Commerce Resource's 117 Mt REE Deposit

Siddharth Rajeev, B.Tech, MBA, CFA
Analyst

Michelle Wu (Mineral Engineering)
Research Associate - Mining

March 18, 2011
Investment Analysis for Intelligent Investors

Commerce Resources Corp. (TSXV: CCE) – Inferred Resource of 117.34 Mt Grading 1.74% TREO at
the Eldor Project; Raising Valuation

Sector/Industry: Junior Mining/Exploration www.commerceresources.com
Market Data (as of March 16, 2011) Investment Highlights
Current Price C$0.83 • Commerce announced an inferred resource of 117.34 Mt
Fair Value C$2.13 (↑) grading 1.74% TREO for the Ashram zone at the Eldor project.
Rating* BUY
Risk* 5 (Highly Spec) • Based on this initial resource estimate, we believe, the REE
52 Week Range C$0.21 - C$1.08 resource at the Ashram zone is one of the world’s largest NI
Shares O/S 134.14 mm 43-101 or JORC REE deposits outside of China.
Market Cap C$111.34 mm
Current Yield N/A • The Ashram REE zone has 2.04 Mt of TREO, which is
P/E (forward) N/A comparable to some of the world’s largest REE deposits such as
P/B 2.59 Avalon Rare Metals’ (TSX: AVL) Thor Lake Deposit in NWT,
YoY Return 144.1% Canada (4.3 Mt TREO) and Greenland Minerals and Energy
YoY TSXV 38.8% Ltd.’s (ASX: GGG) Kvanefjeld deposit in southwest Greenland
*see back of report for rating and risk definitions (4.9 Mt TREO).
7,000,000 $1.20

• The Ashram zone is open to the north, south, east and at depth
6,000,000
$1.00
and has excellent potential for expansion.
5,000,000
$0.80
• The current drilling program, consisting of a minimum of 6
4,000,000

$0.60 holes totaling 3,000m, started on March 2, 2011.
3,000,000

2,000,000
$0.40 • PEA results on the Upper Fir are expected to be announced
$0.20
soon.
1,000,000

- $0.00
• We have raised our fair value estimate from $1.51 to $2.13
16-Mar-10 15-Jul-10 13-Nov-10 14-Mar-11
per share.

Key Financial Data (FYE - Oct 31)
(C$) 2009 2010
Cash and cash equivalents 15,909,787 7,128,737
Working Capital 17,946,957 11,451,888
Mineral Assets 22,031,815 26,748,208
Total Assets 45,092,078 44,235,587
Net Income (2,756,648) (2,372,288)
EPS (0.02) (0.02)
Commerce Resources is an exploration company whose primary asset is the Blue River tantalum and niobium project in central BC.
The company is also aggressively exploring its Eldor rare earth project in northern Quebec and the Carbo rare earth project in
northern British Columbia. The newly released NI 43-101 report defined an inferred resource of 117.34 Mt grading 1.74% TREO for
the Ashram zone at the Eldor project.

 2011 Fundamental Research Corp. www.researchfrc.com Siddharth Rajeev, B.Tech, MBA, CFA

PLEASE READ THE IMPORTANT DISCLOSURES AT THE BACK OF THIS REPORT

Commerce Resources Corp. (TSXV: CCE) - Update Page 2

New Resource Commerce recently released an initial resource estimate for the Ashram REE deposit at the
Estimate at Eldor project in Quebec. The following tables show the resource classification and the REE
Eldor content for 4 different cut-off TREO grades.

Table 1 Resource Estimate for the Ashram REE zone at the Eldor project in Quebec
Cut-off Grade Resources Tonnes TREO LREO IREO HREO
TREO (%) Categories (Millions) (%) (%) (%) (%)
1.00% Inferred 134.97 1.663 1.538 0.067 0.018
1.25% (base case) Inferred 117.34 1.740 1.612 0.069 0.019
1.50% Inferred 95.00 1.818 1.687 0.071 0.019
1.75% Inferred 50.95 1.966 1.831 0.074 0.020

Note:

• Total Rare Earth Oxides (TREO) include: La2O3, Ce2O3, Pr2O3, Nd2O3, Sm2O3, Eu2O3,
Gd2O3, Tb2O3, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3, Lu2O3, Y2O3.

• Light Rare Earth Oxides (LREO) include: La2O3, Ce2O3, Pr2O3 and Nd2O3.

• Intermediate Rare Earth Oxides (IREO) include: Sm2O3, Eu2O3 and Gd2O3.

• Heavy Rare Earth Oxides (HREO) include: Tb2O3, Dy2O3, Ho2O3, Er2O3, Tm2O3, Yb2O3
and Lu2O3.

