THE MINERAL EXPLORATION INDUSTRY An Introduction

Transcription

1 THE MINERAL EXPLORATION INDUSTRY An Introduction April 24, 2017 Kuujjuaq Workshop Kuujjuaq Workshop, April 2016

2 Forward-Looking Information Disclaimers and Cautionary Statements: The information contained in this presentation is provided by Commerce Resource Corp. ( Commerce ) for informational purposes only and does not constitute an offer to issue or arrange to issue, or the solicitation of an offer to issue, securities of Commerce or other financial products. The information contained herein is not investment or financial product advice and is not intended to be used as the basis for making an investment decision. The views, opinions and advice provided in this presentation reflect those of the individual presenters, and are provided for information purposes only. The presentation has been prepared without taking into account the investment objectives, financial situation or particular needs of any particular person. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, none of Commerce nor its directors, officers, employees or agents, nor any other person accepts any liability, including, without limitation, any liability arising out of fault or negligence, for any loss arising from the use of the information contained in this presentation. Except for statements of historical fact, this presentation contains certain forward-looking information within the meaning of applicable securities laws. Forward-looking information is frequently characterized by words such as plan, expect, project, intend, believe, anticipate, estimate and other similar words, or statements that certain events or conditions may or will occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those anticipated in the forward-looking statements, including, among others, the accuracy of mineral grades and related assumptions, planned expenditures, proposed exploration and development at the Ashram Rare Earth Project, anticipated rare earth element prices and the relationship between rare earth elements and Chinese and global demand, the anticipated timing and conclusions of drilling results, as well as those risk factors identified in Commerce s Management Discussion & Analysis for the most recent period and other disclosure documents available at under Commerce s name. Commerce undertakes no obligation to update forward-looking information if circumstances or management s estimates or opinions should change except as required by law. The reader is cautioned not to place undue reliance on forward-looking statements. This presentation includes industry, market and competitive position data from industry journals and publications, data on websites maintained by private and public entities, including independent industry associations, general publications and other publicly available information. Commerce believes that all of these sources are reliable, but we have not independently verified any of this information and cannot guarantee its accuracy or completeness. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. Further, because certain of these organizations are industry organizations, they may present information in a manner that is more favourable to the industry than would be presented by an independent source. In addition, forecasts are often inaccurate, especially over long periods of time. References in this presentation to research reports or articles should not be construed as depicting the complete findings of the entire referenced report or article. The information in each report or article is not incorporated by reference into this presentation. Cautionary Notes regarding Technical Information: This presentation may include disclosure of scientific and technical information, as well as information in relation to the calculation of resources, with respect to the Ashram Rare Earth Project. Commerce s disclosure of mineral resource information is governed by National Instrument Standards of Disclosure for Mineral Projects ( NI ) under 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 ( CIM Standards ). There can be no assurance that mineral resources will ultimately be converted into mineral reserves. Mineral resources are not mineral reserves and do not have demonstrated economic viability. Further information about the Ashram Rare Earth Project, including information relating to quality assurance and quality control procedures, is available in accordance with NI within the Technical Report entitled NI Technical Report Preliminary Economic Assessment Ashram Rare Earth Deposit with an effective date of July 5, 2012 (revised date of January 7, 2015), a copy of which is filed under Commerce s profile on SEDAR at The technical information in this presentation has been prepared in accordance with the Canadian regulatory requirements set out in NI and reviewed on behalf of the Company by Mr. Darren Smith, M.Sc., P.Geol., of Dahrouge Geological Consulting Ltd., a Qualified Person. 2

3 Mining Company vs Exploration Company Mining Company Owns and operates a producing mineral asset (i.e. cash flow) In general, a less speculative and lower risk investment Relatively higher impact, but impacts are well defined Long term business opportunities Large number of employees and/or consultants E.g. Glencore, Rio Tinto, Goldcorp, Exploration Company Owns the mineral rights to a property/asset (i.e. NO cash flow) Speculative and high risk investment; BUT, potential for high reward Relatively low impact collect field data, interpret, & evaluate potential for development Limited number of employees and/or consultants E.g. Commerce Resources Corp., NexGen Energy Ltd. 3

4 The Purpose of an Exploration Company A junior exploration company is a Treasure Hunter that seeks to create wealth for shareholders through the discovery and development of a mineral asset Jointly funded hunt for new mineral wealth Spreads out the risk, and wealth (still substantial) ~ 1/10,000 grassroots projects reach development 1 EXPLORE, DISCOVER, DEVELOP (i.e. Create Value) ~ 1/200 discoveries advance to development 1 Objective is to maximize shareholder value through discovery and asset development 1. Raise money through issuing shares Exploration Company 2. Explore with money raised 3. Create value through discovery Shares of company issued Shares of company issued 4. Raise money at higher share prices 5. Create value develop asset, buy out Aunt Betty Farmer Bill Sister Mary Institution Neighbour Frank Mr. & Mrs. Smith 1. Minerals & Petroleum Resources Directorate, 2007 Shareholders (own a small piece of company) 4

5 Exploration Companies Collect Field Data Camp Valcourt (Commerce Resources Corp.) Prospector Tents Camps are temporary and are the largest footprints of most exploration projects Typically people Camp Valcourt 5

6 Exploration Companies Collect Field Data Total Magnetic Intensity Eldor Complex 6

7 Exploration Companies Collect Field Data Log drill core Prospecting and rock sampling Drill hole collar a few years after completion Winter drill set-up on lake ice 7

