective sulphation process greatly reduces acid consumption and drastically improves the quality of the leach solution, leading to reduced operating costs and allows for a simplified process flowsheet

•

Impurity removal, which precipitates residual impurities from the leach solution

•

Crude concentrate precipitation, which precipitates REE+Y from the leach solution

•

Final mixed concentrate production, which includes re-leach of the crude concentrate and final purification steps before producing a high purity mixed rare earth concentrate

Beneficiation

The beneficiation process is a simple flotation circuit that operates at close to ambient temperature, and uses commercially available chemicals. Approximately 50% of mass can be rejected with rare earth recoveries of about 90%. The opportunity to raise waste rock mass rejection and potentially further decrease the size of the Bécancour Process Plant, as well as lower the logistics costs associated with transportation of flotation concentrate is currently under evaluation.

Hydrometallurgy

Quest’s improved hydrometallurgical process can produce a high purity mixed rare earth oxide without technically complex, risky and costly solvent extraction circuits. The key step in the new process is the selective thermal sulphation. By careful control of key process parameters, the recovery of REE to solution can be maximized while Al, Fe, Zr and other impurities are rendered insoluble, and the acid level of the leach solution is minimized. High levels of acid and impurities in solution represent a major technical and economic challenge for many projects. By leaving the impurities behind in the leached residue and minimizing free acid in the leach solution, the flowsheet is dramatically simplified – with reductions in acid consumption, neutralizing agent consumption, process plant footprint, energy consumption and the quantity and quality of residue for disposal. Also of note is the fact that silica in Quest’s minerals is not attacked by sulphuric acid, resulting in straightforward liquid solid separation steps.

REE recovery from flotation concentrate to leach solution is approximately 87% in the new process.

Following sulphation and water leaching, the remaining process steps include precipitation and filtration stages using customary equipment and relatively low cost reagents. Impurities are selectively precipitated from solution with minimal REE losses. A crude rare earth concentrate is produced by precipitation. The crude concentrate is then purified to produce the final mixed rare earth concentrate feed to the separation plant.

The final precipitation of the high purity mixed rare earth concentrate uses oxalic acid, which precipitates the rare earths as oxalates. The mixed rare earth oxalate is calcined to produce the high purity oxide. Options to further improve the purity of the mixed rare earth concentrate are being evaluated.

Ongoing and Future Metallurgical Programs

Quest is continuing to optimize the process flow sheet and evaluate opportunities for improvement in the beneficiation and hydrometallurgical processing stages. Ongoing and further metallurgical work includes the following:

•

Continued evaluation of sensor-based ore sorting (radiometric, photometric) at Helmholtz Institute in Freiberg, Germany (evaluating potential of sensor based ore sorting as the first step in mass reduction). Preliminary results show between 30% to 40% mass rejection with reasonable rare earth recoveries. Further process evaluation will have to be undertaken before a decision on use of this sorting technology in the final process design can be made.

•

Optimization of the flotation circuit and evaluation of reduced mass pull (which may further decrease the size of the Bécancour processing plant, and offer potential reductions in CAPEX and OPEX)

•

Mini-pilot plant operation of the hydrometallurgical circuit at SGS to confirm results of bench scale program and optimize operating parameters

•

Beneficiation piloting (for sensor based sorting and or flotation circuits)

•

Full scale integrated piloting

Sustainable Development Technology Canada

Sustainable Development Technology Canada (SDTC) is a not-for-profit foundation funded by the Government of Canada that finances and supports the development and demonstration of clean technologies which provide solutions to issues of climate change, clean air, water quality and soil, and which deliver economic, environmental and health benefits to Canadians. The Foundation reports to Parliament through the Minister of Natural Resources Canada.

Between research and commercialization lie the critical stages of development and demonstration / piloting: the points at which technologies leave the laboratory and undergo conclusive real-world testing. Traditionally, development and demonstration have suffered from a financing gap, and it is this gap that SDTC bridges.

Quest submitted a Statement of Interest to SDTC for all of its planned piloting of the process plants – a $16.2 million project of which SDTC would fund 33% or $5.4 million. This was accepted by SDTC in late November and Quest submitted its formal technical proposal to SDTC in January 2015.

Registration of the Formal Project Description in Consideration of the Environmental Impact Assessment

Project work through the period was focused on the preparation of the formal Project Description for registration for Strange Lake with the Federal, Provincial and Aboriginal environmental authorities. Prior consultation with representatives of the Ministries of the Environment was undertaken to ensure smooth progress of our application through the registration process. It is Quest’s intent to file its Project Description by or before the beginning of February 2015.

Exploration Activities

Current Work

During the fourth quarter of 2014, the Exploration team conducted a small drilling program on the Strange Lake West Zone (SLW Zone) and a small stripping program at the B Zone Deposit.

The drilling program was performed at the SLW Zone where previous drilling had intersected some pegmatite horizons. The SLW Zone is located at 1,500 m southwest of the B Zone Deposit (Figure 2). The proposed holes started southwest of SLW12002, which intersected two pegmatite horizons between 50 to 70 m depth. Based on the distribution of pegmatites at the B Zone, the SLW pegmatites resemble the leading (NW) edges of that system and therefore drilling southeast of SLW12002 may be moving toward thicker mineralization into the pegmatite system.

Boreal Drilling and Quest crews mobilized on site in late August. Initially, the camp was opened and prepared for occupancy and then a limited crew began the stripping program at the B Zone deposit.

A total of 408.0 m of drilling in four drill-holes were performed at the SLW Zone (see Figure 2 and Table 2). No samples were taken as no mineralization of interest was intersected. Only minor pegmatite veins or small sheets of less than one meter of apparent thickness were intersected.

Figure 2: Diamond Drill Hole at the SLW Zone, Location Map

LOGO

Table 2: Diamond Drilling Summary at the SLW Zone, Strange Lake


HOLE-ID	Easting		Northing		Length (m)		Azimuth		Dip
SWL14004		426498		6241059		102		0		-90
SWL14005		426547		6240975		102		0		-90
SWL14006		426536		6241193		102		0		-90
SWL14007		426486		6241282		102		0		-90

Prior to the diamond drilling program another Quest crew started a mechanical stripping and washing program at the B Zone Deposit. The main goal of this program was to collect a 45-tonnes bulk sample consisting of high-grade mineralized pegmatite (50% of the material) and REE mineralized granite (50% of the material). Following several difficulties, including several mechanical breakdowns, this program was finally cancelled.

The Quest project personnel have completed an assessment report on its summer 2014 drilling program which will be filed with the Québec government authorities shortly.

As at October 31, 2014, the Corporation determined that the continued decline in the market prices of REEs and in the market capitalization of the Corporation constituted an indicator of impairment and completed an impairment assessment of its Strange Lake mining property to determine whether the carrying amount exceeded the recoverable amount. The impairment assessment included calculating the exploration and evaluation assets’ value in use based on numerous assumptions including the underlying mineral resources, production estimates, timing of construction and life of the mine, long-term prices underlying REEs, capital requirements, operating costs and operational performance, discount rates and foreign exchange rates. The results of the impairment review determined that the recoverable amount exceeded the carrying value and that the Strange Lake property was not impaired at October 31, 2014. Any changes in the economic assumptions used or the geological information produced during the development and operation of a mine, could materially affect the estimated recoverable amount of the exploration and evaluation assets, which could result in an impairment in the future and such could be material.

Future Work

The Corporation plans to conduct a Pre-feasibility study on its Strange Lake project in fiscal 2015 to confirm the existence of economically viable quantities of ore and is actively exploring financing options including a strategic partnership or off take agreements with end users and has held meetings with interested potential investors and governmental authorities.

Expenditures by Material Component

For the year ended October 31, 2014, Quest had incurred a total of $5,963,464 in exploration expenditures on the Québec Strange Lake mining property compared to $17,397,572 for the year ended October 31, 2013. The following table breaks down the capitalized expenditures by its material components.


	2014		2013
Geophysical Surveys	$	540	$	101,052
Geological Surveys	$	206,708	$	354,022
Drilling	$	441,504	$	88,324
Prefeasibility Studies	$	3,092,877	$	12,558,593
Feasibility Studies	$	98,776	$	763,742
Metallurgical Work	$	938,984	$	1,917,661
Environmental & Permitting	$	537,057	$	1,307,791
Project Management & Support	$	294,769		—
Other	$	352,249	$	306,791
Total	$	5,963,464	$	17,397,572

Misery Lake Rare Earth Mining Property, Québec

The Misery Lake mining property consists of a single claim block comprising 170 claims located in Québec. The property is located 120 km south of the Strange Lake Project and covers a total of 8,334 hectares. During the year ended October 31, 2014, 754 claims respectively covering 36,522 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. The rare earth potential of the Misery Lake area was first recognized by Quest in August 2007 when reconnaissance bedrock sampling over a concentric magnetic feature returned grab sample results of up to 27% Fe2O3, 1.2% P2O5, 1.5% TiO2 and 2.25% TREO. The Misery Lake property geology is analogous to the Lovozero Peralkaline Complex in

Russia, the country’s primary producing area for rare earths, niobium, tantalum, phosphate and zirconium. No further expenditures are planned on this project and, as a result, for the year ended October 31, 2014, the Corporation recorded an impairment loss of $7,106,609 on the property.

Expenditures by Material Component

For the year ended October, 2014, Quest had incurred a total of $1,158,445 in exploration expenditures on the Québec Misery Lake mining property compared to $592,602 for the year ended October 31, 2013. The following table breaks down the capitalized expenditures by its material components.


	2014		2013
Geophysical Surveys		—	$	257,974
Geological Surveys	$	65,887	$	122,801
Drilling	$	1,000,750	$	72,330
Report & Write	$	24,815	$	39,328
Other	$	66,993	$	100,169

Total	$	1,158,445	$	592,602

Alterra - Strange Lake Option Property Agreement, Newfoundland and Labrador

On June 15, 2010, the Corporation entered into an exploration and option agreement with Search Minerals Inc. (“Search”) and Alterra Resources Inc. (“Alterra”), a wholly-owned subsidiary of Search, pursuant to which the Corporation had an option to acquire up to a 65% undivided working interest in 30 mining claims.

Project Evaluation and Project Development (PE&PD), Rare Metals - Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador

In December 2012, Quest made a strategic decision to add new rare metals to its existing commodity project portfolio. Quest’s goal is to identify and generate new, world-class projects for molybdenum (Mo), tungsten (W), antimony (Sb), lithium (Li), tin (Sn), indium (In), tantalum (Ta), germanium (Ge) and gallium (Ga). Quest has acquired several government and private geological databases for all eastern Canada. Assessment of exploration data for Ontario, Québec, New Brunswick, Nova Scotia, and Newfoundland and Labrador were used to identify exploration targets for field evaluation.

Based on its ongoing review of these potential projects and their accumulated expenditures, the Corporation decided to write off all of the incurred mining acquisition costs and deferred exploration expenditures incurred during the year ended October 31, 2014.

At the end of October 2014, the Corporation made the decision to concentrate its activities and financial resources on the development of the Strange Lake property and discontinued its exploration and evaluation activities.

Qualified Person

Mr. Pierre Guay, P. Geo., is the qualified person on the exploration projects presented in this MD&A under National Instrument 43-101 Standards of Disclosure for Mineral Projects and is responsible for the technical contents of this report and has approved the disclosure of the technical information contained herein.

Results of Operations

The following table summarizes selected financial data of Quest Rare Minerals Ltd. together with its wholly-owned subsidiary QTM Extraction Ltd. (collectively the “Corporation”) for the last three fiscal years ended October 31, 2014, 2013 and 2012.


	Year ended October 31, 2014 $			Year ended October 31, 2013 $			Year ended October 31, 2012 $
Revenues		—			—			59,991
Net loss and total comprehensive loss		(10,972,714	)		(3,981,889	)		(4,801,245	)
Basic and fully diluted net loss per share		(0.16	)		(0.06	)		(0.08	)
Total assets		70,053,537			76,901,500			82,561,443
Total long-term financial liabilities		—			—			—
Cash dividends		—			—			—

Fiscal year ended October 31, 2014 compared with the fiscal year ended October 31, 2013

Expenses for the year ended October 31, 2014, as detailed in the Consolidated Statements of Comprehensive Loss, totaled $11,113,950 as compared to $4,336,320 for the year ended October 31, 2013.

Professional fees, investor relations and administration expenses totaled $2,929,822 (2013 – $3,356,597). The decrease of $426,775 related to the following variations:

•

Professional fees decreased by $100,531 to $480,999 (2013 – $581,530) and consisted primarily of lower legal, consulting and professional fees offset by higher accounting fees.

•

Investor relations expenses totaled $922,847 in 2014 compared to $1,483,624 for the year ended October 31, 2013. The main components of the net decrease of $560,777, as detailed in Note 8 to the consolidated financial statements, consisted of: lower salaries and other employee benefits and reduced advertising expenses, conferences costs, travel related activities and consulting expenses offset by higher printing and filing expenses and increased listing and stock transfer fees.

•

Administration expenses increased by $234,533 to $1,525,976 in 2014 from $1,291,443 in 2013. The main components of this variation, as detailed in Note 8 to the consolidated financial statements, consisted of: slightly higher salaries and other employee benefits due mainly to personnel movements in 2014; an increase in the remuneration expenses of Quest directors as a result of changes in Board members; and increased stock-based compensation costs resulting from the stock options granted in 2014 net of unvested stock option expenses cancelled as a result of their expiration or termination of the optionee. Furthermore, stock based compensation costs for 2013 of ($86,799) were due to the reversal of non-vested stock options which expired and were cancelled in 2013. Offsetting these increases were reductions in recruitment costs and the relocation of the Toronto office upon the termination of its lease.

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which any exploration and evaluation asset exceeds its recoverable amount. The recoverable amount is the higher of the exploration and evaluation asset’s fair value less costs to sell and value in use. Impairments are reviewed for potential reversals at each reporting date. During the year ended October 31, 2014, the Corporation recorded an impairment of exploration and evaluation assets of $8,184,128 related primarily to its Misery Lake mining project in Québec of $7,106,609 (2013 – nil), its Voisey’s Bay mining project in Newfoundland and Labrador of $6,689 (2013 – nil) and its Alterra-Strange Lake mining project in Newfoundland and Labrador of $909,390 (2013 – nil) and $161,440 in current year expenditures on potential projects written off as incurred.

2012 tax credit claim and related in large part to expenses incurred by the Corporation in fiscal years ended October 31, 2011, 2012 and 2013 for bench-scale testing, product testing, metallurgical testwork and pilot plant testing not being considered qualifying expenditures.

The sale of an interest in claims or a grant received is credited directly to expenditures until such time as all related expenditures are recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets, as detailed in Note 6 to the consolidated financial statements totaled $7,387,658 for the year ended 2014 (2013 – $18,910,197) and consisted of $7,284,606 (2013 – $18,704,468) in exploration expenses; nil (2013 – $87,607) in acquisition costs and $103,052 (2013 – $118,122) in stock-based compensation expense. In addition, the Corporation recorded a net reversal of Tax credits receivable amounting to $1,584,383 (2013 – an increase of $1,801,507) relating to these expenditures.

For the year ended October 31, 2014, finance income totaled $118,240 compared to $235,705 for the year ended October 31, 2013. The net decrease of $117,465 was as a result of a decrease in funds on deposit during the year ended October 31, 2014.

The Corporation’s cash and cash equivalents consist of cash and highly-liquid short-term investments with maturities of less than three months from the date of acquisition that are readily convertible to known amounts of cash at any time and that are subject to an insignificant risk of change in value. Due to the liquid nature of these financial assets, the Corporation has elected to classify them as held-for-trading and changes in fair value are recorded in the statements of comprehensive loss. As at October 31, 2014, the Corporation had cash equivalents in the amount of $151,810 bearing interest at 0.80% (2013 – $5,388,467 bearing interest at 1.50%).

The Corporation has recognized its investments held for trading on the Consolidated Statements of Financial Position at their fair value, and changes in fair value are recognized as income or loss in the period in which the change arises. As at October 31, 2014, the fair value of the investments held for trading was $950 compared to $1,600 as at October 31, 2013. The corresponding unrealized loss on investments held for trading was $650 (2013 – $8,150).

For the year ended October 31, 2014, the Corporation reported a consolidated net loss and total comprehensive loss of $10,972,714, as compared to a net loss of $3,981,889 for the year ended October 31, 2013. The Corporation expects to record losses until such time as an economic ore body is defined and developed and there are revenues from mineral production.

As a portion of the Corporation’s exploration activities are financed by flow-through share arrangements, under the terms of flow-through share agreements, the tax deductions of the related Canadian exploration expenditures (“CEE”) are renounced in favour of the investors. Accordingly, flow-through proceeds are allocated between the offering of the common shares and the premium liabilities associated with the sale of tax benefits when the common shares are offered. The amount allocated to share capital is based on the fair value of the common shares and the residual amount of the proceeds received from the investor for the flow-through shares is recognized as premium liabilities and the premium liabilities are reversed in the statements of comprehensive loss as the Corporation spends the flow-through proceeds. For the year ended October 31, 2014, the Corporation reversed $282,519 in premium liabilities (2013 – $126,876).

Fiscal year ended October 31, 2013 compared with the fiscal year ended October 31, 2012

Revenues totaled nil for the year ended October 31, 2013 compared to $59,991 for the year ended October 31, 2012 and consisted of operator fees earned amounting to 10% of the value of exploration and evaluation activities on the Alterra-Strange Lake Project incurred by the Corporation during the current year of the option period.

Expenses for the year ended October 31, 2013, as detailed in the Consolidated Statements of Comprehensive Loss, totaled $4,336,320 as compared to $5,727,146 for the year ended October 31, 2012.

Professional fees, investor relations and administration expenses totaled $3,356,597 (2012 – $5,307,201). The decrease of $1,950,604 related to the following variations:

•

Professional fees decreased by $49,502 to $581,530 (2012 – $631,032) and consisted primarily of lower legal and accounting fees offset by higher consulting and professional fees.

•

Investor relations expenses totaled $1,483,624 in 2013 compared to $1,987,177 for the year ended October 31, 2012. The net decrease of $503,553 related to lower investor relations activities, international marketing initiatives and shareholders’ communication and corporate development expenses in 2013 combined with the listing and commencement of trading on the TSX which impacted prior year expenditures.

•

Administration expenses decreased by $1,397,549 to $1,291,443 in 2013 from $2,688,992 in 2012. The main components of this variation, as detailed in Note 8 to the consolidated financial statements, consisted of: an increase of $117,664 in salaries and other employee benefits due mainly to the hiring of additional personnel; an increase in the remuneration of Quest directors and a decrease of $1,523,436 in stock-based compensation costs to ($86,799). The significant decrease in stock-based compensation costs was as a result of a decrease in the number of stock options granted in 2013 compared to 2012 and the reversal of non-vested stock options which expired and were cancelled in 2013.

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which any exploration and evaluation asset exceeds its recoverable amount. The recoverable amount is the higher of the exploration and evaluation asset’s fair value less costs to sell and value in use. Impairments are reviewed for potential reversals at each reporting date. During the year ended October 31, 2013, the Corporation recorded a write-down of exploration and evaluation assets of $979,723 (2012 – $419,945) related primarily to its Strange Lake project in Newfoundland and Labrador together with current year expenditures on potential projects written off as incurred.

The sale of an interest in claims or a grant received is credited directly to expenditures until such time as all related expenditures are recovered. Direct costs incurred to maintain claims are capitalized. Expenditures on exploration and evaluation assets, as detailed in Note 6 to the consolidated financial statements totaled $18,910,197 in 2013 (2012 – $24,146,532) and consisted of $18,704,468 (2012 – $23,524,118) in exploration expenses; $87,607 (2012 – $189,447) in acquisition costs and $118,122 (2012 – $432,967) in stock-based compensation expense. In addition, the Corporation recorded tax credits receivable of $1,801,507 (2012 – $6,889,960) relating to these expenditures.

For the year ended October 31, 2013, finance income totaled $235,705 compared to $539,033 for the year ended October 31, 2012. The net decrease of $303,328 was as a result of a decrease in funds on deposit during the year ended October 31, 2013.

The Corporation has recognized its investments held for trading on the Consolidated Statements of Financial Position at their fair value, and changes in fair value are recognized as income or loss in the period in which the change arises. As at October 31, 2013, the fair value of the investments held for trading was $1,600 compared to $9,750 as at October 31, 2012. The corresponding unrealized loss on investments held for trading was $8,150 (2012 – $3,450).

For the year ended October 31, 2013, the Corporation reported a consolidated net loss and total comprehensive loss of $3,981,889, as compared to a net loss of $4,801,245 for the year ended October 31, 2012, after deferred income taxes recovery of nil (2012 – $330,327). The Corporation expects to record losses until such time as an economic ore body is defined and developed and there are revenues from mineral production.

offering of the common shares and the premium liabilities associated with the sale of tax benefits when the common shares are offered. The amount allocated to share capital is based on the fair value of the common shares and the residual amount of the proceeds received from the investor for the flow-through shares is recognized as premium liabilities and the premium liabilities are reversed in the statements of comprehensive loss as the Corporation spends the flow-through proceeds. For the year ended October 31, 2013, the Corporation reversed $126,876 in premium liabilities (2012 – nil).

Summary of Quarterly Results

The following table presents unaudited selected financial information for the eight most recently completed financial quarters:


	Year ended October 31, 2014												Year ended October 31, 2013
	Q4 $			Q3 $			Q2 $			Q1 $			Q4 $			Q3 $			Q2 $			Q1 $
Revenues		—			—			—			—			—			—			—			—
Net loss and total comprehensive loss		(8,564,044	)		(725,047	)		(713,915	)		(969,708	)		(834,250	)		(1,178,527	)		(1,042,041	)		(927,071	)
Basic and fully diluted net income (loss) per share		(0.13	)		(0.01	)		(0.01	)		(0.01	)		(0.01	)		(0.02	)		(0.02	)		(0.01	)

The Corporation has no intention of paying dividends in the foreseeable future. Any future decision to pay cash dividends will be left to the discretion of the Board of Directors of the Corporation and will depend on the Corporation’s financial position, operating results and capital requirements at the time as well as such other factors that the Board of Directors may consider relevant. The Corporation has paid no dividends and has no retained earnings from which it might pay dividends.

