Armchair Trader pick Yellow Cake LON:YCA updated the market this week on its successful completion of an oversubscribed share placing of 15 million shares, which raised gross proceeds of approximately £61.8 million.
Following the completion of the placing, Yellow Cake informed JSC National Atomic Company Kazatomprom that it had elected to purchase 1,350,000 lb of U3O8 at a price of US$48.90/lb, or US$66.0 million in aggregate.
This was part of Yellow Cake’s 2022 uranium purchase option under its agreement with Kazatomprom. Yellow Cake said it expects delivery to take place in the second half of 2023. On completion of the purchase, Yellow Cake will hold 20.16 million lb of U3O8. Yellow Cake also retains its full option to purchase up to an additional US$100 million of U3O8 in 2023 under its framework agreement with Kazatomprom.
Increase in uranium price
There has been an increase in the spot price over the quarter of 5.5% from US$48.00/l to US$50.65/lb, resulting in a corresponding increase in the value of U3O8 held by Yellow Cake over the quarter from US$902.7 million as at 31 December 2022 to US$952.5 million as at 31 March 2023.
The estimated net asset value as at 31 March 2023 was £4.23 per share or US$1,035.3 million, comprising 18.81 million lb of U3O8 valued at a spot price of US$50.65/lb and cash and other current assets and liabilities of US$82.8 million.
Yellow Cake said its operations, financial condition and ability to purchase and take delivery of U3O8 from Kazatomprom, or any other party, remain unaffected by the geopolitical events in Ukraine. All U3O8 to which the company has title and has paid for, is held at the Cameco storage facility in Canada and the Orano storage facility in France.
“Once we take delivery later this year, our total uranium holdings will exceed 20 million pounds, giving our shareholders a substantial opportunity to participate in the continued strong pricing environment,” said Andre Liebenberg, CEO of Yellow Cake. “Our confidence in the outlook for uranium is unchanged. In the first quarter, the price of uranium has continued to rise, in contrast to other commodities, highlighting the low correlation of the uranium price to other asset classes.”
Liebenberg said there is a considerable positive shift in global sentiment towards nuclear, with governments worldwide recognising the need for clean base‐load capacity. We continue to see rising demand, driven in part by higher contracting activity, which coupled with constrained supply, leads him to believe that this marks a generational opportunity for investors in uranium.
The Armchair Trader reported it was up +74.6% on its position in Yellow Cake as of 31 March.
Uranium market developments and outlook
The daily uranium spot price, as reported by UxC, stood at US$48.00/lb at the end of December 2022, increasing by almost 6% during the month of January to reach US$50.75/lb U3O8 by month‐end. The spot price then traded in a narrow range through February (US$50.85/lb U3O8) and March (US$50.65/lb U3O8), due to relatively limited market demand.
Transactional activity in the spot market continued to moderate during the January‐March timeframe. UxC reported total spot market volume approximated 12.6 Mlb U3O8 for the quarter compared to slightly above 13.0Mlb U3O8 in the last quarter of 2022. Spot market purchasing by the Sprott Physical Uranium Trust fell markedly during the quarter with the uranium fund acquiring a total of 2.38 Mlb U3O8, including a single purchase of 100,000 lb in March.
Longer term uranium price indicators remained fairly stable throughout the quarter as the Ux 3‐yr forward price ended December at US$56.50/lb U3O8 before rising to US$57.00/lb U3O8 during January and the 5‐yr forward price strengthened from US$60.00/lb to US$61.00/lb U3O8 during January, with both indicators unchanged at the end of March.
The Ux Long‐Term Price began the year at US$51.00/lb U3O8, increasing to US$52.00/lb U3O8 in January before stabilising at US$53.00/lb U3O8 during February and March. During the quarter, term uranium contracting volume aggregated 51.7 Mlb U3O8 (utility only), comparable to the reported level in the first quarter of 2022 which was reported as more than 55 Mlb.
Uranium spot price volatility intensifies
UxC released its annual review of the uranium spot market on 30 January 2023. The global nuclear fuel consulting firm reported that spot price volatility intensified compared to 2021 due to multiple geopolitical issues that unfolded throughout the year especially the “social unrest” in Kazakhstan in January 2022 and the Russian invasion of Ukraine in February 2022.The uranium spot price peaked in mid‐April at US$63.75/lb, its highest level since 2011 but finished 2022 at US$48.00/lb, representing an increase of US$6.00/lb from the beginning of CY2022 (a 14%increase). Regarding annual spot market volume, CY2022 saw transactions totalling 60.8 million lb, as compared to the 2021 level of 102.4 million lb.
Looking forward into CY2023, UxC observed that: “As new production is now even more important and utilities may need tocover unexpected needs, the expectation is that this will result primarily in additional utility focus on new term contracting. However, additional contracting activity could also flow back into the spot market, which would add to demand that is expected to be heavily driven by the activity of financials.”
A new round of sanctions was placed on Russian entities and citizens by the United States, the European Union and the United Kingdom with effect from 24 February 2023. The sanctions included several nuclear‐related organisations identified as supporting the Russian military, while the UK sanctions included senior executives from Russia’s state‐owned nuclear company, Rosatom.
