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The uranium spot ended the month of August lower given a monthly decline of -7.3% and settling at $79.25 per lb (Numerco), representing the monthly low. That said, the monthly range was between $84.50-$78.25 per lb. The price decline comes at the cusp of the World Nuclear Association's annual symposium, slated for September 4-6 in London. Despite spot weakness, the LT backdrop should be positive given the recently announced production cuts from Kazatomprom, the steady stream of nuclear power plant approvals and an ever evolving pro- nuclear stance in Europe.
Kazatomprom (KAP) released its Q2/2024 results during the last week of August and all eyes were on production guidance. The company announced a cut to FY/2025 production, going from a previously expected 30.5-31.5 ktU (~79M-82M lbs) to the revised 25.0-26.5 ktU (~65M-69M lbs), at 100%. Though the culprit for this large revision lower was attributed to delays in construction and the lack of sulfuric acid (both valid), ultimately the newly enacted Kazakh Mineral Extraction Tax (MET) bares much of the responsibility.
As enacted earlier in July, according to the tax matrix above, it's clear to see that the new MET regime incentivizes lower production, and by extension - prompting for higher prices. The updated guidance places output well below Subsoil Use Agreement levels, which is likely to drive increased utility contracting through the remainder of the year. Recall that Kazatomprom is in the process of gaining approval for reduced output at both Budenovskoye, its key growth project, and at Appak. Due to the sulfuric acid shortage, production guidance for FY/2026 was not provided. The company is building its own sulfuric acid plant however the timing to completion has been pushed out.
On the global nuclear front, earlier in August China's State Council approved five nuclear power projects encompassing a total of 11 reactors. In Europe, the Swiss government recently lifted the country's ban on the construction of new nuclear power plants which was previously in place since 2018. In Kazakhstan, the government has approved a draft resolution to hold a national referendum on constructing a nuclear power plant. In Norway, the Ministry of Energy received a proposal for a power plant project based on multiple SMRs in a municipality west of Bergen. Meanwhile, approval for preparatory work for Poland's very first nuclear power plant (Westinghouse AP1000) has been submitted in the Pomorskie Voivodeship. Commercial operation is expected by 2033. In the U.S, the Nuclear Regulatory Commission (NRC) provided the latest nuclear power plant life extension approval. This most recent extension is for 20 years each at the North Anna 1 & 2 units (Dominion Energy) which are 944MWe pressurized water reactors which began commercial operation in 1978. Lastly in Japan, Prime Minister Fumio Kashida is spearheading the needed discussions to re-start Tepco's Kashiwazaki-Kariwa nuclear power plant. Offline since Fukushima, Tepco needs consent from the Niigata prefecture governor to resume operations. The Kashiwazaki-Kariwa NPP is a massive complex with a total nameplate capacity of 8.0GW.
Sprott Physical Uranium Trust (U.UN-T, U.U-T): 2-Yr Performance:
Valuation: Given current pricing, SPUT's discount to NAV decreased from last month's -11.0% to the current -6.1% with the Trust now trading at a 0.94x P/NAVPU relative to its intrinsic value of $26.37. Note that following a slight valuation premium in September 2023, the valuation discount has largely been maintained since. The current -6.1% 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 1.0x NAVPU valuation of $41.35 (rounded) is being maintained. For further context, the current -6.1% 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 -12.7%. 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 (-6.1% compared to -13.9%) continues to be warranted, however the spread to NAV seems to 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 (KAP).
Yellow Cake PLC (YCA-L): 2-Yr Performance:
Valuation: Given the most recent spot U3O8 quote at $79.25/lb (or £60.23/lb), YCA is trading at 0.86x P/NAVPU, or at a -13.9% discount given the current 1.0x NAVPU intrinsic value of £610.79. 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 -16.7%. 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.
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