Fourth Quarter

Expenses, excluding impairment of exploration and evaluation assets, for the three-month period ended October 31, 2014 decreased by $211,939 to $584,051 (2013 – $795,990). Professional fees decreased $100,574 to $92,619 (2013 – $193,193) which related mainly to lower legal fees due to reduced activities during the quarter and the professional fees regarding the demand loan facility with Investissement Québec incurred during the fourth quarter of 2013 which did not recur in the fourth quarter of 2014; investor relations expenses decreased by $123,084 to $172,786 (2013 – $295,870) which related mainly to lower government relations and marketing and communication costs incurred during the respective quarters; and administration expenses increased by $11,719 to $318,646 (2013 – $306,927) and related mainly to higher office costs and the increase in the remuneration of Quest directors as a result of changes in Board members. Stock-based compensation which were included in administration expenses for the three-month period ended October 31, 2014 decreased by $352 to $4,607 (2013 – $4,959).

Liquidity and Capital Resources

Given that the Corporation’s operations are focused on the exploration and development of mining properties, the most relevant financial information, in its view, relates to current liquidity, solvency, and planned property expenditures. The Corporation’s financial success will be dependent on the economic viability of its resource properties and the extent to which it can develop its Strange Lake ore deposit and discover and develop new ore deposits. A number of factors determine the economic viability of a property including: the size of the deposit; the quantity and quality of the reserves; the proximity of the deposit to current or planned infrastructure; the forecasted development and operating costs and the costs to finance the planned expenditures and the projected cash flows. Such development may take several years to complete and the amount of resulting income, if any, is difficult to determine. The economic value of any mineralization discovered by the Corporation is largely dependent on factors beyond the Corporation’s control, including the market value of the metals and minerals to be produced.

The Corporation’s main sources of short-term and long-term funding to date have been debt and equity markets, private placements and outstanding warrants and stock options.

The Corporation’s current cash resources are insufficient to cover budgeted expenditures in fiscal 2015 and additional financing will be required to fund the Pre-feasibility study and forecast development and operating costs as detailed in note 1 to the consolidated financial statements. For fiscal 2015, the minimum spending required to keep the 211 Strange Lake mining claims in good standing will total approximately $22,000 in mining claims renewal fees. The Corporation has incurred more than sufficient exploration work to renew these mining claims.

Quest is actively exploring financing options to cover its expected expenditures for fiscal 2015 including a strategic partnership or off take agreements with end users and has held meetings with interested potential investors and governmental authorities. In the interim, Management has conducted a comprehensive rationalization of current and planned expenditures and has implemented a series of cost saving measures to reduce and control the professional fees, investor relations and administration expenses. As previously discussed, Quest has identified and continues to work toward the implementation of a number of additional operational improvements to the base case assumptions presented by the PEA filed in April 2014, which are intended to further reduce project capital and operating costs and increase product yields.

On July 17, 2014, the Corporation completed a short-form prospectus offering by issuing 11,025,485 units at a price of $0.27, for gross proceeds of $2,976,881 of which $2,150,926 was allocated to common shares and $825,955 to warrants based on relative fair value (note 10 (c)). Each unit was comprised of one common share and one common share purchase warrant. Each warrant entitles its holder to purchase one additional common share at a price of $0.40 until July 17, 2017. The units separated into common shares and warrants immediately after the closing and the warrants commenced trading on the Toronto Stock Exchange (TSX) under the stock symbol “QRM.WT”. The net proceeds from the offering were used by Quest towards a feasibility study on its Strange Lake rare earth project in northeastern Québec and for working capital.

Further, on July 17, 2014, the Corporation issued 613,008 broker compensation units, entitling holders to purchase units of the Corporation at a price of $0.27 per unit at any time until July 17, 2016. Each unit comprises one common share of the Corporation and one common share purchase warrant. Each common share purchase warrant would entitle its holder to purchase one additional common share of the Corporation at a price of $0.40 per share until July 17, 2017. The total fair value of broker compensation units was $121,989, allocated to contributed surplus.

In connection with this financing, the Corporation paid cash commissions to agents of $165,512, issued broker compensation units of $121,989 and incurred other professional fees and expenses of $737,738 for a total of $1,024,879 which has been prorated between the share capital and warrants of $740,519 and $284,360 respectively.

As at October 31, 2014 and January 20, 2015, none of the broker compensation units issued had been exercised.

On September 26, 2014, the Corporation issued 250,000 common shares at an exercise price of $0.205 per share for a total non-cash consideration of $51,250 in connection with the Fraenkel Agreement as detailed in note 7 to the consolidated financial statements.

Going Concern Uncertainty

To date, the Corporation has not earned significant revenue and is considered to be in the exploration and evaluation stage.

The Corporation’s current committed cash resources are insufficient to cover expected expenditures in fiscal 2015 and its planned Pre-feasibility study on Strange Lake. The Corporation’s ability to continue as a going concern is dependent on being able to obtain the necessary financing to satisfy its liabilities as they become due. There can be no assurance that management will be successful in securing adequate financing. In addition, while the Corporation’s updated PEA and development activities in relation to its Strange Lake project look promising, there can be no assurance that the results of its planned Pre-feasibility study will confirm the existence of economically viable quantities of ore or that the project will ultimately go into production.

The Corporation reported a net loss and total comprehensive loss in the years ended October 31, 2014 and 2013 of $10,972,714 and $3,981,889, respectively. These recurring losses and the need for continued financing to further successful exploration indicate the existence of a material uncertainty that raises substantial doubt as to the Corporation’s ability to continue as a going concern.

Loan Facility

The Corporation is entitled to receive Québec Resource Tax Credits (“QRTC”) at the rate of 38.75% of certain eligible exploration expenditures incurred in Québec.

In order to monetize the QRTC for the year ended October 31, 2012, the Corporation entered into a loan facility with Investissement Québec (“the Loan Facility”) on September 11, 2013, as amended on May 5, 2014, under which the Corporation can borrow up to $4,339,000, representing a proportion of the estimated 2012 QRTC. Amounts drawn down under the Loan Facility must be repaid on the earlier of November 30, 2014 or upon collection of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% (October 31, 2014 and 2013 – 8.5%). The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at October 31, 2014, a deed of hypothec in the amount of $4,339,000 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first ranking hypothec on the Corporation’s present and future tax credits.

As at October 31, 2014, $4,338,793 had been drawn down pursuant to this Loan Facility (October 31, 2013 – nil). During the year ended October 31, 2014, interest expense pursuant to this Loan Facility amounted to $254,698 (2013 – nil).

The Loan Facility contains certain financial and non-financial covenants which were met as at October 31, 2014.

Fiscal year ended October 31, 2014 compared with the fiscal year ended October 31, 2013

As at October 31, 2014, the Corporation had cash and cash equivalents of $1,281,706 (2013 – $7,269,170) and $950 (2013 – $1,600) invested in Canadian equity securities pursuant to mining property agreements. The investment in cash which comprises most of Quest’s invested capital, presents no significant risk.

As at October 31, 2014, the Corporation’s remaining exploration expenditures pursuant to flow-through share arrangements amounted to nil (October 31, 2013 – $1,953,855).

The Corporation has no long-term borrowings.

During the year ended October 31, 2014, the Corporation raised cash of $31,667 from the exercise of stock options (2013 – $44,250).

Fiscal year ended October 31, 2013 compared with the fiscal year ended October 31, 2012

During fiscal 2013, the Corporation raised cash proceeds of $44,250 (2012 – $14,000) from the exercise of stock options.

As at October 31, 2013, the Corporation had cash and cash equivalents of $7,269,170 (2012 – $22,423,970) of which $1,571,890 (2012 – nil) is restricted in use for exploration expenditures pursuant to flow-through agreements. The Corporation has no long-term borrowings.

Outstanding Share Data

As at January 20, 2015, there were 78,829,196 common shares, stock options in respect of 4,971,833 common shares, 325,000 deferred share units, 110,000 restricted share units and 11,531,485 warrants, 203,094 broker compensation options and 613,008 broker compensation units outstanding.

Commitments

The Corporation has leases for its premises and other operating leases. For the next five years and thereafter, the Corporation’s minimum annual rental payments total $932,221 as detailed in note 11 to the consolidated financial statements.

As at January 20, 2015, the Corporation is in the process of extending and re-negotiating the SPIPB agreement. Under the proposed changes, the Corporation will have the right to purchase a smaller parcel of land in the Bécancour Port industrial site, more suited to its updated plans for its processing facility and at a reduced price. All payments made under the SPIPB agreement, together with those under the revised agreement will be combined, offset and deducted against the eventual price of the land purchase once the new option is exercised.

In consideration for the Fraenkel Agreement, Quest issued 250,000 common shares to the sole shareholder of 154639 Canada Inc.

Off-Balance Sheet Arrangements

The Corporation does not have any off-balance sheet arrangements.

Flow-Through Shares and Premium Liabilities

allocated between the offering of the common shares and the premium liabilities associated with the sale of tax benefits when the common shares are offered. The amount allocated to share capital is based on the fair value of the common shares and the residual amount of the proceeds received from the investor for the flow-through shares is recognized as premium liabilities and the premium liabilities are reversed in the statements of comprehensive loss as the Corporation spends the flow-through proceeds.

As at October 31, 2014, the Corporation’s remaining exploration expenditures pursuant to flow-through share arrangements amounted to nil (October 31, 2013 – $1,571,890).

Income Taxes

As at October 31, 2014, the Corporation had non-capital loss carry-forwards of $19,331,000 (2013 – $14,331,000) and investment tax credits of $3,750,000 (2013 – $2,100,000) which are available to reduce future years’ taxable income as detailed in note 5 to the consolidated financial statements.

Related Party Transactions

All related party transactions were in the normal course of operations and were measured at the exchange amounts.

The Corporation retains the services of certain directors of the Corporation to carry out professional services. For the year ended October 31, 2014, the total amount charged for services by directors of the Corporation and recorded in exploration and evaluation assets was $75,000 (2012 – $75,000).

During the year ended October 31, 2014, the Corporation incurred fees in the amount of $440,421 to a law firm in which an officer and director of the Parent is a partner, of which $142,699 was recorded in professional fees, $19,893 was recorded in investor relations, $248,437 was recorded in share issue costs and $29,392 was recorded in exploration and evaluation assets (2013 – $573,552, of which $234,354 was recorded in professional fees, $19,586 was recorded in investor relations, $75,399 was recorded in share issue costs and $244,213 was recorded in exploration and evaluation assets). As at October 31, 2014, an amount of $14,917 (October 31, 2013 – $52,731) owing to this law firm was included in accounts payable and accrued liabilities in respect of these fees.

Excluding the amounts reported above, during the years ended October 31, 2014 and 2013, the Corporation recorded the following compensation for key management personnel and the Board of Directors:


	2014 $		2013 $
Salaries, employee benefits		799,434		717,877
Directors’ fees		223,333		215,000
Stock compensation		218,874		22,832

Total		1,241,641		955,709

Financial Instruments

The Corporation is not exposed to any significant credit risk as at October 31, 2014. The Corporation’s cash and cash equivalents are deposited with a major Canadian chartered bank and are held in highly-liquid investments.

The rates as at October 31, 2014 for Canadian and U.S. funds ranged from 1.20%-1.50% (2013 – range of 1.20%-1.50%) and 0.10% (2013 – 0.10%), respectively.

In order to ensure that the Corporation maximizes the rate of return on cash funds in excess of its current operating requirements, the Corporation has established an investment committee to oversee the management of these funds.

The Corporation’s objectives when managing capital are to safeguard its ability to continue its operations as well as its exploration programs. As such, the Corporation has primarily relied on the Loan Facility and the equity markets to fund its activities. In order to carry out planned exploration and to pay for administrative costs, the Corporation will spend its existing working capital and raise additional funds as needed. The Corporation does not use term debt financing and has not paid any dividends. As well, the Corporation does not have any externally imposed capital requirements, either regulatory or contractual.

Critical Accounting Judgments and Estimates

As detailed in note 2 of consolidated financial statements, management has identified the following critical accounting estimate where actual results may differ from these estimates under different assumptions and conditions and may materially affect financial results or the financial position reported in future.

Exploration and evaluation assets – Judgment and estimate

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through future exploitation or sale. Such circumstances include the period for which the Corporation has the right to explore in a specific area, actual and planned expenditures, results of exploration, and whether an economically-viable operation can be established. Management judgment is applied in determining the lowest levels of exploration and evaluation assets grouping, for which there are separately identifiable cash flows (cash generating units), generally on the basis of areas of geological interest.

As at October 31, 2014, the Corporation determined that the continued decline in the market prices of REEs and in the market capitalization of the Corporation constituted an indicator of impairment and completed an impairment assessment of its Strange Lake mining property to determine whether the carrying amount exceeded the recoverable amount. The impairment assessment included calculating the exploration and evaluation assets’ value in use based on numerous assumptions including the underlying mineral resources, production estimates, timing of construction and life of the mine, long-term prices underlying REEs, capital requirements, operating costs and operational performance, discount rates and foreign exchange rates. The results of the impairment review determined that the recoverable amount exceeded the carrying value and that the Strange Lake property was not impaired at October 31, 2014. Any changes in the economic assumptions used or the geological information produced during the development and operation of a mine, could materially affect the estimated recoverable amount of the exploration and evaluation assets, which could result in an impairment in the future and such could be material.

With respect to its Misery Lake mining property, no further expenditures are planned on this project and, as a result, for the year ended October 31, 2014, the Corporation recorded an impairment loss of $7,106,609 on the property.

During the year ended October, 31, 2013, the Corporation did not exercise its option under the exploration and option agreement to earn an additional 15% undivided interest in the working claims and as a result, this option has now lapsed. As at October 31, 2014 a 50:50 joint venture with Search or Alterra had not been formed. No further expenditures are planned on this project and, as a result, for the year ended October 31, 2014, the Corporation recorded an impairment loss of $909,390 on the property.

Valuation of refundable tax credits and mining duties credits – Judgment

Share-based remuneration expense – Estimate

The estimation of share-based compensation at fair value at the date of grant requires the selection of an appropriate valuation model and consideration as to the inputs necessary for the valuation model chosen. The fair value of each option is evaluated using the Black-Scholes pricing model at the date of grant. The Corporation has made estimates as to the volatility, the expected life of options, and expected forfeitures. The expected life of the option is based on historical data. The expected volatility is based on the historical volatility of comparable companies, over the period of the expected life of the stock option. These estimates may not necessarily be indicative of future actual patterns.

Changes in Significant Accounting Policies

The Corporation’s significant accounting policies are disclosed under the note 4 to the consolidated financial statements for the year ended October 31, 2014. During the year ended October 31, 2014, the Corporation adopted new IFRS standards noted below:

IFRS 10, Consolidated Financial Statements

IFRS 11, Joint Arrangements

IFRS 12, Disclosure of Interests in Other Entities

IFRS 13, Fair Value Measurement

The IASB issued a new standard, IFRS 13, Fair Value Measurement (IFRS 13), which provides a standard definition of fair value, sets out a framework for measuring fair value and provides for specific disclosures about fair value measurements. IFRS 13 applies to all IFRS that require or permit fair value measurements or disclosures. IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Corporation adopted IFRS 13 effective November 1, 2013, which was applied retrospectively. The Corporation determined that this new standard has no significant accounting impact on the Corporation given the Corporation’s existing assets and liabilities to which fair value accounting applies.

IFRS 2, Share-based Payment

In the second quarter of calendar 2014, the IASB issued Amendments to IFRS 2, Share-based Payment. The amendments changed the definitions of “vesting condition” and “market condition” in the Standard, and added definitions for “performance condition” and “service condition”. It also clarified that any failure to complete a specified service period, even due to the termination of an employee’s employment or a voluntary departure, would result in a failure to satisfy a service condition. This would result in the reversal, in the current period, of compensation expense previously recorded reflecting the fact that the employee failed to complete a specified service condition. These amendments are effective for transactions with a grant date on or after July 1, 2014. The amendment did not have a significant impact on the Corporation’s consolidated financial statements.

IAS 28, Investments in Associates and Joint Ventures

The following pronouncements are issued but not yet effective for the year ended October 31, 2014:

IFRS 9 Financial Instruments

The final version of IFRS 9, Financial instruments (IFRS 9) was issued by the IASB in July 2014 which reflects all phases of the financial instruments project and replaces IAS 39, Financial Instruments: recognition and measurement (IAS 39). The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for the Corporation on November 1, 2018. Retrospective application is required, but comparative information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial application is before 1 February 2015. The Corporation is currently evaluating the impact of this standard and amendments on its consolidated financial statements.

Amendments to IAS 36 Impairment of Assets

IFRIC 21 Levies

IFRIC 21, Levies (IFRIC 21) was amended by the IASB in June 2013. IFRIC 21 provides guidance on the accounting for levies within the scope of IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The main features of IFRIC 21 are: (i) the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by legislation, and (ii) the liability to pay a levy is recognized progressively if the obligating event occurs over a period of time. IFRIC 21 is effective for the Corporation on November 1, 2014 and must be applied retrospectively. The Corporation is currently evaluating the impact of the amendments on its consolidated financial statements.

Annual Improvements 2010-2012 Cycle

Risk Factors

Resource exploration and development is a highly speculative business, involves a high degree of risk and is frequently unsuccessful. There is no certainty that the expenditures to be made by the Corporation in the exploration of its properties or otherwise will result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves significant risk, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing mines. Significant expenditures may be required to locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the Corporation’s current exploration programs will result in a profitable commercial mining operation.

Significant capital investment is required to achieve commercial production from successful exploration efforts. The commercial viability of a mineral deposit is dependent upon a number of factors. These include: (i) deposit attributes such as size, grade and proximity to infrastructure; (ii) current and future metal prices (which can be cyclical); (iii) government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and environmental protection; (iv) First Nations negotiations and agreements; (v) technological risks and changes and (vi) securing sufficient financing to commercialize the project. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in the Corporation not receiving an adequate return on invested capital.

The prices of minerals fluctuate widely and are affected by many factors outside of the Corporation’s control. The prices of minerals and future expectation of such prices may have a significant impact on the market sentiment for investment in mining and mineral exploration companies. This in turn may affect the Corporation’s ability to raise equity financing for its capital requirements.

Exploration and evaluation assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable through future exploitation or sale. Such circumstances include the period for which the Corporation has the right to explore in a specific area, actual and planned expenditures, results of exploration, whether an economically-viable operation can be established and significant negative industry or economic trends. Management judgment is also applied in determining the lowest levels of exploration and evaluation assets grouping, for which there are separately identifiable cash flows (cash generating units), generally on the basis of areas of geological interest.

Reference is made to the section of the Corporation’s 2014 Annual Information Form and Short Form Prospectus in July 2014 entitled “Risk Factors” for a discussion of the risk factors applicable to the Corporation and its business.

Disclosure Controls and Internal Controls over Financial Reporting

Management, including the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), have designed disclosure controls and procedures, or have caused them to be designed under their supervision, to provide reasonable assurance that all material information relating to the Corporation has been made known to them and has been properly disclosed in the Corporation’s annual and interim filings and other reports filed or submitted under applicable Canadian and United States securities laws.

Management of the Corporation, with the participation of the CEO and the CFO, has evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures as at October 31, 2014. Based on this evaluation, the CEO and the CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of October 31, 2014 to provide reasonable assurance that information required to be disclosed in the Corporation’s annual filings and other reports filed or submitted were recorded, processed, summarized and reported within the time period specified in those rules.

An evaluation, under management supervision, was carried out on the effectiveness of the Corporation’s internal control over financial reporting as at October 31, 2014 using the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework) (the COSO criteria). Based on this evaluation, management has concluded that internal control over financial reporting was effective as at October 31, 2014.

There have been no changes in the Corporation’s design of internal controls over financial reporting during the quarter ended October 31, 2014 that materially affected, or are reasonably likely to affect, the Corporation’s internal control over financial reporting.

Presentation of Mineral Reserve and Resource Information

This MD&A has been prepared in accordance with the requirements of Canadian securities laws, which differ from the requirements of United States securities laws. Unless otherwise indicated, all reserve and resource estimates included in this MD&A have been prepared in accordance with National Instrument 43-101 Standards of Disclosure for Mineral Projects (“Nl 43-101”). Nl 43-101 is a rule developed by the Canadian Securities Administrators which establishes standards for all public disclosure an issuer makes of scientific and technical information concerning mineral projects.

Canadian standards, including Nl 43-101, differ significantly from the requirements of the SEC and reserve and resource information contained in this MD&A may not be comparable to similar information disclosed by United States companies. In particular, and without limiting the generality of the foregoing, the term “resource” does not equate to the term “reserve”. Under United States standards, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. The SEC’s disclosure standards normally do not permit the inclusion of information concerning “measured mineral resources”, “indicated mineral resources” or “inferred mineral resources” or other descriptions of the amount of mineralization in mineral deposits that do not constitute “reserves” by United States standards in documents filed with the SEC. United States investors

should also understand that “inferred mineral resources” have a great amount of uncertainty as to their existence and as to their economic and legal feasibility. It cannot be assumed that all or any part of an “inferred mineral resource” exists, is economically or legally mineable, or will ever be upgraded to a higher category. Under Canadian rules, estimated “inferred mineral resources” may not form the basis of feasibility or pre-feasibility studies except in rare cases. Disclosure of “contained ounces” in a resource estimate is permitted disclosure under Canadian regulations; however, the SEC normally permits issuers to report mineralization that does not constitute “reserves” by SEC standards only as in-place tonnage and grade without reference to unit measures. The requirements of Nl 43-101 for identification of “reserves” are also not the same as those of the SEC, and reserves reported by Quest in compliance with Nl 43-101 may not qualify as “reserves” under SEC standards. Accordingly, information concerning mineral deposits set forth herein may not be comparable with information made public by companies that report in accordance with United States standards.

