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Earlier this week, Tisdale Clean Energy Corp (TCEC) announced an agreement with Skyharbour Resources (SYH) to amend the current earn-in agreement for a 75% interest in the South Falcon East deposit, located in the periphery of the Athabasca Basin. Slightly accretive to NAV owing to the lower non-work financial commitment for 2024 and 2025, the amended terms provide for much welcomed flexibility given the current market volatility. The ultimate timeframe and pathway to 75% ownership remains intact by 2028. The new terms are also a testament to Skyharbour's long-term commitment to seeing work progress at the South Falcon East deposit. Our investment thesis remains unchanged - 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 increase our 12-month valuation objective to C$0.14 per share from C$0.13 per share prior to the amendments. This equates to upside of +133% from the most recent close.
Recall that the previously announced earn-in was negotiated by a prior management team and announced in nearly two years ago in October 2022. Ultimately, the newly negotiated earn-in terms re-affirm Skyharbour's commitment to seeing work progress at the South Falcon East deposit. The new terms provide a slight NAV uplift given that the amendments to the 2024-2025 non-work financial commitment decreases the total non-work financial commitment until 2028. The new figure goes from the previous C$10.75M to the current C$8.92M.
Our investment thesis remains intact: with Tisdale 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.
Tisdale currently trades at a market capitalization of C$2.35M. That would equate to a pro-rata valuation of C$0.45/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.
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, representing an increase to the previous C$0.13 per share prior to the earn-in amendments. Our price objective equates to upside of +133% from the most recent close. Shares of Tisdale Clean Energy currently trade at a 0.15x NAV multiple.
Ultimately, the rationale for investing in Tisdale 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 Tisdale 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 Tisdale 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%.
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