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Terra Clean Energy Corp (TCEC), formerly known as Tisdale Clean Energy Corp, announced plans for its upcoming Winter 2025 work program at the South Falcon East Uranium Project, located by the Athabasca Basin. This winter season, approximately 2,000m of drilling is expected to be undertaken at budget of $1.5M. The upcoming program will expand on the Winter 2024 campaign by extending the mineralized footprint associated with the Fraser Lakes B Uranium deposit and test nearby targets with prospective alteration and structure, as identified from historic drilling. We note that the mineralization is open both down dip and along strike. Given that targeted drilling remains a key pillar to the development and de-risking of the Fraser Lakes B deposit, we look forward to the start of the upcoming drilling campaign. That said, our investment thesis for Terra Clean Energy remains intact. Using an in-situ based valuation of 4.50/lb for the 75% earn-in at South Falcon East and a 0.35x NAV multiple, we maintain our 12-month valuation objective to C$0.14 per share. This equates to upside of +70% from the most recent close.
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. Encompassing approximately 2,000m, the primary objective of the campaign is to conduct both infill and step-out at the Fraser Lakes B deposit in order to confirm the presence and continuity of existing mineralization and expand the footprint of the deposit. 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 thorioum (ThO2) mineralization. The deposit remains open in almost all directions.
The results from the upcoming campaign will be used to prepare an updated NI43-101 compliant resource estimate. The updated resource will also integrate other results not included in the historical resource estimate, including higher-grade mineralization encountered to date at Fraser Lakes B, intersected in 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.
Recall that 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.
While the Fraser Lakes B uranium deposit will remain the primary focus of the company with the proposed infill and step-out targets, 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 Millenium uranium deposits.
NOT YOUR TYPICAL ATHABASCA BASIN DEPOSIT: LOWER GRADE BUT SHALLOW DEPTH
As per the currently defined Inferred resource estimate, the drill holes tested mineralization to a vertical depth up to 175.0m. Of note is that some of the best intercepts from historic drilling (WYL-08-525) returned 0.08% eU3O8 over 12.0m from a near surface 77.5m-89.5m depth. The most recent drill holes from Terra’s Phase I drilling intersected the highest level of uranium mineralization at depths between~130.0m-140.0m. The currently defined orebody is situated relatively close to the surface in comparison to many other of the more established Athabasca Basin uranium mines/projects such as Midwest (~200.0m), Cigar Lake (~450.0m in depth), McArthur River (~550.0m) and Gryphon (~550.0m).
With regards to grades, given numerous high grade deposits such as Arrow, Triple R and McArthur River (among numerous others), the average grade of any deposit in the Athabasca Basin is ~2.0% U3O8. The prevalence of high grades for many of the deposits located in the Basin has led to elevated expectations for any exploration project located in or at the periphery of the Basin. Be reminded however that the average uranium grade globally is considerably lower at an estimated 0.018% U3O8. Additionally, the trade-off between lower grade and shallower depth can also lead to a profitable mining operation. If situated near the needed infrastructure (South Falcon East is situated just ~55km from Cameco’s Key Lake mill), then the economics can potentially improve even further.
There are numerous much lower grade mining operations currently being developed or currently in production. Some of these larger scale (conventional) operations include Namibia’s Langer Heinrich (Paladin Energy) and Rossing (China National Nuclear Company). The average grade of these operations are 0.04% U3O8 and 0.02% U3O8 respectively. Meanwhile a typical In-Situ Recovery (ISR) operation located in Wyoming (Lost Creek, Ur-Energy and Lance, Peninsula Energy) or Kazakhstan (Inkai, Kazatomprom/Cameco) boast average grades of ~0.03% -0.05% U3O8.
INVESTMENT THESIS & CONCLUSION
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. Given the required ~C$10.0M exploration spend required until 2028, the risk remains on the upside for meaningful resource and grade expansion.
Terra currently trades at a market capitalization of C$2.98M. That would equate to a pro-rata valuation of C$0.58/lb given the 6.9M lb Inferred resource (or 5.2M lbs at 75%). Since the earn-in is still a few years away from completion, more telling is the remaining spend/lb metric, for both 51% ownership of South Falcon East and at 75% ownership.
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$1.67/lb (at 51%) or C$2.08/lb (at 75%). These amounts being considerably lower to some of the more recently seen valuations in the Athabasca Basin. See our initiation report dated August 22, 2024 for additional details.
We ascribe a conservative $4.50/lb in-situ valuation for the Fraser Lakes B Inferred deposit at South Falcon East. Factoring in current corporate adjustments and a NAV multiple of 0.35x, we derive an in-situ based price objective (12-months) of C$0.14 per share (rounded). Our price objective equates to upside of +70% from the most recent close. Shares of Terra Clean Energy currently trade at a 0.21x NAV multiple.
Ultimately, the rationale for investing in Terra Clean Energy is the tradeoff between investing in an exploreco which owns a property which in future may or may not eventually prove out an established resource, or invest in an earn-in play such as Terra which has a pathway to a 75% ownership stake into an established 6.9M lb shallow resource at a reasonable $2.08/lb valuation metric (75%). Given that the deposit remains open in most directions, additional work spend may lead to an increase in both grade and resource size. We believe that at the current microcap valuation, the risk remains on the upside for future drilling success. Additionally, we believe that Terra shares will act as a torqued proxy for future uranium pricing strength. As can be seen in the sensitivity table above, from our conservative base $4.50/lb in-situ valuation for the current Fraser Lakes B deposit, every ~$0.50/lb increase to the valuation metric translates to a NAV uplift of ~15%.