Other Information

Additional information on the Corporation is available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov and on the Corporation’s website at www.questrareminerals.com.

Exhibit 99.3

LOGO

ANNUAL INFORMATION FORM

FOR THE FISCAL YEAR ENDED OCTOBER 31, 2014

January 27, 2015

TABLE OF CONTENTS


PRELIMINARY INFORMATION			2
CORPORATE STRUCTURE			3
GENERAL DEVELOPMENT OF THE BUSINESS			3
BUSINESS OF THE CORPORATION AND DESCRIPTION OF PROPERTIES			8
RISK FACTORS			32
CAPITAL STRUCTURE			38
MARKET FOR SECURITIES			38
ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER			40
DIRECTORS AND OFFICERS			40


INFORMATION ON THE AUDIT COMMITTEE		42
LEGAL PROCEEDINGS AND REGULATORY ACTIONS		44
INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS		44
TRANSFER AGENTS AND REGISTRARS		45
MATERIAL CONTRACTS		45
INTERESTS OF EXPERTS		45
ADDITIONAL INFORMATION		46
SCHEDULE A CHARTER OF THE AUDIT COMMITTEE		47

PRELIMINARY INFORMATION

All information contained in this annual information form (the “AIF”) of Quest Rare Minerals Ltd. (the “Corporation” or “Quest”) is as at January 27, 2015, unless otherwise stated.

Financial Statements

This AIF should be read in conjunction with the Corporation’s audited financial statements and management’s discussion and analysis for the fiscal year ended October 31, 2014. The audited financial statements and management’s discussion and analysis of the Corporation for the fiscal year ended October 31, 2014 are available under the Corporation’s profile on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

Currency

All dollar amounts referred to herein are expressed in Canadian dollars, unless otherwise specified.

Cautionary Note Regarding Forward-Looking Statements

Certain of the information contained in this AIF may contain “forward-looking statements”. Forward-looking statements may include, among others, statements regarding the Corporation’s future plans, costs, objectives or economic performance, or the assumptions underlying any of the foregoing, including those described under “General Development of the Business” or “Business of the Corporation and Description of Properties”. In this AIF, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. Forward-looking statements are based on information available at the time and/or management’s good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties and other unpredictable factors, many of which are beyond the Corporation’s control. These risks and uncertainties include, but are not limited to, those described in this AIF under the heading “Risk Factors”, and could cause actual events or results to differ materially from those projected in any forward-looking statements. The Corporation does not intend, nor does it undertake any obligation, to update or revise any forward-looking statements contained in this AIF to reflect subsequent information, events or circumstances or otherwise, except if required by applicable laws.

CORPORATE STRUCTURE

Quest was incorporated on June 6, 2007 pursuant to the Canada Business Corporations Act under the name “Quest Uranium Corporation – Corporation Uranium Quest”. On August 30, 2007, the Corporation obtained Articles of Amendment, allowing its Board of Directors to appoint additional directors between meetings of shareholders. On April 21, 2010, the Corporation obtained Articles of Amendment, changing its corporate name to “Quest Rare Minerals Ltd. – Minéraux Rares Quest Ltée”.

The Corporation’s head and registered office is at 1155 University Street, Suite 906, Montreal, Québec H3B 3A7.

The Corporation has one wholly-owned subsidiary, QTM Extraction Ltd. (“QTM”), a corporation incorporated on September 4, 2013 pursuant to the Canada Business Corporations Act.

The Corporation’s shares are listed for trading on NYSE MKT and the Toronto Stock Exchange under the trading symbol QRM. Additional information regarding Quest can be found on SEDAR (www.sedar.com), on EDGAR (www.sec.gov) and on Quest’s web site (www.questrareminerals.com).

GENERAL DEVELOPMENT OF THE BUSINESS

Quest is a Canadian-based corporation with the objective of becoming an integrated rare earth mining and processing company. Quest is focused on the exploration and development of new rare earth element (“REE”) deposit opportunities. It is led by a team with impressive depth of experience in exploration, mining and metallurgical processing. The Corporation is currently advancing a project in one of Canada’s premier exploration areas, the Strange Lake region of northeastern Québec, and has announced plans for a major hydrometallurgical processing facility in Bécancour, Québec.

The Strange Lake Story

On May 8, 2009, the Corporation entered into an agreement with two prospectors, Messrs. Réal Gauthier and Terrence P. O’Connor, to acquire a 100% interest in a single block of mining claims in the Strange Lake area of northeastern Québec (the “Strange Lake Property” or “Strange Lake Project”). Pursuant to the agreement, the Corporation issued

50,000 common shares to the vendors. In addition, the vendors hold a 2.0% net smelter return (NSR) on the Strange Lake Property, which the Corporation can purchase in full for $1.5 million. The Strange Lake Property initially comprised a total of 504 claims in Québec, covering an area of 22,479 hectares. During the fiscal year ended October 31, 2014, 293 claims covering 13,113 hectares were allowed to lapse as the Corporation continued to focus its activities on the main area of interest on the property. The Strange Lake Property is located 220 km northeast of Schefferville and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine. The Corporation believes that the Strange Lake Property has the potential to be a large, high-grade heavy rare earth (“HREE”) mining project.

The Corporation’s 2009 exploration program led to the discovery of a promising new REE deposit, the B-Zone, on the Strange Lake Property. In September 2010, the Corporation completed a mineral resource estimate as well as a Preliminary Economic Assessment of the Strange Lake B-Zone deposit, using results from drilling completed during the 2009 field season. Drilling on 60 m by 80 m centres over the defined limits of the deposit in the summer of 2010 allowed Quest to develop a revised Indicated and Inferred Resource Estimate in April 2011. The report was used as the basis to develop a program of definition drilling and to commence a Pre-feasibility Study program on the Strange Lake Property in 2011.

In December 2012, the Corporation completed an updated mineral resource estimate on the Strange Lake B-Zone deposit using subsequent exploration and in-fill drilling conducted by the Corporation in 2012. In October 2013, the Corporation announced the results of a Pre-feasibility Study (“PFS”) on the Strange Lake Project B-Zone, followed in April 2014 by the announcement of the results of a Preliminary Economic Assessment (“PEA”) on the Strange Lake Project B-Zone prepared by Micon International Limited, based on Quest’s revised development plan for the Strange Lake B-Zone Project. See “Preliminary Economic Assessment” and “Preliminary Economic Assessment (PEA) Results” below.

Exploration Strategy

Exploration work on the Strange Lake Project has been focused on the Strange Lake B-Zone REE deposit discovered by the Corporation in 2009 and on additional REE showings identified by the Corporation’s crews on the Strange Lake Property.

The Corporation’s exploration strategy combines prospecting and strong geological expertise with the use of leading-edge geophysical and geochemical techniques to search for mineral deposits. The Corporation also believes in conducting exploration through joint ventures with other mining firms, in order to share exploration risk and to benefit from its partners’ capabilities in mine development and production. In support of the Strange Lake Project development work, Quest continues to build its rare earth and rare metal mine development team.

Preliminary Economic Assessment

In April 2014, the Corporation announced the results of the PEA on the Strange Lake Project B-Zone, which includes a revised economic assessment of the mine facilities and the related processing facility in Bécancour, Québec. The PEA shows a robust internal rate of return of 20.1% pre-tax and 16.7% post-tax with a net present value of $1.42 billion pre-tax and $788 million post-tax with a 10% discount rate. The PEA is available under the Corporation’s profile at www.sedar.com and on EDGAR at www.sec.gov.

The assessment is based on a minimum mine life of 30 years and a total project construction capital cost of $1.63 billion. The PEA confirmed the business case for the Strange Lake B-Zone deposit as a large, high-grade HREE mining project. It also confirmed the potential for the planned processing facility in Bécancour, Québec, which would be the largest facility of its kind in North America. The PEA provides that the Strange Lake Project will employ a total of 689 employees, comprised of 306 employees at the mine site, 342 at the processing plant in Bécancour, Québec and 41 for general administration. The PEA provides that construction of the project is scheduled to start in 2017 for expected delivery of the first product in 2019.

Preliminary Economic Assessment (PEA) Results

The PEA includes a revised development plan for the Strange Lake Project, which significantly reduces the market, operational and financial risks of the Strange Lake Project. The PEA estimates construction capital costs of approximately $1.321 billion (excluding the rare earth separation plant), a decrease of an approximately $1.23 billion in construction capital from the PFS published by the Corporation in October 2013, and savings of $182 million in sustaining capital. These anticipated improvements will be further evaluated during the definitive Feasibility Study initiated in 2015.

The PEA further implements several of the process improvements identified in the PFS and verified by exhaustive lab testing in January 2014. The development plan outlined in the PEA significantly reduces required capital expenditures, simplifies the process flowsheet, and reduces the project environmental footprint, all of which should enhance the long-term potential viability of the Strange Lake Project. The Corporation believes that this “Made-in-Canada” project has the potential to provide an important base for establishing a major new North American industrial sector of global importance, and could help to address the market demand for non-Chinese supply of these elements, which are critical to industry in the 21^st century.

Strategic Importance of Project

The integrated Strange Lake mining and processing project dovetails with both Canadian federal and Québec provincial industrial strategies. Quest believes that strategic North American industries from defense to automotive (electric cars) to wind turbines will welcome a stable source of rare earth product. The Corporation offers a major high-technology industrial opportunity for Québec and Canada with the potential for employing many highly-skilled technical and engineering employees. In the Corporation’s view, the compelling net present value of the Strange Lake Project and expected significant amount of product output from Quest’s plant support the required capital investment. The Corporation believes that the full suite of products, considerable output level and lengthy project mine life will provide key customers with a significant advantage—the stability of North American supply. Market demand for non-Chinese supply of these critical industrial materials continues to grow and Quest’s strategy is to ultimately meet that demand.

Industry Partnerships

The Corporation has begun discussions aimed towards establishing industry partnerships with rare earth separation/refining companies. Under such partnerships, the Corporation would acquire separation technology and the related intellectual property and the partner in return would assist in the process of building the separation facility at Bécancour, Québec. The PEA assumes that a separation plant is built at the same time as the metallurgical plant.

Further Operational Improvements

Quest has identified a number of additional operational improvements to the base case assumptions presented in the PEA, which are intended to further reduce project capital and operating costs and increase product yields.

1.	*Strategic Business Plans*

The PEA assumes that the Corporation will execute and operate all aspects of the Strange Lake Project within a single corporation. However, the Corporation recognizes that there may be certain financial advantages to structuring the Strange Lake Project in separate corporate entities. These entities would include a mining company, a transport and logistics company, a materials-processing company and a separation and refining company, either as wholly-owned subsidiaries of the Corporation or as joint ventures with industrial partners. There are a number of potential advantages to such an arrangement, including the opportunity to partner with specialized processing or transportation and logistics providers.

In addition, the PEA assumes the construction of a port facility (along with storage and accommodation facilities) in northern Labrador. There is an opportunity to share with an existing port facility nearby and preliminary discussions to this end are ongoing. The capital cost of the port is estimated at $85 million (including indirect and contingency costs).

2.	*Process Improvements*

There are a number of process improvements in the baking, leaching and direct precipitation processes which are currently being investigated and tested at SGS in Lakefield, Ontario. These would further lower throughput times and operating costs as well as capital requirements in the metallurgical plant.

In addition, an investigation of sensor ore–sorting, based on radiometric and photometric characteristics of the mineralized material, is being carried out at the Helmholtz Institute for Resource Technology in Germany. If successful, such sorting could be installed at the Strange Lake Property site and represent further improvement to the project flowsheet.

In the event that all of these potential plans are successfully executed, the initial capital requirement for the Strange Lake Project could be reduced to less than $1 billion. In addition, the development plan is sufficiently flexible to allow for expansion of production capacity to meet future demand for rare earths.

Three-Year History

Fiscal Year Ended October 31, 2012

On March 1, 2012, the common shares of the Corporation commenced trading on the Toronto Stock Exchange, under the symbol “QRM”. Prior thereto, the common shares of the Corporation had traded on the TSX Venture Exchange.

On May 15, 2012, the Board of Directors appointed Colin Lindsay as Vice-President, Operations of the Corporation.

On October 31, 2012, the Corporation announced a revised National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) compliant indicated and inferred resource estimate for the Strange Lake B-Zone rare earth element deposit. The estimate was prepared by Micon International Limited and has an effective date of August 31, 2012. On December 17, 2012, the Corporation filed the report, entitled “Technical Report for the Strange Lake B Zone Rare Earth Element (REE) Deposit, Québec, Canada, Updated Mineral Resource Estimate”, on SEDAR.

In recognition of the importance that the resource estimate had on the potential economic outcome of the Strange Lake project, the Corporation also announced on October 31, 2012 that it had hired Mr. Gunter Thase, a 41-year veteran in the international marketing of specialty metals and industrial minerals, as the Corporation’s Manager, Metals & Marketing.

Fiscal Year Ended October 31, 2013

On December 7, 2012, the Board of Directors appointed George Potter (chairman), Ronny Kay, John Panneton and Michael Pesner to the Technical Committee of the Board of Directors.

On February 13, 2013, the Board of Directors appointed Anil Singh as Vice-President, Investor & Corporate Affairs of the Corporation.

On May 24, 2013, the Board of Directors appointed Dr. Dirk Naumann as Vice-President, Development of the Corporation. Dr. Naumann has 30 years of experience in designing new products and processes, and managing numerous capital projects from inception through engineering and construction to successful market launch. He manages all Strange Lake Project activities, including the delivery of the PFS and definitive Feasibility Study, and negotiation of strategic partnerships and product off-take agreements. Quest believes that Dr. Naumann’s extensive experience greatly enhances Quest’s capacity to move the Strange Lake Project forward towards viable production.

On July 9, 2013, the Corporation entered into a non-binding Letter of Intent (“LOI”) with TAM Ceramics Group of NY, LLC (“TAM”), a leading U.S.-based marketer and manufacturer of zirconia chemical products. The LOI specified that TAM would agree to purchase from the Corporation up to 24,000 tonnes of zirconia annually produced from the Strange Lake Project, and that the Corporation would deal exclusively with TAM for the sale of this quantity of product. The purchase and sale of zirconia contemplated by the LOI was subject to the execution of a definitive agreement between the Corporation and TAM, to be entered into no later than December 31, 2014. Due to a change in Quest’s flowsheet, zirconium basic sulphate will not be produced, although the extraction of zirconium from the processing residues may be developed in the future. Accordingly, Quest allowed the letter of intent with TAM to expire as at December 31, 2014.

On July 25, 2013, the Corporation completed a private placement by issuing 4,065,360 “flow-through” shares at a price of $0.55 per share, for gross proceeds to Quest of $2,235,948, and 1,012,000 “hard-dollar” units at a price of $0.50 per unit, for gross proceeds to Quest of $506,000. The total gross proceeds from the private placement were $2,741,948. Each of the “hard-dollar” units was comprised of one common share and one-half of a common share purchase warrant. Each of the full warrants entitles its holder to acquire one additional common share of the Corporation at a price of $0.80 until January 25, 2015, 18 months from the closing date of the private placement. In connection with the private placement, the Corporation granted compensation options to Jones, Gable and Company Limited and other selling agents, entitling them to acquire a maximum of 203,094 common shares at a price of $0.50 per share until January 25, 2015, 18 months from the closing date of the private placement. None of the foregoing warrants or compensation options were exercised prior to their expiry date of January 25, 2015.

On September 11, 2013, the Corporation entered into a loan facility with Investissement Québec, as amended on October 15, 2013 and May 7, 2014 (the “Loan Facility”), pursuant to which the Corporation can borrow up to $4,338,793, representing a proportion of the Corporation’s estimated 2012 Québec Resource Tax Credits (“QRTC”) relating to certain eligible exploration expenditures incurred in Québec. The Loan Facility is available for draw down, at the Corporation’s discretion, in a maximum of four tranches and any amounts drawn must be repaid on the earlier of: (a) November 30, 2014, or (b) upon receipt by the Corporation of the 2012 QRTC, which were assigned to Investissement Québec. Amounts drawn under the Loan Facility bear interest, payable on a monthly basis, at an annual rate of prime plus 5.5% (October 31, 2013 – 8.5%). The Corporation has provided security to Investissement Québec by way of an irrevocable letter of credit in the amount of $150,000 secured by a redeemable term deposit recorded as cash and cash equivalents at October 31, 2013, a deed of hypothec in the amount of $4,338,793 and an additional hypothec in the amount of $868,000 over its present and future QRTC claims and its accounts receivable, as well as a first-ranking hypothec on the Corporation’s present and future tax credits. As at October 31, 2014, the full amount of $4,333,793 has been drawn down under the Loan Facility. On November 27, 2014, the Corporation received $4,168,780 from Revenu Québec for the 2012 QRTC. The payment was made directly to Investissement Québec and applied against the Loan Facility balance. The remaining balance of the Loan Facility in the amount of $170,013 was settled in full by the Corporation on November 28, 2014. On December 4, 2014, Investissement Québec revoked the letter of credit and released all hypothecs pursuant to the Loan Facility.

On October 23, 2013, the Corporation announced the results of the PFS on the Strange Lake Project B-Zone. Major contributors to the PFS were Micon International Limited, Process Research Ortech Inc., AECOM, Hatch Associates Ltd., Hazen Research Inc., SLR Consulting Ltd. and RPC. The PFS shows a robust internal rate of return of 25.6% pretax with a net present value of $2.9 billion with a 10% discount rate. The PFS is based on a minimum mine life of 30 years and a total project construction capital cost of $2.57 billion. The project aims to produce four separated products: a mixed HREE+Y oxide concentrate, high-purity zirconium basic sulfate (ZBS, for further downstream processing), high-purity niobium oxide, and a mixed light rare earth double-sulfate concentrate. The PFS provides that construction of the project is scheduled to start in 2016 for expected completion and commissioning in 2017 and delivery of the first product the following year.

Fiscal Year Ended October 31, 2014

On November 5, 2013, the Corporation announced that its $1.3 billion processing facility would be located in Bécancour Industrial Park, Québec. In connection therewith, QTM signed an option agreement with La Société du Parc Industriel et Portuaire de Bécancour, pursuant to which QTM has an option to purchase a property for the construction of a hydrometallurgical plant. Upon completion, it would be the largest facility of its kind in North America. More than 500 Quebecers would be employed during the construction phase and more than 300 full-time jobs would be created once the plant is operational. In keeping with its commitment to openness and transparency, the Corporation established a Quest-Bécancour monitoring committee and has invited community leaders as well as representatives from the Bécancour region and local Aboriginal leaders to participate.

On December 6, 2013, the Corporation filed a report, entitled “NI 43-101 Technical Report on the Pre-Feasibility Study for the Strange Lake Property Quebec, Canada”, on SEDAR and EDGAR.

On January 21, 2014, the Board of Directors appointed Dr. Dirk Naumann as Executive Vice-President, Development of the Corporation.

On April 9, 2014, the Corporation announced the results of the PEA prepared by Micon International Limited, based on Quest’s revised development plan for the Strange Lake B-Zone Project. On the same day, Quest filed the report, entitled “NI 43-101 Technical Report on the Preliminary Economic Assessment (PEA) for the Strange Lake Property Quebec, Canada”, on SEDAR and EDGAR. See “Preliminary Economic Assessment” and “Preliminary Economic Assessment (PEA) Results” above.

On May 1, 2014, Pierre Lortie was appointed to the Board of Directors of the Corporation. Mr. Lortie is a Senior Business Advisor at Dentons, a major international law firm. He is a director of Element Financial Corporation, Canam Group Inc., and Lamêlée Iron Ore Ltd. Mr. Lortie joined Dentons after a distinguished career as a corporate leader, serving as President and Chief Operating Officer of Bombardier Transportation, President and Chief Operating Officer of Bombardier Capital, President and Chief Operating Officer of Bombardier International, and President of Bombardier Aerospace, Regional Aircraft. He was Chairman, President and Chief Executive Officer of Provigo Inc., President and Chief Executive Officer of the Montreal Stock Exchange and a Senior Partner of Secor Inc. Mr. Lortie received an M.B.A. with honours from the University of Chicago, a license in applied economics from Université Louvain in Belgium, and a Bachelor’s degree in applied sciences (engineering physics) from Université Laval in Québec City. He was awarded a Doctorate Honoris Causa in

civil law from Bishop’s University, Lennoxville, Québec. He was elected Fellow of the Canadian Academy of Engineering in 1988 and he was appointed Member of the Order of Canada in 2001. Mr. Lortie holds the ICD.D designation granted by the Institute of Corporate Directors.

On June 4, 2014, the Corporation filed a preliminary short form prospectus for a new issue of units in each of the provinces of Canada, for proceeds of up to $5 million.

On July 17, 2014, the Corporation held the closing of the foregoing new issue of units at which Quest issued 11,025,485 units at a price of $0.27 per unit, for gross proceeds to Quest of approximately $3 million. Each unit was comprised of one common share and one common share purchase warrant of Quest. Each warrant entitles its holder to purchase one additional Quest common share at a price of $0.40 for 36 months from the closing date of the offering. The net proceeds from the offering were used by Quest primarily towards a feasibility study on the Strange Lake Project, and for working capital. The warrants issued by Quest were listed on the Toronto Stock Exchange under the stock symbol “QRM.WT”. The offering was completed through a syndicate of agents co-led by GMP Securities L.P. and Desjardins Securities Inc. and including Maison Placements Canada Inc. and Jones, Gable & Company.

