Uranium stocks getting a glow as Sprott flags big physical purchase

Sprott’s spot plan a strong tailwind for Boss. Plus, copper stocks show uranium peers what boom times are like as investors throw cash at them.

It’s game on in the uranium market.

If there is any doubt about that, take a look at the share price performance of a clutch of ASX-listed explorers in the past week.

• Boss Energy (ASX:BOE) up 25%
• Vimy (ASX:VMY) up 16%
• Deep Yellow (ASX:DYL) up 25%, and 
• Marenica (ASX:MEY) up 40%.

The share price gains are a response by the long-beaten-up sector to a cascade of positive developments over the same time frame.

They include the White House telling lawmakers that it was okay to use public funds to keep the existing fleet of nuclear power plants, the world’s biggest, operating in support of the Biden Administration’s aggressive climate change agenda (50-52% carbon emission cuts below 2005 levels by 2030).

Obviously very important. But the real gamechanger was the news that Sprott Inc was adding a physical uranium trust to the US$12 billion in physical precious metals trusts it has under management.

The Sprott Physical Uranium Trust, as it will be known, comes into existence via Sprott’s effective takeover of the Toronto-listed Uranium Participation Corp (UPC).

UPC is the world’s biggest publicly-traded uranium investment vehicle, providing investors direct exposure to the price of uranium.

More to the point, Sprott can be relied on to make it bigger and more active in the physical market, with a planned listing in the US that will open the vehicle to generalist funds/investors.

Currently, UPC holds 16.26 million pounds of uranium oxide and 300,000kg of uranium hexafluoride, collectively worth about US$52 million.

Compare that value with the upsized US$57 million raising by UPC going into the Sprott family, and suggestions that another US$200 million - US$400 million could be part of Sprott’s plans.

Apart from the run-up in uranium equities here and in Canada on the Sprott move, the spot uranium price has responded by moving up through US$30/lb.

London’s Numerco last had the price pegged at US$30.25/lb, up by 3.4% on its previous price update.

The price has a long-way way to go to reach the US$60/lb price most in the uranium industry reckon is needed to incentivise new mine developments.

But momentum to the upside has clearly been established.

There should be no surprise in that given Sprott’s ability to pull in big licks of new funding to buy physical uranium.

It said as much in its announcement on UPC: “We believe our global brand, fund marketing experience, and client base of more than 200,000 investors will improve trading liquidity and grow UPC’s asset base during what we believe is the start of a bull market for physical uranium”.

It means a squeeze is developing. Because 25% of world supply has been shut in due to depressed prices, Sprott’s physical buying will necessarily be in inventory space.

That means the power utilities, which have been holding back on committing to long-term contracts, are going to have to pay higher prices to secure supplies.

No surprise then that the local industry reckons we are getting much closer to new mines being required, which is great for the explorers/developers – something reflected in their share prices popping during the week.

A channel check with Boss managing director Duncan Craib on the mood in the uranium space in the wake of the cascade of positive developments was to the point.

“We in the industry believe this is the start of the new bull cycle, really,” Craib said.

Boss will be adding to its own story next month with the expected release of an optimised feasibility study into the restart of its fully permitted Honeymoon project in South Australia.

It is expected to confirm the initial scale of the project has been increased from 2 million pounds annually to 2.45million lbs. Because of some $170 million in existing infrastructure, a low capex restart inside of 12 months is on the cards.

In support of a restart, Boss did its own spot of physical buying, with funding coming from a $60 million placement in March at 14 cents a share.

The 1.25 million pounds was bought on the spot market at an average price of US$30.15/lb. It wasn’t a simple play on uranium prices moving higher, although there is that.

It was a multi-derisking event in that as it has gone into inventory – in Illinois – it’s an asset to help with securing development finance and offtake agreements, as well as de-risking the commissioning phase.

COPPER BOOM TIME

Unlike the uranium sector, the copper stocks don’t have to wait for boom-time prices to emerge. They are here now.

The price of the red metal is benefitting big time from the global economic stimulus. It’s as if the mid-decade structural supply deficit BHP and others are predicting because of the electrification of everything has already arrived.

Copper was last quoted at US$9,991/t (US$4.53/lb) which compares with last year’s average of US$6,186/t. That’s a 61% gain. That’s massive, but it hasn’t stopped the big investment banks from indulging in a guessing game on just how high it could go.

Goldman Sachs stirred the pot a couple of weeks ago by saying US$15,000/t come 2025 was a possibility.

Now Bank of America’s commodities desk has joined the fray, saying there was a “risk” that the price could spike to US$13,000t, and that US$20,000/t was a possibility if the scrap supplies needed to balance the market don’t arrive.

All the chatter around copper – and its near-record level in nominal terms – has finally got the institutions and fund managers interested in the pure copper plays.

Recent raisings by Caravel (CVV) and New World Resources (NWC) of $7.5 million at 27 cents a share and $20 million at 10 cents a share respectively prove the point. Both identified institutional support for the placements, with Caravel noting $7 million of its raising had gone off to the one party.

Both have been mentioned here previously on the strength of the near-term development potential of their projects when the copper price in US dollars per pound had a $3 in the front. Now that it is US$4.53/lb, they are off to the races.

Where the institutional dollar goes next chasing the copper story will be interesting to watch, and it seems a fair bet that it could well find its way into stocks like Stavely (SVY) and Alkane (ALK), the companies behind two of the biggest recent copper-gold discoveries.

They have been somewhat overlooked in recent times as they enter the phase of pinning down just how big the finds are. But active drilling programs ensure a strong newsflow.

And apart from anything else, there is nothing wrong with a copper-gold mix when copper is near enough to US$10,000/t and gold is again knocking on the door of US$1,800/oz. Newcrest at Cadia in NSW will tell you that.

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