Yellow Cake confident in buy-and-hold uranium strategy

Uranium investment and holding company Yellow Cake reported an estimated net asset value of £3.31 per share, or $818.6m, in its update for the December quarter on Monday.

The AIM-traded firm said that comprised 15.83 million pounds of triuranium octoxide valued at a spot price of $42 per pound, as well as cash and other current assets and liabilities of $153.6m as at 31 December.

It said the value of triuranium octoxide held grew by 12% over the quarter, to $665m from $595.8m on 30 September.

Yellow Cake completed a further oversubscribed share placing in October, which raised gross proceeds of around £109.2m, adding to the £99.3m raised in March and the £62.5m in June.

During the quarter, the company said it took delivery of a further four million pounds of triuranium octoxide, having purchased two million pounds from Curzon Uranium at a price of $46.32 per pound, taking title to that uranium in November.

The purchase was part-funded from the proceeds of the October placing.

Yellow Cake also took delivery of two million pounds of triuranium octoxide from NAC Kazatomprom on 4 December, under an agreement it made with Kazatomprom on 26 August to purchase a further two million pounds at a price of $32.23 per pound, for a total of $64.5m.

The company said it was intending to use part of the remaining proceeds of the October placing to fund the purchase of 0.95 million pounds of triuranium octoxide from Kazatomprom, under Kazatomprom's offer of 26 October and subject to contract, at a price of $47.58 per pound, with delivery expected by June.

Under an existing arrangement, Kazatomprom had the option to repurchase, at the uranium spot price less an aggregate discount of $6.6m, up to 25% of the initial purchase volume which Yellow Cake purchased from Kazatomprom in July 2018 under the company's 10-year framework agreement with Kazatomprom.

The company said it had a corresponding buyback option to purchase from Kazatomprom, at the prevailing spot price, all or a portion of the volume repurchased by Kazatomprom under its repurchase option.

Following the conditions being met for Kazatomprom to exercise its repurchase option, the firm said Kazatomprom exercised it at a price of $43.25 per pound less the $6.6m discount, and took delivery of 2.02 million pounds of triuranium octoxide from Yellow Cake on 22 November.

Yellow Cake then exercised its buyback option for the same quantity of uranium at a price of $43.25 per pound, and was expected to take delivery of the 2.02 million pounds of triuranium octoxide from Kazatomprom between March and April.

The board said the net impact of the repurchase and buyback options was expected to be a pay-out by the company to Kazatomprom of $6.6m.

Following those transactions, Yellow Cake said its holding of triuranium octoxide was expected to increase to 18.81 million pounds.

It said its estimated pro forma net asset value as at 28 January was £3.40 per share, or $834.3m, assuming 18.81 million pounds of triuranium octoxide valued at a spot price of $43.25 per pound, and cash and other current assets and liabilities of $153.6m as at 31 December, less the $92.6m due to Kazatomprom on delivery of 2.02 million pounds of uranium by April, and the $45.2m subject to contract for the 0.95 million pounds of uranium expected by June.

Yellow Cake noted that “civil unrest” had surfaced in Kazakhstan in early January, in response to increases in fuel prices, which led to the declaration of a two-week nationwide state of emergency on 5 January.

It said Kazatomprom had reassured its global uranium customers that production and transport operations were unaffected, although the nationwide rail service was impacted for a short period.

Kazatomprom further cautioned that possible supply chain disruptions could occur. especially for the importation of materials deemed critical to ISR uranium production, as well as the exportation of the final product.

Yellow Cake said it was “closely monitoring” the situation in Kazakhstan, and the operational performance of Kazatomprom.

“We continue to deliver on our strategy - in the quarter we successfully completed a further oversubscribed share placing, our third in the calendar year, raising $150m,” said chief executive officer Andre Liebenberg.

“This will enable us to acquire three million pounds of uranium, which in addition to other uranium purchases during the year, including our purchase agreement with Kazatomprom which is central to our business model, will bring our total holdings to 19 million pounds.

“The three raises in the year serve to reaffirm not just the commitment to our strategy but also our confidence in the investment case, illustrated by the continued purchasing of uranium by Sprott and the decision by Kazatomprom to launch a physical uranium trust.”

Liebenberg said the company’s view was unchanged, in that it saw the uranium price being supported by “compelling” characteristics, driven by the on-going combination of supply-demand pressures and the “growing appreciation” of the role of nuclear in clean energy.

“This was highlighted by French President Macron's statement that nuclear power must continue to play a major role in France's energy program which has plans for six new reactors.”

At 1040 GMT, shares in Yellow Cake were down 0.47% at 314.5p.