On September 4, 2014, Quest announced greatly-improved production of a high-purity rare earth and yttrium oxide concentrate from its new and substantially-improved process flowsheet outlined in the April PEA press release for the Strange Lake Project. The mixed rare earth oxide was produced as part of Quest’s ongoing metallurgical testing program at SGS Mineral Services – Lakefield site, and represents the successful completion of the majority of the bench-scale testing for the improved process.

On September 8, 2014, the Corporation appointed Pierre Lortie as Chairman of the Board of Directors. The appointment of Pierre Lortie followed the resignation of Robert L. Leclerc as Chairman of the Board and as a director of Quest, for personal reasons. Mr. Leclerc served as Quest’s Chairman since 2010.

On September 12, 2014, QTM entered into an option and lease agreement under which QTM has the right to purchase a piece of land in Bécancour, Québec to build a rare earth production facility for the ore from the Strange Lake Property. The option is for a period of three years from March 1, 2015 and can be extended by QTM indefinitely in increments of one year each. QTM can cancel the option and lease agreement at any time after March 1, 2016. In connection with the option and lease agreement, Quest issued 250,000 common shares.

On September 30, 2014, Quest announced that it has signed a non-binding Memorandum of Understanding with Fednav Limited (“Fednav”) to develop and deliver shipping solutions for the Strange Lake Project, subject to certain conditions. In accordance with the Memorandum of Understanding, Fednav will provide exclusive marine transportation and engineering services to Quest on all matters related to delivering rare earths ore concentrates from Quest’s Strange Lake mine development to its proposed processing plant in Bécancour, Québec. Under this agreement, Fednav will supervise the development of detailed ship specifications required to transport concentrate and mine provisions, as well as assistance in berth design, ship-loading equipment and port operational procedures. Fednav will also liaise with regulatory authorities and the concerned Aboriginal communities on behalf of the Strange Lake Project. Fednav will support Quest in assessing operational costs for the ships being considered including full technical management and crewing.

BUSINESS OF THE CORPORATION AND DESCRIPTION OF PROPERTIES

Mining Exploration Activities and Properties

Between 2007 and 2009, the Corporation focused its exploration activities mainly on the George River Property in northeastern Québec. In 2009, after the discovery of significant quantities of REE mineralization on the Strange Lake Property, Quest’s activities refocused on the identification and discovery of new world-class rare earth and uranium deposit opportunities.

As at October 31, 2014, the properties of the Corporation were as follows:

Strange Lake

Misery Lake

Alterra Strange Lake

Strange Lake – B-Zone

The following text in this section “Strange Lake – B-Zone” has been taken from a technical report dated April 9, 2014, as amended on June 26, 2014 with an effective date of April 9, 2014 entitled “NI 43-101 Technical Report on the Preliminary Economic Assessment (PEA) for the Strange Lake Property, Quebec, Canada” (the “Technical Report”). The Technical Report was prepared in accordance with NI 43-101 by Richard Gowans, P.Eng., William J. Lewis, B.Sc. P.Geo. and

Jane Spooner, P.Geo. of Micon International Limited, Sam Shoemaker, Jr., B.Sc., RegMemSME of Barr Engineering Company and Rimant (Ray) V. Zalnieriunas, P.Geo. of R.V. Zalnieriunas Consulting. Messrs. Gowans, Lewis, Shoemaker and Zalnieriunas and Ms. Spooner are the qualified persons responsible for the Technical Report and are all independent from the Corporation within the meaning of NI 43-101. The Technical Report is available under the Corporation’s profile on SEDAR at www.sedar.com. For purposes of disclosure regarding the Strange Lake Property required under section 5.4 of Form 51-102F2 Annual Information Form, the Technical Report is incorporated by reference in this AIF.

Micon International Limited (“Micon”) has been retained by Quest Rare Minerals Ltd. (Quest) to compile the Technical Report under Canadian National Instrument 43-101 (NI 43-101) which discloses the results of the preliminary economic assessment (PEA), on Quest’s Strange Lake Project (the Project).

The PEA has been completed to evaluate the potential economic and technical benefits of significant changes to the mining and processing aspects of the Project originally outlined in a prefeasibility study, the results of which were published in a NI 43-101 Technical Report dated December 6, 2013 (Micon, 2013). By definition, the PEA can only indicate the potential viability of mineral resources and cannot be used to support mineral reserves.

The results of the PEA were summarized in a press release dated April 9, 2014. The project is based on the mining and beneficiation of a rare earth element (REE)-rich deposit at Strange Lake in northern Québec, and processing a flotation concentrate at a facility at Bécancour in southern Québec. Processing will recover the rare earths and yttrium contained in the Strange Lake deposit as separated oxides.

The PEA is preliminary in nature; it includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the PEA will be realized.

Mr. Lewis conducted site visits between March 26 and 29, 2012. Mr. Lewis was accompanied on the site visits by a number of Quest’s employees. Mr. Zalnieriunas conducted site visits during the periods of July 3 to 6, 2011, August 14 to 25, 2011, and March 27 and 28, 2012. Mr. Zalnieriunas also visited the commercial sample preparation laboratory at Goose Bay, Newfoundland, during the period of December 2011 to January 2012.

1.1.1

Rare Earth Elements

The rare earth elements (REE), a group of metals also known as the lanthanides, comprise the 15 elements in the periodic table with atomic numbers 57 to 71. Yttrium (Y), atomic number 39, is often included with the lanthanides since it has similar chemical and physical characteristics often occurs with them in nature.

The 15 lanthanide elements are divided into two groups. The ‘light’ elements (LREE) are those with atomic numbers 57 through 62 (lanthanum to samarium) and the ‘heavy’ elements (HREE) from 63 to 71 (europium to lutetium). The term ‘middle rare earths’ comprises those with atomic numbers 62 through 64 (samarium, europium and gadolinium, also referred to as SEG). Generally, the light rare earth elements are more common and more easily extracted than the so-called ‘heavies’. In spite of its low atomic weight, yttrium has properties more similar to the heavy lanthanides and is included within this group. Promethium, atomic number 61, does not occur in nature. The rare earth element content of ores and products is generally expressed in terms of the oxide equivalent, or REO.

1.2

LOCATION AND PROPERTY DESCRIPTION

The Project is divided between two regional areas, these are:

Northern Project Area, comprising:

•

The mine site, beneficiation plant tailings management facility (TMF) at Strange Lake, Québec.

•

The port site at Edward’s Cove, Newfoundland and Labrador.

•

The access road of about 170 km between the above sites.

Southern Project Area, situated at Bécancour Industrial Park, Québec comprising:

•

The Bécancour process plant site.

•

The process plant residue management facility (RMF).

See Figure 1.1 for locations of project facilities.

Figure 1.1

Strange Lake Project, Location of Mine Site, Port and Processing Facilities

LOGO

1.2.1

Northern Project Area

The Strange Lake Property is situated on the provincial border between the Canadian provinces of Québec (QC) and Newfoundland and Labrador (NL). The Project is located on the southeast edge of Lac Brisson, approximately 235 km northeast of Schefferville, QC, approximately 150 km west of Nain, NL and 125 km west of the Voisey’s Bay nickel-copper-cobalt mine, owned and operated by Vale. Administration for the region is covered by the Administrative Region of Nord-du-Québec and the Kativik Regional Government.

The Strange Lake Property is covered by Canadian National Topographic System (NTS) map sheets 24A08, 14D05, and 14D01. The latitude and longitude for the Property are approximately 56°21’ N and 64°12’ W, respectively.

The Strange Lake Property is comprised of the 534 individual mineral claims covering a total area of approximately 23,230 ha, as summarized in Table 4.1. Quest has been letting claims on the peripheral edges of the property expire as they are not material to the integrity of the property.

The mineral claims in Québec cover the B Zone and a portion of the Main Zone rare earth element (REE) deposits. Quest has informed Micon that all of the claims are current and there are no outstanding issues.

Table 4.1

Summary of the Strange Lake Mineral Claims by Province


Province	Number of Claims	Area (ha)
Québec	504	22,479.84
Newfoundland and Labrador	30	750
Total	534	23,229.84

The mineral claims in Newfoundland and Labrador cover an area immediately south of the Main Zone REE deposit, historically referred as the A Zone by the Iron Ore Mining Company of Canada (IOCC). Mineral tenure in Newfoundland and Labrador allows for contiguous claims to be made under a single licence number. There are also several mineral claims that overlap the Québec and Newfoundland and Labrador claims due to the disputed location of the provincial border.

Included within the Newfoundland and Labrador total is a small group of 18 mineral claims that occurs along the coast of Labrador, south of the Voisey’s Bay mine, that were acquired in 2011. These mineral claims are listed here but they are not subject to this report and are mentioned only for completeness.

With regards to the mineral rights in Newfoundland and Labrador adjacent to the east of the Property, there are two blocks of claims designated Exempt Mineral Lands (EML) and Labrador Inuit Lands (LIL). The EML is currently off limits for exploration and mining and the LIL, may be explored with permitting and consultation with the Inuit of the Nunatsiavut Government.

[The Strange Lake Property comprises a total of 211 claims all located in Québec. The property, located 220 km northeast of Schefferville, Québec and 125 km west of the Voisey’s Bay Nickel-Copper-Cobalt Mine, covers an area of 9,367 hectares. During the year ended October 31, 2014, 293 claims covering 13,113 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. This information is not taken from the Technical Report and represents change from the information contained in the Technical Report.]

1.2.2

Southern Project Area

The southern project area encompasses the proposed sites for concentrate processing and residue management facilities (RMF) for the disposal of processing residue, located in the City of Bécancour, Québec.

The facilities will be located in the Bécancour Waterfront Industrial Park, on the south shore of the St. Lawrence River, approximately 12 km southeast of Trois-Rivières and approximately 140 km northeast of Montreal. The site is located at 46^o22’N, 72^o17’W.

The Bécancour industrial park is managed by the provincially-owned Société du parc industriel et portuaire de Bécancour (SPIPB) and covers an area of 6,900 ha, of which around one-third is used by industrial or service companies. Existing operations are concentrated in the portion of the industrial park located north of Highway 30. Within the industrial park, companies own the land they occupy. The SPIPB owns most of unoccupied lands within the industrial park, although a few properties are privately owned.

1.3

MINERAL CLAIMS, OWNERSHIP AND PERMITS

The Strange Lake Property is comprised of 534 individual mineral claims covering a total area of approximately 23,230 ha. A total of [504] of these claims are in Québec and 30 are located in Newfoundland and Labrador. Quest has been letting claims expire on the peripheral edges of the property as they are not material to the integrity of the property.

The mineral claims in Québec cover the B Zone and a portion of the Main Zone rare earth element (REE) deposits. The mineral claims in Newfoundland and Labrador cover an area immediately south of the Main Zone REE deposit, historically referred to as the A Zone by Iron Ore Mining Company of Canada (IOCC). Quest has informed Micon that all of the claims are current and there are no outstanding issues.

The mineral claims comprising the Strange Lake Project area around the B-Zone deposit are 100% owned by Quest. Quest has informed Micon that all of the mineral claims are free of NSR and other encumbrances except one claim CDC2123065 which has a 2% NSR. Claim CDC2123065 is located at approximately 1.2 km east of the B Zone deposit. The 504 Québec claims constitute the 100% Quest owned Strange Lake property and the 30 Labrador claims form the 50-50 Quest-Search Minerals Alterra JV property.

Quest has informed Micon that it has obtained all permits required to conduct exploration activities on the property.

5.0

ACCESSIBILITY, CLIMATE, LOCAL RESOURCES, INFRASTRUCTURE AND PHYSIOGRAPHY

5.1

NORTHERN QUÉBEC PROJECT AREA

5.1.1

Accessibility

The Strange Lake property is situated roughly 1,100 km northeast of Québec City, the provincial capital of Québec. It is only accessible by aircraft from Schefferville, Québec, and Nain or Goose Bay, Newfoundland. There are several regularly scheduled daily flights to Schefferville, Nain and Goose Bay from major cities in eastern Canada. Aircraft may also be chartered out of those northern communities.

Fixed-wing flights from Schefferville are typically 60 minutes and flights from Goose Bay are typically 90 minutes. Staging for the Strange Lake project is done from both Schefferville and Goose Bay. Flight time to Nain from Strange Lake is approximately 40 minutes.

5.1.2

Climate and Physiography

Northern Québec and Labrador are characterized by a cool subarctic climatic zone where summers are short and cool, and winters are long and cold with heavy snowfall.

The minimum and maximum mean annual temperatures are -10°C and 0°C, respectively. The average July minimum and maximum temperatures are 7°C and 17°C and the average January minimum and maximum temperatures are -29°C and -19°C (WorldClimate, Indian House Lake, Québec, www.worldclimate.com). Annual average precipitation is approximately 660 mm (WorldClimate, Border, Québec). The region receives up to approximately 350 cm of snow annually and the ground is snow-covered for six to eight months of the year. Exploration activities may be conducted during the summer and autumn months (June to November) and during the winter to early spring (January to April).

The property is situated in a glacially scoured terrain of rolling hills with low to medium relief where elevations vary from roughly 420 masl to 570 masl. The property is situated on west side of the major watershed that forms the border between Québec and Newfoundland.

The exposure and lack of vegetation in the area contributes to strong winds that generally have an easterly or westerly direction. Trees are confined to sheltered valleys or enclaves where mean temperatures may be higher.

Ericaceous shrubs and herbs, which are typical of tundra or heathland vegetation, consist mainly of willow, sedges, grasses, alders, sweet gale and juniper.

The property is dominantly covered by a layer of glacial till of variable thickness with abundant rock outcroppings. Glacial esker deposits are also common and range between 5 to 25 m thick. Vegetation throughout the property consists mainly of short tundra growth of shrubs and caribou moss, interspersed with low tamarack trees.

5.1.3

Local Resources and Infrastructure

There are no local resources in or around the Strange Lake property. Some local labour may be hired out of Goose Bay, Nain or Schefferville, but most skilled and professional labour will need to be sourced from other regions within Canada.

The nearest mine to the property is the nickel-copper mine of Vale SA at Voisey’s Bay, roughly 125 km to the east, on the coast of Labrador.

The property and environs have no developed infrastructure. The nearest developed infrastructure is located in the community of Nain. Nain is a coastal community that also serves as the local supply and service centre for the nearby Voisey’s Bay mine. There is no road access to Nain and it is serviced by regular, year-round flights from Goose Bay and by coastal freighters during the summer months. Schefferville is also a small community that is serviced by regular daily flights and twice-weekly by rail from Sept-Îles on the Bay of St. Lawrence.

There is an 800-m gravel airstrip located on the property that provides access to the Strange Lake Project.

The nearest seaport is in Nain, 125 km east of the property and the nearest railhead in Schefferville, 235 km southwest of the property, with access to the seaport at Sept-Îles.

There is no source of electricity on or near the property and power must be generated on site. The nearest sources of electricity are in Voisey’s Bay, Churchill Falls and Menehek Lake.

Water sources are abundant on and adjacent to the property.

5.2

SOUTHERN QUÉBEC PROJECT AREA

5.2.1

Accessibility

The proposed plant and RMF are located in the Bécancour Waterfront Industrial Park, on the south shore of the St. Lawrence River in the physiographic area known as the St. Lawrence Lowlands. The terrain is generally flat and rises gently from the river, from approximately 20 m to 40 m above sea level at the southern edge of the park. Several minor watercourses drain the area to the St. Lawrence, with wetlands concentrated near the river, as well as near the local height of land in the southern portions of the industrial park.

5.2.2

Climate and Physiography

The Bécancour region experiences a humid continental mid-latitude climate characterized by warm summers and cold winters with frequent periods of very cold temperatures and clear skies. Temperature variations are moderated somewhat by the presence of the St. Lawrence River, especially in the winter when the river is not frozen. Between 1971 and 2000, the average summer temperature was 16.8°C (May to August) with a recorded maximum of 35.6°C. The average winter temperature (November to February) was -7.8°C with a minimum recorded low of -39°C. The coldest month is typically January, and the warmest is typically July.

Normal precipitation (snow and rainfall) for Bécancour from 1971 to 2000 varied from a low of 63 mm in February (water equivalent of snowfall) to a high around 120 mm in August. The annual average precipitation was approximately 1,085 mm per year during this period. Dominant wind directions are from the southwest (25 % of the time), from the north (19 % of the time, and northeast (17 % of the time).

Vegetation around the site consists of abandoned croplands dominated by young trees or shrubs, swamps and marshes, some cultivated fields and some tree plantations.

5.2.3

Local Resources and Infrastructure

The Bécancour Waterfront Industrial Park is located within the City of Bécancour (population 12,438 in 2011) and the Regional County Municipality (RCM) of Bécancour (population 20,081 in 2011 including the City of Bécancour) on the south shore of the Saint-Lawrence River. The Aboriginal reserve of the Abenaquis community of Wôlinak (population 180 in 2011) is located in close proximity on the south side of the City of Bécancour. The City of Trois-Rivières (population 131,338 in 2011) is located some 12 km away on the north shore of the St. Lawrence River.

The industrial park has excellent, well-established, all-weather transportation links to provincial and national road and rail systems. Highway 30 runs through the northern part of the park serving the south shore of the St. Lawrence River. It connects with Highways 20 and 40 via Highway 55, and which provide links to Montreal and Québec City. Highway 261 runs from southeast to northwest across the industrial park, between Highways 30 and 20. The industrial park builds and maintains its own network of roads that meet the specific standards of heavy carriers. The park is served by the Canadian National Railway (CN).

Shipping facilities at the port of Bécancour are open year-round. Ships requiring up to 10.67 m water depth can be docked at five berths. In addition to storage, services including stevedoring, towage, customs, and a marine agency are available.

Electricity is provided from the Churchill Falls and James Bay hydroelectric facilities, as well as the network of power stations along the St. Maurice River, and a 550 MW cogeneration plant is located in the park. The park is also serviced by natural gas, industrial water, fire protection, potable water and sewer systems.

A preliminary analysis of the labour pool in Bécancour shows that the region has a sufficient number of well-trained workers to support the construction and operation of the plant and RMF. Over 75% of the population of the RCM have attained a high school certificate or higher education. There are also several local training institutions, although specific training may be required for development of the specialized skills associated with rare earth mineral processing.

Existing commercial occupants of the industrial park include Aluminerie de Bécancour Inc. (Alcoa Inc. and Rio Tinto PLC), Silicium Québec SEC, Olin Canada ULC and TRT-ETGO.

1.4

HISTORY AND GEOLOGICAL SETTING

The Strange Lake project lies within the Paleoproterozoic Rae or Southeastern Churchill Province (SECP) located in the northeastern Canadian Shield of Québec and Labrador. The Strange Lake deposit is part of a post-tectonic, peralkaline granite complex which has intruded along the contact between older gneisses and monzonites of the Churchill Province of the Canadian Shield.

Mineralization of interest at Strange Lake occurs within peralkaline granite-hosted pegmatites and aplites and, to a lesser degree, within the host granites, particularly in intra-pegmatitic granites.

The Strange Lake Property has been covered by national and provincial government surveys between 1967 and 2009. In 1980, in partnership with the Geological Survey of Canada (GSC), the Newfoundland and Labrador Department of Mines and Energy, Mineral Development Division released a detailed lake sediment, water and radiometric survey. This survey was the first time the strong dispersion pattern of the Strange Lake mineralization was published and it led directly to the Iron Ore Company of Canada (IOCC) discovery of the Strange Lake Alkali Complex (SLAC) and associated REE and high field strength elements (HFSE) mineralization. Subsequent drilling up to 1984 culminated in the discovery of the Strange Lake REE and HFSE mineralization, which IOCC named the A Zone (renamed Main Zone by Quest).

Analytical data of ZrO₂ and Y₂O₃ obtained by IOCC from diamond drilling and bedrock mapping were used in the calculation of the younger alkali granite in the central part of the Strange Lake area, and aided in the identification of the second most anomalous zone of mineralization in the Strange Lake area, named the B Zone by IOCC.

Between 1980 and 2006, a succession of companies other than IOCC worked in the area or on the property encompassed by the current Strange Lake Property boundaries. In 2006, Freewest Resources Canada Inc. (Freewest) staked 23 non-contiguous claim blocks totalling 220,813 ha for the purpose of uranium exploration. In late 2007, Freewest transferred its George River Project claims to Quest. The Property is encompassed by Freewest’s Block 1 exploration target and contiguous to Block 8.

In April 2010 Wardrop, a Tetra Tech Company, published a mineral resource estimate on the Strange Lake B Zone deposit in a NI 43-101 Technical Report. Wardrop also completed a PEA on the Project in September, 2010 and updated the mineral resource estimate in May, 2011.

The most recent and current mineral resource estimate with an effective date of 31 August, 2012 on the Strange Lake B zone deposit was published by Micon in December, 2012. Micon also completed a prefeasibility study on the Project in December, 2013.

1.5

MINERAL RESOURCE ESTIMATE

1.5.1

Resource Classification

Micon has assigned the resources in the B Zone deposit to the Indicated and Inferred classification on the basis of data density. At this time Micon has not assigned any Measured resources. The majority of the B Zone deposit has been drilled at a spacing of 50 m by 50 m with some areas drilled at 25 m by 50 m. At depth, the drill hole spacing becomes 200 m by 100 m since the majority of holes were drilled to less than 150 m depth. The Indicated class was assigned to all resource blocks which fall in areas with a drill spacing of at least 50 m by 50 m and were estimated using at least 16 samples from a minimum of four drill holes. All remaining resource blocks in the block model occurring within the optimized pit shell and with an estimated a grade greater than zero were assigned to the Inferred classification.

1.5.2

Resource Estimate

The mineral resources at B Zone occur near to surface and are amenable to conventional open pit mining methods. An economic cut-off base case grade of 0.5% TREO was considered appropriate for reporting the mineral resources.

