LONDON: Yellow Cake plc, a specialist company operating in the uranium sector with a view to holding physical uranium for the long-term, has announced its intention to conduct a placing of new ordinary shares to raise approximately £22.9 million to fund the purchase of at least 1.0 mmlb of physical uranium (“U3O8”) under the Company’s framework agreement with Kazatomprom.
Highlights of the Placing:
Intention to raise gross proceeds of approximately £22.9 million (approximately US$30million) through the Placing;
The proceeds of the Placing will be used to fund the purchase of at least 1.0 mmlb of physical uranium (“U3O8″) under the Company’s framework agreement with Kazatomprom as well as related commissions and incidental expenses of the Placing and costs of storage, with the balance being used for general corporate purposes;
The purchase of U3O8 from JSC National Atomic Company Kazatomprom will be conducted at a price of US$25.88 per pound. On the basis that the Company intends to deploy around 90% of the funds received in the Placing (following conversion into US Dollars) into physical uranium, the total cost of such purchase is expected to be approximately £20.6 million (approximately US$27.0 million)
The balance of the Company’s 2019 option to purchase up to US$100 million of U3O8 under the framework agreement will remain available for further purchases by the Company this year;
Yellow Cake believes that the current uranium price level represents a compelling buying opportunity, taking advantage of utility companies’ recent cautious approach to purchasing U3O8 in the run-up to the determination of appropriate action under the US Department of Commerce’s current Section 232 investigation into uranium imports.
Yellow Cake is a specialist company operating in the uranium sector with a view to holding physical uranium for the long-term. In July 2018, the Company completed its oversubscribed IPO and concluded the purchase of US$170 million of uranium (c. 8.1 mmlb) from Kazatomprom for US$21.01 per pound.
Shortly following the IPO, the Company purchased an additional US$8.2 million of uranium (350 klb) from Kazatomprom at a price of US$23.30 per pound, which was delivered to Yellow Cake on 23 August 2018, resulting in the Company owning a total of approximately 8.4 mmlb of uranium at an average price of US$21.10 per pound. Since the Company’s initial uranium purchases, the price of uranium has increased to US$25.88 per pound, a 23% increase in value from its average entry price and has traded as high as US$29.25 per pound, a 39% increase on the average entry price.
Yellow Cake was founded by Bacchus Capital on the fundamental premise that uranium, as a commodity, is structurally mispriced. Nuclear power remains a key, and growing, element of the global energy supply with 445 operable reactors globally, and 183 new reactors either under construction or planned. In an environment of increasing electrification amongst OECD countries, nuclear power remains the least expensive low-carbon power option (according to the NEA and the WNA), and can be considered a key source of baseload energy in most low-carbon future scenarios.
Despite the increase in the price of uranium during 2018, at a price of US$25.88 per pound the Company estimates that around half of uranium producing operations were loss making in 2018 on a total cost basis.
Due to the declining uranium price environment since 2011, the industry has seen increased supplier discipline and selected operations have been shut down, suspended or scaled back (such as Key Lake / McArthur River, Kazakh ISR production, Rabbit Lake, Kayelekera and Langer Heinrich). There have been limited new sources of production and analysts estimate that the incentive price for new production is at least US$50.00 per pound, well above the current spot price. Underinvestment in new uranium exploration and development has resulted in a production supply gap, which is currently being met by secondary sources and inventories, with supply deficits expected to arise in the future.
In the near-term, the uncertainty around the ongoing Section 232 investigation into uranium ore and product imports in the US has resulted in reluctance from utilities to enter into new uranium purchases. However, with the expected removal of uncertainty following the completion of the Section 232 investigation in the coming months, it is expected that utilities and other end users of uranium will need to re-enter the market, with a corresponding impact on the uranium price.[the_ad id=”31605”]