Commerce Resources Interview Jan 2014

8/13/2019 Commerce Resources Interview Jan 2014

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SECUTORCAPITAL MANAGEMENT CORPORATION

31 January 2014

COMMERCE RESOURCES CORP

Rock Talk with Chris Grove,Director

Price:

Market Cap:

Common Shares:

Fully Diluted:

52 Wk Range:30 Day Avg Vol:

Source: Stockhouse

$ 0.21

$ 35.11 MM

167.18 MM

188.47 MM

$ 0.05 - 0.26418,350

Project:

Locaon:

Ownership:Commodity:

Status:

Resource:

Catalysts:

Project:

Locaon:

Ownership:

Commodity:

Status:

Resource:

Catalysts:

Ashram Deposit (Eldor)

Nunavik Region, Northern QC

100 %REE

Pre-Feasibility Stage

29.3 Mt 1.90% TREO (M&I)

220 Mt at 1.88% TREO (Inferred)

PFS, metallurgical results, joint

venture partnership

Upper Fir Deposit (Blue River)

250 km north of Kamloops, BC

100 %

Tantalum, Niobium

PEA complete

51.78 Mt at 192 ppm TaO,

1490 ppm NbO(Indicated)

8.8 Mt at 186 ppm TaO,

1660 ppm NbO(Inferred)

Updated resource, metallurgical

results

COMPANY SUMMARY

MARKET DATA

TOP HOLDERS

Marquest Asset Management Inc

Zimtu Capital Corp

Matrix Funds Management

Zurcher Kantonalbank

5.36 %

2.25 %

0.40 %

0.28 %

Company Interview

Arie Papernick

Equity Capital Markets

[email protected]

(416) 847-1220

Lilliana Paoletti

Analyst

[email protected]

(416) 545-1015

V-CCE

Recently, Secutor Capital interviewed Chris Grove, Director

of Commerce Resources Corp: Commerce is focused on

advancing its Ashram Rare Earth Project in Quebec as wel

as its Upper Fir Tantalum and Niobium Deposit in British

Columbia. The Ashram Deposit is a carbonatite that hosts a

well-balanced distribution of the rare earth elementsincluding all five of the most critical elements (neodymium

europium, dysprosium, terbium, and yttrium). Significantly

at Ashram, Commerce is able to produce a 43.6% total rare

earth oxide (TREO) mineral concentrate at a recovery rate

of 70.7% using conventional processing techniques.

SCMC: Commerce is able to produce a total rare earth oxide (TREO

mineral concentrate grading 43.6%. The deposit is a carbonate

intrusive complex hos

ng the minerals bastnaesite, monazite, andxenome. Can you discuss the metallurgy of the deposit? Wha

advantages does the geology of the deposit lend to the metallurgy?

CG:As you are a geologist, you will appreciate that, by far, the mos

dominant REE deposit-type in producon are carbonates. Secondly

we were able to produce one of the highest grade minera

concentrates, out of the developing REE projects globally, using

standard processing techniques because the Ashram Deposit is hosted

by the three minerals that you have just menoned, which completely

dominate current commercial processing. Furthermore, there areonly four REE-bearing minerals out of approximately 200 tha

have ever been commercially processed. In the rare earth industry

mineralogy and metallurgy are everything.


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Commerce Resources Corp

SECUTORCAPITAL MANAGEMENT CORP

31 January 2014

Source: Company Filings

Simplified Flowsheet for the Production of a Rare Earth Mineral Concentrate

SCMC:What is the boleneck in the process flowsheet? What are the next steps necessary to advance the

metallurgy?

CG:There are no bolenecks in the metallurgy or the mineralogy at this me; everything has moved along very

quickly, relavely speaking. Again, this is because we are going down a well-worn path that has historicallyyielded REE end-products. There are many next steps, but our focus is to connue to improve recoveries across

the spectrum. The next logical step is to scale-up the process to a pilot plant in order to generate enough feed

material for the hydromet. We need to produce sufficient representave material so that we can opmize that

part of theflowsheet and begin to evaluate the costs for the many opons of end-products that we have.