Indicated Mineral Resources are estimated at 278.13 Mt at 0.93% TREO. Inferred Mineral Resources are estimated at 214.35 Mt at 0.85% TREO. Table 1.1 shows a breakdown of the mineral resource estimate above a 0.50% TREO cut-off grade.

Table 1.1

B Zone Mineral Resources above 0.50%TREO Cut-off Grade


	Units		INDICATED				INFERRED
	Units		Enriched Zone		Granite Domain		Granite Domain
Resource		000 t		20,020		258,108		214,351

La₂O₃		%		0.150		0.120		0.120
CeO₂		%		0.360		0.270		0.270
Pr₆O₁₁		%		0.039		0.030		0.029
Nd₂O₃		%		0.140		0.110		0.110
Sm₂O₃		%		0.036		0.024		0.023
Eu₂O₃		%		0.002		0.001		0.001
Gd₂O₃		%		0.039		0.023		0.022
Tb₄O₇		%		0.009		0.005		0.004
Dy₂O₃		%		0.066		0.032		0.028
Ho₂O₃		%		0.015		0.007		0.006
Er₂O₃		%		0.049		0.022		0.019
Tm₂O₃		%		0.008		0.003		0.003
Yb₂O₃		%		0.051		0.022		0.019
Lu₂O₃		%		0.007		0.003		0.003
Y₂O₃		%		0.470		0.220		0.190
LREO		%		0.72		0.55		0.55
HREO + Y		%		0.72		0.33		0.3
TREO		%		1.44		0.89		0.85
H:T Ratio		%		50		38		35
ZrO₂		%		2.59		1.87		1.71
HfO₂		%		0.06		0.05		0.04
Nb₂O₅		%		0.34		0.16		0.14
Be		ppm		575		234		184
Th		ppm		559		268		227
U		ppm		97		51		44

Mineral resources which are not mineral reserves do not have demonstrated economic viability. The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, sociopolitical, marketing, or other relevant issues. However, it is Micon’s opinion that no known environmental, permitting, legal, title, taxation, socio-economic, marketing or political issues exist that would adversely affect the mineral resources presented above.

The quantity and grade of reported inferred resources in this estimation are conceptual in nature and there has been insufficient exploration to define these inferred resources as an indicated or measured mineral resource and it is uncertain if further exploration will result in upgrading them to an indicated or measured mineral resource category.

The effective date of the mineral resource estimate is August 31, 2012. The estimate was disclosed in the previously filed Technical Report dated December 14, 2012.

1.6

MINERAL RESERVE ESTIMATE

There is no mineral reserve. The present PEA can only indicate the potential viability of mineral resources and cannot be used to support mineral reserves.

1.7

MINING METHODS

A conventional open pit mining operation is proposed for the extraction of mineralized material from the B Zone rare earth element mineral deposit for the Strange Lake Project.

Mining will be undertaken by Quest using its own equipment and workforce. Specialized contractors will be used for the initial site clearing and initial haul road construction in preparation for the mining equipment fleet. Explosives, blasting agents, fuel and other consumables will be sourced from established suppliers.

The Strange Lake Project resources are contained in a single deposit. The open pit and internal phases were designed using Vulcan software, preliminary geotechnical designs, recommended standards for road widths and minimum mining widths based on efficient operation for the size of mining equipment chosen for the project.

The ultimate pit limit for the Strange Lake deposit was selected based on Lerchs-Grossmann (LG) open pit optimizations using Whittle™ software. The pit will be developed using five distinct phases designed to approximate an optimal extraction sequence. The phase designs are based on slope design parameters and benching configurations provided by AMEC. A mine production schedule was prepared by Micon using Maptek’s Chronos scheduling software. The five pit phases are shown in Figure 1.2.

Figure 1.2

Plan View of Pit Phases at 440 m Elevation

LOGO

Pit designs were constrained by a 120-m offset from Lac Brisson which lies to the northwest.

The PEA mine design assumes a mine life of 34 years which completely exhausts the low grade stockpiled material. However, the PEA economic model assumes a 30 year life which results in 11.16 Mt low grade mined mineralization remaining in a stockpile.

Over the 34-y mine life, an estimated 4.77 Mt of overburden will be removed from the pit area. Total mineralized material mined is estimated at 57.30 Mt. Total waste rock placed in the waste stockpile is estimated to be 15.79 Mt.

In order to avoid the worst winter weather, the mine will be operated on a nine-month (270-day) basis. During this time period, the mine will operate two 12 h shifts, 7 d/w.

1.8

METALLURGICAL TESTWORK AND RECOVERY METHODS

Development testwork that forms the basis of the PEA process flowsheet and design was carried out primarily at SGS Lakefield Research, in Lakefield, Ontario. These testwork programs used representative mineralized samples from the Strange Lake B Zone deposit.

The PEA flowsheet comprises crushing, grinding and flotation that will be undertaken as the Strange Lake site, followed by further processing at a facility at Bécancour. Processing at Bécancour will include acid thermal processing (acid bake) and water leaching to extract the payable elements into solution followed by hydrometallurgical precipitation to recover the rare earth elements and yttrium into a mixed REE+Y concentrate. The REE+Y concentrate will be treated to recover individual rare earth and yttrium oxides.

A simplified process block diagram is presented in Figure 1.3.

Figure 1.3

Simplified Process Block Flow Diagram

LOGO

The crushing, grinding and flotation processing facility at Strange Lake is designed to operate for 365 days per year at a design throughput of 1,346,000 t/y for the first 23 years of the mine life. A plant expansion will enable the processing of up to 3,170,000 t/y of lower grade stockpiled mineralized material from year 24 onwards to the end of planned production.

The average design throughput of the southern Quebec processing facility is 1,671 t/d of flotation concentrate. This facility is designed to operate for 365 days per year.

The average metal recoveries estimated from the metallurgical testwork are presented in Table 1.2. These recoveries were used for the mine optimization and in the PEA economic model.

Table 1.2

Average Project Metal Recoveries


Element	Flotation Yr 1-23 (%)			Flotation Yr 24-30 (%)			Leach Extraction (%)			Direct Precipitation Plant Recovery (%)			Separation Plant Recovery (%)			Recovery from Mine to Separated Oxide Yr 1-23 (%)
La		93	%		60	%		87	%		95	%		98	%		75	%
Ce		92	%		59	%		89	%		94	%		98	%		76	%
Pr		92	%		58	%		91	%		94	%		98	%		77	%
Nd		91	%		56	%		91	%		94	%		98	%		77	%
Sm		91	%		54	%		90	%		93	%		98	%		75	%
Eu		90	%		51	%		89	%		93	%		98	%		73	%
Gd		91	%		52	%		90	%		94	%		98	%		75	%
Tb		90	%		52	%		88	%		93	%		98	%		72	%
Dy		90	%		52	%		86	%		92	%		98	%		70	%
Ho		90	%		51	%		84	%		92	%		98	%		68	%
Er		89	%		50	%		83	%		91	%		98	%		65	%
Tm		88	%		48	%		81	%		89	%		98	%		62	%
Yb		87	%		47	%		80	%		85	%		98	%		58	%
Lu		86	%		45	%		79	%		85	%		98	%		57	%
Y		90	%		51	%		86	%		94	%		98	%		71	%

1.9

INFRASTRUCTURE

1.9.1

Northern Project Area

Facilities considered essential to support operations comprise an accommodation camp, a multi-functional building and a maintenance workshop building. Site access roads will link the mine and beneficiation plant with these buildings, mineralized material stockpiles, waste rock dump, ponds, landfill, and an airstrip.

1.9.1.1

Mine Site Water Supply and Sewage Treatment

Lac Brisson is expected to be the major source of fresh water, and esker SG-1 is also considered a potential source. More detailed analyses, particularly for radionucleides, will be required to confirm suitability of each source and, in line with best practice, all potable water will be treated before use.

Sewage treatment plant at the mine site will comprise a containerised, skid-mounted plant with septic and equalization tanks.

1.9

Fuel Storage and Distribution

Fuel storage at the mine will be for the equivalent of approximately three weeks of supply. This tank will be located in a bermed containment area; secondary containment will protect against leaks and spills. A further 13 weeks supply will be stored at the Edward’s Cove port and delivered to the mine by road tanker as required.

A refuelling station will serve light and heavy vehicles.

The airstrip will be equipped with a 30 m³ tank for the storage of aviation fuel to be used in case of emergency.

1.9.1.3

Power Supply

A power plant at the mine site will be equipped with a battery of diesel generators. A diesel power plant will also be installed at the port site. The airstrip will also have its own supply, provided by a 250 kW diesel generator.

1.9.1.4

Mine Site Buildings

A temporary construction camp will be located within the vicinity of the proposed mine site facilities. Permanent camp facilities will also be located within the vicinity of the mine site. The camp will be a modular design constructed to industry acceptable standards for long term, permanent site accommodation for mine operations personnel, with additional space for truck drivers and other visitors. Arctic corridors will be provided to link the buildings.

A multi-functional building will incorporate heated and non-heated warehouses, change-house, lockers, laundry facilities, medical and fire safety, laboratory, offices and meeting rooms for mine management and administration staff; garages for emergency vehicles, and associated emergency response equipment storage.

The main mine site maintenance shop will be part of the mine site maintenance and warehouse facility.

Heated and unheated storage at the mine site will be provided in the multifunctional building sufficient to store goods and equipment parts for use during the winter months.

1.9.1.5

Airstrip

The airport facility will be capable of operating 24 h/d, 365 d/y. The runway and taxiway will be constructed of gravel. A trailer will be used for the terminal building.

1.9.1.6

Medical Emergency Response

Medical and emergency response facilities will be provided at the multifunctional building at the mine site. An ambulance will be available and maintained in the ambulance bay of this building complex and a nurse’s station will be provided at the mine permanent camp.

1.9.1.7

Waste Management and Landfill

Recoverable materials will be compacted on site, and sent to a sorting facility. Special waste will be sent to an authorized treatment/disposal facility. Kitchen/organic waste and other non-recyclable and non-hazardous domestic wastes will be despatched by road twice a week to the port site for incineration. A landfill to accommodate non-hazardous solid waste will be built along the access road between the airport and the open pit.

1.9.1.8

Tailings Management Facility

Residue from the flotation plant will be stored in the tailings management facility located at the mine site. In order to minimize any potential impact to the local environmental, the tailings will be thickened filtered and dry-stacked within a lined area.

1.9.1.9

Mine Access Road

The link between the port and the mine site will be an 8-m wide all-weather access road, constructed over a distance of about 170 km. The preferred alignment represents the shortest route; provides the fastest travel time for a roundtrip between the port and the mine site; and traverses less difficult topography than other routes considered in the study. The proposed route crosses three water courses; two culverts and a bridge will be required, and will meet seasonal caribou crossing requirements.

1.9.1.10

Edward’s Cove Port

A systematic analysis of various options for the location and design of a wharf resulted in the identification of Alternative 6 (Floating Wharf) as the preferred option, principally since this structure could be dismantled during the ice season, and potentially requires less capital.

As well as the marine works (wharf), on-shore infrastructure at the port includes ancillary facilities located 2 km from the shoreline. A temporary landing barge and airstrip will be required during the construction phase.

Concentrate will be delivered to the port in 30-t shipping containers. Container handling at Edward’s Cove varies depending on the season:

•

When ships are at berth (summer operation) full containers will be delivered to the ship, and concentrate will be reclaimed by front end loader from the concentrate stockpile to fill empty containers unloaded from the ship.

•

When there are no ships at berth (winter operation) lids will be removed from full containers which are then handled using a reach stacker equipped with a Rotabox, to empty the concentrate from the container into a mobile feed hopper. From here, a transfer conveyor and a stacker conveyor will feed the concentrate stockpile.

Empty containers will be loaded onto tractor trailers for back haul to the mine.

Fuel Handling and Storage

The fuel tank farm will be located near the wharf where tankers will be offloaded. Arctic diesel fuel will be pumped from the fuel tanker using the ships pumps, boosted as required through a pumping station located on the dock and delivered to the tank farm through a double walled pipeline system. The tanks will be placed within a bermed containment area. Secondary containment will protect against accidental leaks and spills. A foam-based fire protection system will be employed.

Road tankers will collect fuel from a filling station located between the tank farm and the access road to the mine site.

Port Area Facilities

In the port area, an accommodation camp, multi-functional building and warehouse will be established in the location used as a laydown area during construction.

At the commencement of project construction, a hotel barge or similar vessel will be used to house construction workers for the terminal. The permanent camp will be located approximately 2 km south of the wharf along the access road connecting the port with the mine. It will be of a pre-fabricated modular design, constructed to industry acceptable standards.

Water Supply, Treatment and Run-Off Management

Groundwater is believed to be the most cost-effective and convenient source for the modest volume of water supply required in the port area. Specific sources should to be identified and tested at the feasibility stage.

Wastewater treatment will be through skid-mounted, containerized sewage treatment plants.

The concentrate stockpile area will be fully bermed and lined with geomembrane to prevent absorption of water, and so will generate runoff proportionate to rainfall received.

Power Supply

After consideration of alternatives, the study concluded that both the port and its camp should be powered using medium speed diesel generators burning Arctic fuel. Approximately 85% of surplus heat energy will be recovered from the generators using a recovery system supplying heat to adjacent buildings.

1.9.1.11

Other Infrastructure

Communications (voice and data) from the Northern project area will be via a bi-directional satellite link, with local networks for on-site communications, supplemented by two-way radios and a satellite-based real time location system (RTLS) for vehicles travelling between the mine and the port.

1.9.2

Southern Project Area

1.9.2.1

Bécancour Port

The existing port and berth structures at Bécancour are adequate to receive vessels of the size required to deliver up to 610,000 t/y concentrate in containers. No marine works or modification of the port is envisaged in the PEA.

1.9.2.2

Bécancour Processing Plant

As well as the port facility, existing infrastructure supporting the processing of concentrate at the Bécancour plant includes the availability of utilities at the industrial park (industrial water supply, sewage disposal, electrical power and gas supplies). In addition, the industrial park is responsible for the provision of emergency (fire, medical) and waste management services.

1.9.2.3

Site Drainage

The concentrate stockpile area will be lined with a geomembrane to allow collection of all rainwater and a network of drains will deliver this runoff to a retention pond where solids will settle before the water is sent to the process plant.

1.9.2.4

Residues Management

As part of the December, 2013 PFS, SLR International Corporation (SLR) prepared a study that describes the nature of the process residues, and the selection of the method and location of residue disposal in southern Québec. SLR also provided conceptual designs for the residue management facility (RMF) with 30-year capacity at an average processing rate of 4,000 t/d. The SLR studies have been used as a basis for the PEA conceptual design and cost estimates for the process waste management facilities.

With production of the flotation concentrate at the Strange Lake site and a simplified hydrometallurgical process for the recovery of rare earths and yttrium, production of residues in the Bécancour processing facility will be smaller than envisaged in the PFS.

1.10

MARKET STUDIES AND CONTRACTS

Quest retained Roskill Consulting Group Limited (Roskill) to prepare an analysis of the markets for rare earths, zirconia and niobium based on the production level for the Strange Lake project. Roskill interviewed a total of 31 companies representing the sectors of interest, located in North America, Europe and Asia. The report was updated for rare earths and niobium in January, 2013 and an update on rare earth pricing was prepared in August, 2013.

1.10.1

Rare Earth Elements and Yttrium

Rare earths and yttrium usually enter the market as chemical concentrates, oxides, metals or metal alloys. Most oxides are typically sold at purities of >99.9% REO and metals within the same range for total metal content.

China has dominated the global supply of rare earths since the mid-1990s after a rapid growth in rare earth output and, in 2012, is estimated to have accounted for 86% of global rare earth supply. Both production and exports of Chinese rare earths are controlled by the central government. Outside China, rare earths are produced in the United States, Russia and India, with relatively minor amounts also produced in Malaysia and Brazil.

Most LREEs are derived from bastnaesite and monazite, the majority from Inner Mongolia and Sichuan in China, but with increasing volumes from the Mountain Pass operation of Molycorp, Inc. (Molycorp) in the United States and the Mount Weld operation of Lynas Corporation Ltd. in Australia. Almost all HREEs are derived from ion adsorption clays that are found in a number of provinces in southern China. Production of HREEs in the rest of the world is expected to come principally from the minerals which occur in igneous alkaline or carbonatite intrusives.

The rare earths market is not a single entity and the individual elements have their own demand drivers. For example, neodymium and dysprosium are used mostly in magnets while the principal market for terbium and yttrium is in phosphors. High growth rates for the applications in which neodymium and HREEs are used emphasise the lack of connection between the natural occurrence of the rare earth elements and the ratios in which they are consumed. Inevitably, there will be periods in which some rare earth elements are in surplus while others are in deficit.

Roskill estimated that metallurgical applications, magnets and catalysts each accounted for approximately 20% of total demand for rare earths in 2012. Polishing compounds accounted for a further 15%. Ceramics, phosphors and glass each accounted for between 5% and 10% of the total with the balance in a wide range of relatively minor applications.

Global trends which have strongly influenced the demand for rare earths are miniaturization, particularly of consumer electronic devices, automotive emissions control and energy efficiency, coupled with the general shift of manufacturing away from the United States, Europe and Japan to China, South Korea and elsewhere. Demand for rare earths within China has grown significantly over the past 10 years. This reflects the extent of its increased manufacturing capability, specifically in a wide range of products which utilize rare earths.

1.10.2

Pricing

There is no terminal market for rare earth products and sales are arranged between buyer and seller.

Spot prices for the principal rare earth oxides, FOB China, are reported by Industrial Minerals, www.indmin.com, and prices for a full range of Chinese rare earth products are reported by Asian Metal, www.asianmetal.com and Metal-Pages Ltd., www.metal-pages.com.

Based on its assessment of the updated pricing outlook prepared by Roskill in August, 2013 and its own data collection and analysis, Quest prepared projections of prices for separated rare earth oxides.

1.10.3

Contracts

In July, 2013, Quest announced the signing of a non-binding letter of intent with TAM Ceramics Group of New York, LLC (TAM), under which TAM intends to purchase 100% of zirconium basic sulphate (ZBS) which, at the time, was envisaged would be produced from the Strange Lake project. Due to the change in Quest’s flowsheet, ZBS will not be produced although the extraction of zirconium from the processing residues will be developed in the future. The letter of intent will be allowed to expire at the end of 2014.

Quest is pursuing opportunities for strategic alliances, tolling and off-take agreements.

At the time of writing, there are no other contracts or agreements in place.

1.11

ENVIRONMENTAL STUDIES, PERMITTING AND SOCIAL OR COMMUNITY IMPACT

Environmental work is being carried out with support from local Aboriginal partners and regional service providers to the greatest extent possible.

Quest reports that work on the Environmental Impact Assessment (EIA) for all project components will start early in 2014, following submission of a project description to the relevant government authorities. EIAs may be triggered in four jurisdictions: two in Québec (north and south), Newfoundland and Labrador (provincial and Nunatsiavut), and one with the federal government. Assuming some degree of harmonization between jurisdictions, the EIA studies and associated public consultations are expected to take approximately two years to complete. The EIA would be followed by a period of up to six months in which to obtain necessary environmental approvals prior to initiating construction.

Appropriate mitigation and monitoring plans are being considered by the project team to address unavoidable environmental impact of mining, including possible compensation scenarios for any net wildlife habitat loss and project closure reclamation.

It is understood that Quest has in hand all permits necessary to conduct exploration and prefeasibility study work. Permits and approvals will be sought once the project is released from the EIA process.

No potential environmental issues have been identified that may affect extraction of mineral reserves at Strange Lake and which cannot be mitigated through implementation of appropriate measures.

1.11.1

Baseline Studies

The Strange Lake Project has been divided into northern and southern areas for the purposes of environmental baseline studies. Baseline studies have been undertaken for all or part of the relevant project components located in northern Québec. For the southern Québec area, a desktop review of existing information was completed by spring 2013 followed by field investigations to collect baseline data. These baseline studies are currently being completed and other studies will be undertaken in spring and summer, 2014.

Baseline studies in both northern and southern areas are broadly similar in scope and include physical, biological and social/socio-economic components (covering traditional knowledge and archeological surveys).

Ongoing environmental monitoring and reporting are conditions of both federal and provincial environmental assessment approvals, as well as certain operating permits. The EIA process will provide the basis for a monitoring program.

1.11.2

Closure Plan

A conceptual closure plan was developed for the December, 2013 PFS to cover all of the project components in the northern and southern areas. Quest will comply with the Québec Mining Act and its associated regulations, as well as with similar standards in Newfoundland and Labrador. Companies are required to file a site rehabilitation plan and to provide financial guarantees in both provinces. The PEA assumes that the conceptual closure plans developed for the PFS still apply.

The conceptual closure plan follows the 1997 Québec guidelines to restore the mine site to a satisfactory condition. It assumes that the future land use in the northern project area is wildlife habitat and that disturbed areas will be returned to the pre-mining state so that traditional activities can resume. Alternative land uses may be explored as more information is available regarding stakeholder expectations. It is assumed that progressive rehabilitation will not be carried out during operations, mainly because the entire open pit will continue to be developed and the road/port used during the life of the mine. An allowance of 10 years for post-closure monitoring has been made for data collection and analysis to demonstrate achievement of the closure criteria and objectives.

It is assumed that future use for the Bécancour site will continue to be industrial.

No post-closure monitoring for the processing plant area is anticipated. Post-closure monitoring and maintenance for the RMF was developed for the December, PFS. The approach remains applicable to the PEA.

A closure risk register summarizing proposed conceptual closure plan treatments and associated residual risks has been developed.

