Yellow Cake looks tasty to analysts
Yellow Cake was started at a 'buy' rating by analysts at Berenberg and Numis on Monday after the uranium storage and trading company floated a month ago.
Yellow Cake gives investors exposure to the uranium price through its physical holdings of 8.1Mlbs of U3O8, stored in Canada, said Numis as it set a price target of 300p on the shares that is based on 1.1x the value of the company's uranium inventories at our one-year forward US$35/lb spot price forecast.
The company also has additional rights to purchase up to $100m per year of U3O8 from Kazatomprom, the world’s largest producer, for a further nine years.
"We believe that the uranium price is currently at a cyclical low, with key factors for a price recovery being draw down of US and EU inventories and supply contracts, the Chinese nuclear reactor build-out, and the restart of idled Japanese nuclear power generating capacity," Numis analyst Justin Chan said.
"Unlike miners/developers, Yellow Cake offers price exposure without operational, permitting, development or geopolitical risk, and YCA trades at a discount to the other physical uranium play [TSX-listed Uranium Participation Corp]."
Berenberg's 'buy' came with a 249p target and an observation that the uranium price at around $25 per lb is not far off its lowest point in 12 years.
“In our view, the market supply-demand balance is likely to tighten on the back of high-profile production cuts in effect in 2018, which will rapidly draw down inventory levels in 2018/19," said analyst Michael Stoner.
In the longer term, he predicted the buildout of the global nuclear reactor fleet will "ensure" that demand for uranium continues to grow, seeing 47% growth by 2030.
"We therefore believe that the uranium price is unsustainably low and must rise to a minimum of $50 per lb to incentivise new mine supply.”
At this stage of the price cycle, buying and holding physical uranium best way to create value, Stoner said, which is why Yellow Cake is the "uranium vehicle of choice".
Versus Toronto-listed UPC, he said Yellow Cake trades at a discount to net asset value in spite of the Kazatomprom supply deal and its lower cost base.