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The spot uranium price ended the month of January with a monthly loss of -4.7%, settling at $71.00 per lb (Numerco), slightly off the monthly lows. That said, January's range was between $74.65-$68.00 per lb., with talk of tariffs and and (overblown) AI fears putting a damper on sentiment. On the corporate front, 2025 started off with quite the volatile press release from Kazatomprom (KAP) announcing a temporary suspension of production at Inkai due to delays in receiving the necessary approvals under the "Subsoil Use Agreement" from authorities. Though the fear was that a prolonged suspension would drive Cameco/Kazatomprom (40/60 JV) to make additional market purchases to cover sales commitments, on January 27 it was announced that Inkai production has resumed. Kazatomprom further stated that it does not expect any material impact to FY/2025 production (25.0-26.5ktU or approximately 65.0-68.9M lbs U3O8, 100% basis). Elsewhere, production cutbacks have been prevalent with Paladin Energy (PDN). Though water issues seem to have been resolved at Langer Heinrich, FY/2025 production forecasts have been lowered from 4.0M-4.5M lbs to the current 3.0M-3.6M lb forecast. We note however that the plant has been performing relatively well with recoveries at 88% in Q4/2024. Grade variability issues continue to persist however. FY/2025 production guidance is also somewhat problematic and will likely be cut at Peninsula Energy (PENMF). Though ISR production from Lance officially re-started earlier in mid-December, challenging weather and supply issues have been communicated from the lead contractors who now envision the completion of the Lance CPP sometime in the June 2025 quarter. Peninsula had previously forecast completion of the CPP, and commissioning of the first drying unit enabling production of the first dry yellowcake, at the end of the March Quarter. Since December, the loading of uranium onto resin for elution continues and the site is looking into short term options to store loaded resin during the commissioning of the CPP. Recall that FY/2025 guidance was previously set at 600,000 lbs.
Sprott Physical Uranium Trust (U.UN-T, U.U-T): 2-Yr Performance:
Valuation: Given current pricing, SPUT's discount to NAV increased from last month's -4.2% to the current -7.1% with the Trust now trading at a 0.93x P/NAVPU relative to its intrinsic value of $25.23. Note that following a slight valuation premium in September 2023, the valuation discount has largely been maintained since. The current -7.1% discount ranks well above the near -15.0% discount last seen in February 2023. Given our LT $120/lb price objective for the spot and a constant CAD/USD exchange rate, our 0.95x NAVPU valuation of $39.30 (rounded) is being maintained. For further context, the current -7.1% discount to NAVPU is relative to +26% premium in September 2021 and -18.1% discount from July 2022. YTD shares in U.UN have declined by -5.7%. The corresponding sensitivities to FX and the spot price are below:
We continue to stress that a narrower discount relative to Yellow Cake's P/NAV (-7.1% compared to -14.5%) continues to be warranted, and to a certain degree reflects the east/west bifurcated market. In addition to higher liquidity and inventory, unlike Yellow Cake, SPUT has much less direct exposure to uranium sourced from Kazakhstan, via option agreements with Kazatomprom (KAP).
Yellow Cake PLC (YCA-L): 2-Yr Performance:
Valuation: Given the most recent spot U3O8 quote at $71.00/lb (or £56.80/lb), YCA is trading at 0.85x P/NAVPU, or at a -14.5% discount given the current 1.0x NAVPU intrinsic value of £575.48. Though Yellow Cake normally trades at a larger discount to intrinsic value relative to SPUT (justifiably reflecting the smaller size, liquidity and larger perceived delivery risk associated with Kazakh sourced uranium), we feel that the current relative discount to NAV is overdone. Given our LT $120/lb price objective for the spot and a constant GBP/USD foreign exchange rate, our 0.80x NAVPU valuation of £870 (rounded) is maintained. As per YTD performance, shares of the Yellow Cake (YCA.L) have declined by -1.5%. The corresponding sensitivities to FX and the spot price are below:
Recall that under the Kazatomprom Framework Agreement (KFA), Yellow Cake maintains the option to purchase up to $100M of U3O8 each year for a period of nine years, starting from the company's IPO in 2018. That said, it is our view that geo-politics will continue to weigh on Kazakh sourced uranium, and in general on all companies with exposure to Kazakhstan, (despite transport routes which completely bypass Russia). Recall that as announced on August 21, Kazatomprom stated that FY/2025 production would be slashed, going from a previously expected 30.5-31.5 ktU (~79M-82M lbs) to the revised 25.0-26.5 ktU (~65M-69M lbs). This comes amid the current environment in which construction and the procurement of the needed production materials (notably sufficient levels of sulfuric acid) remains challenging.