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Source: Company Filings

Recent Drilling at the Ashram Deposit


SCMC:Commerce recently announced drill intersecons from Ashram including 61.40 m of 2.15% TREO and

57.36 m of 2.28% TREO. What is the significance of these results?

CG: These results were significant for a few reasons. First of all, this was an infill drill program, and these holes

encountered less in-pit waste rock at surface than previously modeled in our PEA, thus adding more mineralizedmaterial to the resource which will be included in the next resource update. The conversion of the waste rock to

ore will reduce costs since less overburden will have to be removed, effecvely making our low strip rao even

lower. Secondly, we did a couple of step-out holes which intersected an extension of the Deposit, adding

mineralizaon approximately 60 meters to the northwest. Finally, the actual results that you menoned are

some of the high-grade intercepts that we hit. These are above the average grade of the overall resource, which

is in the 1.9% range, albeit a high-grade for such a huge deposit.

31 January 2014

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Commerce Resources Corp 31 January 2014

SCMC:What is the strategy for the next 12 months? What milestones are you aiming to achieve and what is

your current cash posion?

CG: Overall, the main focus is to connue to advance the metallurgy with the labs that we are working with, and

to secure a joint venture partner with the current results and milestones that we have achieved. In regards tosecuring a joint venture partner, it is very difficult to talk about ming, except to say that this program moves

ahead with old interest in the wings and with new interest coming to us all the me. There are some macro

issues to consider though; for example very lile business is done in the month of January in China, and we do

not expect to hear from the REE industry in that country unl aer the Year of the Horse has begun in February.

Other goals include finishing off the infill drilling, updang the resource, connuing with economic trade-off

studies that examine where to locate the docking facility and the road that terminates there, connuing with the

weather staon data collecon which is needed to ascertain where to place an air strip on-site, as well as

connuing with the environmental baseline data monitoring.

Our next set of financials will be out at the end of February. Our cash posion is $900,000, and we have mining

credits of $1.9 million, which is expected shortly.

SCMC:How is work progressing on the Pre-Feasibility Study? What work remains to be done and what is the

ming like?

CG:As touched on, Roche is working on several project aspects at this me towards the compleon of the PFS for

the Ashram Deposit. In terms of the metallurgy, we are almost at the point where we can shiour focus to the

hydrometallurgy and to the evaluation of end-product opons. The ming of the compleon of the PFS is related

to capital, and we are looking to secure addionalfinancing to accomplish this in a mely manner.

SCMC: Since the rare earth industry is a bouque chemical industry with different end-users with different

needs, which markets are you targeng? Downstream processing is a crical component of the business since

concentrates are heavily discounted by the market. Are you looking to sell a mixed concentrate? Or are you

considering separang the individual rare earths into oxides? What milestones would you have to complete

to move forward with a potenal strategic partner?

CG: Let me answer your last quesonfirst. I believe that the milestones that we have already achieved, including

being one of a select few REE deposits in the world that can produce a beer than 40% mineral concentrate, puts

us in a posion where we can be opmisc that we will secure a joint venture partner. When we were in China,ust following the release of the Ashram PEA (June 2012), one of the largest producers of REEs said to us that

they believed that we have the best deposit. However, at this point, we had only produced a 10% mineral

concentrate, and the producer said that that they would be more interested if we were able to produce a beer

than 30% concentrate. We are now capable of producing a beer than 40% mineral concentrate.

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Secondly, we engaged Deloie in 2012 to act as our financial advisor, which means our corporate matchmaker.

Through them, we have met basically everyone who is anyone in the REE world. We met companies who would

be appropriate joint venture partners and we have a significant number of Non-Disclosure Agreements signed at

this me.

Addionally, when talking about a concentrate one must be quite specific. Our PEA evaluated selling a mixed

REO (rare earth oxide) or REC (rare earth carbonate) concentrate and yes, there are ready markets for these

products since they are the basic feed stock for the separaon facilies. Furthermore, there is excess separaon

capacity for this type of concentrate in China.

Regarding end-products, at this me we are looking at several opons which include a mixed REO, a mixed REC,

and a paral separaon. This can be done for a few products without too much difficulty when compared to a

ull oxide separaon. This includes a cerium oxide product, a didymium (praseodymium + neodymium) product,

an SEG (samarium, europium, and gadolinium) mixed oxide product, and/or an HREO mixed product. However, i

a JV partner is interested in separated oxides, we would seriously evaluate the steps to achieve this for the end-products that they are looking for.

