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Uranium spot prices ended higher on the month as the June Numerco spot price ended at a quote of $56.33 per lb, representing a +2.7% increase on the month. The term price was slightly higher as well, settling at $55.90 per lb, to end the month. Given a volatile month which started with a risk-off slant, the SPUT discount to NAV increased from the -6% at the end of May, to the current -9.6% at June month-end. For context, recall that the SPUT discount to NAV reached a 2023 high of -15% during the last week of April. Inventory levels had no change m/m with SPUT (U.UN) and Yellow Cake PLC (YCA.LN) remaining flat. Given quarter end, Yellowcake didn't add any inventory in Q2 while SPUT added a mere 100,000 lbs. From SPUT's standpoint, this level of quarterly purchasing represents the lowest amount since the fund was established. That said, an average spot price of $54.00/lb corresponds to the highest quarterly average in 10+ years. As of the end of May, SPUT's discount to NAV amounted to -9.6% while YCA's discount to NAV is -10.7%.
On the macro front, last week it was announced that Belgium reached an agreement with nuclear operator, Engie to extend usage of the country's nuclear reactors (Doel 4 and Tihange 3, each 1,038 MW reactors) by ten years. This is yet another data point for Europe's newfound embrace of nuclear power, post Russia's invasion of Ukraine. Note that just few years ago, Belgium was on course to exit nuclear power entirely by 2025. This comes as France has been pushing for a EUR1.0B deal with Mongolia and in light of the Spanish People's Party's recent U-turn with regards to their previous view advocating for the phase out of nuclear power. Though currently in opposition, the People's Party are the current front runners in the Spanish national elections to be held on July 23.
On the corporate front, Consolidated Uranium (CUR) announced plans to re-open the wholly owned Tony M uranium mine located in Utah. The conventional mine last produced uranium 15 years ago. A 2022 NI43-101 technical Report estimated a resource of 6.6M lbs in the M&I category along with 2.2M lbs in the Inferred category. Lastly, Denison Mines (DNN, DML) released an updated Feasibility Study for ISR uranium production at the Phoenix deposit located in the Athabasca Basin. Along with updating cost assumptions to reflect increased inflation since the PFS, much higher volume production was estimated in the initial five years of production. First production may occur come 2027. Our full note can be found at this link. Phoenix ISR production would mark a first in the uranium-rich Athabasca Basin.
Sprott Physical Uranium Trust (U.UN-T, U.U-T): 2-Yr Performance:
Valuation: Given the uranium spot ended the month of June slightly higher m/m at $56.33/lb, SPUT is trading at 0.90x P/NAVPU, or at a -9.6% discount given the current 1.0x NAVPU intrinsic value of $18.50. Note that the valuation premium from the end of January has reverted back to a much more pronounced discount, however it is currently off to the largest YTD -15% spread from April. Given our LT $70/lb price objective for the spot and constant CAD/USD exchange rate, our 1.05x NAVPU valuation of $25.70 (rounded) remains. For context, the current -9.6% discount to NAVPU is relative to +26% premium in September 2021 and -18% discount from July 2022. At the peak 2022 spot price of $63.88/lb on April 13, units traded at a modest -5% discount. The corresponding sensitivities to FX and the spot price are below:
We continue to feel that SPUT's -9.6% discount to NAV has been brought upon largely due to the early June market volatility. Markets have since firmed on back of increasing evidence of an underlying healthy economy (strong labor numbers, healthy consumer balance sheets and a housing market rebound). The soft landing narrative may yet prove to be accurate. Recall that as of the end of February, SPUT's discount to NAV was much narrower at -2.1%. All that said, we stress that the narrower discount relative to Yellow Cake's P/NAV is warranted. In addition to higher liquidity and inventory, SPUT stores all of its physical uranium inventory at facilities owned and operated by Cameco (Canada), ConverDyn (US) and Orano (France). Unlike Yellow Cake, SPUT has much less direct exposure to sourced uranium from Kazakhstan.
Yellow Cake PLC (YCA-L): 2-Yr Performance:
Valuation: Given the most recent spot U3O8 quote at $56.33/lb (or £44.34/lb), YCA is trading at 0.89x P/NAVPU, or at an -10.7% discount given the current 1.0x NAVPU intrinsic value of £457.78. 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 felt that the discount spread between both holding company's valuations (-14.0% vs -6.1%) last month was overly skewed to the downside in Yellow Cake's case. As communicated last month, that spread has now narrowed (currently -10.7% vs -9.6%). Given our LT $70/lb price objective for the spot and a constant GBP/USD foreign exchange rate, our 0.95x NAVPU valuation of £620 (rounded) remains. The corresponding sensitivities to FX and the spot price are below:
Recall that Yellow Cake has a long term supply agreement with Kazatomprom with the right to purchase $100M worth of U3O8 every year (at spot). On back of Kazatomprom's (KAP) production guidance reduction (last quarter) and logistical transport challenges which partly led to lower quarterly volumes, 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).
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