By Marc Davis, Managing Editor, SmallCapMedia.com

October 31, 2003

It’s no surprise that Canarc Resource Corp. (TSX-CCM, OTC:BB-CRCUF) has almost tripled in price since SmallCapMedia first featured the company as our inaugural mining stock pick in November, 2002.

Indeed, this shrewdly managed Vancouver-based gold mining junior has a number of compelling dynamics propelling its share price’s impressive ascendancy after the company’s emergence from a five-year mining recession.

Most importantly, the company-building strategy Canarc has resolutely followed since the early 90s is finally reaching critical mass. Canarc has not one but two significant gold discoveries: one now entering a mine development program with well over a million resource ounces of gold in place while the other clearly hinting at the prospect of a world-class, multi-million-ounce discovery. These projects give Canarc considerable leverage to the new cyclical bull market in bullion prices, as well as tremendous growth potential.

This is why SmallCapMedia views Canarc as one of its best prospects for offering investors a “home run” in 2004. Simply stated, the company’s strategy for success is summed up by the company’s personable founder and CEO, Brad Cooke.

“I think Canarc is somewhat unique among small-cap gold companies in that we enjoy modest annual income, we are developing a major gold asset, and we also offer investors exposure to a huge exploration play. Canarc’s intrinsic asset value minimizes risk to shareholders while delivering tremendous upside potential at the same time, a rather rare occurrence in the exploration business,” he says.

This finely-calibrated risk/reward formula, a result of Cooke’s vision and determination, is winning over new investors. He has been the driving force behind the company ever since he founded Canarc 15 years ago. Prior to that, Cooke gained invaluable experience as a project geologist with several “household name” mining and petroleum multinationals and as a consulting geologist with his own firm. During the 1970’s and 1980’s, Cooke was involved in no less than eight separate mineral discoveries. Since 1987, he has surrounded himself with a similarly accomplished and talented management team. Collectively, they provide Canarc shareholders with over a century’s worth of experience in the mining business.

Now their mining acumen is once again delivering impressive results, particularly on the company’s extensively mineralized Benzdorp property in the small South American nation of Suriname. The resolution of some residual title issues on Benzdorp in August 2002 triggered an aggressive exploration program that is now producing a steady flow of very favourable drill results.

However, before we get ahead of ourselves, let’s first take a brief look at Canarc’s diverse portfolio of assets.

Canarc’s principal asset is the 1.3-million-ounce (Not NI43-101 Compliant) gold resource on its wholly-owned New Polaris property located in northwestern British Columbia. A high-grade, past-producing underground mine, New Polaris is now one of the largest undeveloped gold deposits in Western Canada. Meanwhile, Canarc’s most advanced development project is the two-million ounce Bellavista gold deposit in Costa Rica in which Canarc has an 18 per cent carried interest after payback. Glencairn Gold Corp., the operator, has outlined a 550,000-ounce proven, mineable reserve that is amenable to heap leach mining with low US $156 per ounce operating costs. Construction of a mine could begin as early as 2004. Meanwhile, Canarc already benefits from pre-production royalty payments of US$117,750 each year.

The company also owns an 80 per cent interest in the small open pit Sara Kreek placer gold mine in Suriname. Production is approximately 10,000 ounces per year. The mine has been operating at about break-even in the last couple of years but rising gold prices promise to make it marginally profitable in 2004. A second, small, high-grade, open pit lode mine at Sara Kreek with an estimated US$90 operating cost per ounce is also is planned, subject to financing. Canarc owns a 33% carried interest in joint venture with Barrick Gold on the GNC claims adjacent to their spectacularly high grade Eskay Creek mine in northern B.C. Last but not least, Canarc holds a 65% shareholding in subsidiary company Aztec Silver Corp. and 20% of the shares of affiliate Endeavour Gold Corp., both companies focused on acquiring attractive gold and silver mine projects in Mexico.

But let’s get back to the Benzdorp Property -- a project that makes Brad Cooke’s eyes sparkle as he enthusiastically explains its upside prospects. Among them is the fact that recent drilling in the JQA prospect returned mineable gold grades over a large surface area, comparable to some of the world’s largest gold-copper porphyry mines.