1.11.3

Engagement and Communications

General issues affecting all stakeholder categories will be addressed through the EIA and consultation processes. An Engagement and Communications Plan (ECP) has been developed to establish social acceptance for the project based on defined engagement levels. The ECP will support future project development activities. It is structured around consultation with governments, Aboriginal groups and non-aboriginal stakeholders. The ECP has been designed to ensure key stakeholders are well informed and have ongoing opportunities to engage in discussion about the project, and for their concerns and interests to be addressed. The ECP is designed to fulfill the requirements of the different jurisdictions for local review and consultation.

Quest initiated early meetings with certain northern Aboriginal leaders in 2008. A series of strategic meetings was undertaken in 2012 to provide all key groups with similar levels of information and a comparable opportunity to ask questions and comment on the initial project concept. In January 2013, draft Memoranda of Understanding were presented to potentially-affected Aboriginal groups, to serve as a basis for negotiations to commence in 2014 on Impact and Benefit Agreements (IBA) or other similar arrangements. The current schedule anticipates resolution by early 2016, which will facilitate the federal government’s own requirement to consult with Aboriginal groups before issuing environmental approvals. Both Aboriginal and government stakeholders have been provided with regular updates on the progress of both environmental studies and community engagement.

In southern Québec, a preliminary evaluation of potential social and cultural issues was carried out through a desktop review. No direct consultations have yet been held since the project components in the southern project area were publically announced only early-November, 2013. Socio-economic baseline studies and stakeholder mapping exercises have been carried out. A review was also completed of the issues and concerns raised by economic and environmental citizen groups and NGOs during the development of other industrial developments around the area in the last decade.

1.12

CAPITAL AND OPERATING COSTS

1.12.1

Capital Costs

One of the primary objectives of the PEA was to achieve a capital cost estimate with a target accuracy of better than ±35%, for the mine site, port site, access road and processing plant site, including indirect and Owner’s costs.

To achieve this objective, the majority of the direct capital cost items were estimated from engineering designs and costs available, based on work Quest completed for the PFS. Available capital cost information was appropriately factored and adjusted to estimate the direct capital cost for the revised project plan. For the mine, port, and access road, preliminary design information was used to develop material take offs which were priced at current day rates. There are no changes to the port and access road from what is presented in the PFS. The indirect costs were calculated on the basis of conceptual methodology of executing the projects to estimate time and resources required, and vendor quotations. For some components, percentages were considered more appropriate and were based on experience.

The total estimated capital cost for the project in 2nd/3rd quarter 2013 CAD is $1,631 million including an itemized contingency of 16% of direct and indirect costs. Certain areas unchanged from the PFS retained the PFS contingency while new estimates for the PEA have a contingency of 25% applied. The separation plant has a contingency built into its estimate. A summary of the capital cost is included in Table 1.3.

Table 1.3

Summary of Capital Cost Estimate


Area	Capital Cost ($M)
Strange Lake Mine Site		201.0
Mine Access Road		228.3
Edward’s Cove Port		52.8
Bécancour Process Plant		127.4
Bécancour Direct Precipitation		72.6
Bécancour Balance of Plant		88.6
Bécancour Residue Disposal Site		41.1
Bécancour Separation / Refinery		190.4
Indirect Costs		407.0
Contingency		221.4

Total		1,631.0

The capital cost estimate was prepared by Quest and Micon, primarily based on factorization of existing cost estimates (completed by AECOM, Hatch and SLR for Quest’s 2013 PFS) to reflect the updated project scope.

1.12.1.1

Sustaining Capital Costs

Sustaining capital is the investment required to maintain production at the planned level throughout the 30 year project life. The sum total over the 30 years is estimated at $529 million.

1.12.2

Operating Costs

Table 1.4 shows a summary of the estimated LOM operating costs.

Table 1.4

Summary of Operating Cost Estimate


Area	LOM Operating Cost ($M)		Avg. Annual Cost ($M)		Unit Operating Cost ($/t milled)		Unit Operating Cost ($/t flotation concentrate)		Unit Operating Cost ($/t production)
Mining		654		21.8		14.18		38.38		2,092
Beneficiation		1,002		33.4		21.71		58.77		3,203
Concentrate transport		1,625		54.2		35.23		95.37		5,198
Processing		6,595		219.8		142.95		386.96		21,092
G&A (site costs)		315		10.5		6.84		18.50		1,009
Off-site costs		519		17.3		11.24		30.44		1,659

Total		10,710		357		232.15		628.42		34,254

The costs presented above include all on-site and off-site cash costs, but exclude post production closure costs of $138.3M and non-cash depreciation charges.

1.13

ECONOMIC ANALYSIS

1.13.1

Prices for Rare Earths

There is no terminal market for rare earth products and sales are arranged between buyer and seller.

1.13.1.1

Price Projection

Based on its assessment of the updated pricing outlook prepared by Roskill in August, 2013 (Roskill, 2013b) and its own data collection and analysis, Quest prepared projections of prices for separated rare earth oxides.

Rare earth and yttrium oxide prices starting in 2020 used in the financial model are shown in Table 1.5.

Table 1.5

Projected Prices for Rare Earth Elements and Yttrium


Rare Earth/Yttrium Oxide	Price (US$/kg)
La₂O₃		9.00
CeO₂		8.00
Pr₆O₁₁		85.00
Nd₂O₃		80.00
Sm₂O₃		9.00
Eu₂O₃		1,000.00
Gd₂O₃		40.00
Tb₄O₇		950.00
Dy₂O₃		650.00
Ho₂O₃		55.00
Er₂O₃		70.00
Tm₂O₃		1,000.00
Yb₂O₃		50.00
Lu₂O₃		1,100.00
Y₂O₃		30.00

1.13.2

Economic Analysis

Assessment of the economic viability of the project, including testing of the sensitivity of returns to changes in key parameters, has been carried out using a discounted cash flow model. For the purposes of the evaluation, it has been assumed that the operations are established within a single corporate entity. The project has been evaluated on an unlevered, all-equity basis.

The model uses inputs from all elements of the project to provide a comprehensive financial projection for the entire project, on an annual basis over a 30-year operating life. All costs and revenues are expressed in constant, 2013 Canadian dollars. Where appropriate, an exchange rate of $1.05 per US dollar has been applied.

Annual revenues by element are shown in Figure 1.4 which how the project focuses on producing a relatively constant supply of individual rare earth products throughout the mine life.

Figure 1.4

Annual Revenues by Element

LOGO

Over the life of the operation, 42% of annual REO production and 78% of total project revenues will be derived from the HREE+Y concentrate.

1.13.1

Cash Flow Projection

The project cash flow is illustrated in Figure 1.5.

Figure 1.5

LOM Project Cash Flow

LOGO

The net present value (NPV) over a range of discount rates, internal rate of return (IRR) and undiscounted payback of the base case cash flow are shown in Table 1.6.

Table 1.6

Summary of Economic Results


Discount Rate (%)	Pre-Tax NPV ($M)		After-tax NPV ($M)
8%		2,072		1,236
10%		1,416		788
12%		947		465

IRR (%)		20.1		16.7
Payback period (y)		5.0		5.3

Micon considers that a discount rate of 10%/y to be appropriate for use as its base case for the purposes of conducting further analysis of project value.

1.13.4

Sensitivity Study

Micon has tested the sensitivity of the project after-tax NPV at an annual discount rate of 10% (NPV₁₀) to changes in the principal drivers of project value over a range of 30% above and below base case parameters. The results, shown in Figure 1.6 demonstrate that after-tax NPV₁₀remains positive even with a 20% adverse change in project revenues, representing any combination of grade, yield, market prices and discount factors.

Figure 1.6

Sensitivity Study Results

LOGO

The project is significantly less sensitive to changes in operating and capital costs, with an adverse 30% change reducing NPV₁₀ by approximately 62% and 41%, respectively.

1.13.5

Conclusion

Micon concludes that the project base case cash flow and sensitivity studies demonstrate that the project has potential to provide economic returns and is sufficiently robust to withstand adverse changes in the tested parameters over the expected range of accuracy of the PEA.

1.14

OTHER RELEVANT DATA AND INFORMATION

1.14.1

Project Development Schedule

Quest has set out the following milestones and dates for the development schedule for the Strange Lake Project. It can be seen that, within the overall project development schedule, the schedule for submission of documentation relating to the EIA and the receipt of approval of the EIA are critical to the start of construction in January, 2017.


Submission of EIA project description	:	September 2014
Start feasibility study	:	October 2014
Start detailed design and engineering	:	January 2015
Submission of EIA report	:	November 2015
Approval of EIA	:	December 2016
Delivery of construction permits	:	January 2017
Start of construction	:	January 2017
First concentrate shipment	:	April 2019
Bécancour plant start-up	:	May 2019

1.14.2

Risk Register

A project risk register was developed during the PFS (December, 2013) to assess risks and develop management or mitigation measures for the project. Seven critical risk items were identified, which had assigned preventive and mitigation measures.

It was noted that the minority of these identified critical risk factors relates to strictly technical issues, the remainder generally relate to environmental and/or social issues. Risks to project development associated with exposure to radioactive elements are likely to have greater impact on project activities in southern Québec.

The risk register will be updated during the feasibility study stage which will allow preventive and mitigation measures to be identified in greater detail.

1.15

INTERPRETATION AND CONCLUSIONS

The PEA has been completed to evaluate the potential economic and technical benefits of significant changes to the mining and processing aspects of the Project originally outlined in a prefeasibility study (PFS), the results of which were published in a NI 43-101 Technical Report dated 6 December, 2013 (Micon, 2013). By definition, the PEA can only indicate the potential viability of mineral resources and cannot be used to support mineral reserves.

A PEA for the Strange Lake Project, which is based on the mining and beneficiation of a REE-rich deposit at Strange Lake in northern Québec and processing at a facility at Bécancour in southern Québec, will recover individual pure rare earth oxides.

Table 1.7 presents the key project parameters, based on 100% equity financing.

Table 1.7

Key Project Parameters


Parameter	Units	Quantity
Pre-tax economics
IRR	%		20.1
NPV₁₀	$ million		1,416
Payback period	y		5.0
After-tax economics
IRR	%		16.7
NPV₁₀	$ million		788
Payback period	y		5.3
Mining
Average mining rate (years 1 to 23)	Mt		3.354
Production rate (years 1 to 23)	Mt/y plant feed		1.045
Mine production life	y		30
Total revenue	$ million/y		758
Operating costs	$ million/y		357
Unit operating cost	$/t milled		232

1.16

RECOMMENDATIONS

The PEA study shows that for the selected base case the Project has the potential to provide positive economic returns and is sufficiently robust to withstand adverse changes in the tested parameters over the expected range of accuracy of the study. It is Micon’s recommendation that the project development continues towards the feasibility level, which includes work necessary to optimize and define each area and the work required to prepare capital and operating cost estimates with an accuracy of +/-15%.

It is also recommended that the work required to advance the project approval process continue. This includes fieldwork and studies associated with the environmental impact assessments (EIA) for various jurisdictions, environmental authorizations, permits and licences, non-environmental permitting; and community relations.

1.16.1

Budget for Ongoing Work

As shown in Table 1.8, Quest has budgeted a total of $14.30 million for work on the Strange Lake Project to the end of 2014 by which time results of pilot plant studies will have been generated, substantial work on the EIA will have been completed. This will allow the company to determine details for the project feasibility study.

Table 1.8

Budget for Ongoing Work


Description	$M
Project optimization		5.0
Integrated pilot plant and demonstration plants		7.7
EIA		0.9
Project management team		0.7
Total		14.3

Micon has reviewed the proposed budget and considers that it is reasonable and appropriate.

Other Properties

In addition to its interests in the Strange Lake Property, Quest also holds various interests in the following properties: Misery Lake, Québec; and Alterra Strange Lake, Newfoundland and Labrador.

These properties are not considered by the Corporation to be material for the purposes of NI 43-101. They are currently in the exploration stage and mineralization with economic significance has not yet been identified on either of the properties. No further expenditures are planned by the Corporation on either property. The following is a description of the two properties.

Misery Lake Property, Québec

The Misery Lake Property originally consisted of a single claim block comprising 924 claims in Québec. During the fiscal year ended October 31, 2014, 754 claims covering 36,522 hectares were allowed to lapse as the Corporation continues to focus its activities on the main area of interest on the property. The property is located 120 km south of the Strange Lake Project and consisting of 170 mining claims located in Québec and covers a total of 8,334 hectares. The rare earth potential of the Misery Lake area was first recognized by a Quest crew during August 2007 when reconnaissance bedrock sampling over a concentric magnetic feature returned grab sample results of up to 27% Fe2O3, 1.2% P2O5, 1.5% TiO2 and 2.25% TREO. Since then, Quest has completed several phases of exploration including: till survives, prospecting and channeling, bedrock mapping, air and ground geophysics and drilling.

Based on the finding of the 2012 exploration program, the property was reduced to the area that surrounds the main Misery Lake Intrusion. The Misery Lake geology is analogous to the Lovozero Peralkaline Complex in Russia, the country’s primary producing area for rare earths, niobium, tantalum, phosphate and zirconium.

Current Work and Future Exploration Activities

Project personnel have completed several assessment reports on the Misery Lake Property, which have been filed with Government authorities.

In early March 2013, Quest awarded Abitibi Geophysics of Val D’Or, Québec a contract for the completion and interpretation of a winter geophysical program at the Misery Lake Project. The program consisted of a GPS-integrated ground magnetic field survey over the entire Misery Lake Intrusion as shown in Figure 1. The configuration of the survey grid consisted of 71 north-south oriented lines with a line spacing of 100 m and eight east-west oriented tie-lines with a spacing of 1,000 m. A total of 470.5 line-km was completed between March 20 and April 6, 2013. Several short to moderate wavelength magnetic anomalies, not detected from the airborne magnetic survey, were identified from the present ground magnetic survey (Figure 2). An unconstrained magnetic inversion model was performed on the ground magnetic data. The 3D inversion model returned a strong magnetic feature located in the middle of the intrusion (Figure 3). Several faults and a possible diatreme structure were also identified by this survey.

LOGO

Figure 1 - Geophysical ground grid over airborne first vertical derivative

LOGO

Figure 2 - 2013 magnetic ground survey, First vertical derivative.

LOGO

Figure 3 - 2013 Misery Lake, Magnetic Susceptibility, Vertical Section

In April 2014, Quest conducted a diamond-drilling program on the Misery Lake Property. A total of 1,437 metres were drilled and a total of 879 core samples were collected. All samples were shipped to ActLabs for processing. Assay results are still pending. As of April 28, 2014, all crews and Boreal drill rigs were demobilized from the Misery Lake camp.

No further expenditures are planned on this project and, as a result, for the fiscal year ended October 31, 2014, the Corporation recorded an impairment loss of $7,106,609 on the Misery Lake Property.

Alterra - Strange Lake Option Property, Newfoundland and Labrador

The property comprises 30 claims covering 750 hectares contiguous to the east of Quest’s Strange Lake Project. Quest initiated negotiations in 2010 to acquire a participation in this rare earth property adjacent to Strange Lake. The claims cover geological and airborne geophysical targets that form the northeastern extension of surface mineralization defined by Quest crews in 2009.

On June 15, 2010, Quest announced that it had entered into an exploration and option agreement with Search Minerals Inc. (“Search”) and Alterra Resources Inc. (“Alterra”), a wholly-owned subsidiary of Search, pursuant to which Quest has an option to acquire up to a 65% undivided working interest in 30 mining claims located near the centre of the Strange Lake Alkali Complex, which straddles the border between eastern Québec and western Labrador.

Under the terms of the exploration and option agreement, Quest may earn a 50% undivided working interest in the 30 claims by issuing an aggregate of 80,000 common shares of Quest to Alterra over a period of three years and by incurring mining exploration expenditures of $500,000 in the aggregate over a period of three years. Upon completing all of the payments mentioned above, Quest will have an option to acquire an additional 15% undivided working interest in the mining claims by making a payment of $75,000 before the fourth anniversary date of the exploration and option agreement, by issuing an additional 150,000 common shares of Quest to Alterra on or before the fifth anniversary date of the exploration and option agreement, and by incurring mining exploration expenditures of $1,250,000 in the aggregate on or before the fifth anniversary date of the exploration and option agreement.

As at October 31, 2012, the Corporation had issued a total of 40,000 common shares under this agreement, at a price of $1.887 per share (October 31, 2011 — 15,000 common shares at a price of $1.887 per share; November 1, 2010 — nil) and incurred $751,572 in exploration expenditures (October 31, 2011 — $151,562; November 1, 2010 — $11,695).

On November 7, 2012, the Corporation entered into an agreement with Search and Alterra under which the Corporation agreed to exchange the Operator fees receivable from Search of $67,141 against its obligation to issue 40,000 common shares of the Corporation to Alterra in order to earn its 50% undivided working interest. As a result, the Corporation has acquired a 50% undivided working interest in the claims. The right of the Corporation under the original agreement to earn an additional 15% interest remained unchanged.

During the fiscal year ended October 31, 2013, the Corporation did not exercise its option under the exploration and option agreement to earn an additional 15% undivided interest in the working claims and as a result, this option has now lapsed. As at October 31, 2014 a 50-50 joint venture with Search or Alterra had not been formed.

Current Work and Future Exploration Activities

No further expenditures are planned on this project and, as a result, for the fiscal year ended October 31, 2014, the Corporation recorded an impairment loss of $909,390 on the property

Qualified Person

Mr. Pierre Guay, P. Geo., is the qualified person for the Misery Lake Property presented in this section of the AIF under National Instrument 43-101 Standards of Disclosure for Mineral Projects, is responsible for the technical contents of this AIF relating to the Misery Lake Property and has approved the disclosure of the technical information contained herein relating to the Misery Lake Property.

RISK FACTORS

In the course of its business and affairs, the Corporation faces the following risks factors, several of which apply to a business involved in mineral exploration and development and most of which are beyond the Corporation’s control. As a result, the securities of the Corporation must be considered as speculative. The following risk factors do not necessarily comprise all of the risks to which the Corporation is or will be subject.

Risks Related to the Business

Exploration and development

Resource exploration and development is a highly-speculative business, involves a high degree of risk and is frequently unsuccessful. There is no certainty that the expenditures to be made by the Corporation in the exploration and development of its properties or otherwise will result in discoveries of commercial quantities of minerals. The exploration for and development of mineral deposits involves significant risks, which even a combination of careful evaluation, experience and knowledge may not eliminate. Although the discovery of an ore body may result in substantial rewards, few properties explored are ultimately developed into producing mines. Significant expenditures may be required to locate and establish ore reserves, to develop metallurgical processes and to construct mining and processing facilities at a particular site. It is impossible to ensure that the Corporation’s current exploration and development programs will result in a profitable commercial-mining operation.

Significant capital investment is required to achieve commercial production from successful exploration and development efforts. The commercial viability of a mineral deposit is dependent upon a number of factors. These include: (i) deposit attributes such as size, grade and proximity to infrastructure; (ii) current and future metal prices (which can be cyclical); and (iii) government regulations, including those relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and necessary supplies and environmental protection. The complete effect of these factors, either alone or in combination, cannot be entirely predicted, and their impact may result in the Corporation not receiving an adequate return on invested capital.

Any figures for mineral resources contained or incorporated by reference in this AIF are estimates and no assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. Market fluctuations and the prices of metals may render resources uneconomic. Moreover, short-term operating factors relating to the mineral deposits, such as the need for orderly development of the deposits or the processing of new or different grades of ore, may cause a mining operation to be unprofitable in any particular accounting period.

No assurance of commercially-mineable bodies of ore

All of the Corporation’s properties, excluding the Strange Lake Property, are in the exploration stage as opposed to the development stage and have no known body of economic mineralization. The known mineralization at these projects has not been determined to be economic ore and there can be no assurance that a commercially-mineable (or viable) ore body exists on any of the Corporation’s properties. There is no certainty that any expenditure made in the exploration and development of the Corporation’s properties will result in discoveries of commercially-recoverable quantities of ore. Such assurance will require completion of final comprehensive-feasibility studies and, possibly, further associated exploration and development and other work that concludes a potential mine is likely to be economic. In order to carry out exploration and development programs of any economic ore body and place it into commercial production, the Corporation will be required to raise substantial additional funds.

Environmental factors

All phases of the Corporation’s operations are subject to environmental regulation in the various jurisdictions in which it operates. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects, and a heightened degree of responsibility for companies and their directors, officers and employees. There is no assurance that future changes in environmental legislation, if any, will not adversely affect the Corporation’s operations or result in substantial costs and liabilities to the Corporation in the future. Furthermore, environmental hazards which are unknown to the Corporation at present and which have been caused by previous or existing owners or operators may exist on the Corporation’s properties.

Dependence on future financings

The Corporation has not generated any revenues since its incorporation. The Corporation’s plan of operations involves the implementation and execution of exploration and development programs on its properties. There is no assurance that these exploration and development activities will result in the establishment of commercially-exploitable mineral deposits on these properties. Even if commercially-exploitable mineral deposits are discovered, the Corporation may require substantial additional financing in order to carry out the full exploration and development of its properties before it is able to achieve revenues from sales of mineral resources that the Corporation is able to extract. Failure to obtain such additional financing could result in delay or indefinite postponement of further exploration and development plans.

Absence of profitability

Since incorporation, the Corporation has incurred losses and will continue to experience losses unless and until it can derive sufficient revenues from its properties. The Corporation has no history of earnings or of a return on investment, and there is no assurance that any of the properties that the Corporation has or will acquire will generate earnings, operate profitably or provide a return on investment in the future.

