Weekly Reports | May 04 2021
As the uranium spot price rises 2.6% for the week, an exciting development unfolds for some Canadian shareholders and the broader uranium market.
-Uranium Participation Corp converts to a trust
-New more liquid vehicle to list on the NYSE
-Uranium spot price rise by 2.6% for the week
By Mark Woodruff
In a potentially significant uranium market development, Sprott Asset Management is taking over the management of Canadian-listed Uranium Participation Corp (UPC). Shareholders will become unit holders of the newly-formed entity Sprott Physical Uranium Trust.
UPC is the world’s largest publicly traded investment vehicle providing investors an opportunity to gain exposure to the price of uranium. As of March 31, 2021, UPC's holdings totaled approximately 16.27mlbs U3O8 and 300,000 kgU as UF6.
The trust structure will align UPC's business with leading physical commodity investment vehicles, according to an April 28 UPC statement.
Toronto-based Sprott, which focuses on precious metal and real asset investments, currently manages around US$13bn of physical metal funds. The adoption of a trust structure paves the way for an additional stock listing on the New York Stock Exchange, which will broaden the investor appeal of the uranium holding company.
Once the transition is complete, market participants feel the new vehicle will attract substantial additional investment from the deeper US capital market, leading to the acquisition of further uranium.
The Trust’s proposed “at the market” raising mechanism will enable capital flows from both institutional and retail investors, a potentially powerful combination in the Reddit/Robinhood investor age.
Further, the growth of uranium sector ETFs may have a compounding effect as these ETFs direct inflows to buying the Trust, causing more uranium to be purchased.
Previously, some investors have shied away from buying UPC or the similar investment vehicle Yellow Cake Plc. This is because they often trade at a premium and a capital raise could result in a quick -5-10% loss in value. It’s hoped that a new cleaner structure trading at around the prevailing uranium spot price will be of greater investment allure.
The existing management services agreement between Canadian miner Denison Mines and UPC will be terminated. Denison Mines Corp President and CEO David Cates stated the transaction “is an exciting development for UPC shareholders and the broader uranium market”.
Uranium Pricing-During the week
TradeTech’s weekly spot price index rose US$0.75c to US$29.15/lb last week.
Uranium Pricing-During the month
TradeTech's monthly spot price closed at US$29.15/lb at the end of April, a fall of -US$2.10 from the end of March. This is a decline of nearly -7% in April amid slower transaction activity.
TradeTech’s Daily Spot Price Indicator averaged a -0.3% interday change in April, while the Weekly Spot Price Indicator decreased an average of -1.4% per week through the month. The monthly uranium spot price indicator has decreased -2% so far in 2021.
The average for 2021 is US$29.48/lb, which currently sits -3% below the 2020 average of US$30.15/lb.
Last month producers bought in the spot market, which led traders, end users, and other entities to follow suit. Buying by prospective producers presents a new avenue for project financing, while the loss of legacy contracts places greater pressure on existing producers, explains TradeTech.
For now, both existing and prospective producers are utilising spot purchases dispatched into future deliveries as a means to provide revenue for operations until the market improves and term contracting activity picks up.
Buying by prospective producers and other buying accounted for approximately10mlbs of uranium changing hands throughout the month of March. This resulted in an 11% increase in the uranium spot price to US$31.25/lb by month end. However, as buying activity slowed over the following weeks, TradeTech’s Daily and Weekly Spot Price Indicators dipped below US$30/lb by mid-April.
Traders, financial entities, producers, and utilities were involved in 19 transactions totaling approximately 2.9mlbs U3O8 equivalent in April. However, according to TradeTech, the moderate pace of buying activity contributed to steady downward pressure on the spot uranium price through the majority of the month.
TradeTech's mid term price indicator for April 30, declined to US$30.00/lb, down -US$3.00 from the end of March, while the long term price indicator remains unchanged at US$35.00/lb.
In the term uranium market, seven transactions totaling over 1.5mlbs U3O8 are reported in April. All of the deals involve delivery in the mid-term time frame and buyers include utilities, producers and intermediaries.
TradeTech notes several non-primary sellers currently have access to exceptionally low interest rates and are extending aggressively priced offers to limited utilities for deliveries in the mid-term delivery period.
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