SCMC: The last PEA menoned that Commerce is considering shipping concentrate to Montreal for further

processing. What is the advantage of this plan?

CG:The largest cost of any REE project is processing. The best way to reduce this cost is to upgrade the ore to a

mineral concentrate, as this decreases all of the downstream processing costs. This also allows for a lower

volume of material to be shipped to an area with beer access to the skilled personnel and consumables required

or the process. We have recently completed a hydromet trade-off locaon study and preliminary results

indicated that a locaon off-site will be more economic for us. However, Montreal was not one of thoselocaons. We are looking at somewhere further east along the St. Lawrence Seaway.

SCMC:How does your mineral concentrate compare to those that are currently produced in China?

CG: The mineral concentrate that we have produced compares very favorably. The non-ionic clay deposits in

China produce mineral concentrate in excess of 30% TREO. We are one of only two REE deposits in development

that have been able to produce a beer than 30% mineral concentrate. Note that Molycorp and Lynas are also

able to produce mineral concentrates in excess of 30% TREO, so this could be seen as a requirement for

producon.

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SCMC: What is the distribuon of rare earths like at Ashram and how does it compare to other Canadian

juniors?

CG: We have a well-balanced distribuon with considerable crical rare earth oxides (CREO) including

neodymium (Nd), europium (Eu), and very appreciable amounts of terbium (Tb), dysprosium (Dy), and yrium(Y). In fact, our middle and heavy rare earth oxide (MHREO) zone has more dysprosium than Matamec

Exploraons (V-MAT) Kipawa Deposit on a gram per ton basis. We believe that our distribuon is very

ortunate, as it gives us the ability to weather price fluctuaons of all of the crical rare earth oxides.

Ashrams broad REE distribuon gives us a beer chance at remaining economic in a tough market climate, or if

someone else does get into producon for one or more of the CREOs for example. Generally speaking, and

although it is our corporate belief that you do not promote your project by saying negave things about others in

the sector, globally REE projects breakdown into being either light or heavy projects. With our distribuon at the

Ashram Deposit, we basically have all of the REEs in significant quanty, and this is very rare indeed.

SCMC: There is a lack of infrastructure in the Eldor project area. Do you think that there could be any

synergies with Plan Nord? Do you think that the CAPEX of $763 million quoted in the PEA can be improved

upon?

CG:This is very true the lack of infrastructure around the Ashram Deposit. However, the CAPEX for the road

has already been reduced significantly. We have opmized the route and reduced the length by at least 20

kilometers. The current plan is easier to build than what was envisioned in the PEA (by SGS) with the bridges

being shorter in length and less costly per kilometer of road. The only remaining aspect is to confirm the exact

local of the docking facility as this will determine thefinal length of the road.

In terms of the current administraon in Quebec, I believe that lile has been done to advance the Plan Nord,

which is arguably seen by the current government as a hold-over from the Jean Charest Liberals. However, I

think that this administraon does know which side of the bread gets buered and may at some point, do

something posive for this infrastructure plan.

Furthermore, Adriana Resources (V-ADI) Lac Otelnuk Project is just 80 kilometers south of Ashram. It is one o

the largest mining projects in development of all me for Quebec, and for Canada, and it absolutely needs a huge

amount of infrastructure. If Adrianas Lac Otelnuk Project gets the railroad, the highway, and the power lines all

set up so that it can move ahead, then there may be some opportunies for us there to tap into. Realiscally,

and as is costed in our PEA, we can connue on our own steam without any benefits from what might be realizedin the future in terms of the overall Plan Nord. However, we would not look a gihorse in the mouth.

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SCMC: How are the reforms in China impacng the market? Does the price differenal between the China

rare earth price and the rest of the world price connue to narrow?

CG:The reforms in China are about exerng control over the market and the output within China, and following

that, the rest of the world. The consolidaon in China of the rare earth sector has potenally run its coursethough, and so I expect to see connued upward price pressure in the vacuum of new supply. With the decision

of the WTO going against China, I would say that the price difference has narrowed, but this is an assumpon

that is prey quesonable because what the Chinese do within China is difficult to be seen.

