Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.
Would you mind explaining, in layman's terms, this huge Sprott Uranium deal that's put a fire under the equities prices and is it a one-off (or two-off now)? Is the Sprott Physical Uranium Trust similar to Perth Mint Gold (physical gold) for example. If not, how does it differ and what is a 'closed-end trust' and what motivated them to 'open' it? I look forward to your insight.
Hi David,
It’s similar to the Perth Mint Gold insofar as it gives exposure to a commodity that is backed by physical holdings stored somewhere . i.e a fianncial asset fully backed by an underlying physical holding. It does differ in its legal structure but from an investor standpoint, we can think if it more or less then same. Sprott also have a physical gold trust.
The Sprott Physical Uranium Trust (SPUT) is the world’s largest physical uranium fund. SPUT is an investment company that was established in 2021 to buy up physical uranium on the spot market and take it out of circulation. SPUT currently holds around 66mlb of U308 with a value of US$4.65b.
What’s changed is that in recent weeks the SPUT share price has moved to a small premium to net tangible asset backing (NTA) which has allowed the fund to issue $200m new units to investors, and they would then use that money to buy physical spot uranium. They cannot issue new units when it is trading below NTA.
The turn in sentiment is driven by announcements from the tech sector about large scale AI driven data centre needs and the role nuclear power will have to play in the energy mix. The Trump Administrations nuclear renaissance rhetoric is also helping sentiment.
With uranium a thinly traded market this is a meaningful raise. Estimates suggest that if Sprott uses the entirety of the capital raise to purchase physical uranium, it would equate to more than 2.8 million pounds of nuclear fuel, which is around 1 month of total volume in spot. The move was understandably felt straight away in the spot Uranium market, up ~10%.
Over the past year utilities (who buy uranium on long term contracts) have been more focussed on securing conversion and enrichment capacity than uranium. The looming SPUT purchases of spot uranium will provide greater visibility to the fuel buyers on the underlying tightness in the market and likely prompt them to get active again in the contract market. We are conscious that in late 2023 the spot uranium price moved from US$50/lb to US$100/lb in just a few months – a similar move could easily play out again.
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