|The yellow material on the conveyor belt at a processing facility in India is called yellowcake, an intermediate form of uranium after mining. The Sprott Physical Uranium Trust issues shares and purchases uranium when its share price is at a premium, or above its net asset value. But its net asset value has been at a discount since April 5.
Source: Pallava Bagla/Corbis News via Getty Images
Uranium spot prices dropped precipitously in the week ended April 22 as one of the largest buyers of uranium on the spot market pulled back and global economic outlooks remained weak due to the war in Europe, inflation and an energy shortage.
The S&P Global Platts assessed uranium spot price fell to $55.17 per pound April 22, dropping 13.8% week over week. The price fell as Canadian hedge fund Sprott Asset Management LP, which has been a major player in increasing uranium prices, cut back its own purchasing amid shrinking cash on hand.
Sprott's Physical Uranium Trust issues shares to purchase and hold U3O8, a form of uranium, when its share price is at a premium, or above its net asset value. But Sprott's net asset value has been at a discount since April 5, landing at a negative 6.2% discount April 22. The share price for Sprott's physical uranium trust dropped 16.1% between April 20 and April 22 to $12.99 per share, below its net asset value, which sat at $13.85 as of April 22.
At the same time, investors and power utilities became less concerned that world governments would sanction Russia's uranium exports. The country is responsible for about 43% of the world's enriched uranium capacity, and its invasion of Ukraine has nudged some nuclear utilities to scout out new supplies of uranium beyond Russia and its neighbors.
"Investors should not be surprised by this," Nick Lawson, CEO of U.K.-based advisory firm Ocean Wall and a uranium expert, said of the drop in uranium spot prices. "This happens because of its liquidity. Like all uranium equities since Thursday, Sprott's share price has been punished. You have got to remember, though, that Sprott is still up 70% from where it was last year."
Analysts also attributed Sprott's decreased stock price to the broader market challenges facing commodities. On April 22, the Dow Industrial Average toppled by about 981 points, or 2.8%, marking the worst one-day loss since 2020.
"This resulted in U.S. funds closing out positions on mining stocks as well as other positions to support margin calls," Lawson said of the stock plunge in an April 25 note. "This could have resulted in a fund selling a large volume of uranium holdings, and [Sprott Physical Uranium Trust] did not have the cash to support the bid."
Yet the period of discounted trading could be a blip on the radar for Sprott, and the trust fund is not going anywhere anytime soon, industry analysts said. Despite the latest slump in prices, uranium spot prices remain 90.7% higher compared to one year ago, according to S&P Global Commodity Insights data. Uranium prices underwent a dramatic recovery over the past two years, rising from as low as $24/lb in 2020 to a high of $64/lb on April 14, thanks to buying activity from Sprott and widespread fear of potential sanctions against Russia.
Sprott turned the uranium market upside down beginning in the summer of 2021 when it vacuumed up millions of pounds of uranium supply for its new trust. Prices climbed on Sprott's buying since the fund's managers said they had no plans to sell what they bought, essentially taking uranium supply off the market. Sprott's moves helped push prices up to highs not seen in over a decade, prompting several uranium miners to toy with restarting mothballed mines and processing facilities.
Sprott's uranium trust added just 500,000 pounds of U3O8 to its holdings during the week ended April 22, representing about a third of the more than 1.5 million pounds acquired in the week ended Feb. 25, when the war began in Ukraine. Sprott is such a major player in the spot market that the decline in buying activity drove down uranium prices.
Although its buying activity tapered in April, Sprott still holds a significant amount of uranium: 55.4 million pounds of U3O8 as of April 22.
"They have been a huge buyer — what was about $300 million in assets at launch has now gone up to over $3 billion in assets," Lawson said in an interview.
On April 25, Sprott Asset Management LP completed an acquisition and reorganization of North Shore Global Uranium Mining ETF to create Uranium Miners ETF, according to a company news release. Sprott Uranium Miners ETF began trading on the NYSE Arca under the symbol URNM, bringing Sprott's uranium investment opportunities to a wider audience and potentially driving up funding activity and prices, according to experts.
"Investors now have two compelling options to invest in the uranium sector," John Ciampaglia, CEO of Sprott Asset Management, said in an April 25 statement.
Sprott did not respond to a request for additional comment.
In addition to the drop-off in yellowcake purchases by Sprott, supply concerns sparked by Russia's invasion of Ukraine have eased in the absence of sanctions or other restrictions on uranium, causing prices to correct.
"The prices that we've seen lately have really been driven by supply fears rather than actual market fundamentals," Allegra Dawes, a sector analyst at Third Bridge, told Commodity Insights.
As war broke out in Europe, the uranium sector braced itself for potential trade restrictions on Russian exports of uranium, driving the price to an 11-year high. But the radioactive metal has been spared from the wave of economic sanctions on the country, softening supply fears.
High uranium inventories in the U.S. and European Union could also buffer nuclear utilities from supply insecurities for several years, Dawes said. Nuclear utilities use uranium as a feedstock to power reactors.
"Europe has more than enough enrichment capacity to cover demand, and while the U.S. may look to increase capacity in coming years, there is limited concern over a sudden shortage," Dawes said.
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