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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
(416) 847-1220
Lilliana Paoletti
Analyst
(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
Commerce Resources Corp
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.
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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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Commerce Resources Corp
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.
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Commerce Resources Corp
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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Commerce Resources Corp 31 January 2014
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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Commerce Resources Corp
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
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Commerce Resources Corp 31 January 2014
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