Title to mineral exploration properties

The acquisition of title to mineral exploration properties is a very detailed and time-consuming process. Title to and the area of mineral properties may be disputed or otherwise claimed, including claims with respect to aboriginal land title. While the

Corporation has diligently investigated title to its properties, they may be subject to prior unregistered agreements or transfers or aboriginal land claims and title may be affected by undetected defects. There is no guarantee that title to the Corporation’s properties will not be challenged or impugned. There may be valid challenges to the title of the Corporation’s properties, which, if successful, could impair the Corporation’s ability to explore, develop and/or operate its properties or to enforce its rights with respect to its properties. Aboriginal rights and title may be claimed with respect to Crown properties or other types of tenure with respect to which mining rights have been conferred. In addition, other parties may dispute the Corporation’s title to the properties in which it has an interest and such properties may be subject to prior unregistered agreements or transfers or land claims by aboriginal people, and title may be affected by undetected encumbrances or defects or government actions.

An impairment to or defect in the Corporation’s title to its properties could have a material adverse effect on the Corporation’s business, financial condition or results of operation. In addition, such claims, whether or not valid, will involve additional costs and expenses to defend or settle, which could adversely affect the Corporation’s profitability.

Dependence on key personnel

The Corporation’s success is highly dependent upon the performance of key personnel working in management, supervisory and administrative capacities or as consultants. Given the increased activity in the resources area, there is intense competition for skilled mining personnel. The loss of the services of its senior management or key personnel could have a material and adverse effect on the Corporation and its business and results of operations.

Reliance on independent contractors

The Corporation’s success depends to a significant extent on the performance and continued service of independent contractors. The Corporation will contract the services of professional drillers and others for exploration, environmental, construction and engineering services. Poor performance by such contractors or the loss of such services could have a material and adverse effect on the Corporation and its business and results of operations and could result in failure to meet its business objectives.

Potential profitability dependent on factors beyond the Corporation’s control

The potential profitability of any of the Corporation’s current or future properties will be dependent upon many factors beyond its control. For example, world prices of and markets for rare earth metals and minerals are unpredictable, highly volatile, potentially subject to governmental interference, expectations of inflation, levels of supply and demand, pegging and/or controls, currency-exchange fluctuations, interest rates, global or regional consumption patterns, speculative activities, increased production due to new extraction developments and improved extraction and production methods, and respond to changes in domestic, international, political, social and economic environments. Another factor is that rates of recovery of minerals from mined ore may vary from the rate experienced in tests and a reduction in the recovery rate will adversely affect profitability and, possibly, the economic viability of the properties. Profitability also depends on the costs of operations, including costs of labour, equipment, electricity, environmental compliance or other production inputs. Such costs will fluctuate in ways that the Corporation cannot predict and are beyond the Corporation’s control, and such fluctuations could have an impact on profitability or eliminate profitability altogether. Additionally, due to worldwide political and economic uncertainty, the availability and cost of funds for development and other costs have become increasingly difficult, if not impossible, to project. These changes and events may materially affect the Corporation’s financial performance.

An estimated 97% of the market for rare earth metals is currently controlled by China. Due to the establishment by China of strict controls on REE mining, production and export in order to maximize its own use of the resources, the global REE industry has experienced fundamental changes in the last few years, the most fundamental being the shifting from an oversupplied market to a demand-shortage market.

During the 1990s and early 2000s, significant production surpluses and coincident low REE prices led to most non-Chinese rare earth metal producers ceasing their operations and almost exclusive reliance on Chinese supplies. With curbing exports from China and continued growth demand elsewhere, particularly in Japan, South Korea, Taiwan, Europe and the United States, great concern has been caused by this supply-demand deficit. There is no assurance that China will adhere to the announced production and export limits in the future and that this supply-demand deficit will last on a mid-term or long-term basis. A decision from China to increase exports in the future and a shifting from a demand-shortage market to an oversupplied market could materially affect the Corporation’s future financial performance.

Regulations and mining law, governmental regulation

Mining operations and exploration and development activities are subject to extensive federal, provincial, state and local laws and regulations governing exploration, development, production, taxes, labour standards, occupational health, waste disposal, protection and remediation of the environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations increases the costs of planning, designing, developing, constructing, operating and closing mines and other facilities. It is possible that the costs and delays associated with compliance with such laws and regulations could become such that the Corporation would not proceed with, or would postpone, the development and operation of a mine or mines.

Exploration, development and mining of properties in which the Corporation has an interest will be affected to varying degrees by: (i) government regulations relating to such matters as environmental protection, health, safety and labour; (ii) mining law; (iii) restrictions on production, price controls and tax increases; (iv) maintenance of claims; (v) tenure; and (vi) expropriation of property. There is no assurance that future changes in such regulations, if any, will not adversely affect the Corporation’s operations.

Government approvals and permits are required in connection with the exploration activities proposed for the properties in which the Corporation has an interest. To the extent such approvals are required and not obtained, the Corporation’s planned exploration, development and production activities may be delayed, curtailed or cancelled entirely.

Failure to comply with applicable laws, regulations and requirements may result in enforcement action against the Corporation, including orders calling for the curtailment or termination of operations on the properties, or calling for corrective or remedial measures requiring considerable capital investment. Parties engaged in mineral exploration and mining activities may be subject to civil and criminal liability as a result of failure to comply with applicable laws and regulations.

Amendments to current laws, regulations and permitting requirements affecting mineral exploration and mining activities could have a material adverse impact on the Corporation’s operations and prospects.

Mineral claims subject to surface rights

The land covered by the claims comprising the Strange Lake Property is situated within the Province of Québec. The Province of Québec, like other Canadian provinces, allows staking of mineral rights on privately-held lands and the carrying out of assessment work. However, the Corporation may be required to negotiate access and provide compensation to an owner of surface rights if damage occurs to the owner’s property during the course of exploration and development.

Required permits and licenses

The Corporation’s operations may sometimes require licenses and permits from various governmental authorities. The Corporation believes that it will be able to obtain in the future all necessary licenses and permits to carry on the activities which it intends to conduct, and intends to comply in all material respects with the terms of such licenses and permits. There can be no guarantee, however, that the Corporation will be able to obtain and maintain, at all times, all necessary licenses and permits required to undertake the proposed exploration and development or to place its properties into commercial production and to operate mining facilities thereon. In the event of commercial production, the cost of compliance with changes in governmental regulations has the potential to reduce the profitability of operations or preclude the economic development of a particular property.

Permission from native people

As the Corporation may in future require an ore pipeline and port on land controlled by the Labrador Inuit, it may be necessary for the Corporation to obtain permission from the Labrador Inuit to construct and operate any such project. There can be no assurances that the Corporation will be able to obtain such permission, to the extent required.

Pipeline technological challenges

It may be necessary for the Corporation to construct and operate an overland pipeline, which may constitute a technological challenge due to the cold climate of the region. The Corporation believes that technology exists to build and operate overland pipelines in cold regions. However, no assurances can be given in this regard.

Competitive nature of the mining industry

There is aggressive competition within the mining industry for the discovery and acquisition of properties considered to have commercial potential. The Corporation competes with other mining exploration companies and with mining companies, many of which have greater financial resources than does the Corporation, for the acquisition of mineral claims, leases and other mineral interests, access to financing as well as for the recruitment and retention of qualified employees and other personnel.

Infrastructure

Mining, processing, development and exploration activities depend on adequate infrastructure. Reliable roads, bridges, power sources and water supply are important determinants, which affect capital and operating costs. Unusual or infrequent weather phenomena, sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the Corporation’s operations, financial condition and results of operations.

Operating hazards and risks

Mineral exploration and development and mining involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome. The work which the Corporation is undertaking and proposes to undertake will be subject to all of the hazards and risks normally incidental to exploration, development and production of resources, any of which could result in work stoppages and damage to persons or property or the environment and possible legal liability for any and all damage. Fires, power outages, labour disruptions, flooding, explosions and cave-ins, are risks involved in the operation of mines and the conduct of exploration and development programs. Although the Corporation has secured liability insurance and will, when appropriate, secure property insurance in an amount which it considers adequate, the nature of these risks is such that liabilities might exceed policy limits, the liabilities and hazards might not be insurable, or the Corporation might elect not to insure itself against such liabilities due to high premium costs or other reasons, in which event the Corporation could incur significant costs or uninsured losses that could have a material adverse effect upon its financial condition.

Insurance

In the course of exploration, development and production of mineral properties, several risks and, in particular, unexpected or unusual geological or operating conditions, may occur. It is not always possible to fully insure against such risks, and the Corporation may decide not to take out insurance against such risks as a result of high premiums or other reasons. Should such liabilities arise, they could reduce or eliminate any future profitability and result in an increase in costs and a decline in the value of the Corporation’s securities.

The Corporation is not currently insured against environmental risks. Insurance against environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and development and production) has not been generally available to companies within the industry. The Corporation will periodically evaluate the cost and coverage of the insurance that is available against certain environmental risks to determine if it would be appropriate to obtain such insurance. Without such insurance, and if the Corporation becomes subject to environmental liabilities, the payment of such liabilities would reduce or eliminate the Corporation’s available funds or could exceed the funds that the Corporation has to pay such liabilities and result in bankruptcy. Should the Corporation be unable to fund fully the remedial cost of an environmental problem, it might be required to enter into interim compliance measures pending completion of the required remedy.

Conflicts of interest

Certain of the Corporation’s directors and officers also serve as directors and/or officers of other companies or other managerial positions involved or related to natural resource exploration and development and consequently there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers involving the Corporation will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Corporation and its stakeholders. In addition, each of the Corporation’s directors is required to declare any interest in any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in the Canada Business Corporations Act and other applicable laws.

Risks Related to the Market

Volatility of share prices

Share prices are subject to changes because of numerous factors beyond the Corporation’s control, including reports of new information, changes in the Corporation’s financial situation, the sale of the Corporation’s common shares in the market, the Corporation’s failure to achieve financial results in line with the expectations of analysts, or announcements by the Corporation or any of its competitors concerning results. There is no guarantee that the market price of the Corporation’s common shares will be protected from any such fluctuations in the future.

Further equity financing

The Corporation will require additional funds to fund further exploration and development. If the Corporation raises additional funding by issuing additional equity securities, such financing may dilute the holdings of the Corporation’s shareholders.

No dividends

The Corporation has not paid any dividends on its common shares. Any future decision to pay cash dividends will be left to the discretion of the Board of Directors of the Corporation and will depend on the Corporation’s financial position, operating results and capital requirements at the time as well as such other factors that the Board of Directors may consider relevant.

DIVIDEND POLICY

The Corporation’s policy is to retain earnings, if any, in order to finance future growth. The Corporation has no intention of paying any dividends in the foreseeable future. Any future decision to pay cash dividends will be left to the discretion of the Board of Directors of the Corporation and will depend on the Corporation’s financial position, operating results and capital requirements at the time as well as such other factors that the Board of Directors may consider relevant.

CAPITAL STRUCTURE

The Corporation is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, issuable in series.

Common Shares

The holders of the Corporation’s common shares are entitled to: (i) one vote per share at all meetings of shareholders; (ii) receive any dividend declared by the Corporation on the common shares; and (iii) subject to the rights, privileges, restrictions and conditions attaching to any other class of shares of the Corporation, receive the remaining property of the Corporation upon dissolution, liquidation or winding up.

As at January 27, 2015, 78,829,196 common shares of the Corporation were issued and outstanding.

Preferred Shares

The preferred shares may at any time and from time to time be issued in one or more series, each series to consist of such number of preferred shares as may, before the issue thereof, be determined by resolution of the directors of the Corporation. The directors of the Corporation will, by resolution duly passed before the issue of any preferred shares of any series, determine the designation, rights, privileges, conditions and restrictions to be attached to the preferred shares of such series, including, without limitation, dividends, redemption and conversion rights. No preferred shares will entitle holders thereof to vote at any meeting of shareholders, except as provided pursuant to the Canada Business Corporations Act. In the event of liquidation, dissolution or winding-up of the Corporation, whether voluntary or involuntary, or any other distribution of assets of the Corporation among its shareholders for the purpose of winding-up its affairs, the holders of the preferred shares of each series will receive, on a parity basis and before any distribution of the assets of the Corporation is made among the holders of the Corporation’s common shares and any other shares ranking junior to the preferred shares, an amount equal to the redemption price for such shares plus an amount equal to any dividends declared thereon but unpaid.

As at January 27, 2015, no preferred shares of the Corporation were issued and outstanding.

MARKET FOR SECURITIES

Trading Price and Volume

The common shares of the Corporation are listed and posted for trading on the Toronto Stock Exchange under the symbol “QRM”. The following table sets out the monthly price and volume of trading for the common shares of the Corporation on the Toronto Stock Exchange during the fiscal year ended October 31, 2014:


		Price range
Year	Month	High		Low		Volume
2013	November	$	0.82	$	0.42		2,750,700
	December		0.55		0.43		2,321,900
2014	January		0.60		0.45		2,897,000
	February		0.57		0.47		1,783,700
	March		0.77		0.52		3,413,600
	April		0.58		0.48		1,242,200
	May		0.50		0.42		854,187
	June		0.455		0.275		4,030,598
	July		0.345		0.225		6,025,095
	August		0.24		0.205		1,013,031
	September		0.22		0.15		2,072,969
	October		0.18		0.15		878,145

The following table sets out the monthly price and volume of trading for the common shares of the Corporation on NYSE MKT during the fiscal year ended October 31, 2014:


		Price range
Year	Month	High		Low		Volume
2013	November	US$	0.81	US$	0.42		318,161
	December		0.54		0.41		444,988
2014	January		0.55		0.42		635,508
	February		0.52		0.42		612,763
	March		0.71		0.47		788,028
	April		0.53		0.43		204,559
	May		0.447		0.38		1,260,371
	June		0.43		0.25		1,222,909
	July		0.3299		0.2101		8,272,579
	August		0.228		0.18		3,232,841
	September		0.21		0.1383		2,143,583
	October		0.1599		0.1303		1,842,149

Prior Sales

Stock Options

The following table sets out details of all stock options granted by the Corporation during the fiscal year ended October 31, 2014 under the Corporation’s 2012 Stock Option Plan:


Date of grant	Number of options		Exercise price		Expiry date

January 13, 2014		75,000	$	0.49	January 13, 2019

February 5, 2014		175,000	$	0.49	February 5, 2019

February 27, 2014		255,000	$	0.54	February 27, 2019

May 1, 2014		150,000	$	0.51	May 1, 2019

October 1, 2014		100,000	$	0.17	October 1, 2019

Warrants and Compensation Options

The following table sets out details of all common share purchase warrants issued by the Corporation during the fiscal year ended October 31, 2014:

Date of Issuance

Type of Security

Number of Securities

Exercise Price

Expiry Date

July 17, 2014⁽¹⁾

Common share purchase warrants

11,025,485

0.40

July 17, 2017

July 17, 2014⁽¹⁾

Compensation options

613,008

0.27

July 17, 2016

(1)	Issued pursuant to the public offering of the Corporation that closed on July 17, 2014.

Deferred Share Units

The following table sets out details of all deferred share units issued by the Corporation during the fiscal year ended October 31, 2014 under the Corporation’s Deferred Share Unit Plan:


Date of grant		Number of deferred share units

January 13, 2014		150,000

May 1, 2014		25,000

Restricted Share Units

The following table sets out details of all restricted share units issued by the Corporation during the fiscal year ended October 31, 2014 under the Corporation’s Restricted Share Unit Plan:


Date of grant		Number of deferred share units

January 13, 2014		110,000

ESCROWED SECURITIES AND SECURITIES SUBJECT TO CONTRACTUAL RESTRICTION ON TRANSFER

As at October 31, 2014, to the Corporation’s knowledge, none of the Corporation’s securities were in escrow or subject to a contractual restriction on transfer.

DIRECTORS AND OFFICERS

The following information sets out, for each director and executive officer of the Corporation, his name, province and country of residence, the positions and offices in the Corporation currently held by that individual, the period during which such individual has served as a director of the Corporation and that individual’s principal occupation during the past five years:


Name, province and country of residence	Office	First year as director	Principal occupation within the five preceding years

Peter J. Cashin⁽⁴⁾ Ontario, Canada	President, Chief Executive Officer and Director	2007	President and Chief Executive Officer of the Corporation

Pierre Lortie Québec, Canada	Chairman of the Board of Directors	2014	Senior Business Advisor Dentons (law firm)

Ronald Kay^(1)(2)(3)(4) Québec, Canada	Director	2007	Business Executive Chief Financial Officer of the Corporation from June 6, 2007 to January 3, 2011 Vice-President⁽⁵⁾ Freewest Resources Canada Inc. (mining exploration company)

John Panneton^(1)(2)(3)(4) Ontario, Canada	Director	2011	Retired Business Executive since December 2010 Prior thereto, Vice-Chairman Dundee Capital Markets (full-service investment bank) From 2008 to 2010, Executive Vice-President Dundee Wealth (wealth management firm)

Michael Pesner, CPA, CA^(1)(2)(3)(4) Québec, Canada	Director	2007	President Hermitage Canada Finance Inc. (financial advisory services company)


Name, province and country of residence	Office	First year as director	Principal occupation within the five preceding years

George Potter^(1)(2)(4) Ontario, Canada	Director	2011	Retired Mining Executive since March 2011 Prior thereto, Senior Vice-President Capital Projects Barrick Gold Corporation (gold mining company)

Neil Wiener Québec, Canada	Director and Secretary	2007	Partner Fasken Martineau DuMoulin LP (law firm) since February 2014 Prior thereto, Partner Heenan Blaikie LLP (law firm)

Mark Schneiderman,CPA, CA, CFE Québec, Canada	Chief Financial Officer	—	Chief Financial Officer of the Corporation since January 3, 2011 Treasurer of the Corporation from April 24, 2008 to January 3, 2011 Chief Financial Officer⁽⁶⁾ Freewest Resources Canada Inc. (mining exploration company)

Dr. Dirk Naumann⁽⁷⁾ Ontario, Canada	Executive Vice-President, Development	—	President Juniper Associates Ltd. (mining consulting company)

(1)	Member of the Audit Committee.

(2)	Member of the Compensation and Corporate Governance Committee.

(3)	Member of the Nominating Committee.

(4)	Member of the Technical Committee.

(5)	Ronald Kay was a Vice-President of Freewest Resources Canada Inc. (“Freewest”) until its acquisition by Cliffs Natural Resources Inc. on January 27, 2010.

(6)	Mark Schneiderman was appointed Chief Financial Officer of Freewest on April 26, 2007. Freewest was acquired by Cliffs Natural Resources Inc. on January 27, 2010.

(7)	Dr. Dirk Naumann was appointed Vice-President, Development of the Corporation on May 24, 2013.

Each director serves as a director until the next annual meeting of shareholders of the Corporation or until his successor is elected or appointed.

As of January 27, 2015, the directors and executive officers of the Corporation, as a group, beneficially own or otherwise exercise control or direction over, directly or indirectly, an aggregate of 2,004,682 common shares of the Corporation, representing 2.54% of the issued and outstanding common shares of the Corporation.

Cease Trade Orders, Bankruptcies, Penalties or Sanctions

No director or executive officer is, as at the date of this AIF, or has been within the last ten years, a director, chief executive officer or chief financial officer of any company that

(a)

was subject to a cease trade order, an order similar to a cease trade order, or an order that denied the relevant company access to any exemption under applicable securities legislation, and which in all cases was in effect for a period of more than 30 consecutive days (an “Order”), which Order was issued while the director or executive officer was acting in the capacity as director, chief executive officer or chief financial officer of such company; or

(b)

was subject to an Order that was issued after the director or executive officer ceased to be a director, chief executive officer or chief financial officer and which resulted from an event that occurred while that person was acting in the capacity as director, chief executive officer or chief financial officer of such company.

No director or executive officer of the Corporation or any shareholder holding a sufficient number of common shares of the Corporation to affect materially the control of the Corporation:

(a)

is, as at the date of this AIF, or has been within the last ten years, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets, with the exception of: Michael Pesner, who was until May 25, 2011 a director of Prestige Telecom Inc., which filed in November 2011 a notice of intention to make a proposal to its creditors pursuant to the Bankruptcy and Insolvency Act (Canada), which proposal was accepted by the creditors on March 12, 2012 and for which a Final Order from the Québec Superior Court was obtained on March 28, 2012;

(b)

has, within the last ten years, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or become subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold his assets;

(c)

has been subject to any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or

(d)

has been subject to any penalties or sanctions imposed by a court or regulatory body that would likely be considered important to reasonable investor in making an investment decision regarding the Corporation.

The foregoing information, not being within the knowledge of the Corporation, has been furnished by the respective directors and executive officers.

Conflicts of Interest

The Corporation’s directors and officers may serve as directors or officers of other companies or have significant shareholdings in other resource companies and, to the extent that such other companies may enter into transactions with the Corporation or participate in ventures with the Corporation, the directors and officers of the Corporation may have conflicts of interest. In the event that such conflict of interest arises, a director who has such a conflict will abstain from voting with respect to any such transaction or venture at all meetings of the Corporation’s Board of Directors.

INFORMATION ON THE AUDIT COMMITTEE

1.	Charter of the Audit Committee

The charter of the Audit Committee is annexed to this AIF as Schedule A.

2.	Composition of the Audit Committee

The Audit Committee is comprised of Michael Pesner (chairman), Ronny Kay, John Panneton and George Potter. Under National Instrument 52-110 Audit Committees (“NI 52-110”), a director of an audit committee is “independent” if he or she has no direct or indirect material relationship with the issuer, that is, a relationship which could, in the view of the Board of Directors, reasonably be expected to interfere with the exercise of the member’s independent judgment. The Board of Directors has determined that Michael Pesner, Ronny Kay, John Panneton and George Potter are independent members of the Audit Committee.

The Board of Directors has determined that each of the four members of the Audit Committee is “financially literate” within the meaning of section 1.6 of NI 52-110, that is, each member has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation’s financial statements.

3.	Education and Relevant Experience

The education and related experience of each of the members of the Audit Committee that is relevant to the performance of his responsibilities as a member of the Audit Committee is set out below.

