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Late last week Terra Clean Energy Corp. (TCEC) announced the mobilization of crew and equipment to commence an extensive winter drilling campaign at the South Falcon East Uranium Project, located at the periphery of the south-eastern edge of the Athabasca Basin. With a financing and numerous other corporate overhangs no longer weighing on the company, we now see an unencumbered return to the primary objective of the company – drilling, de-risking and updating the Fraser Lakes B uranium deposit. We continue to believe that at the current microcap valuation, the risk remains on the upside, provided future drilling success. That said, we re-establish a new in-situ driven price objective of C$0.33 per share. Acknowledging the recent price appreciation in an otherwise down YTD uranium market, our target equates to 16% upside from the most recent close. We add that given the robust near-term drilling plans, the risk remains on the upside for a material valuation re-rate.
LARGEST DRILLING CAMPAIGN IN DECADES SET TO BEGIN AT FRASER LAKES ZONE
Late last week, Terra Clean Energy announced the mobilization of crew and equipment to begin an extensive drilling campaign at the South Falcon East Project, located at the south-east periphery of the Athabasca Basin. The winter field program will consist of both infill and step-out drilling, up to 2,500 total meters. This upcoming drilling campaign will build upon last year’s inaugural Phase 1 campaign (442m) while targeting as much as 5x more in terms of total meters drilled. The infill and step-out drilling planned at Fraser Lakes B is intended to confirm the presence and continuity of existing mineralization and expand the footprint of the deposit. Turnaround time is expected to be quick with assay results expected next quarter.
Recall that last year’s drilling campaign confirmed the presence of uranium mineralized pegmatites along the Way Lake Conductor. In addition to building upon last year’s inaugural drilling campaign, the winter 2025 campaign will set out to test nearby targets with prospective alteration and structure identified in historical drilling conducted by JNR Resources between 2008-2011. Modeling of the existing data indicates the presence of a north-northwest trending structure crosscutting the way Lake conductor through the Fraser Lakes B deposit. Mineralization remains open both down dip and along strike.
UPDATED NI43-101 RESOURCE ESTIMATE EXPECTED THIS SUMMER
The results of upcoming infill and step-out drilling will be used in preparation for an updated NI43-101 compliant resource estimate and deposit model for the Fraser Lakes B deposit. The upgraded resource will also integrate other results not included in the historical resource estimate – this includes drillhole FP-15-05. This particular drill hole returned 0.165% U3O8 and 0.112% ThO2 over 2.0m at 135.0m depth within a broader interval containing 0.103% U308 and 0.062% ThO2 over 6.0m at a depth of 134.5m, and a second high grade intercept of 0.172% U3O8 and 0.113% ThO2 over 2.5m at 146.0m depth. Mineralization at Fraser Lakes B is accompanied by anomalous pathfinder elements, including Bi, Mo, Pb, and Zn, that are also associated with ultra high-grade basement-hosted unconformity uranium deposits in the Athabasca Basin.
RECAPPING THE SOUTH FALCON EAST PROJECT
Strategically situated at the periphery of the Athabasca Basin, the South Falcon East Project is located 50km east of Cameco's (CCJ, CCO) Key Lake uranium mill and just 7km north of the powerline servicing the Key Lake operations. Terra's upcoming dill program will encompass up to 2,500m. As previously defined, the Fraser Lakes B currently hosts a NI43-101 compliant uranium resource (Inferred) estimated to be 10.35Mt grading 0.03% U3O8 for 6.96M lbs, along with thorium (ThO2) mineralization. Mineralization remains open both down dip and along strike.
