QUARTERLY OPERATING UPDATE
Yellow Cake, a specialist company operating in the uranium sector holding physical uranium for the long term, is pleased to report its performance for the quarter ended 31 March 2023 (the "Quarter").
Yellow Cake successfully completed an oversubscribed share placing of 15 million shares on 7 February 2023, which raised gross proceeds of approximately £61.8 million (US$74.3 million) (the "Placing").
Following the completion of the Placing, Yellow Cake informed JSC National Atomic Company Kazatomprom ("Kazatomprom") that it had elected to purchase 1,350,000 lb of U3O8 at a price of US$48.90/lb, or US$66.0 million in aggregate, as part of Yellow Cake's 2022 uranium purchase option under its agreement with Kazatomprom (the "Framework Agreement"). The Company expects delivery to take place in the second half of 2023. On completion of the purchase, Yellow Cake will hold 20.16 million lb of U3O8.
Yellow Cake retains its full option to purchase up to an additional US$100 million of U3O8 in 2023 under the Framework Agreement.
Increase in the spot price over the Quarter of 5.5% from US$48.00/lb to US$50.65/lb, resulted in a corresponding increase in the value of U3O8 held by Yellow Cake over the Quarter from US$902.7 million as at 31 December 2022 to US$952.5 million as at 31 March 2023.
Estimated net asset value as at 31 March 2023 of £4.23 per share or US$1,035.3 million, comprising 18.81 million lb of U3O8 valued at a spot price of US$50.65/lb2 and cash and other current assets and liabilities of US$82.8 million.
Increase in estimated net asset value per share over the Quarter of 2% from £4.15 per share as at 31 December 2022 to £4.23 per share5 as at 31 March 2023, as a result of the increase in the uranium price, partly offset by the appreciation of Sterling over the Quarter.
Yellow Cake's estimated proforma net asset value on 25 April 2023 was £4.46 per share or US$1,095.1 million, assuming 20.16 million lb of U3O8 valued at a spot price of US$53.50/lb and cash and other current assets and liabilities
Yellow Cake's operations, financial condition and ability to purchase and take delivery of U3O8 from Kazatomprom, or any other party, remain unaffected by the geopolitical events in Ukraine. All U3O8 to which the Company has title and has paid for, is held at the Cameco storage facility in Canada and the Orano storage facility in France.
Andre Liebenberg, CEO of Yellow Cake, said:
"We continue to deliver on our strategy. In the first quarter we completed another oversubscribed share placing, raising over £60 million which we immediately used to secure a further 1.35 million pounds of uranium from Kazatomprom as part of our framework agreement. Once we take delivery later this year, our total uranium holdings will exceed 20 million pounds, giving our shareholders a substantial opportunity to participate in the continued strong pricing environment. Our confidence in the outlook for uranium is unchanged. In the first quarter, the price of uranium has continued to rise, in contrast to other commodities, highlighting the low correlation of the uranium price to other asset classes. More significantly, there is a considerable positive shift in global sentiment towards nuclear, with governments worldwide recognising the need for clean base-load capacity. We continue to see rising demand, driven in part by higher contracting activity, which coupled with constrained supply, leads us to believe that this marks a generational opportunity for investors in uranium."
Uranium Market Developments and Outlook
Global Uranium Market
The daily uranium spot price, as reported by UxC, stood at US$48.00/lb at the end of December 2022, increasing by almost 6% during the month of January to reach US$50.75/lb U3O8 by month-end. The spot price then traded in a narrow range through February (US$50.85/lb U3O8) and March (US$50.65/lb U3O8), due to relatively limited market demand.
Transactional activity in the spot market continued to moderate during the January-March timeframe. UxC reported total spot market volume approximated 12.6 Mlb U3O8 for the Quarter compared to slightly above 13.0Mlb U3O8 in the last quarter of 2022. Spot market purchasing by the Sprott Physical Uranium Trust ("SPUT") fell markedly during the quarter with the uranium fund acquiring a total of 2.38 Mlb U3O8, including a single purchase of 100,000 lb in March.
Longer term uranium price indicators remained fairly stable throughout the Quarter as the Ux 3-yr Forward price ended December at US$56.50/lb U3O8 before rising to US$57.00/lb U3O8 during January and the 5-yr Forward price strengthened from US$60.00/lb to US$61.00/lb U3O8 during January, with both indicators unchanged at the end of March. The Ux Long-Term Price began the year at US$51.00/lb U3O8, increasing to US$52.00/lb U3O8 in January before stabilizing at US$53.00/lb U3O8 during February and March. During the Quarter, term uranium contracting volume aggregated 51.7 Mlb U3O8 (utility only), comparable to the reported level in the first quarter of 2022 which was reported as more than 55 Mlb.
