Are the ingredients now in place for Yellow Cake to enjoy a big slice of any future uranium bull market? (YCA)

Long-term resources investor Yellow Cake (LSE:YCA) dipped 0.7pc to 202.5p this morning after reporting that it has received its first shipment of uranium since listing on AIM last week. Yellow Cake – a nickname for uranium – has received 8.1mmlb of the metal from Kazakhstan-based rare metals importer and exporter KazAtomProm, which it will store at a facility in Canada.

The purchase was funded by proceeds from Yellow Cake’s listing in London on Thursday last week, which saw it raise around £151m by placing shares at 200p each.

Andre Liebenberg, CEO of Yellow Cake, said: ‘We would like to thank Kazatomprom for its strong support as a reliable long-term strategic supplier, thereby contributing to the highly successful IPO of Yellow Cake.”

Riaz Rizvi, chief strategy and marketing officer of NAC Kazatomprom JSC, added: “Yellow Cake’s successful IPO is another positive outcome in the uranium market, and we are pleased to see the involvement of institutional investors, indicating confidence in the long-term prospects of the uranium market.”

Yellow Cake was created by Bacchus Capital Advisers to hold long-term physical uranium. The company said this approach offers exposure to the uranium price without the risks associated with investing in firms that explore for, develop, mine, or process the metal.

The thinking behind the timing of Yellow Cake’s entry to AIM is that uranium is ‘fundamentally and structurally mispriced’, and one of the few resources yet to recover from the recent commodities bear market. It hopes to use a long-term supply contract with KazAtomProm to offer exposure to a potential resurgence in the uranium price to investors. It believes that a recent emerging theme of supply-side discipline in the uranium market and the industry structure will support prices going forward.

Uranium prices were severely hit in 2011 when an earthquake and tsunami triggered the worst nuclear accident since Chernobyl at the Fukushima Daiichi nuclear power station in Japan. Three of the six reactors at the plant sustained severe core damage and released hydrogen and radioactive materials. Despite no workers dying from radiation positioning, the disaster was enough to significantly damage global attitudes towards uranium and nuclear power, and prices fell off a cliff.

Although prices have failed to recover from the disaster, they appear to have bottomed around the $20/lb mark, where they have more or less remained for some time. With nuclear power capacity ‘increasingly steadily’ worldwide, according to the World Nuclear Authority, and uranium supplies running thin thanks to low prices, many believe that a re-rate is on the cards for the metal. This dynamic is helped along by the fact that it takes a very long time to get a uranium mine into production – once the stockpiles that have built up since the Fukushima disaster start to run low, it may be hard to quickly replace them.

The bottom line is that it remains difficult to know when (or if) the uranium market will start to positively react now these favourable supply/demand dynamics are in place. With that in mind, it may be worth considering how long your investment timeline is before you look at buying Yellow Cake- the most prominent beneficiaries may turn out to be those who are willing to wait and hold.

Author: Daniel Flynn

The author of this piece does not hold a position in the company covered in this article

 

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