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The spot uranium price ended the month of September with a monthly gain of +3.3%, settling at $81.88 per lb (Numerco). That said, the September range was between $81.88-$79.25 per lb. The big news during the month was the corporate world's highly publicized turn to nuclear power. Last week, fourteen of the world's largest financial institutions announced that they would be lending money to support nuclear power projects. The banks also pledged to back the COP28 goal to triple global nuclear energy capacity by 2050. The financial institutions recognized that global civil nuclear energy projects have an important role to play in the transition to a low-carbon economy. They further expressed support for long-term objectives of expanding nuclear electricity generation and the broader nuclear industry to accelerate the clean energy transition. We also highlight that as announced on September 30, the Palisades NPP (located in Michigan) closed a $1.50B loan to re-start operations. Holtec, the current owner expects the restart to happen next year. The restart would make Palisades the first nuclear reactor to restart in US history.
Not to be outdone, earlier in September Microsoft (MSFT)Â and Constellation Energy (CEG)Â announced a deal in which Constellation would invest $1.60B to restart the Unit 1 reactor at Three Mile Island in Pennsylvania. The reactor is expected to come online in 2028, at which time Microsoft would use the power produced for its vast array of data centers. Oracle (ORCL)Â also announced in September that it plans to build a data center powered by three SMRs.
In terms of domestic US uranium production, the EIA last week provided the latest stats for the Q2/2024 period. Uranium production amounted to 97,709 lbs with Lost Creek (URG) contributing 64,170 lbs and Rosita (EU) contributing 29,508 lbs. Though at still rather anemic numbers, we note that the 97,709 total lbs represents the latest multi-year quarterly high. We also note that in terms of additional near-term production, Alta Mesa (EU) just recently announced the start of production while Lance (PENMF) is still scheduled to begin ISR production by year end. These two projects will be material as they both have run rates of 1.0M+ lbs annually.
In terms of peripheral pricing, recall that conversion prices remain at all-time high at $71/kgU while enrichment pricing also remains at an all-time high at $180/SWU.
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 -6.1% to the current -3.8% with the Trust now trading at a 0.96x P/NAVPU relative to its intrinsic value of $27.24. Note that following a slight valuation premium in September 2023, the valuation discount has largely been maintained since. The current -3.8% 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 -3.8% 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 -7.3%. We note that 100,000 lbs of uranium inventory was added last month while the units outstanding increased by 1.167M. 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 (-3.8% compared to -10.2%) continues to be warranted, however the spread to NAV seems to be somewhat elevated. 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 $81.88/lb (or £61.41/lb), YCA is trading at 0.90x P/NAVPU, or at a -10.2% discount given the current 1.0x NAVPU intrinsic value of £622.48. 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 -9.8%. 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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