8 Defining the Company & Project Focus 1. Overall market and momentum Recognize the current market situation & where it is going 2. Commodity(s) of interest What are the market opportunities 3. Jurisdiction What is the current and historic attitude towards mineral exploration by the government & population 4. Geology Identifying the right geologic setting is fundamental to discovery 5. Property/Project Grassroots (new exploration), or Brownfield (historic discovery, mine expansion) 6. Management team Relevant experience financial, geological, marketing, etc. Story tellers proper balance of promotion and development skills Gold Copper Rare Earth Oxides USDA, Peggy Greb Iron Ore Pellets 8

9 Market Environment Ability to Fund Exploration Positive momentum will drive investment (i.e. bull market) Declining commodity price environment (difficult market to finance in) Great Recession Bear Market Optimism? TSX Venture 10 year chart, 9

10 Market Environment Pick Commodity Wisely COMMODITY PRICE is the fundamental incentive that drives exploration High commodity price makes exploration projects amenable to financing Prices currently low for many commodities diminished exploration activity Lithium & cobalt hot commodities right now Watch out! leads to many bandwagon companies with un-validated projects that are forcefully promoted A fundamental flaw with industry is that a mine typically takes years to develop post discovery; however, commodity prices today drive exploration today, whereas in reality, at production commodity prices may be markedly different Global staking rush right now for lithium projects

11 Market Environment Commodity Price Commodity price drives exploration Virginia Mines stakes complex Eldor Complex Discovered Eldor claims lapse 11

12 Market Environment Commodity Price Easy to finance projects LOTS OF EXPLORATION >600 active REE projects China cuts off REE exports to Japan Rare earth what? Downturn weeds out the weak <10 projects estimated to still be advancing globally 12

13 Market Environment Commodity Cycle The commodity cycle is complex supply & demand are fundamental High price environment Increased exploration and development expenditures Mines may increase production to capture upside Large expansions approved that may take years to complete May result in oversupply if added production comes online during market downturn Low price environment Mines may increase production to bring down unit cost Exacerbates problem by saturating market and further depressing prices (e.g. iron ore, oil) Mine may continue to operate at a loss because it's so expensive re-start back up when prices are higher (e.g. oil sands, potash mines) Focus on high-grading a deposit Short term solution with long term downside as ore body depleted sooner & lower grade ore may be sterilized the cure for low prices, is low prices removes supply from market 13

14 Why Explore Here and Not There? As they say in real-estate, Location, Location, Location! Jurisdiction Security of tenure is absolutely essential or investment will not occur Canada consistently ranks among the top jurisdictions globally for mining investment attractiveness (Fraser Institute Annual Report) In 2016 Saskatchewan (1/104), Manitoba (2/104), Quebec (6/104), Alberta (47/104, was #14 in 2012), Argentina Jujuy (104 of 104), Presence of infrastructure A lack thereof requires higher grade/tonnage Geology and mineral potential Social portrait Recognize, respect, engage 14

15 Regulated Industry The mineral exploration industry is regulated based on jurisdiction of listing Regulatory guidelines include National Instrument (Canada), PERC (Europe), SAMREC (South Africa), JORC (Australia) Standards of disclosure Regular financial filings Regular third party financial audits Disclosure available in public domain ( for NI ) Most Canadian listed Junior resource companies trade on the TSX-Venture exchange Vancouver, Toronto, or Montreal are most common head office locations Projects may be located in Canada or abroad NI came into force in early 2001, and established standards for all public disclosure an Issuer [company] makes of scientific and technical information concerning mineral properties/projects 1 1. Canadian Institute of Mining, Metallurgy, and Petroleum (CIM) 15

16 The Journey Asset Development & De-risking Preliminary Economic Assessment (PEA) Is there a project worth pursuing? Project Acquisition Exploration Discovery Deposit Definition Pre-feasibility Study Establishes a Project Description Feasibility Study Provides the basis for financing & development decision Terms like NPV (net present value), IRR (internal rate of return), CAPEX, OPEX, and Payback used to assess economic potential of project, and compare to peers ESIA Process Begins (Environmental & Social Impact Assessment) ESIA Process Completed Impact & Benefit Agreement (IBA) Mineral Resource Estimate Preliminary Economic Assessment (PEA) Pre-feasibility Study (PFS) Feasibility Study (FS) Production Decision & Financing Construction Begins Each stage is a GO, or NO GO decision on whether or not to advance the project. Production is never guaranteed Mining Operations Commence Mine Closure & Reclamation 16

17 Market Cap ( company value ) The Journey Discovery to Mine Closure EXPLORATION (High Risk) DEVELOPMENT (De-risking Phase) First Production PRODUCTION Construction Mine Depletion, Closure, & Reclamation Speculation ( Blue Sky Euphoria ) Reality Check Production Decision Engineering & Related Studies Discovery Time 17

18 Share Price The Journey Voisey s Bay Mine (Ni-Cu-Co) Speculation ( Blue Sky Euphoria ) Reality Check Discovery Increased market value with production Year 18

19 Mineral Exploration Company Final Takeaways 1. No producing assets, but rather owns mineral rights 2. No operating cash flow - ability to finance essential 3. Objective is to maximize shareholder value through discovery and asset development 4. Odds of success are very low; however, potential reward is very high Core Logging Tools 5. Successfully mineral exploration relies on favourable geology, jurisdiction, location, and ability to finance project (i.e. positive market environment) The mineral exploration industry is notoriously cyclical Ashram Mineralization 19

20 Contact Darren L. Smith, M.Sc., P.Geol. Ashram Project Manager COMMERCE RESOURCES CORP. T C