Since it listed last July, uranium storage vehicle Yellow Cake (YCA) has seen its share price exceed, and then trail rising prices in the uranium spot market. As a result, the group now trades at a discount to a net asset value (NAV) largely determined by the 8.44m pounds of the metal it has locked inside a warehouse in Canada.
For chief executive Andre Liebenberg, this latest turn of events has been “rather frustrating”. At $29 (£22.40) per pound, uranium prices are now 38 per cent above the price at which Yellow Cake made the bulk of its purchases from Kazatomprom. Keen to increase the group’s stockpiles of uranium – and potentially spark a further contraction in the market – Mr Liebenberg wants to exercise an annual option to buy up to $100m-worth of uranium from the Kazakh miner.
That would require a placing equivalent to 42 per cent of Yellow Cake’s existing market capitalisation, although Mr Liebenberg says that the demand is there. “If we were trading at a 10 per cent premium to NAV, we could do that tomorrow,” he told Investors Chronicle, citing feedback from recent meetings with dozens of existing and prospective investors. “We’ve got a lot of people keen to play.”
Another option under consideration is to buy back shares. Analysts at Berenberg reckon $4m-worth of purchases would close the discount to NAV, cover two weeks of trading volumes, and leave Yellow Cake with enough cash to fund corporate and storage overheads until at least March 2021. However, some shareholders have cautioned that the effect of financial engineering is likely to be fleeting, and would rather see any spare cash committed to uranium purchases.
That suggests many continue to share Yellow Cake’s bullishness towards the uranium market, even if some original investors in the IPO appear to have taken profits already. According to Berenberg, a uranium spot price of $40 per pound “as a minimum” would be needed for three-quarters of producers to generate cash. If that doesn’t happen, utilities might start bidding up long-term contract prices to ensure supply levels can meet demand.
