Uranium – Views following Sput news

Sprott Physical Uranium Trust’s (Sput) USD 200m surprise raise set the sector on fire. This would equate to c2.7Mlbs of U3O8 buying capacity and is the largest raise we have witnessed. One should bear in mind however that: 1) Sput purchases had been zero YTD, and in comparison, over the same timeframe in 2024 Sput had bought 2.3Mlbs. So, the buying power to date is only marginally higher yoy. 2) the market certainly did not assume in its models zero buying of physical at Sput throughout 2025 – we had 3.5Mlbs. As such, for now, this doesn’t really affect our net balance for the year.

Following Sput’s listing in 2021, the vehicle was able to buy 26Mlbs of material in the first six months. At the time, annual primary mine supply was 20-30Mlbs lower than it is now. This had caused the spot price to soar by 45% from USD31/lb to USD45/lbs. The term price rose as much, but that’s not reflective of where the space is heading, as the spot market then was the key market where volumes made up c60% of total. Today, to see such a big upwards price move taking spot to >USD100/lb, all else equal, you would still need to see Sput gobbling up significantly more than the 2.7Mlbs implicit in yesterday’s raise, in our view. Instead, short term, this could potentially help close the gap between spot and term prices. On a side note, the speed at which the Sput deploys its capital obviously matters.

Implied price in Sput vs term prices

Source: Asymmetric Research

Looking ahead, eyes are on Yellow Cake (YCA) and on whether it exercises its USD100m physical purchase option with Kazatomprom (KAP). At current spot prices, this would equate to c1.3Mlbs. YCA can exercise when it trades near NAV, but the process in the past has been slower, and it typically requires trading near NAV for some time. In October 2023, when it exercised its option, YCA had traded at an upside to NAV range of c2.2% to 4.9% in the one month that preceded the raise, and at 4.5% in the week into the announcement. Today it’s at c6% at time of writing and has ranged between 1.6%-4.5% over the prior two weeks. In sum, for YCA to exercise, we think it is key for the NAV upside to remain at less 5%.

YCA share price and upside to NAV in 2023 at time of KAP option exercise

Source: Asymmetric Research

In 2023, YCA exercised its option in October and took delivery in June the following year – so 8m later. But we understand that the delivery time from exercise to delivery can vary. In our modelling, we used 2023 as a basis, and so, assumed no delivery of material under option this year, but next. Finally, it should be noted that following the YCA raise in 2023, the YCA share price weakened in the immediate aftermath with a ‘digesting’ period and the upside to NAV reverted to the more normal 13%.

YCA share price and upside to NAV until today

Source: Asymmetric Research

For us, to see a fundamental change in the market balance outlook in a time frame that matters – ie over the next two years - and so to make us outright bullish on the space we want see KAP this summer confirming a real stoppage at Budenovskoye JV, and so an inability to ramp up much if at all next year.

Equities discounting USD 78/lb uranium

Uranium equities are now discounting USD 78/lb market price, after pricing USD 63/lb a couple of months ago. The average share price upside to get to the USD 80/lb term price is now limited to only c9%. KAP already factors in USD 80/lb, Cameco is well above that. We continue to see better value with better risk adjusted returns on gold equities and Canadian natural gas plays. Finally, any future escalation in the attacks of nuclear facilities in Iran and Israel is a risk that shouldn’t be downplayed in our view.

Uranium equities implied uranium market price pre hedges (USD/lb), and share price upsides to USD 80/lb

Source: Asymmetric Research