By way of background, the new discovery is just one of 12 mineralized zones identified on the easternmost 5 per cent of this huge 138,000-hectare land package measuring 42 by 31 kilometres (1,380 square kilometres). The vast majority of these four mineral concessions have seen virtually no exploration work. To date, Canarc has found 9 gold vein targets, as well as 3 gold/copper porphyry prospects, along a 5 km long structural corridor within a prolific gold-bearing greenstone belt, part of the Guyana Shield .

In fact, this remote jungle outpost has been Canarc’s focus for several million dollars of exploration work in recent years because it sits within a gold belt that has produced or is currently producing placer gold from every single creek within this golden corridor’s 20-kilometre length. Historically, the area was mined in the late 1800s to mid 1900’s by British and Dutch companies that dredged up at least 500,000 ounces of gold from just two creeks that drain the Benzdorp Property. A further half-million ounces have also been recovered by hundreds of small miners sluicing gold from the numerous streams on the Benzdorp Property. But with their scant resources and expertise, they are merely collecting the crumbs off a golden cake that Canarc's management believes could be many millions of ounces in size.

Much of this speculation is based on the discovery of the JQA gold porphyry prospect. In 1996, Canarc collected thousands of soil samples to identify a surface gold anomaly 2km long by 1km wide and hundreds of 10m deep auger drill holes to define a 500m wide by 1000m long core zone. Subsequent trenching confirmed the discovery of a broad zone of porphyry-style gold mineralization on this target over an area 250m by 250m, “open” (continuous) in all directions. The program, consisting of five huge trenches measuring 10 metres deep by 5 metres wide and 150 metres in length, returned average gold grades of almost 1 gpt gold and also revealed excellent metallurgical recoveries of 80% from a simple gravity test on the near-surface saprolite ore.

This news was validation of Canarc’s long-held theories about the Benzdorp Property’s epic potential. In late June 2003, the company launched a 28-hole drill program that intersected gold grades averaging 0.5-1.0 gpt in the first 17 holes. Assays are still forthcoming on the final 11 holes but many have revealed visual mineralization throughout - from top to bottom. The best hole to date yielded 0.822 gpt over 100.58 metres, including 1.130 gpt over 47.24 metres. Considering the daunting dimensions of the mineralized structure being drilled, matched with the region’s rich gold mining history, these results could signify a world-class gold discovery in the making.

Indeed, the JQA prospect exhibits many geological characteristics of a classic gold porphyry deposit – typically very large tonnage, low-grade gold deposits containing between 200 million and one billion tonnes of gold-copper ore. If you take the 750m by 1150m surface area drilled to date and project an average 0.75 gpt gold grade to 250m in depth, the JQA prospect alone is a 450 million tonne, 15 million oz target.

What does all of this mean? Well, it points to the fact that this emerging deposit should offer the same economies of scale as other operating, open-pit gold-copper porphyry mines. But there is another geological feature that could make the mine economics at Benzdorp particularly robust. In the tropics, the top 50 to 100 meters of rock is altered by rainwater to a soft, clay material called saprolite. Due to the softness of this oxidized blanket, saprolite ore requires minimal or no drilling, blasting or even crushing. The resulting very low strip ratio (amount of waste rock compared to ore) should make the mining of this initial gold-rich horizon extremely inexpensive. This is especially the case considering the gold should be recoverable by way of gravity separation, rather than flotation methods or cyanide-based extraction.

Cooke suggests the Brazilia gold mine in Brazil owned by Rio Tinto plc and TVX Newmont Inc. has a very similar mining situation. Based on 2002 figures, it contains 320 million tonnes of low-grade (0.47 gpt) gold that is mined at a rate of 223,000 ounces per year from saprolite and bedrock at the cheap operating cost of US $167 per ounce. By comparison, the higher-grade JQA prospect (if economically viable) could arguably operate for as low as US $100 per ounce. Moreover, the prospect of finding millions of ounces of gold in the bedrock, in addition to a couple million oz in the easy-to-work saprolite, should add considerable life to any future mining operation. Such a multi-million ounce mine could easily produce up to half a million ounces of gold annually for up to 16 years or longer, Cooke muses.

