Add to this a possible earnings capacity from Bishop Mill of US$4-5 million per year. Compare
this to the current market cap of US$14 million and the potential seems obvious.
CMC Metals could earn almost its entire market cap in one year under these assumptions.
(c) Earning capacity when the Silver Hart Mill is up and running:
CMC Metals states that production costs will be low. Exactly what they will be is not known, but
the bulk sample gives a good indication. For simplicity, assume US$10/oz, although it likely will
be lower considering that it is open pit. 80 tpd, corresponding to about 670,000 oz per year, and
using a silver price of US$25/oz, would give:
670,000 oz x (US$25/oz – US$10/oz) = US$10 million.
These are rough calculations, but they indicate how inexpensive CMC Metals seems at its
current market cap of C$14 million (US$1 ~= C$1). The market could discover this at any time.

CMC Metals Ltd.
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eResearch Corporation is pleased to provide a SCORIS report on a silver company:
CMC Metals Ltd. (TSX-V: CMB)
Bob Weir, CFA and Managing Director, Research Services
Note: All of the comments, views, opinions, suggestions, recommendations, etc., contained in the SCORIS articles, reports,
files, documents, essays, etc., and which are distributed by eResearch Corporation, are strictly those of SCORIS,
and do not necessarily reflect those of eResearch Corporation.
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SCORIS
CMC Metals Ltd. November 29, 2010
UPFRONT
Silver continues to be the brightest star within the precious metal segment, and there is every
reason to believe this will continue, especially as the world seems to be entering into a new
round of monetary easing with the United States in the driver’s seat.
The Federal Reserve recently announced that a new QE-program (quantitative easing) is about
to start, giving a mandate to the Fed to buy long-term bonds for a total amount of US$600B until
the end of Q2 next year.
The purpose is to artificially lower interest rates with the hope of giving support to the weak, and
still declining, housing market, and also to stimulate the economy by encouraging more loans
and consumption.
In this inflation-driven environment, the price of silver should continue upwards. With this
premise as our starting point, we highlight an interesting company that seems to be well-placed
to benefit from a strong silver market.
Quick Facts
Company: CMC Metals Ltd.
Symbol: CMB (TSX-V)
Shares O/S: 43 M (fully diluted 51 M)
Market Cap: At C$0.33 cents; C$14.2M (not FD)
Resources: 9.1 Moz Ag; 17.7 Mlbs Pb; and 20.0 Mlbs Zn (not NI 43-101 compliant)
Cash: US$500,000, plus income from recently-sold bulk sample (~US$500,000)
Metals: Silver, lead and zinc
Website: www.cmcmetals.ca
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A. Introduction
CMC Metals Ltd. (“CMC Metals” or the “Company”) is a ”producing” silver junior active in Yukon,
Canada. Its main project, the Silver Hart Mine, contains high silver concentrations directly at the
surface. A bulk sample of 138 tons was recently sold to a buyer in China, and the average
grades were impressive: ~5000 g/t Ag, ~20% lead, ~6% zinc, and ~0.5% copper. Drill samples
from the Silver Hart mineralization have shown grades as high as 54 kg Ag/t (!).
The key management people at CMC Metals are: (1) CEO – Donald Wedman, with 25 years’ of
experience in the mining industry; (2) CFO – Michael Scholz, previously a lawyer and partner in
a law firm; and (3) Director - Steve Mathiesen, with previous experience as a business lawyer.
Mr. Mathiesen was also the founder of a predecessor company that later became CMC Metals.
CMC Metals also owns a mill in California (Bishop Mill) which has a capacity of 100 tons per day
(tpd) for a number of different metals. The plant is expected to obtain all necessary permits by
spring 2011, and to begin generating cash flow in June next year. CMC Metals has signed a
letter of intent with a small mining company in the area to develop some zones of mineralized
rocks to provide feed for the mill. CMC Metals says they will have enough ore to fill the mill but
can also pursue toll milling agreements with other small miners.
Cash flow from these two income sources, in relation to the Company’s current low market cap,
is quite significant (see G. Calculation Exercise below).
B. Projects
CMC Metals has several projects, with the principal one being the Silver Hart Mine in Yukon
Territory, where preliminary ”production” has started with a bulk sample that was mined, shipped,
and sold. The Company also has projects at Logjam in the Yukon, and at Wheelbarrow in British
Columbia. Another project area for CMC Metals is to develop around its Bishop Mill in California.
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C. Silver Hart Mine
The Silver Hart Mine is CMC Metals’s main project containing high silver grades and significant
base metal credits. Only 10% of the Silver Hart area has been explored so far.