SCMC:Are light rare earth projects sll economic? Do you think that Molycorp and Lynas are driving down

prices? Are there any lessons that you can take away from Molycorp or Lynas, these companies that made it

to producon?

CG:I think that any light REE project will have to get used to factoring in much lower prices for the conceivable

uture. Molycorp will always be economic because it is by far the best deposit in the US. Further, their Sorbxtechnology could be a game change for cerium producon. Lynas should be able to figure it out. They are too

high-grade, and arguably too far along at this stage to stop. They are likely the highest grade mine in the world

with good tonnage, so they do have opons if roadblocks come up. They have spent enormous amounts on

metallurgy and are now producing a mineral concentrate of beer than 30% TREO again this seems to be a

prerequisite to enter commercial producon.

SCMC: The rare earth industry is very complex. Pricing is opaque, demand is difficult to esmate, the

metallurgy is very complicated, and there only two main public producers, Lynas and Molycorp. What do you

think are some of the common misconcepons that investors have for the space? How do you get them

interested in the sector?

CG:Generally, people dont understand the value of creang a mineral concentrate. It really is the be all and

end all to an economic REE deposit. The ability to reduce the mass of your ore by producing a mineral

concentrate is key to reducing the amount of material that you have to transport, and to reducing the amount o

acid needed to process the ore. This is huge.

Secondly, investors should be aware that there is sll an opportunity for a new producer of REEs to enter the

market. Prices have come down significantly but are generally above where they were in early 2009. Also, there

has been almost no new producon; the upside is sll huge.

31 January 2014

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Thirdly, what is perhaps the second most common queson I am asked is How do you guys plan to raise the

$763 million needed to put your project into producon? The truth is that with such a project as we have, which

generates approximately $1 million per day, (the payback period as outlined in our PEA is 27 months) the inial

capital is not raised by creang new equity. It is debt that arguably any corporate lender would lend with our

economics, provided that we take the project to the next level of accuracy. Furthermore, we believe that theproject economics will improve. The NPV in our PEA is $2.3 billion, and this was based upon us just producing a

10% concentrate, and we have just produced a 43.6% concentrate at no appreciable increase of operang cost.

Lastly, the opportunity in the REE sector is actually beer today than it was during the period between 2009 and

2011. Now, the investor has an opportunity to come in at the boom of the curve, in projects that are much

more advanced than they were in 2009 or 2011, and the overall market dynamics are beer supply and

demand. The opportunity in the REEs has really never been beer.

SCMC: What do you think of the new Government of Canada iniaves to set aside funding for research and

development in the 2014 federal budget for rare earths? If crical rare earth metals (europium, terbium,dysprosium, yrium, and neodymium) are so important to the naons economy, why hasnt the government

played a stronger role in the industry before?

CG: I think that there is a huge opportunity for Canada in supporng the development of REE projects in the

country, and there is a huge market waing for such commodies. In meengs with several Ministers of the

ormer Quebec government, I was told that they had been informed by the current US administraon that it

would be great if Quebec and Canada did more to support the development of what the US really needs, which

are the commodies that they depend on China for, and the REEs were idenfied as the most important and

strategic of all of these for the US.

How this program works is sll a lile unclear, but I think that it is a great iniave and I look forward to

speaking to more people working on this in the future. The fact that it has not happened before is a separate

issue, and I would rather compliment the current government for doing something that I think could be o

significant value to, not just to a couple of REE projects, but to the country overall. I look forward to hopefully

meeng with Minister Joe Oliver on this.

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SCMC:Switching gears, Commerce also owns the Blue River Tantalum Project. What is the current state of

the tantalum market?

CG: There is a significant shorall of tantalum supply at this me, against stable or perhaps rising demand.

Approximately 50% of SEC-compliant tantalum mines were shut-down over the last two years, even though theprice for tantalum is 150% higher than it was before the Dodd-Frank bill was signed into law in July 2010. These

mines shut-down because these projects are either not economic, they have exhausted their minerals, or the

deposits have become too radioacve.