Table 2 Detailed REE Content in the Ashram Resource
Cut-off Grade Resources Y2O3 CaF2 La2O3 Ce2O3 Pr2O3 Nd2O3 Sm2O3 Eu2O3
TREO (%) Categories (%) (%) (%) (%) (%) (%) (%) (%)
1.00% Inferred 0.040 5.300 0.411 0.759 0.080 0.288 0.037 0.009
1.25% (base case) Inferred 0.040 5.560 0.435 0.796 0.083 0.298 0.038 0.009
1.50% Inferred 0.041 5.780 0.459 0.834 0.086 0.308 0.039 0.009
1.75% Inferred 0.042 6.150 0.506 0.905 0.093 0.328 0.041 0.010

Cut-off Grade Resources Gd2O3 Tb2O3 Dy2O3 Ho2O3 Er2O3 Tm2O3 Yb2O3 Lu2O3
TREO (%) Categories (%) (%) (%) (%) (%) (%) (%) (%)
1.00% Inferred 0.021 0.002 0.010 0.001 0.003 0.000 0.002 0.000
1.25% (base case) Inferred 0.022 0.002 0.010 0.001 0.003 0.000 0.002 0.000
1.50% Inferred 0.023 0.002 0.010 0.001 0.003 0.000 0.002 0.000
1.75% Inferred 0.023 0.002 0.010 0.001 0.003 0.000 0.002 0.000

The database used to calculate this resource estimate consists of 12 diamond drill holes
totaling 3,313 meters, drilled by Commerce in 2010, at the Ashram zone. Figure 1 below
shows the locations of these drill holes and highlights of intersections. The specific gravity
of rocks used to calculate the total tonnage is 3 which is an average of 449 specific gravity
measurements taken from core samples. The cut-off grade for the base case is 1.25% TREO,
which was determined based on a conceptual design of a 7,500-tonne-per-day, 25-years life-
of-mine open pit operation with a concentration plant on site and a hydrometallurgical plant
located in Kuujjuaq.




Figure 1 Locations of Diamond Drill Holes Used in the Ashram Resource Estimate

Based on this initial resource estimate, we believe, the REE resource at the Ashram
zone is one of the world’s largest NI 43-101 or JORC REE deposits outside of China.
The Ashram REE zone has 2.04 Mt of TREO, which is comparable to some of the world’s
largest REE deposits such as Avalon Rare Metals’ (TSX: AVL) Thor Lake Deposit in NWT,
Canada (4.3 Mt TREO) and Greenland Minerals and Energy Ltd.’s Kvanefjeld deposit in
southwest Greenland (4.9 Mt TREO).

Drill hole 044 and 047 each intersected over 50 meters containing 16% and 20% HREO
out of TREO. The two holes are located 110 meters apart as shown in Figure 1 above. We
believe that these two intersections represent a HREO enriched zone(s) near the surface.
Future drilling targeted in this zone will be able to better define the HERO enriched portion
of the deposit and could potentially increase the overall value of the project.

Most of the 2010 drill holes used to define the current resource ended in REE
mineralization without reaching the bottom of the deposit, which leaves room for
expansion at depth. The Ashram zone is also open to the north, south, east and is not
fully constrained to the west. On March 2, 2011, Commerce commenced a drill program
consisting of a minimum of 6 holes totaling 3,000 meters aimed at expanding the existing
resource and defining near surface HREO enriched zones.



In addition to the current mineralogical studies, the company is also planning metallurgical
testing.

Financials At the end of October 2010, the company had $7.13 million in cash and cash equivalents.
Working capital was $11.45 million. The company reported a net loss of $2.37 million (EPS:
-$0.02) in FY2010 (ended October 2010). We estimate the company had a burn rate
(spending on its operations and exploration) of $0.74 million per month in FY2010, versus
$0.56 million per month in FY2009 (12 month period ended October 2009). The table
below shows a summary of the company’s cash and liquidity position.

(In C$) 2009 2010
Working Capital 17,946,957 11,451,888
Current Ratio 48.52 10.64
Monthly Burn Rate (incl. Exploration) (563,242) (740,752)
Cash from Financing Activities 6,662,472 198,975
LT Debt / Assets - -

Stock Options and Warrants: We estimate the company currently has 7.57 million stock
options (weighted average exercise price - $0.36) and 34.29 million warrants (weighted
average exercise price - $1.30) outstanding. About 7.32 million options and 7.00 million
warrants are currently 'in-the-money'. The company could raise up to $6.17 million if all
these 'in-the-money' options and warrants are exercised.
Valuation & We valued Eldor based on a peer average Enterprise Value (EV) to TREO resource ratio.
Rating The following table shows a list of peers and their EV/resource ratios.

