By Steven Ralston, CFA
READ THE FULL FMST RESEARCH REPORT
FOREMOST ENTERS THE URANIUM INDUSTRY
Foremost Enters the Uranium Exploration Industry Through an Option Agreement with Denison
On September 24, 2024, Foremost Lithium (NASDAQ:FMST) (CSE:FAT) announced the signing of an Option Agreement with Denison Mines Corp. (NYSE:DNN (TSX:DML) concerning 10 Uranium Exploration Projects encompassing 332,378 acres (134,509 hectares) in the Athabasca Basin, a proven uranium mining jurisdiction that is known for high-grade uranium deposits and produces around 15% of global primary uranium supply.
Due to the transformational change of becoming an exploration company in the uranium space, the Board of Directors has unanimously voted to change the name of the Foremost Lithium to Foremost Clean Energy Ltd. The effective date of the name change is expected to on both the CSE and NASDAQ on or about September 27, 2024.
The management of Denison has decided to focus on developing mining stage projects (such as the Phoenix ISR Project and the Gryphon Underground Mining Project, which together are known as the Wheeler River Project) while Foremost has been granted the option to earn up to 70% of Denison’s interest in 10 uranium exploration properties. The portfolio of properties can be grouped into seven (7) properties situated in the eastern Athabasca Basin (Murphy Lake South, Hatchet Lake, Turkey Lake, Torwalt Lake, Marten and Wolverine) and three (3) blue sky properties , which consist of roughly 102,000 hectares staked in October 2023 over regional structures and/or structural corridors (Blackwing, CLK and GR). The portfolio at properties is diversified over different stages of exploration from very early stage exploration projects through drill ready projects.
Terms and Phases of the Option Agreement
Foremost may acquire up to 70% of Denison’s interest in the 10 exploration properties, in which Denison currently holds 100% ownership, except for Hatchet Lake, where Denison holds a 70.15% interest. Foremost is expected to act as project operator during the term of the Option Agreement, though Denison expects to collaborate and support Foremost with its team of technical experts.
The Option Agreement has three (3) phases:
Phase 1
In order to earn the initial 20% interest in the uranium exploration properties, Foremost must
• issue 1,369,810 common shares to Denison on or before October 7, 2024
• appoint one Director from Denison to Foremost’s Board of Directors of Foremost (Denison’s CEO, David Cates is expected to join Foremost’s Board)
• enter into an Investor Rights Agreement, which will allow Denison to appoint up to two (2) individuals to Foremost’s Board of Directors of Foremost and grant a pre-emptive equity participation right so that Denison can maintain a 19.95% equity interest in Foremost.
• In addition, Denison will appoint a Technical Advisor to Foremost
Phase 2
In order to earn an additional 31% interest, within 36 months, Foremost must
• pay $2,000,000 (in cash and/or shares at the discretion of Foremost) to Denison Mines
• incur $8,000,000 in exploration expenditures on the exploration properties.
If the conditions of Phase 2 are not satisfied, Foremost shall forfeit all interests in and rights to the exploration properties.
Phase 3
In order to earn an additional 19% interest, within 36 months of completing the requirements of Phase 2, Foremost must
• pay $2,500,000 (in cash and/or shares at the discretion of Foremost) to Denison Mines
• incur $12,000,000 in exploration expenditures on the properties.
If the conditions of Phase 3 are not satisfied, Foremost’s interests in and rights to the exploration properties will be reduced to 49% and Denison’s interests will increase to 51%. Denison will again become the project operator.
At the completion of Phase 2 or Phase 3 of the Option Agreement, the parties will enter into a formal Joint Venture (JV) agreement with respect to the exploration properties.
Key Attributes Option Agreement
Upon completion of Phase 1 of the Option Agreement on or before October 7, 2024, Denison will become the largest shareholder of Foremost with ownership of 19.95% of the shares outstanding shares of Foremost.
Foremost will be required to invest a minimum of $8 million and up to of $20 million in exploration expenditures on the uranium exploration properties in order to recoup the value of the initial issuance 1,369,810 common shares as an upfront payment, along with the milestone payments of cash and or shares of up to $4.5 million.
Map of Exploration Properties under the Option Agreement
THE URANIUM INDUSTRY
With the signing of the Option Agreement, Foremost has been positioned to benefit from the expected structural supply-demand imbalance of uranium for nuclear electric utility plants.
The momentum for uranium has been fueled by greater acceptance of electricity generated from nuclear power plants as nations around the world grapple with the challenges in the efforts to reduce the use of fossil fuels. Political ambition has been translating into political action.
The driving force has been the recognition of the tightening supply/demand structure of uranium market with the projected demand by nuclear power plants increasing and the sequestration of uranium by physical funds (such as the Sprott Physical Uranium Trust and Yellow Cake Plc) continuing. The change in sentiment of utility buyers of long-term contracted uranium has resulted in the volume of contracted volume increasing to the highest level in over a decade.
Between November 30 to December 12, 2023, around 85,000 participants gathered the COP28 (the 28th Conference of the Parties of the United Nations Framework Convention on Climate Change) aka UNFCCC) in Dubai. At the Conference, 22 countries pledged to triple the nuclear capacity by 2050. Within COP28, the 2-day Net Zero Nuclear Summit was convened.
More than 120 nuclear energy and technology companies have signed an Industry Pledge to at least triple global nuclear energy capacity by 2050. And 25 countries have also signed a pledge to triple nuclear energy capacity by 2050.