SCMC: Could you explain Secon 1502 of the Dodd-Frank bill in regards to what is expected this coming year?

Is it realisc? Do you think that firms will be able to comply?

CG:Secon 1502 is the name of the procurement report that the SEC requires every company with a US lisng to

le if it uses either tantalum, n, tungsten, or gold in its supply chain. The company must state where these

materials are derived from in order to discourage firms from providing financial assistance to the bad actors inthe Democrac Republic of the Congo (DRC), who are perpetrang the worlds longest running and worst site o

human rights abuses.

The esmated body count for the conflicts that have occurred in the DRC since 1994 the year that the Rwandan

group that perpetrated the genocide in Rwanda was driven west into the DRC is five million. This number does

nothing to reflect the ongoing suffering and exploitaon at the slave labor camps that are run by both the

Rwandan Federaon Democraque de Liberaon du Rwanda (FDLR), and the Congolese military (CDNP), and

then the spin-offfrom the Congolese military named the M23 Rebels.

In all, it is esmated that around 6,000 companies need to file Secon 1502, and this includes every American

manufacturer from Apple to Xerox and any foreign company that also has a US lisng, including Sony, Samsung,

Research in Moon etc, etc. The expectaon is that all these required procurement reports are to be filed by

May 31, 2014. This seems like it is realisc, but there is certainly some grumbling about it, although all legal

challenges against it have failed up unl this point.

In terms of the preparedness of companies to file, there have been many, many conferences held on this topic in

the last year and I spoke at three of them myself. I think that these companies are taking this legislaon very

seriously, mainly because they are concerned about the potenal brand damage that comes with being

associated with the ongoing conflict and human rights abuses in the DRC. When I spoke at these conferences, I

spoke about Commerces ownership of the largest producon scenario for tantalum in the world at this me, and

also the fact that we would be 100% compliant with the new US legislaon.

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SCMC:How does the Blue River Tantalum Project compare globally?

CG: The Blue River tantalum project is the largest, cash posive tantalum producon scenario in the world. It will

be able to produce approximately 700,000 pounds of technical grade tantalum oxide and 6.3 million pounds o

technical grade niobium oxide per annum for at least ten years. The Project also has excellent infrastructure inBrish Columbia.

SCMC:What is tantalum used for and are there any substutes?

CG: Tantalum is primarily used in capacitors that are found in everything electronic. Approximately 65% of the

tantalum market is electronics. Although there are other materials that capacitors can be made of, there is no

other material that has the capacitance, reliability, performance, or temperature range that tantalum has.

Addionally, there is nothing else that can be manufactured in such minute sizes. Tantalums second biggest

usage is for super alloys. For example, all jet plane blades are manufactured from these super alloys

containing tantalum because it eliminates metal fague in the jet turbines.

SCMC:Is it possible to be conflict-free today?

CG: I would say that it is more difficult to be conflict-free today, simply because so many of the mines that

would have produced the conflict-free material have shut down, and there has been no new producon coming

rom anywhere outside of the DRC. The actual amount of legimately conflict free material coming from the

DRC from the very admirable Soluons for Hope Project in the southeast of the country is very small. It is

only 160,000 pounds per year out of an esmated global demand per annum of approximately five million

pounds. Of course, anyone who chooses to joint venture with us and our Blue River Project would have a secure

and stable supply of tantalum that is also compliant with the US legislaon, for a considerable period of me.

SCMC: In closing, is there anything that you would like to add?

CG:In terms of many of the quesons you have asked today about our Ashram REE Project, I think that a recent

independent research report by a German company, Rockstone, is quite good.

SCMC:Thanks Chris

31 January 2014

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The information contained in this report was obtained from sources we believe to be reliable at the

time obtained but neither Secutor Capital Management Corp nor its employees, agents, or

information suppliers can guarantee that such information is accurate or complete and it should

not be relied on as such.

Any opinions expressed herein reflect our judgement at this date and are subject to change. This

commentary is based on information that is believed to be accurate at the time of writing and is

subject to change. All opinions and estimates contained in this report constitute Secutor Capital

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and other investment factors are subject to change. Past performance may not be repeated.

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