Adj. Enterprise TREO
Company SYM Value Resource EV/ Resource
$, mm Mt $/t
1 Alkane Resources Limited ASX: ALK $245 0.48 $506
2 Quest Rare Minerals TSXV: QRM $235 0.57 $410
3 Arafura Resources Limited ASX: ARU $231 0.67 $343
4 Avalon Rare Metals Inc. TSX: AVL $541 2.82 $192
5 Greenland Minerals and Energy Limited ASX: GGG $213 4.38 $49

Average EV / Resource $300

Average EV / Resource (discounted by 50%) $150

Eldor's Fair Value $1.09

Source: Capital IQ & FRC

1. Resource = 100% of Measured + Indicated and 50% of Inferred
2. EV was adjusted to reflect the market value of just the TREO resources held by the companies

The peer average EV/resource ratio is $300 per tonne. As all companies in this are in either
prefeasibility or feasibility stages, and are more advanced than CCE's Eldor, we discounted



the peer average ratio by 50% to value Eldor. Based on a valuation metric of $150 per tonne,
we arrived at a fair value of $153.03 million, or $1.09 on Eldor's 2.04 Mt of TREO. Note
that we have discounted inferred resources by 50% for CCE and all the companies included
in the list.

We have maintained our valuation on Blue River at $0.96 per share. Our revised fair value
estimate on CCE is $2.13 per share, up from our previous estimate of $1.51 per share.

Valuation Summary

Blue River
DCF $0.83
Real Options $1.09
Average $0.96

Eldor $1.09

Working Capital + ABCP Investments $0.09

Fair Value $2.13

We reiterate our BUY rating and raise our fair value estimate to $2.13 per share.

Risks The following risks, though not exhaustive, may cause our estimates to differ from actual
results:

• The company currently has no operating mines.
• Commerce is particularly leveraged to the price of tantalum and niobium, which are
not traded on public markets and are hard to track.
• Success of a prefeasibility study and resource expansion are important to the long-
term growth of the company.
• Access to capital and share dilution.

We rate the company’s shares a RISK of 5 (Highly Speculative).




Fundamental Research Corp. Equity Rating Scale:
Buy – Annual expected rate of return exceeds 12% or the expected return is commensurate with risk
Hold – Annual expected rate of return is between 5% and 12%
Sell – Annual expected rate of return is below 5% or the expected return is not commensurate with risk
Suspended or Rating N/A— Coverage and ratings suspended until more information can be obtained from the company regarding recent events.

Fundamental Research Corp. Risk Rating Scale:
1 (Low Risk) - The company operates in an industry where it has a strong position (for example a monopoly, high market share etc.) or operates in a regulated industry.
The future outlook is stable or positive for the industry. The company generates positive free cash flow and has a history of profitability. The capital structure is
conservative with little or no debt.

2 (Below Average Risk) - The company operates in an industry where the fundamentals and outlook are positive. The industry and company are relatively less sensitive
to systematic risk than companies with a Risk Rating of 3. The company has a history of profitability and has demonstrated its ability to generate positive free cash
flows (though current free cash flow may be negative due to capital investment). The company’s capital structure is conservative with little to modest use of debt.

3 (Average Risk) - The company operates in an industry that has average sensitivity to systematic risk. The industry may be cyclical. Profits and cash flow are sensitive
to economic factors although the company has demonstrated its ability to generate positive earnings and cash flow. Debt use is in line with industry averages, and
coverage ratios are sufficient.

4 (Speculative) - The company has little or no history of generating earnings or cash flow. Debt use is higher. These companies may be in start-up mode or in a
turnaround situation. These companies should be considered speculative.

5 (Highly Speculative) - The company has no history of generating earnings or cash flow. They may operate in a new industry with new, and unproven products.
Products may be at the development stage, testing, or seeking regulatory approval. These companies may run into liquidity issues, and may rely on external funding.
These stocks are considered highly speculative.

Disclaimers and Disclosure
The opinions expressed in this report are the true opinions of the analyst about this company and industry. Any “forward looking statements” are our best estimates and
opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness.
There is no guarantee that our forecasts will materialize. Actual results will likely vary. The analyst and Fundamental Research Corp. “FRC” does not own any shares
of the subject company, does not make a market or offer shares for sale of the subject company, and does not have any investment banking business with the subject
company. Fees were paid by CCE to FRC. The purpose of the fee is to subsidize the high costs of research and monitoring. FRC takes steps to ensure independence
including setting fees in advance and utilizing analysts who must abide by CFA Institute Code of Ethics and Standards of Professional Conduct. Additionally, analysts
may not trade in any security under coverage. Our full editorial control of all research, timing of release of the reports, and release of liability for negative reports are
protected contractually. To further ensure independence, CCE has agreed to a minimum coverage term including four updates. Coverage can not be unilaterally
terminated. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access
users through various other channels for a limited time. The performance of FRC’s research is ranked by Investars. Full rankings and are available at
www.investars.com.

The distribution of FRC’s ratings are as follows: BUY (73%), HOLD (7%), SELL (4%), SUSPEND (16%).
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This report contains "forward looking" statements. Forward-looking statements regarding the Company and/or stock’s performance inherently involve risks and
uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are
not limited to, continued acceptance of the Company's products/services in the marketplace; acceptance in the marketplace of the Company's new product lines/services;
competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in
the Company's periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making
these forward looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or
changes after the date of this report. A report initiating coverage will most often be updated quarterly while a report issuing a rating may have no further or less frequent
updates because the subject company is likely to be in earlier stages where nothing material may occur quarter to quarter.
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