Michael Pesner, CPA, CA, has been President of Hermitage Canada Finance Inc. since 2002, a firm specializing in financial advisory services. He was previously a partner in financial advisory services at KPMG LLP, Chartered Professional Accountants, in Montreal, specializing in corporate finance, mergers and acquisitions, divestitures, restructuring and corporate recovery in Canada. Mr. Pesner holds a Bachelor of Commerce degree in Finance and Administration from McGill University as well as a Bachelor of Arts degree from Concordia University. Mr. Pesner is also a Chartered Professional Accountant, a licensed Trustee in Bankruptcy and a Certified Insolvency and Restructuring Professional. Mr. Pesner is a director of Richmont Mines Inc., a company listed on NYSE MKT and the Toronto Stock Exchange, Le Château Inc., a company listed on the Toronto Stock Exchange, Alexandria Minerals Corporation, Liquid Nutrition Group Inc., Canamex Resources Corp. and WizWi Corporation, four companies listed on the TSX Venture Exchange, Bitumen Capital Inc., a capital pool company listed on the NEX trading board of the TSX Venture Exchange, and Nutritional High International Inc., a corporation that is not on a stock exchange.

Ronny Kay is a metallurgical engineer with 40 years’ experience in the financial industry. Mr. Kay holds an MBA degree from McGill University. Mr. Kay’s positions in the industry include senior mining analyst as well as consultant to several major brokerage companies. He is the author of major reports on the uranium industry. Mr. Kay was the president of the general partner of six limited partnerships that raised more than $50 million for mining companies, including Aur Resources Inc., and the chairman of a general partner of a limited partnership that raised approximately $5 million for exploration and development for oil and gas companies. Mr. Kay was Vice-President and a director of Freewest Resources Canada Inc., a company listed on the TSX Venture Exchange, at the time of its sale to Cliffs Natural Resources Inc. in January 2010 for approximately $239 million. Mr. Kay was Chief Financial Officer of Quest until January 3, 2011.

John Panneton had a 30-year career with CIBC Wood Gundy, including serving as its Executive Vice-President. He later became Chief Executive Officer of CIBC Investment Management Corporation and between 1990 and 1995 was Chairman of CIBC (Suisse) S.A. In 1998, Mr. Panneton joined Dundee Bancorp and was appointed President of Dundee Securities Corporation. In 2003, Mr. Panneton was seconded to Goodman Private Wealth Management as President. In 2008, Mr. Panneton was appointed Executive Vice-President of Dundee Wealth and oversaw its independent and corporate sales force. In 2010, he was appointed Vice-Chairman of Dundee Capital Markets. Over Mr. Panneton’s distinguished career, he has served on several public and philanthropic boards, and has extensive knowledge of the Canadian capital markets.

George Potter is a senior mining executive with more than 36 years of international experience in project development and operations. Mr. Potter has had significant exposure to multi-element projects in various parts of the world, including Canada, the United States, Chile, Argentina, Peru, Australia, the Dominican Republic, Ghana, Tanzania, Guinea, South Africa and Zimbabwe. Most recently, Mr. Potter served as Senior Vice-President Capital Projects of Barrick Gold Corporation, where he played a leadership role in the construction of the Veladero, Lagunas Norte, Cowal, Tulawaka and Buzwagi projects. He was also involved in the Placer Dome acquisition and was responsible for the development of the Barrick project pipeline, that included early-stage projects such as Pueblo Viejo, Pascua Lama, Cero Casale, Donlin Creek, Reko Diq and Kabanga. Prior to joining Barrick Gold Corporation, Mr. Potter was Managing Director Capital Projects of AngloGold Ashanti, where he was involved in a number of development projects from 1993 to 2004, including Siguiri, Geita, Bibiani and Obuasi. His experience also includes projects with Barlow Rand (1983 to 1993) and Rio Tinto (1975 to 1983). Mr. Potter holds a diploma from the Bulawayo School of Mines, Zimbabwe.

4.	Pre-approval Policies and Procedures for Audit Services

According to the Charter of the Audit Committee, the Audit Committee must pre-approve all non-audit services to be provided to the Corporation (or any subsidiary entities) by the Corporation’s external auditor.

5.	External Auditor Fees

(a) Audit Fees

“Audit fees” consist of fees for professional services for the audit of the Corporation’s annual financial statements, accounting consultations, and related matters. Ernst & Young LLP, the Corporation’s external auditors, billed the Corporation $148,721 in audit fees in the fiscal year ended October 31, 2014 and billed the Corporation $94,950 in audit fees in the fiscal year ended October 31, 2013.

(b) Audit-Related Fees

“Audit-related fees” consist of fees for professional services that are reasonably related to the performance of the audit and which are not reported under “Audit Fees” above. Ernst & Young LLP, the Corporation’s external auditors, did not bill the Corporation for audit-related fees in the fiscal year ended October 31, 2014 and billed the Corporation $10,508 for audit-related fees in the fiscal year ended October 31, 2013.

(c) Tax Fees

“Tax fees” consist of fees for professional services for tax compliance, tax advice and tax planning. Ernst & Young LLP, the Corporation’s external auditors, billed the Corporation $117,740 in tax fees in the fiscal year ended October 31, 2014 and billed the Corporation $35,205 for tax fees in the fiscal year ended October 31, 2013.

(d) All Other Fees

“All other fees” consist of fees for services other than the audit fees, audit-related fees and tax fees described above. These services include, among other things, translation. Ernst & Young LLP, the Corporation’s external auditors billed the Corporation $36,028 in fees for other services in the fiscal year ended October 31, 2014 and did not bill the Corporation for other services in the fiscal year ended October 31, 2013.

6.	Reliance on Exemption

Notwithstanding that the Corporation is providing this information on the Audit Committee in this AIF, the Corporation is relying on the exemption set out in section 6.1 of NI 52-110 with respect certain reporting obligations.

LEGAL PROCEEDINGS AND REGULATORY ACTIONS

Management is not aware of any material litigation outstanding, threatened or pending as of the date hereof by or against the Corporation other than in the normal course of business.

During the fiscal year ended October 31, 2014, the Corporation was not subject to:

(a)	any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority;

(b)	any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision; or

(c)	any settlement agreements entered into before a court relating to securities legislation or with a securities regulatory authority.

INTERESTS OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

The Corporation believes that, other than as may be set out in this AIF, no director or executive officer of the Corporation or any person or company that beneficially owns, or controls or directs, directly or indirectly, more than 10% of any class or series of the Corporation’s outstanding voting securities or any associate or affiliate of any of the persons or companies referred to above, has any material interest, direct or indirect, in any transaction which materially affected the Corporation or would materially affect the Corporation since the date of the Corporation’s incorporation.

TRANSFER AGENTS AND REGISTRARS

The transfer agents and registrars for the common shares of the Corporation are Computershare Investor Services Inc. at its principal offices in Montreal and Toronto and Computershare Trust Company, N.A. at its principal offices in Golden, Colorado.

MATERIAL CONTRACTS

During the fiscal year ended October 31, 2014, the Corporation did not enter into any material contracts, other than contracts entered into in the ordinary course of business, with the exception of the following:

Agency Agreement

On July 9, 2014, the Corporation entered into an Agency Agreement (the “Agency Agreement”) with GMP Securities L.P., Desjardins Securities Inc., Maison Placements Canada Inc. and Jones, Gable and Company Limited (collectively, the “Agents”) pursuant to which the Agents agreed to distribute, on a best-efforts agency basis, subject to issuance by the Corporation, in accordance with the terms and conditions of the Agency Agreement, a minimum of 4,333,333 units and a maximum of 18,518,518 units at a price of $0.27 per unit, for gross proceeds to the Corporation of $1,170,000 in the event of a minimum offering and $5,000,000 in the event of a maximum offering. See “General Development of the Business – Three-Year History”. Each of the units was comprised of one common share and one common share purchase warrant. Each whole warrant entitles its holder, upon the payment of the exercise price of $0.40, to purchase one additional common share of the Corporation for a period of 36 months from the date of closing of the offering.

The Agency Agreement contained customary provisions including, among others, for the: (i) payment by the Corporation of a cash commission to the Agents in an amount equal to 6% of the gross proceeds of the offering; (ii) issuance by the Corporation of compensation options to the Agents, entitling the Agents to acquire additional units of the Corporation in a number equal to 6% of the total number of units issued and sold pursuant to the offering; and (iii) indemnification of the Agents upon the occurrence of certain events.

The public offering was completed on July 17, 2014 with the issuance and sale by the Corporation of 11,025,485 units at a price of $0.27 per unit, for gross proceeds to Quest of approximately $3 million. A copy of the Agency Agreement may be found under the Corporation’s profile on SEDAR at www.sedar.com.

Warrant Indenture

On July 17, 2014, the Corporation entered into a warrant indenture with Computershare Trust Company of Canada providing for the administration of the warrants issued in the offering of the Corporation that closed on July 17, 2014.

INTERESTS OF EXPERTS

Ernst & Young LLP, are the external auditors who prepared the auditors’ report to the Corporation’s shareholders on the consolidated financial statements for the fiscal year ended October 31, 2014. Ernst & Young LLP, have advised the Corporation that they are independent in accordance with the Code of Ethics of the Ordre des comptables professionnels agréés du Québec and within the meaning of the federal securities laws and the rules and regulations thereunder, including the independence rules adopted by the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act of 2002; and in compliance with Rule 3520 of the Public Company Accounting Oversight Board.

ADDITIONAL INFORMATION

Additional information relating to the Corporation may be found under the Corporation’s profile on SEDAR at www.sedar.com.

Additional information, including directors’ and officers’ remuneration and indebtedness, if any, principal holders of the Corporation’s securities and securities authorized for issuance under equity compensation plans, is contained in the Corporation’s management proxy circular dated March 12, 2014, prepared in connection with the Corporation’s annual meeting of shareholders held on April 17, 2014.

Additional information is provided in the Corporation’s audited financial consolidated statements and management’s discussion and analysis for the Corporation’s most recently-completed fiscal year, ended October 31, 2014.

SCHEDULE A

CHARTER OF THE AUDIT COMMITTEE

1.	General

The Board of Directors of Quest Rare Minerals Ltd. (the “Corporation”) has delegated the responsibilities, authorities and duties described below to the Audit Committee of the Board of Directors (the “Audit Committee”).

The Audit Committee will provide independent review and oversight of the Corporation’s financial reporting process, the system of internal control and management of financial risks, and the audit process, including the oversight of the Corporation’s external auditors. In so doing, the Audit Committee will comply with all applicable Canadian securities laws, rules and guidelines, any applicable stock exchange requirements or guidelines and any other applicable regulatory rules.

2.	Members

The Audit Committee shall be composed of a minimum of three members. Members of the Audit Committee shall be appointed by the Board of Directors. In this regard, the Board of Directors, at its first meeting held after an annual meeting of shareholders, shall appoint the members of the Audit Committee to hold office until the next annual meeting of shareholders. The Board of Directors may at any time appoint additional members of the Audit Committee, remove or replace any member of the Audit Committee, or fill any vacancy on the Audit Committee. Any member of the Audit Committee ceasing to be a director shall cease to be a member of the Audit Committee. The Board of Directors shall fill a vacancy if the membership of the Audit Committee is less than three directors as a result of such vacancy. The Chair of the Audit Committee may be designated by the Board of Directors or, if it does not do so, the members of the Audit Committee may elect a Chair by vote of a majority of the full Audit Committee membership.

A majority of the members of the Audit Committee shall be “independent” within the meaning of Multilateral Instrument 52-110 Audit Committees.

3.	Meetings

The Audit Committee shall meet at least quarterly at such times and locations as the Chair of the Audit Committee shall determine, provided that meetings shall be scheduled so as to permit the timely review of the Corporation’s quarterly and annual financial statements and the related management’s discussion and analysis and earnings press releases. The external auditor or any two members of the Audit Committee may also request a meeting of the Audit Committee. The Chair of the Audit Committee shall hold in camera sessions of the Audit Committee, without management present, at every meeting. The Audit Committee may invite such other persons to its meetings as it deems appropriate in order to carry out its duties.

The Audit Committee shall submit the minutes of all meetings to the Board of Directors, and when so requested, shall review the matters discussed at an Audit Committee meeting with the Board of Directors.

A quorum for any meeting shall be two members of the Audit Committee.

The Audit Committee shall have the authority to require the attendance of the Corporation’s officers at meetings of the Audit Committee, as it deems appropriate or necessary.

4.	Committee Charter

The Audit Committee shall review and reassess the adequacy of this charter at least annually or otherwise, as it deems appropriate, and propose recommended changes to the Board of Directors, if necessary.

5.	Duties of the Audit Committee

The Audit Committee shall have the following duties:

(a)

Oversight of Financial Information and Reporting

(i)	The Audit Committee shall review, with management and the external auditor, and recommend to the Board of Directors for approval, the annual financial statements of the Corporation and related financial reporting, including management’s discussion and analysis and earnings press releases.

(ii)

The Audit Committee shall review, with management and the external auditor, if deemed necessary, and recommend to the Board of Directors for approval, the interim financial statements of the Corporation and related financial reporting, including management’s discussion and analysis and earnings press releases.

(iii)

The Audit Committee shall review, with management and the external auditor, and recommend to the Board of Directors for approval, any financial statements of the Corporation which have not previously been approved by the Board of Directors and which are to be included in a prospectus or other public disclosure document of the Corporation.

(iv)

The Audit Committee shall consider and be satisfied that adequate policies and procedures are in place for the review of the Corporation’s disclosure of financial information extracted or derived from the Corporation’s financial statements (other than disclosure referred to above), and periodically assess the adequacy of such procedures.

(b)

Relationship with External Auditors

The Audit Committee shall recommend to the Board of Directors the external auditor to be nominated for the purpose of preparing or issuing an auditor’s report or performing other audit, review or test services for the Corporation and shall recommend to the Board of Directors the compensation of the external auditor. The external auditor is required to be an auditor registered with the Canadian Public Accountability Board (“CPAB”) that is in compliance with any restrictions or sanctions imposed by the CPAB.

The Audit Committee shall be directly responsible for overseeing the work of the external auditor, including the resolution of disagreements between management and the external auditor regarding financial reporting.

(c)

Pre-Approval of Non-Audit Services

The Audit Committee shall pre-approve all non-audit services to be provided to the Corporation (or any subsidiary entities) by the Corporation’s external auditor.

(d)

Complaints Procedure

The Audit Committee shall establish procedures for the receipt, retention and treatment of complaints received by the Corporation regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the Corporation of concerns regarding questionable accounting or auditing matters.

(e)

Hiring Policies

The Audit Committee shall review and approve the Corporation’s hiring policies regarding partners, employees and former partners and employees of the present and former external auditor of the Corporation.

(f)

Reporting

The Audit Committee shall report regularly to the Board of Directors regarding any issues that arise with respect to the quality or integrity of the Corporation’s financial statements, the Corporation’s compliance with legal or regulatory requirements, the performance and independence of the external auditor, or the internal audit function.

(g)

Risk Oversight

The Audit Committee shall review periodically the Corporation’s processes for identifying the principal risks affecting the Corporation’s business and financial reporting, and shall meet periodically with management of the Corporation in order to review the Corporation’s major risk exposures and the measures taken by management to monitor and control such exposures. The Audit Committee may prepare written risk-management policies and guidelines for the Corporation, for consideration by the Board of Directors.

6.	Authority to Engage Independent Counsel and Advisors

The Audit Committee has the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties, to set and pay the compensation for any advisors employed by the Audit Committee, and to communicate directly with the internal and external auditors.

The Corporation shall provide appropriate funding, as determined by the Audit Committee, in its capacity as a committee of the Board of Directors, for: (a) payment of compensation to the external auditors employed by the issuer for the purpose of rendering or issuing an audit report; (b) payment of compensation to any advisors employed by the Audit Committee; and (c) ordinary administrative expenses of the Audit Committee that are necessary or appropriate in carrying out its duties.

The Audit Committee shall have the authority, within the scope of its responsibilities, to seek any information it requires from any employee of the Corporation and from external parties.

Exhibit 99.4

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. Cashin, President and Chief Executive Officer of Quest Rare Minerals Ltd. (the “Corporation”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

the Annual Report on Form 40-F of the Corporation for the fiscal year ended October 31, 2014 (the “Annual Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

the information contained in the Annual Report fairly presents in all material respects the financial condition and results of operations of the Corporation.

Date: January 29, 2015

(signed) Peter J. Cashin

Name: Peter J. Cashin

Title: President and Chief Executive Officer

This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Corporation’s Annual Report on Form 40-F. A signed original of this statement has been provided to the Corporation and will be retained by the Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies this Annual Report on Form 40-F pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Corporation for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent that the Corporation specifically incorporates it by reference.

Exhibit 99.5

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark Schneiderman, Chief Financial Officer of Quest Rare Minerals Ltd. (the “Corporation”), hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

the information contained in the Annual Report fairly presents in all material respects the financial condition and results of operations of the Corporation.

Date: January 29, 2015

(signed) Mark Schneiderman

Name: Mark Schneiderman

Title: Chief Financial Officer

Exhibit 99.6

CERTIFICATION

I, Peter J. Cashin, President and Chief Executive Officer of Quest Rare Minerals Ltd., certify that;

1.	I have reviewed this annual report on Form 40-F of Quest Rare Minerals Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the issuer’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the issuer’s internal control over financial reporting; and

5.	The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the issuer’s ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: January 29, 2015

(signed) Peter J. Cashin

Name: Peter J. Cashin

Title: President and Chief Executive Officer

Exhibit 99.7

CERTIFICATION

I, Mark Schneiderman, Chief Financial Officer of Quest Rare Minerals Ltd., certify that;

1.	I have reviewed this annual report on Form 40-F of Quest Rare Minerals Ltd.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in this report;

The issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:

5.	The issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the issuer’s auditors and the audit committee of the issuer’s board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the issuer’s internal control over financial reporting.

Date: January 29, 2015

(signed) Mark Schneiderman

Name: Mark Schneiderman

Title: Chief Financial Officer

Exhibit 99.8

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the reference to our Firm under the caption “Experts”, and to the use in the Annual Report on Form 40-F of Quest Rare Minerals Ltd. (the “Company”) of our report dated January 20, 2015 with respect to the financial statements of the Company comprising the consolidated statements of financial position as at October 31, 2014 and 2013, and the consolidated statements of comprehensive loss, changes in equity and cash flows for each of the years in the two-year period ended October 31, 2014, included as Exhibit 99.1, and incorporated by reference in the Corporation’s Annual Report on Form 40-F.

(Signed) Ernst & Young LLP¹

Montréal, Canada

January 27, 2015

¹	CPA auditor, CA, public accountancy permit no A122227

Exhibit 99.9

LETTER OF CONSENT

Reference is made to the technical report dated April 9, 2014, as amended on June 26, 2014, entitled “NI 43-101 Technical Report on the Preliminary Economic Assessment (PEA) for the Strange Lake Property, Quebec, Canada” (the “Technical Report”) which the undersigned has prepared in part for Quest Rare Minerals Ltd. (the “Corporation”).

I hereby consent to the inclusion of references to my name and references to, and the extracts from, or summaries of, the Technical Report, in the Corporation’s Annual Information Form dated January 27, 2014 for the fiscal year ended October 31, 2014, which is incorporated by reference in the Annual Report on Form 40-F, including all exhibits, of the Corporation, which is being filed with the United States Securities and Exchange Commission.

Yours very truly,

(signed) William J. Lewis

William J. Lewis, B. Sc., P.Eng.

Senior Geologist

Micon International Limited

Dated: January 29, 2015

Exhibit 99.10

LETTER OF CONSENT

I hereby consent to the inclusion of references to my name and references to, and the extracts from, or summaries of, the Technical Report, in the Corporation’s Annual Information Form dated January 27, 2015 for the fiscal year ended October 31, 2014, which is incorporated by reference in the Annual Report on Form 40-F, including all exhibits, of the Corporation, which is being filed with the United States Securities and Exchange Commission.

Yours very truly,

(signed) Richard Gowans

Richard Gowans, P.Eng.

President, Principal Metallurgist

Micon International Limited

Dated: January 29, 2015

Exhibit 99.11

LETTER OF CONSENT

I hereby consent to the inclusion of references to my name and references to, and the extracts from, or summaries of, the Technical Report, in the Corporation’s Annual Information Form dated January 27, 2015 for the fiscal year ended October 31, 2014, which is incorporated by reference in the Annual Report on Form 40-F, including all exhibits, of the Corporation, which is being filed with the United States Securities and Exchange Commission.

Yours very truly,

(signed) Rimant (Ray) V. Zalnieriunas

Rimant (Ray) V. Zalnieriunas, P.Geo.

Principal Geologist

R.V. Zalnieriunas Consulting

Dated: January 29, 2015

Exhibit 99.12

LETTER OF CONSENT

I hereby consent to the inclusion of references to my name and references to, and the extracts from, or summaries of, the Technical Report, in the Corporation’s Annual Information Form dated January 24, 2015 for the fiscal year ended October 31, 2014, which is incorporated by reference in the Annual Report on Form 40-F, including all exhibits, of the Corporation, which is being filed with the United States Securities and Exchange Commission.

Yours very truly,

(signed) Sam Shoemaker

Sam Shoemaker Jr., RegMem SME

Senior Mining Engineer

Barr Engineering Company

Dated: January 29, 2015

Exhibit 99.13

LETTER OF CONSENT

I hereby consent to the inclusion of references to my name and references to, and the extracts from, or summaries of, the Technical Report, in the Corporation’s Annual Information Form dated January 24, 2015 for the fiscal year ended October 31, 2014, which is incorporated by reference in the Annual Report on Form 40-F, including all exhibits, of the Corporation, which is being filed with the United States Securities and Exchange Commission.

Yours very truly,

(signed) Jane Spooner

Jane Spooner, P.Geo.

Vice-President

Micon International Limited

Dated: January 29, 2015

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