AMENDED EARN-IN AGREEMENT
Recall that Skyharbour Resources (SYH) optioned the project to Terra in October 2022. The earn-in agreement was amended with slightly new terms as announced on December 31, 2024. Essentially, in exchange for C$5.0M in exploration expenditures along with an additional C$6.39M (cash and stock), Terra will have a path to earn a 51% stake in the Project by 2027. This ownership interest increases to 75% following an additional C$5.0M spend on exploration along with C$5.0M (cash and stock) by 2029. A large part of the amended agreement amounts to dates which have shifted one year forward, providing the company with additional flexibility given the now extended timeframe to 75% ownership (now by year 2029).
ADDITIONAL EXPLORATION TARGETS
While the Fraser Lakes B uranium deposit will remain the primary focus of the company with the proposed infill and step-out campaign, additional drill-ready targets along the Way Lake conductor at South Falcon East are also in the longer term pipeline. These additional targets include the T-Bone Lake area, just north of Fraser Lakes B, where limited drilling encountered highly prospective clay alteration, anomalous radioactivity, and uranium mineralization (including up to 0.055% U3O8 over 0.9m at 39.5m depth in drillhole WYL-10-53) associated with a north-northwest trending fault cross-cutting the northeast-trending Way Lake conductor. The alteration encountered at T-Bone Lake is similar to that encompassing several high-grade basement-hosted uranium deposits in the eastern Athabasca Basin, including the former Eagle Point Mine and the Millennium uranium deposits.
ADDITIONAL CORPORATE UPDATES
On December 17 a private placement consisting of both 14.68M units and 11.13M flow-through common shares was closed. Together, gross proceeds of over C$3.3M was raised. Since then, drilling permits for the South Falcon East Project were received and a debt settlement agreement with Terralogic Exploration Inc. was announced. New President & CEO Greg Cameron officially took the reigns on January 2nd. Mr. Cameron brings extensive capital markets experience in business development, strategy, acquisitions and divestitures as well as corporate restructurings. He was a former Senior Investment Banker at leading Canadian and International Investment Banks including Canaccord Genuity, Orion Securities and Macquarie. He currently is the Managing Director of Colby Capital Limited, a private merchant bank in Toronto. Mr. Cameron has spent the past two decades serving on numerous public and private company boards from startups to seasoned public companies, having helped raise hundreds of millions in financings.
CONCLUSION & VALUATION
Our investment thesis remains intact: with Terra Clean Energy we see a microcap valuation leading to exposure to a pre-established, 6.9M lb Inferred shallow uranium resource situated near the needed infrastructure required for mining. The large scale winter drilling campaign will provide for additional near term catalysts including assay results in Q2/2025 and an updated resource sometime this summer.
Since exploration work and robust drilling campaigns are necessary standards for all exploration companies, we look at both all-in, earn-in cost and the earn-in ex work cost. Once backing out of the work budget, isolating the dedicated cash and share payments are more representative of the earn-in (asset) cost. These pro-rata valuations would equate to C$1.85/lb (at 51%) or C$2.20/lb (at 75%). These amounts being considerably lower to some of the more recently seen transaction valuations in the Athabasca Basin. See our August 22, 2024 initiation report for more details. Note as well that the numbers above are for benchmarking purposes to the current 6.9M lb Inferred resource. We will wait until the updated resource estimate for any possible resource expansion.
Combined with a recently closed financing, share consolidation, debt settlement and management change, we feel that the numerous overhangs which plagued the company of late have now been addressed. We now see an unencumbered return to the primary objective of the company – drilling, de-risking and updating the Fraser Lakes B uranium deposit. We continue to believe that at the current microcap valuation, the risk remains on the upside, provided future drilling success. Turnaround should be relatively quick with assay results likely to be returned in Q2/2025 followed by an updated resource estimate expected by the summer. Seeing that the deposit remains open in most directions, additional work spend may lead to an increase in both grade and resource size. That said, we re-establish a new in-situ driven price objective of C$0.33 per share. Acknowledging the recent price appreciation in an otherwise down YTD uranium market, our target equates to 16% upside from the most recent close. We add that given the robust near-term drilling plans, the risk remains on the upside for a material valuation re-rate.