Photo #1: Drilling at Silver Hart Mine
Silver Hart consists of a number of high concentration zones (KL, M, S, and TM), where grades
over 54 kg/t Ag have been seen in drill cores. There is an existing NI 43-101 calculation for Silver
Hart, but it underestimates the potential since it does not take into account any of the historical
data available. Furthermore, 90% of the TM-zone is not included in the calculation since they
used cut-off levels that would apply to underground mining, despite the fact that the TM-zone will
be mined as an open pit.
Also, the NI 43-101 did not take into account the 10% twin hole drilled to confirm the TM-zone.
Because of this, Donald Wedman, who is a mining engineer, carried out an internal resource
calculation (not NI 43-101 compliant). It includes the historical data (6.6 Moz Ag according to the
historical numbers), the exploration data carried out more recently, and the confirmation of the
TM-zone. This resource calculation shows these numbers:
Silver: 9.1 Moz Lead: 17.7 Mlbs Zinc: 20.0 Mlbs
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CMC Metals is now waiting for the final grades from the bulk sample to decide whether to update
the existing NI 43-101 calculation. Silver Hart has an average concentration of 1930 g/t Ag but
the area currently being mined shows more than twice that concentration. Samples were taken
from every ”super sac” containing 1.0 - 1.5 ton ore each that were sent as bulk samples. These
samples showed average grades of over 5000 g/t Ag as well as 20% lead.
The following are drill results presented in a press release from October 25:
Zone Hole # Intersect
Depth
Meters
Intersect
Width
Meters
True
Width
Meters
Silver
opt
Silver
grams/tonne
Lead
Percent
Copper
Percent
Zinc
Percent
TM 10-03 41.40 0.80 0.32 44.0 1510 12.75 0.37 25.90
TM 10-04 21.80 0.48 0.19 18.1 622 1.12 0.20 26.60
TM 10-04 29.80 0.20 0.18 24.4 838 5.40 0.14 6.67
S 10-19 29.50 0.15 0.13 54.0 1850 0.94 0.34 10.45
S 10-19 31.59 0.16 0.14 284.4 9750 54.41 0.95 5.48
S 10-20 26.82 0.36 0.24 175.6 6020 7.90 0.88 22.72
KL 10-05 22.95 1.65 1.49 8.2 282 0.44 0.06 3.18
KL 10-10 26.10 0.78 0.73 65.9 2258 16.65 0.51 2.18
Incl. 26.30 0.38 0.35 125.7 4310 33.45 0.86 2.42
KL 10-10 30.56 0.64 0.60 22.7 779 0.75 0.45 8.25
Incl. 30.71 0.29 0.27 40.7 1395 1.30 0.87 16.30
While the mill at Silver Hart Mine is in the process of being completed with all permits necessary,
CMC Metals has started to sell bulk samples. This is possible since the mineralization is of such
high grade, and CMC Metals already has the permit to mine the ore.
Photo #2: Bulk Sample at Silver Hart Mine
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The first bulk sample has been sent to a customer in China, and CMC Metals has received a
letter of credit for US$572,000 for 138 tons of ore.
For next year, a larger sample of 2000-3000 tons is planned, since the Company has a special
Class III permit which will allow it to increase the bulk sample this much. As shown in
G. Calculation Exercise below, this translates into considerable income for CMC Metals.
D. Silver Hart Mill
The mill at Silver Hart Mine is near completion. What is now needed are the permits from the
Yukon Environmental and Socio-economic Assessment Board (YESAB). This is the reason CMC
Metals has started to produce bulk samples while waiting for these permits. Although it is difficult
to know the precise timing for when the mill will be up and running, the Company is providing
YESAB with all the necessary information, and hopes the process will be swift.
The mill has a capacity of 80 tpd, which would correspond to about 670 000 oz Ag per year as
CMC Metals is not counting on production in the winter due to usual adverse weather conditions.
It is possible to have year-round production, but this would increase the mining costs, being
open pit. The mill can also be expanded to 250 tpd if necessary, but this would require additional
permits.
E. Bishop Mill
CMC Metals owns a mill in California where all the necessary permits, except water, are in place.
The water permit will be considered by the Water Board in Inyo County in February. CMC Metals
expects to obtain the permit soon thereafter, which would allow a tailings pond to be built around
March-April. Assuming this works out as planned, commercial production should be able to begin
in June.
The capacity will be 100 tpd (with the option to expand to 1000 tpd).
The plan is to mine the mineralization in the nearby area through a joint-venture (“JV”). CMC
Metals has signed a letter of intent for the development of these areas. The Company also
states that it believes it has enough ore to run the mill at full capacity without processing ore from
other mines in the area. CMC Metals has had offers from three parties to either start a JV, or
simply receive payments to process ore from other mines.