With this glittering goal firmly in mind, Canarc conducted a $3 million financing in the fall of 2003, a good portion of which is expected to fund the upcoming second round of drilling on the Benzdorp Property. This will involve approximately 100 holes, commencing in November. Such an aggressively ambitious drill program should go a long way to validating the world-class potential of this major discovery.

“Our minimum goal is to outline a 5 million oz resource but the upside potential is clearly for many million ounces of gold,” he suggests. To put this opportunity in perspective, gold discoveries of over five million ounces are rare these days and are highly coveted by major mining companies. If Canarc can indeed prove that it is sitting on top of a multi-million ounce resource, it is more than likely that a major mining company will make Canarc and its shareholders an offer they can’t refuse.

On a political note, Suriname is very receptive towards foreign investment, particularly mining money. It is a modern democracy that has enjoyed over 85 years of bauxite mining by Alcoa and Billiton. And now Cambior, one of North America’s larger gold producers, is investing US $100 million on the development of the first modern gold mine in Suriname, which is already under construction.

Meanwhile, since we last wrote about Canarc, there have also been some very upbeat developments on its New Polaris gold deposit. Located in northwestern British Columbia, this high-grade, past-producing underground mine (which yielded almost a quarter of a million ounces of gold) had not been worked since 1951 when its most readily accessible reserves became depleted. However, Canarc spent over US $12 million in the last decade proving up a 1.3-million-ounce (Not NI43-101 Compliant) gold resource that still has considerable potential to double or triple with further drilling.

From 1997 to 2002, however, this rich deposit remained on the “back burner” due to the recession in gold. But the new bull market in gold coupled with a new favourable government and a recently issued permit to build a road into the area prompted Canarc to resume work on the project. Specifically, Canarc’s neighbour across the Tulsequah River -- Redcorp Ventures Ltd. -- received government approval in late 2002 to commence building its Tulsequah Chief base metals mine and road access. This key development should significantly improve the economics for advancing the New Polaris project.

Another key development concerns the recent discovery of a deep-seated footwall gold vein target below the old mine workings and Canarc’s previous drilling. Canarc intends to drill test this target in late 2003 to determine if it represents a whole new mineralized gold vein system. Such a compelling scenario could conceivably add a further 250,000 ounces to the mine’s resource estimate, thereby further bolstering the prospects of an economically viable operation.

Accordingly, Canarc initiated a scoping study of the mine in May of this year with the goal of determining how best to proceed with development of this significant gold deposit. This study is also intended to produce a new estimate of reserves and resources that is compliant with National Policy 43-101 guidelines (a federal-government recognized standard of a "measured resource”). Additionally, this pre-feasibility study is also aimed at reducing the trigger gold price for development to US $325 an ounce. This compares with an earlier scoping study that suggested that US $350 an ounce was a viable minimum threshold for profitability. Canarc’s ultimate goal is to develop a mineable reserve base of 700,000 ounces of gold for a 600-ton per day mine that would produce over 65,000 ounces of gold per year. This will translate into a mine life of 10 years for the proven reserves with many more years still in the resources.

In terms of Canarc’s corporate fundamentals, the company has a strong balance sheet. It is well financed with approximately Cdn. $3.5 million in its treasury and no debt. The company also has an annual income of US$117,750 from the Bellavista deposit and small cash flow from its Sara Kreek gold mine.

Canarc benefits from a management team and board of directors that collectively have decades of experience in exploration and mining, much of it with senior companies. Furthermore, the company can boast of such “top drawer” corporate shareholders as Barrick Gold, Kinross Gold. and the US-based Prudent Bear Funds.

The company has approximately 52 million shares outstanding (about 60 million fully diluted), of which over half are “closely-held” by major investors. With a sustained uptrend in the company’s share price, matched with an ever-improving fundamental picture, Canarc appears destined to maintain its upward trajectory in the coming year. Nonetheless, SmallCapMedia believes that, relative to most other junior gold companies, the company is still considerably undervalued based on its ownership of the New Polaris Mine alone. This project constitutes a tangible asset that provides a solid underpinning for Canarc’s share price. Meanwhile, the so-called “sizzle in the steak” is clearly represented by the upside potential of the Benzdorp deposit which could give patient investors a major “home run” win during 2004.