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The uranium spot price continued its upward march on the month as it advanced by +11.5% to reach a quote of $102/lb to end the month of January. This current quote represents the latest sixteen year, post-Fukushima high. As the spot price continued higher inventory remained steady at both SPUT (U.UN, U.U) and Yellow Cake PLC (YCA) given inventory levels of 63.162M lbs and 21.682M lbs respectively.
The big story to end the month was Kazatomprom's (KAP) Q4/2023 operational update which was announced as generally mixed (attributable production of 3.1ktU or ~8.0M lbs U3O8). More importantly however, lower production guidance revisions were announced for both FY/2024 and FY/2025. For FY/2024, production guidance was lowered by 14% (100% at midpoint) to a range between 21.0ktU-22.5ktU (~54.5M-58.5M lbs). Given this downward revision, the previously announced FY/2025 production goal of between 30.5ktU-31.5ktU (79.0M-82.0M lbs, 100%) seems unlikely to be met. Consequently, as demonstrated earlier in the year when production cuts were announced, adding to the projected supply deficit will only serve to further support near term uranium prices. Next up on the radar will be any additional color with regards to production when Cameco (CCJ) reports its Q4/2023 figures on February 8.
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 -5.5% to the current -7.3% with the Trust now trading at a 0.93x P/NAVPU relative to its intrinsic value of $33.57. Note that following a slight valuation premium from earlier in September 2023, the valuation discount has since largely been maintained since. The discount however currently remains well off the largest YTD -15% spread from April 2023. Given our revised LT $120/lb price objective for the spot and constant CAD/USD exchange rate, our 1.05x NAVPU valuation of $43.30 (rounded) has been established. For context, the current -7.3% discount to NAVPU is relative to +26% premium in September 2021 and -18% discount from July 2022. We note that as per YTD performance, shares of the Trust (U.UN) have already advanced by +10.1%. 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 (-7.3% compared to -15.4%) continues to be warranted, however the spread may be overdone. In addition to higher liquidity and inventory, SPUT has much less direct exposure to uranium sourced from Kazakhstan, via option agreements with Kazatomprom.
Yellow Cake PLC (YCA-L): 2-Yr Performance:
Valuation: Given the most recent spot U3O8 quote at $102.00/lb (or £79.56/lb), YCA is trading at 0.86x P/NAVPU, or at a -13.8% discount given the current 1.0x NAVPU intrinsic value of £807.28. We note that YCA's discount narrowed from last month's -15.4%. 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 of nearly ~8% may be somewhat overdone. Given our revised LT $120/lb price objective for the spot and a constant GBP/USD foreign exchange rate, our 0.95x NAVPU valuation of £1,040 (rounded) is established. We note that as per YTD performance, shares of the Yellow Cake (YCA.L) have already advanced by +18.0%. 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 last September, Kazatomprom stated plans to increase production in 2025 to 100% of subsoil agreements, thus producing a total of ~79.3M-81.9M lbs U3O8 (unlikely to be achieved in our opinion). This comes amid the current environment in which the procurement of the needed production materials (notably sufficient levels of sulfuric acid) is strained.