Uranium Week: How Funds Cornered The Market

Weekly Reports | Jun 03 2025

Insights into how hedge funds have captured the uranium market to achieve defined outcomes, as short interests counter positive longer term demand drivers.

-Thin illiquid markets avail themselves to funds who can engineer pricing outcomes
-Short interests dip slightly, but no respite for ASX U308 stocks
-Positive pricing signals the U308 cycle is at an inflection point
-Stocks in focus for the week that was

By Danielle Ecuyer

Unraveling the U3O8 market dynamics

Goehring & Rozencwajg's first quarter 2025 Natural Resource Market Commentary offered some revealing insights into the short interest activity by speculators in the uranium market.

The researchers explain how hedge funds back in 2018 would acquire shares in uranium producers and then purchase a "sizable" position in what later became the Sprott Physical Uranium Trust, post the acquisition of the Uranium Participation Corporation in July 2021.

By buying units in the closed-end fund, the market price of the units was pushed above the underlying net asset value, which allowed the Trust to issue new shares to realign its share price to net asset value.

In turn, the new capital raised would be used to acquire physical U3O8, which would place upward pressure on the spot price, which in turn would boost the share prices of uranium stocks, benefiting the funds' holdings.

The Sprott Trust was highlighted as being upfront about purchasing surplus supply held by traders and utilities in stockpiles post-Fukushima.

In July 2021, spot U3O8 traded at US$32/lb and the Sprott Trust held 18.2mlbs. By January 2024, the spot price reached a peak of US$106/lb, rising nearly six times since the low of 2017 with Sprott Trust owning 63mlbs.

Goehring & Rozencwajg propose at that point, the uranium market was due for a price correction. In the same way the funds could work the markets to the upside, their actions could be reversed and applied to create downside pressures.

The same funds that rode the uplift through leveraging the Sprott Trust now moved to use the same technique to push it down. The Trust became an "instrument" of choice to promote bearish and negative sentiment.

By selling shares in the Sprott Trust, the short sellers push the market value to a discount to net asset value. This stops the Trust from issuing new shares and buying more physical uranium, but it also raises the spectre of the Trust needing to sell stock to pay for its annual administration costs.

Until May 9, when the Trust announced it had secured a non-brokered private placement raising US$25.5m, which is expected to cover the operating costs for the next year, market speculation believed the Trust would be forced to offload physical stock.

This event would have been even more negative for the spot price and in turn for share prices of uranium companies, where the funds have amassed sizeable short positions, particularly in Australian listed stocks.

The Trust further stated it has no intention of selling any of the physical uranium it holds for investors.

The latest ASIC-reported short positions as at May 26 show Boss Energy ((BOE)) still the most shorted on the ASX200 at 21.2% of its capital, down slightly from 21.7% a week earlier.

Paladin Energy ((PDN)) resides in second position at 15.3%; Deep Yellow ((DYL)) in eighth position at 11.03%, down from 11.63%; and Lotus Resources is down to 7.75% from 8.61%.

Global momentum for nuclear energy continues

FNArena's weekly uranium update has been writing extensively on the disconnect between the short positions versus the "Make Uranium Great Again" thematic, as articulately depicted by Morgan Stanley this week.

The US Administration is targeting a fourfold increase in US nuclear capacity by 2050 to 400GW, which equates to commencing construction of twenty average-sized reactors each year to 2040, four times the rate being pursued by China.

It is not only the US, the trend across Europe and parts of Asia is a key reversal from winding down or phasing out nuclear energy to extending the life of existing plants and restarting decommissioned facilities.

Bloomberg reported in the last week, Spain's three largest utilities have proposed an extension to the lifespan of the country's largest nuclear plant, Almaraz, which was due to be shut down in 2027-28.

The change signals a reversal of Spain's target to shut down seven nuclear reactors by 2035 that was agreed upon some six years ago.

China is also flexing its nuclear muscles, with the country's National Nuclear Safety Administration reported as in talks with the Kazakh Atomic Energy Agency to construct Kazakhstan's first nuclear power plant, at a considerably lower cost than other competitors, including Russia's Rosatom.

Morgan Stanley remains positive on the outlook for uranium and believes the ambitious target from the US Administration just emphasises a global policy shift towards nuclear energy, which reinforces the longer-term demand story.

Given the long lead times to build new capacity, the analyst explains there is minimal near-term impact on uranium demand, but the US targets could act to re-awaken interest in the sector from investors. The increase in interest and activity from utilities is also flagged as a positive development.

Citi also makes some interesting observations on the U3O8 markets.

The Citi analyst proposes similar dynamics, which signal a turning point is unfolding in reverse to the action around the recent peak in the U3O8 spot price during the first half of 2024.

With a decline in the conversion price to US$69/lb from US$80/lb and enrichment prices steady at US$185/SWU (SWU stands for Separative Work Unit, which is the standard unit used to measure the effort required to enrich uranium), the ratio of U3O8/SWU is around 0.36 from 0.35 in April. Citi infers this historically has indicated an inflection point with higher U3O8 prices to follow.

Citi highlights uranium is about to enter its next "bull phase" and suggests investors accumulate miners before replacement-rate contracting recommences in what is viewed as an under-supplied market.