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Message: HIGHLIGHTS - MANAGEMENT’S DISCUSSION AND ANALYSIS - SEDAR today

HIGHLIGHTS - MANAGEMENT’S DISCUSSION AND ANALYSIS - SEDAR today

posted on Jan 14, 2009 02:52PM

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AVALON VENTURES LTD.

Management Discussion and Analysis of Financial Statements

For the three months ended November 30, 2008

The global financial crisis in 2008 has resulted in reduced demand and dramatically lower prices for most mineral commodities, but many of the rare metals are notable exceptions, with prices declining to a lesser degree than other mineral commodities. This is attributable to steady demand for these metals due to their importance in a growing number of applications in technology related to energy efficiency and a cleaner environment. Reduced carbon emissions and less reliance on fossil fuels remain a top policy priority for many governments around the world, which should continue to stimulate demand for rare metals, even in a recessionary environment.

The Company is in the process of exploring or developing five of its eight mineral resource properties.

Four of the five active projects (Thor Lake, Separation Rapids, East Kemptville and

Warren Township) are rare minerals or rare metals properties that are at an advanced stage with identified mineral resources that are potentially economic, provided that sales contracts with customers can be secured and project financing arranged. The other project (Red Hill) is a base metal property that is at an early stage where drilling is required to delineate resources.

A positive Preliminary Economic Assessment (“PEA”) on the REE development potential of Thor Lake project was completed in 2007 and this project has become the Company’s top priority due to the large size of the resource and its exceptional enrichment in the “heavy” rare earths, europium through lutetium (“HREE”). It is intended that this project will be advanced to the prefeasibility level of analysis in 2009.

Liquidity and Capital Resources

The Company remains well-funded and does not expect that the recent volatility in the capital markets will have a significant impact on its operations.

As at November 30, 2008, the Company had working capital of $7,964,822 (including investments of $3,943) and cash and cash equivalents on hand of $8,309,199.

On December 15, 2008, subsequent to the end of the quarter, the Company completed a nonbrokered private placement, resulting in gross proceeds of $1,500,000, as more fully described under “Subsequent Events”.

The Company’s current operating expenditures, excluding expenditures on resource property work programs, are approximately $180,000 per month but management is making efforts to reduce its overhead expenditures in 2009. As at the date of this report, the Company’s current anticipated expenditures on its fiscal 2009 work programs are estimated at approximately $3,000,000, with most of these expenditures being allocated to the Thor Lake REE project for the pre-feasibility study and further definition drilling. This budget could be adjusted depending on the availability of new financing in 2009.

The Company’s present cash resources are sufficient to meet all of its current contractual obligations for the foreseeable future. The Thor Lake, Warren Township, Separation Rapids and Lilypad Lakes properties are all 100% owned by the Company with minimal holding costs, the most significant being annual lease rental fees on Thor Lake of $15,422.

Outstanding Share Data

Common and Preferred Shares

Accordingly as at the date of this report 67,649,748 common shares were issued and outstanding.

Stock Options

As at November 30, 2008 the Company had an aggregate of 4,359,500 incentive stock options outstanding with a weighted average exercise price of $1.13.

Subsequent to three months ended November 30, 2008, the Company granted 200,000 stock options to a consultant. Each option entitles the holder to purchase one common share of the Company at a price of $0.50 per share until December 31, 2010. These options vest at the rate of 25% every three months following December 31, 2008.

Accordingly as at the date of this report 4,559,500 options were outstanding with a weighted average exercise price of $1.11

Thor Lake

A $1.5 million winter drilling program, financed with the proceeds of the flow-through private placement completed in December, 2008, is scheduled to commence in February, 2009.

The main objectives of this program will be further exploration of the southern extensions of the deposit for additional high-grade mineralization and in-fill drilling to better define the deposit and increase the confidence level on the known resource in support of the pre-feasibility study to be completed in 2009.

The drill contract is currently being tendered and, given the dramatic slowdown in activity in the industry, management is optimistic that a reduction in the average all-in drilling costs and faster assay turnaround will be achieved in 2009.

Fourteen individuals from local native communities were employed on the project at different times during the 2007-2008 work program. The Company held three community consultation meetings during the quarter including formal presentations to the Chiefs and council of the Yellowknives Dene First Nation and the leadership of the North Slave Metis Alliance. Both groups have indicated their support for the project provided that the environment is respected and some economic benefits flow to the communities.

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