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The spot uranium price ended the month of November with a monthly gain loss of -1.8%, settling at $76.63 per lb (Numerco). That said, the November range was between $76.63-$82.50 per lb. On the macro front, the big news this week was Russia's imposition of a "temporary" enriched uranium export ban to the United States as announced in mid-November. Though some have claimed that this event would be the trigger event for a sustained rally in the spot price, we continue to take the opposite view, arguing that in the near-term, this is hardly the catalyst needed for LT spot increases. We see the sudden imposition of the ban as Russia gaining an additional bargaining chip ahead of the US Presidential transition in January. With a new administration at the helm, it will be likely that Russia may receive some form of economic sanctions relief, in exchange for certain concessions. The enriched uranium ban may very well be reversed in the months ahead as part of the negotiations. For this reason we saw the imposition of the ban as a non event and certainly not as the "Cigar Lake flooding event" which some have claimed would immediately spur uranium prices higher. Note that since the imposition of the ban, the spot has fallen from the $79/lb just before the ban. The market has a clear view of both the near-term and longer term strategic implications of the move.
Given the continued drop in the RUB (trade since halted), coupled with a Russian balance of trade very much out of whack, any sources of revenue which the Russian State can recover in firm currency will be desperately welcomed on their end. Though the spot has dropped on the month, that trend can't persist over the longer term as both enrichment and conversion prices have continued their post-Ukraine invasion gains. Prices are currently at the most recent all time highs of $182/SWU and $99.50/KgU respectively. We'll have more on the implications of this dynamic shortly.
On the corporate front, permitting milestones achieved by both Denison Mines (DNN, DML) and NexGen Energy (NXE) have brought a positive light back to the Athabasca Basin. On back of achieving major permitting milestones, both Denison Mines and NexGen Energy outperformed peers by ending the month of November with gains of +10.3% and +13.7% respectively. Share prices ended the month at or near all-time highs. Given final project hearings expected in early 2025, construction for both Wheeler River and Rook I may commence sometime later in 2025. The timing of Wheeler River and Rook I coming online in ~2028 signifies a critical point in what we continue to see as material uranium deficit which will steadily grow into 2040. This deficit will be accentuated by steady demand growth at ~3% CAGR coupled with an increase in resource depletion in the years ahead. This all points to higher incentivized prices needed to fast track new projects. That said, though some of the deficit (projected to be as much as ~50M lbs by 2040) will be met by new secondary supply (global laser enrichment) and state backed projects (China and Uzbekistan), the need for new publicly backed projects such as Wheeler River and Rook I will be critical.
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 -2.7% to the current -3.9% with the Trust now trading at a 0.96x P/NAVPU relative to its intrinsic value of $26.47. Note that following a slight valuation premium in September 2023, the valuation discount has largely been maintained since. The current -4.0% 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 1.0x NAVPU valuation of $41.30 (rounded) is being maintained. For further context, the current -4.0% 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 -10.1%. We note that 108,500 lbs of uranium inventory was added last month. 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 (-4.0% compared to -10.7%) 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 $76.63/lb (or £60.17/lb), YCA is trading at 0.89x P/NAVPU, or at a -10.7% discount given the current 1.0x NAVPU intrinsic value of £610.48. 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 0.90x NAVPU valuation of £980 (rounded) is maintained. As per YTD performance, shares of the Yellow Cake (YCA.L) have declined by -11.7%. 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.