UxC released its annual review of the uranium spot market ("2022 Uranium Spot Market Review") on 30 January 2023. The global nuclear fuel consulting firm reported that spot price volatility intensified compared to 2021 due to multiple geopolitical issues that unfolded throughout the year especially the "social unrest" in Kazakhstan in January 2022 and the Russian invasion of Ukraine in February 2022. The uranium spot price peaked in mid-April at US$63.75/lb, its highest level since 2011 but finished 2022 at US$48.00/lb, representing an increase of US$6.00/lb from the beginning of CY2022 (a 14% increase). Regarding annual spot market volume, CY2022 reported transactions totalling 60.8 million lb, as compared to the 2021 level of 102.4 million lb.
Looking forward into CY2023, UxC observed that "As new production is now even more important and utilities may need to cover unexpected needs, the expectation is that this will result primarily in additional utility focus on new term contracting. However, additional contracting activity could also flow back into the spot market, which would add to demand that is expected to be heavily driven by the activity of financials."
A new round of sanctions was placed on Russian entities and citizens by the United States, the European Union and the United Kingdom with effect from 24 February 2023. The sanctions included several nuclear-related organisations identified as supporting the Russian military, while the UK sanctions included senior executives from Russia's state-owned nuclear company, Rosatom.
Nuclear Generation / Uranium Demand
In January 2023, the Belgian federal government announced that agreement had been reached to extend the operating life of both the Doel-4 and Tihange-3 reactors which had been scheduled for final shut-down in 2025. Both reactors will now be allowed to operate a further ten years.
The Swedish government is evaluating a proposal to amend the current nuclear law which limits the number of operating reactors to ten and which prohibits the building of new reactors at existing nuclear power plant sites. The proposal also states that necessary regulations should be adopted facilitating the construction and operation of small modular reactors ("SMR") within the Nordic country.
In January 2023, the French Senate approved a draft bill designed to accelerate procedures related to the construction of new nuclear facilities near existing nuclear sites and to the operation of existing facilities. In addition, the approved text removes the objective of reducing the nuclear share of France's electricity to 50% by 2035 and provides that the share of electricity production contributed by nuclear will be "more than 50%" by 2050.
South Korea has taken the decision to pursue restarting construction of two 1,400 Mwe rectors (Shin Hanul 3 and 4) located in the coastal county of Uljin (southeast of Seoul). Construction activities were suspended in 2017 in accordance with the previous administration's nuclear phase-out policy which has been reversed by the recently elected government. South Korea now plans for nuclear to generate more than 30 percent of the country's electricity by 2030.
Japanese public opinion has moved towards support of restarting nuclear reactors in that country. One of Japan's leading newspapers, the Asahi Shimbun, reported the results of a national survey conducted 18-19 February which showed 51% of respondents favoured resuming operations while 42% favoured leaving the reactors offline. Previous public polling showed only 30% support for reactor operations.
Public support for nuclear power continues to increase in Europe. A recent public opinion poll conducted by the Som Institute at Gothenburg University reported that support for nuclear power in Sweden has reached a record high of 56%, up from 42% in 2022. A public opinion poll in the UK found a 25% increase in net support for new nuclear power since June 2021 while support in Switzerland remains stable with about half of the surveyed persons in favour of maintaining the current reactor fleet, while 45% favour the construction of new reactors (43% support a legal ban on new construction).
The US Department of Energy released an initial report entitled "Pathways to Commercial Liftoff" which sets forth a preliminary roadmap for the commercialisation of clean energy technologies including nuclear power. This department-wide initiative provides "the private sector and other industry partners a valuable, engagement-driven resource on how and when certain technologies-beginning with clean hydrogen, advanced nuclear, and long duration energy storage-can reach full scale deployment." The report concludes that cumulative investment must increase from approximately US$40 billion to US$300 billion by 2030 across those technology areas with continued acceleration until 2050. The implementation plan envisions an additional 200 Gwe of advanced nuclear power by 2050 which would include current nuclear technology (Gen III+) as well as Gen IV reactors utilising novel fuels such as high assay-low-enriched uranium ("HALEU"), small modular reactors and micro reactors.
The European Commission published its proposed "Net-Zero Industry Act (NZIA) in mid-March, a component of the EU's Green Deal Industrial Plan. The proposed legislation lists technologies that the EC believes will make a significant contribution to decarbonisation which include: solar; wind; batteries and storage; heat pumps and geothermal energy; electrolysers and fuel cells; biogas/biomethane; carbon capture, utilisation, storage and grid technologies; sustainable alternative fuels technologies, and; advanced technologies to produce energy from nuclear processes with minimal waste from the fuel cycle, small modular reactors and related best-in-class fuels. In subsequent negotiations, parties agreed that countries with commercial nuclear power programmes could reduce their green hydrogen targets for industries by up to a fifth by 2030 if they mainly use nuclear power-rather than fossil fuels for producing the remainder of their hydrogen and remain on track to meet their overall renewable goals.