In March 2024, world leaders met in Brussels at the first Nuclear Energy Summit in order to emphasize the role of nuclear energy in reducing the use of fossil fuels and improve energy security.
The momentum is further exemplified by increased attendance at the annual World Nuclear Symposium held in early September 2024. This year, the event was one of the best attended in its history, reaching maximum 800-person venue.
Leading market research firms on the nuclear industry forecast that the deficit between primary supply (from mines) and the demand by nuclear reactors will continue to expand through 2040. In its reference scenario, the World Nuclear Association calculates that the annual primary supply deficit for uranium will exceed 140 million pounds by 2030. Furthermore, in its Base case, UxC estimates that between 2023 and 2040, the needs of operating nuclear reactors will increase by 35%. Both scenarios indicate that new primary production will be needed with the price of uranium being the key determent that will incentivize the development of new mines.
The demand for electricity continues to increase due to population growth, the modernization of emerging & developing nations, the adoption of EVs and the growing desire to attain Net-Zero Carbon Emissions targets. According to the latest International Energy Agency (IEA) report, global electricity demand continues to grow with electricity generated from fossil fuels expected to decline and electricity generated from renewables anticipated to expand.
Countries such as China, India, Spain, Finland, Sweden and the U.S. have and continue to embrace nuclear power through new power plant builds and/or life extensions. Elsewhere, there are countries in which governments are updating power policies to encompass or emphasize nuclear electrical power under the mantra of clean, renewable energy. Globally, there are 439 nuclear reactors in operation and 66 under construction with China accounting for 30 reactors under construction.
RECENT EVENTS IN FOREMOST’S LITHIUM EFFORT
Assay Results from Completed Winter Drill Program at Dyke 1 in the Zoro Property
On May 23, 2024, Foremost Lithium announced the completion of the 2024 Winter diamond drilling program at the Zoro Property, which commenced during the first week of February 2024. The program consisted of 21 diamond drill holes (5,826m), which tested an area of mineralization southeast of Dyke 1. The program targeted untested areas at depth (roughly between 15m and 100m below prior drill holes), along with several 50-meter step-out perpendicular to the strike in order to assess lateral continuity of the mineralization.
Highlighted assay results of intersections of lithium were
Drill hole FL24-009: 1.52% Li2O over 5.02m (starting at a depth of 235.98m)
Also Drill hole FL24-009: 1.15% Li2O over 4.97 m (starting at a depth of 199.00m)
Drill hole FL24-010: 1.10% Li2O over 9.88m (starting at a depth of 176.22m
Drill hole FL24-020: 0.80% Li2O over 9.05m (starting at a depth of 232.00m)
Assay results demonstrated both the continuity of mineralization at depth, along strike and to the southeast of Dyke 1. Consequently, the strike of the Dyke 1 mineralized body was extended from 265m to more than 400m. The intercepted spodumene pegmatite intervals varied between 10% and 20% spodumene content. Dyke 1 remains open to the southeast and at depth, which is indicative of potential for further expansion of the mineralized body.
Peg North Property – Update
In mid-June 2024, Foremost Lithium paid the third option payment to acquire a 100% interest in the Peg North Claims which was due on or before June 28, 2024.
In accordance with the June 28, 2022 Option Agreement, the third payment consisted of $100,000 in cash and the issuance of 28,818 common shares at a deemed price of $3.47 per share.
The Peg North Claims consist of 6,757 hectares (16,697 acres) that contain many documented pegmatite outcrops with five (5) pegmatite dykes confirmed by the Geological Survey of Canada in 1949 and more pegmatites discovered and sampled during the Summer 2023 field exploration program.
GOLD & SILVER PROPERTIES
Anticipated Spin-out of Winston Group of Gold & Silver Properties
On June 4, 2024, the company announced its intention to spin-out the 2,980-acre Winston Gold & Silver Properties as a wholly-owned subsidiary to be named Rio Grande Resources Ltd. Subsequently, near the end of July, the company’s Board of Directors unanimously approved the spin-out.
The Winston Gold & Silver Properties contain three historic past producing gold and silver mines (Ivanhoe, Emporia and Little Granite) located in New Mexico.
The terms of the Arrangement are expected to be that Foremost shareholders will receive two shares of Rio Grande Resources for each Foremost Lithium held. Foremost Lithium will retain an approximate 19.95% interest in Rio Grande Resources. Upon completion of the Arrangement, the shares of Rio Grande Resources are expected to be listed on the CSE. The spin-out is subject to shareholder approval (by shareholders of record on September 9, 2024) at a special meeting to be held on November 06, 2024 as well other regulatory approvals (Supreme Court of British Columbia, CSE, NASDAQ etc.). Concurrent with the completion of the Arrangement, Management anticipates the completion at least one Rio Grande Ltd financing (with gross proceeds of at least $1.5 million) that will be concurrent with the completion of the spin-out.
Currently, the higher price of gold (over $2,600 per troy ounce) portends a favorable environment for a spin-out.
OTHER RECENT NEWS
Listing on Upstream
On July 31, 2024, Foremost Lithium began trading on Upstream under the ticker symbol FMST. Upstream is a securities trading platform which allows for international investors to buy and sell securities listed in North America. Upstream is a MERJ Exchange market, which is a licensed Securities Exchange affiliated with the World Federation of Exchanges (a National Numbering Agency and member of ANNA).
Foremost Lithium’s listing on Upstream enables international investment exposure beyond the confines of the U.S. (NASDAQ) and Canadian (CSE) exchanges.
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