Bishop Mill can concentrate gold and sulfide ores gravimetrically. This could, potentially, provide
income of US$4-5 million. This alone is about 30% of the Company’s current market cap.
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F. Other Project Areas
(1) Logjam
The Yukon site is called Logjam and consists of an area with known historical silver
mineralization. CMC Metals needs to carry out drilling to assess the potential of this area.
(2) Wheelbarrow
The site in British Colombia, known as Wheelbarrow, has recently been drilled by CMC Metals,
and the results from 5 drill holes are expected shortly. This is a mineral rich area where
considerable exploration has taken place. Silver, gold, and base metals in significant
concentration have been found here.
G. Calculation Exercise
The recently-sold bulk sample makes possible a rough estimation of CMC Metals’s earning
capacity for 2011. CMC Metals believes that possible bulk samples for 2011 are 2000-3000 tons,
since this is what its Class III permit allows.
The recently-mined bulk sample was 138 tons. The Company received US$572,000 for this,
based on a silver price of US$23.73/oz. Costs for shipping, mining, analyses, insurance, fuel,
salaries etc. were a total of US$140,000. These costs per oz Ag produced will decrease as the
bulk sample size increases. Also, significant base metal credits have not been taken into account
in the calculation.
(1) Grades for this bulk sample:
US$572,000 / US$23.73/oz) = 24,104 oz Ag
24,104 oz Ag x 31.3 = 749,650 gram Ag
749,650 gram Ag / 138 tons = 5432 g/t Ag (very high grades!)
(2) Possible earning capacity for 2011 from Silver Hart Mine alone:
US$140,000 / US$572,000 = costs (or about 25%)
We expect similar grades from the next bulk sample as it is taken from the same zone. However,
to be conservative, the assumed grade is reduced to 3500 g/t.
Thus, 2000 tons bulk sample would give:
2000 tons x 3500 g/t = 7,000,000 gram Ag
7,000,000 gram Ag / 31.3 = 225,000 oz Ag
225,000 oz Ag x US$24/oz = US$5.4 million
After costs of 25% = US$4 million
3000 tons bulk sample, under the same assumptions, would give = US$6 million.
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Add to this a possible earnings capacity from Bishop Mill of US$4-5 million per year. Compare
this to the current market cap of US$14 million and the potential seems obvious.
CMC Metals could earn almost its entire market cap in one year under these assumptions.
(c) Earning capacity when the Silver Hart Mill is up and running:
CMC Metals states that production costs will be low. Exactly what they will be is not known, but
the bulk sample gives a good indication. For simplicity, assume US$10/oz, although it likely will
be lower considering that it is open pit. 80 tpd, corresponding to about 670,000 oz per year, and
using a silver price of US$25/oz, would give:
670,000 oz x (US$25/oz – US$10/oz) = US$10 million.
These are rough calculations, but they indicate how inexpensive CMC Metals seems at its
current market cap of C$14 million (US$1 ~= C$1). The market could discover this at any time.
H. Risks
The first and most obvious risk is that CMC Metals is a small company in production start-up
phase. Things could go wrong.
The second risk is the permiting: the mill permit in Yukon, and the water permit in California.
However, the Company is able to continue mining and selling bulk samples from Silver Hart Mine
in Yukon, substantially decreasing this risk.
The third risk is the silver price, especially after the recent sharp run-up. Nevertheless, we
believe there will be still higher silver prices in the coming years.
I. Conclusions
CMC Metals appears to be on the verge of producing substantial cash flow, which is not yet
reflected in its market cap. The diversification of income between the bulk samples and the
significant income from Bishop Mill in California is a providing some stability. In our opinion, the
shares appear cheap at their current price.
CMC Metals say it is getting inquiries about ore processing at Bishop Mill every week from
surrounding mines in California. The Company states that the pay-back period for the Bishop Mill
is 1.5 months.
Also, the fact that the grades at Silver Hart are as high as >5000 g/t Ag, plus high levels of lead
and zinc, means that production costs can be kept low. The bulk samples make it possible for
CMC Metals to grow without diluting the stock through private placements. A company with the
precondition to earn almost its entire market cap in one year is rare. Our opinion is that CMC
Metals is an interesting silver junior. A growing, producing resource company should at least be
valued at 4-5 times its annual profit.
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Photo #3: Silver Hart Mine
Photo #4: Visible Silver Mineralization at Silver Hart Mine
Disclaimer: SCORIS does not share your potential profits, and therefore does not share your
potential losses. The information in this letter and the blog should be seen as a source of inspiration
and a start to a future own DD. scoris does its best to ensure that all info made available here is
correct, but despite this, inadvertent errors may sneak their way in. Always double-check figures and
info yourself before basing any decisions on them.This report does not represent investment advice