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Terra Clean Energy: Changes Afoot- Financing, Share Consolidation & Board Updates

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Terra Clean Energy Corp. (TCEC) last night announced a set of corporate updates pertaining to financing, a share consolidation and changes to the current Board. The former items have been expected to a certain degree however we are still awaiting details on the size and terms for the upcoming financing. The share consolidation will be on a four-for-one basis. The Board changes were unexpected but set the company up for increased engagement with the Bay Street community. Given that the details for the upcoming financing are still unknown (this event will take place only after the share consolidation) and may impact the size and scope of the winter drilling campaign, we withdraw our price objective (previously $0.14 per share) until additional details will be finalized and communicated. Until the upcoming share consolidation, financing and drilling program details are finalized and/or ascertained, we retract our previous $4.50/lb in-situ valuation for the Fraser Lakes B Inferred deposit at South Falcon East and our corresponding targeted NAV multiple of 0.35x. We will revisit the valuation front once more clarity will be provided.



FINANCING AND SHARE CONSOLIDATION


As announced last night, following a proposed four-for-one share consolidation (which will bring the share count down from 39.689M currently to 9.922M), Terra Clean Energy Corp. intends to conduct a financing on a private placement basis. The terms have yet to be finalized however it has already been stated that the financing will result in the issuance of more than 100% of the current outstanding share capital of the company. As a result, the company will be required to obtain shareholder approval for the financing in accordance with the policies of the Canadian Securities Exchange.


ANY CHANGES TO THE PREVIOUSLY PROPOSED WINTER 2025 CAMPAIGN ?


In mid-October Terra announced plans for its upcoming winter 2025 work program at its South Falcon East Uranium Project, located by the Athabasca Basin. As announced last month, approximately 2,000m of drilling was expected to be undertaken at budget of $1.5M. The purpose of the upcoming program was to 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 continue to look forward to the start of the drilling campaign. The assay results will be used to prepare an updated NI43-101 compliant resource estimate.


NEW ADDITIONS TO THE BOARD OF DIRECTORS


Given two recent Board vacancies, Mr. Greg Cameron and Mr. Tony Wonnacott have been appointed to the BOD of the company. Collectively, these two individuals bring a wealth of experience to the Board given decades of experience in investment banking, capital raisings, listings and corporate securities law (among others).


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.


Mr. Wonnacott is a corporate securities lawyer based in Toronto, Ontario with over 25 years of experience. He is a member of the Law Society of Upper Canada and holds a B.Comm. (cum laude) from Saint Mary’s University and an LL.B. from Dalhousie University. He began his career at a major Toronto law firm in the banking and securities field before moving to work as a legal consultant for a number of companies, primarily in the mining and resource industry. As a consultant, officer and director of several of these companies, Mr. Wonnacott has been involved with the successful listings of private companies, the outright sale of a company for approximately $750M and capital raisings in excess of $1.0B.


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 approximately 2,000m. 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. 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 likely 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 ~50km 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 initial 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$2.0M. That would equate to a pro-rata valuation of C$0.39/lb given the 6.9M lb Inferred resource (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.


CONCLUSION


Ultimately, the rationale for investing in Terra Clean Energy is the tradeoff between 1) investing in an exploreco which owns a property which in future may or may not eventually prove out an established resource, or 2) investing 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 provided future drilling success.

Until the upcoming share consolidation, financing and drilling program details are finalized and/or ascertained, we retract our previous $4.50/lb in-situ valuation for the Fraser Lakes B Inferred deposit at South Falcon East and our corresponding targeted NAV multiple of 0.35x. We will revisit the valuation front once more clarity will be provided.



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