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Asian Metal: As a bit of background on Commerce Resources, you have two flagship properties currently under development, the Eldor project and Ashram rare earth deposit, as well as the Blue River tantalum-niobium project. Beginning with the Ashram deposit, can you please expand a little bit about its history and the progress made to date?

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Grove: In 2005, when China started to levy extensive export duties on rare earth elements, there was a compelling case to look for rare earths outside of China. Our assets were all carbonatites, and so this is where we focused our search. In 2007, we staked the Eldor carbonatite in Quebec, and in 2009, we found 3% plus total rare earth oxide (TREO) grade in one area at the Ashram. It is also hosted by the three minerals processed every day in China and California.

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The advancement of this project has been on a couple of different sides. The deposit is huge; in the last eight months, we doubled the size to 29.0Mt measure and indicated, and 219Mt inferred resources. That tonnage is using a 1.25% TREO cut-off, and the deposit average is 1.90% TREO. Second to that, it has a distribution that is very favorable because it is enriched with five critical rare earth oxides, specifically neodymium, europium, yttrium, dysprosium and terbium. We are very happy about that. And in the last eight months, we released a preliminary economic assessment (PEA), which shows robust economics for the project.

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Asian Metal: How was the PEA received? What are some of the major points that the PEA brought to light?

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Grove: One of the major points, and this would be reaction in market, are the economics of it. There are a few points that people like about the PEA, and they are the 2.3B net present value (NPV) and 2.25 year for payback for a capital expenditure of USD763M. We are looking at paying back that amount in 27 months. That is very attractive. However, I would point out that for the industry, the most important point is that we produced a mixed 10% TREO grade concentrate.

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Our overall business plan is to go to separated oxides, but the PEA stopped at production of a mixed rare earth concentrate carbonate. That concentrate showed our ability to strip away 87% of waste rock. Part of what everyone should understand is important for REE projects, on an economic basis, is the ability to make a decent concentrate. Ultimately, anyone can dissolve all of their ore in acid. But if you can reduce the mass by 87%, which is waste in essence, if you can strip out 87% of mass and just put in 13% into solution, then the amount of acid used is obviously exponentially lower than it is for a company that has to do a whole rock digestion. The production of the concentrate was the fundamental aspect of the PEA, although the economics of paying back USD823M in 2.25 years with an IRR of 44% is also very attractive.

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When you look at project economics, one of the most important inputs is the value of the commodities in the financial model. SGS used a very conservative price deck, and if you compare (focusing on one element, dysprosium) some peer group would use an FOB China price from October 2012 at USD1400/kg. In our PEA, we used USD800/kg for dysprosium oxide, and then we added on a 25% discount price. We took that discount off of the USD800, so that is 600/kg for the concentrate. There are peer group companies using USD1400/kg. With the data available in the full technical report, you can see the values inputted and the NVP thus being relatively conservative overall.

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Asian Metal: Your resource size is fairly substantial, with data indicating a 43-101 compliant measured and indicated 29.3Mt with a cut-off grade of 1.25% TREO. Being in Quebec, what are some of the benefits that you receive given the province’s pro-mining policies, and what are some of the challenges that Commerce will face with the progress of this project?

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Grove: In terms of the resource, cut-off is 1.25%. The measured and indicated is 1.90% TREO, and inferred is at 1.88%. The cut-off that SGS arbitrarily used is 1.25%, so it is fairly high. If you lower the cut off to more industry standard, 0.5%, then the deposit almost doubles. It would go up to an inferred resource of 383Mt at 1.45% TREO, and then measured and indicated at 39Mt averaging 1.6% TREO. It is a very significant resource, so using a high cut-off arguably shows the positive economics by focusing on the high grade material.

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Quebec is an excellent jurisdiction. I have met many of the current and past government ministers. They are very supportive of mining, and one benefit is we get back approximately 40% of all capital we spend onsite in Quebec. In that regard, this is a pay-back program, which allows us to direct more capital to the project in Quebec. That is really excellent. The Quebec government, through its investment arm, Invest Quebec, hosts global trade missions. Two to three weeks ago, I was in Tokyo with other Quebec projects, at JOGMEC (Japan Oil Gas Metals National Corp.) This event had probably 80-100 people representing 65 Japanese companies. This is something that the Quebec government does in hopes of being the matchmaker between Japanese, Chinese or Korean OEMs and projects in the province. The government did the same thing in Munich this past June, and that was a very good function. It was attended by many companies throughout Western Europe.

