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Following the sixteen year uranium spot highs achieved earlier in Q1/2024, The spot regained some ground in April following the mid-February/March retracement. Having ended the month of April at a near-month high of $89.88/lb, the spot traded in a narrow range between $86.50/lb-$90.00/lb during the month. Mirroring the spot activity of late, the underlying uranium market fundamentals continue to strengthen as increasing government support for nuclear power expands, driven by net zero carbon targets and initiatives to diversify sources (and security) of supply. During the month of April, China General Nuclear (CGN) announced that Fangchenggang unit 4 (HPR-1000 reactor) reached criticality to begin operation earlier in April. Additionally, Korea Hydro & Nuclear Power (KHNP) announced that Shin Hanul unit 4 entered commercial operation in April. This is the second of two APR-1400 reactors at the site, with two additional units planned. KHNP also began a process to extend the lives of Wolsong units 2, 3 and 4. This is significant because of the 26 total reactors currently operating in Korea, the 10 which were originally scheduled to be shut down by 2030 are now set to have their operating licenses extended.
The big news item was for the month was announced just yesterday (April 30) as the US Senate approved a bill to ban Russian uranium imports. This bill is now on it's way to being sogned into law by President Biden. Specifically, the bill will ban imports 90 days after enactment while allowing for some waivers until 2027 (a period which has been already contracted for). The full ban will take place as of 2028. Recall that official passage of the Russian ban was needed to unlock the $2.7B recently pledged to to build out the domestic nuclear fuel supply chain.
On the earnings front, Cameco (CCJ) reported its Q1/2024 results which were strong on the operational front given the 5.8M lbs of uranium produced (Cameco's share) at $19.52/lb which was a noted +29% from Q1/2023. Adjusted EBITDA amounted to $345M which was +53% from Q1/2023. FY/2024 production guidance was maintained as management reiterated its goal for 18.0M lbs produced from both Cigar Lake and McArthur River/Key Lake (100%). Consolidated revenue is seen between $2.90B-$3.00B. The internal fundamentals remain solid as the company maintains delivery commitments for ~28.0M lbs per year from 2024-2028.
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 -5.0% to the current -4.1% with the Trust now trading at a 0.96x P/NAVPU relative to its intrinsic value of $30.64. Note that following a slight valuation premium in September 2023, the valuation discount has largely been maintained since. The discount however currently remains well off the largest 12-month, -15% spread from April 2023. Given our LT $120/lb price objective for the spot and a constant CAD/USD exchange rate, our 1.05x NAVPU valuation of $43.30 (rounded) is being maintained. For context, the current -4.1% discount to NAVPU is relative to +26% premium in September 2021 and -18% discount from July 2022. During the month, 500,000 lbs were added bringing the YTD inventory purchases to ~3.0M lbs or ~44.0M lbs since inception. We note that as per YTD performance, shares of the Trust (U.UN) are +4.0%. 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 (-4.1% compared to -11.8%) continues to be warranted. 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 $89.88/lb (or £71.90/lb), YCA is trading at 0.88x P/NAVPU, or at a -11.8% discount given the current 1.0x NAVPU intrinsic value of £730.18. 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 maintained. We note that though we already include the pro-forma 21.68M lbs in inventory, the actual delivery of the most recent 1.53M lb purchase from Kazatomprom (brokered last year at $65.50/lb) will be delivered in June. As per YTD performance, shares of the Yellow Cake (YCA.L) have advanced by +8.2%. 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 February 1, Kazatomprom stated that production is expected to remain 20% below the level stipulated in the subsoil use agreement, similarly as to in 2023. This comes amid the current environment in which the procurement of the needed production materials (notably sufficient levels of sulfuric acid) is challenging.