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The Month in U Inventory: SPUT & Yellow Cake NAV Updates -SPUT Loads up on U Inventory

DISCLAIMER: Any written content contained herein should be viewed strictly as analysis & opinion and not in any way as investment advice. No compensation was received for this report. Visitors to this site are encouraged to conduct their own due diligence.


UxC reported that the January month end uranium term price finished +1.00/lb to reach $52.00/lb representing the highest term price since August 2013. Elsewhere, with regards to the spot price, UxC reported a January month-end price +$2.75/lb to reach $50.75/lb. Though the uranium quotes exhibited strength over the month, conversion prices were flat on the month, however remained near the all-time highs at $39.75/kgU. Enrichment prices dipped by $7/SWU to reach $118/SWU. It was an active month for SPUT as the Trust added +1.277M lbs to inventory while Yellow Cake PLC (pending a corporate update) remained constant. At the current uranium spot price, SPUT is trading at 1.02x P/NAVPU, or at a +1.7% premium given the current 1.0x NAVPU intrinsic value of $16.77. Given our LT $70/lb price objective for the spot and constant CAD/USD exchange rate, our 1.05x NAVPU valuation of $25.70 remains. Meanwhile, YCA is trading at 0.96x P/NAVPU, or at a -3.6% discount given the current 1.0x NAVPU intrinsic value of £432.17. Given our LT $70/lb price objective for the spot and a constant GBP/USD foreign exchange rate, our 0.95x NAVPU valuation of £620 remains.

From a near -9.0% P/NAV discount just two months ago, SPUT is now trading at a slight premium and as such was active purchasing nearly 1.3M lbs for inventory. Making good use of the premium and ATM facility, the Trust increased the number of units by nearly +8.2M, raising just over $90M. The sharp increase in inventory dwarfs the most recent purchases of +500k lbs and +200k lbs respectively, purchased this past November and December. The latest purchases bring the total inventory figure to over 60M lbs. As for Yellow Cake, though still trading at a discount, P/NAV parity is approaching and has improved considerably from last month's nearly -12% discount. Recall that if a premium is reached (ideally), the company has the right to purchase up to $100M of U3O8 (at spot) from Kazatomprom (KAP-L).

Speaking of Kazatomprom, the company last week lowered its FY/2023 production outlook amid the release of a mixed Q4/2022 update which was highlighted by in line production but weaker sales volumes. More importantly, noting the continued impact of supply chains and challenging logistics, FY/2023 production was lowered to 20.5ktU-21.5ktU (approximately 53.0M-56.0M lbs, 100% basis) representing a decrease of nearly 8% when compared to the previous estimate. Given that Kazatomprom is the world’s largest uranium producer (accounting for nearly 45% of primary supply), any production revision downward will (and already has) be felt by the market. Concerning logistics and shipping, recall that the company currently uses the Trans-Caspian International Transport Route (TITR) for physical uranium delivery to western clients. This transport route by-passes Russia (specifically St. Petersburg) en-route to customers and has been successfully used over the last few quarters. Lastly, on the corporate front recall that given the early January departures of Kazatomprom’s COO and CFO, Ruslan Beketayev was appointed CFO effective as of January 11, 2023. Mr. Beketayev previously served as Deputy Chairman of the BOD at the Eurasian Development Bank and before that held the position of Vice Minister at the Kazakh Ministry of Finance.


Sprott Physical Uranium Trust (U.UN-T, U.U-T):


Valuation: Given the uranium spot ended the month of January +5.7% m/m at $50.75/lb, SPUT is trading at 1.02x P/NAVPU, or at a +2.0% premium given the current 1.0x NAVPU intrinsic value of $16.77. Note that the valuation premium has expanded considerably since the significant spot pull back from the April 13 spot high of $63.88/lb. Given our LT $70/lb price objective for the spot and constant CAD/USD exchange rate, our 1.05x NAVPU valuation of $25.70 remains. For context, the current +2.0% premium to NAVPU is relative to +26% premium in September 2021 and -18% discount from July 2022. At the peak 2022 spot price of $63.88/lb on April 13, units traded at a modest -5% discount. The corresponding sensitivities to FX and the spot price are below:


We feel that SPUT's +2.0% premium to NAV is more justified than then -9.0% discount (putting it on par at the time with Yellow Cake) as registered in late November. We stress that in addition to higher liquidity and inventory (once again, when compared to Yellow Cake), SPUT stores all of its physical uranium inventory at facilities owned and operated by Cameco (Canada), ConverDyn (US) and Orano (France). Unlike Yellow Cake, SPUT has much less direct exposure to sourced uranium from Kazakhstan.



Yellow Cake plc (YCA-L):


Valuation: Given the most recent spot U3O8 quote at $50.75/lb (or £41.11/lb), YCA is trading at 0.96x P/NAVPU, or at an -3.6% discount given the current 1.0x NAVPU intrinsic value of £432.17. 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. This dynamic is currently being reflected. Given our LT $70/lb price objective for the spot and a constant GBP/USD foreign exchange rate, our 0.95x NAVPU valuation of £620 remains. The corresponding sensitivities to FX and the spot price are below:

Recall that Yellow Cake has a long term supply agreement with Kazatomprom (KAP-L) with the right to purchase $100M worth of U3O8 every year (at spot). On back of Kazatomprom's production guidance reduction and logistical transport challenges which partly led to lower volumes, 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).



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