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There are no challenges on the political or permitting side. All ministries of the Quebec government are supportive of the industry. That is why they have been the first or second jurisdiction designated by the independent Fraser Institute. I cannot think of any issues with its government. Physical issues, our project is remote, and there is no current infrastructure. The current Quebec government, and third party, all in the election in September, all stated that development of the north is a key facet of all of their future plans. The liberal government in Quebec called it the Plan Nord. The current government is changing that name, but it is basically the same plan. The Quebec government very clearly understands which side of the bread gets buttered, and they have some of the largest mines in Canada in production and the largest in development now, Adriana. The Quebec government is committed to help to put in the infrastructure to put Adriana into production. We expect that to happen, although we are not waiting for it. A major part is that Quebec government is very support of everything. They have started extension of the highway to the south. We look forward to them doing more in this infrastructure plan, which is north of Schefferville.

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Asian Metal: Earlier this month, you and your team announced several updates in regard to metallurgical test work at Ashram. What were some of the key results of this announcement? What work remains on-going?

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Grove: Part of it is the company’s goal to process through to separated oxides. Part of what supports that business plan to go to separated oxides is the understanding that our three minerals are processed commercially through to separate oxides every day. We are confident to achieve this. We announced a couple of key points. We actually doubled the grade of minerals in concentrate. That is fantastic. We were able to take a 10% concentrate and double to just over 20% in six months. We have also started aspects of the cracking process, which is dissolving our concentrate into solution. In terms of these initial cracking tests, 94% of the rare earth elements have been dissolved into solution. That is the first step in cracking. The next step is solvent extraction, so that dysprosium drops out. The first couple stages of metallurgy are very significant, making 20% rare earth concentrate and 94% of the minerals going into solution. We are very excited about that. These results will be of interest to anyone in the industry, such as OEMs anxious about supplies of Dy, like auto manufactuers, or the doubling of concentrate grades to current and future processors of REE elements.

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Asian Metal: You also have a niobium-tantalum project in the works. What is the current status of this project, and where do you see development leading in the next year?

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Grove: In terms of our Blue River tantalum project, AMEC released the PEA about a year ago and the economics are robust. Our project is the largest production scenario for tantalum in the world, and it is 100% compliant with current US Legislation supported by SEC ruling on Sept 22nd which requires companies to file an annual procurement report stating where they and their suppliers source their tantalum.

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In terms of the SEC Ruling, this is arguable being a game changer for the tantalum industry. We have had an increase of global interest from companies that recognize that, A: tantalum is perhaps in the greatest supply side deficit position, and B: interest from companies that know that they need to change their procurement policy to be compliant with the US legislation if they want to continue to sell to US-listed companies. It has been an interesting [autumn] because we have met with many major players in the tantalum industry and as a backdrop, we have seen increasing hostilities in the Democratic Republic of Congo. To some extent, this underscores the difficulty or issues surrounding sourcing tantalum from the DRC. These rebel groups are arguably financed by conflict minerals.

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We did not drill this year, but we are looking forward to that next year, which will follow the next 43-101 resource calculation. Just about 5 months ago, we increased the size of the resource by 42%. That would be a 42% increase to the resource that is in the PEA. The numbers in the resource right now are 51.0Mt indicated and 8.8Mt inferred. This is a significant resource, and it will arguably get bigger with the addition of the 8,700m of drilling completed in 2011 which should be released in early 2013.

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This project has the potential to be the largest producer of tantalum that is compliant with US legislation. We have positive economics now, and AMEC is looking to optimize economics on all sides for the PFS. In terms of global market, I look forward us to potentially being a backbone of the electronics industry. We should be in a position to secure a partner from industry.

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Asian Metal: Chris, thank you for your time. I look forward to developments at both projects, and I am sure Asian Metal readers will monitor their progress closely.

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