Uranium Firm Hopes to Sell Like Hot Cakes
Investors in London are being tapped for up to $200 million by a new company in a bet on a recovery in the price of uranium. Yellow Cake said yesterday that its intention was to float and to use the proceeds to buy a $170 million stockpile of the radioactive metal. It said that uranium, used to make fuel for nuclear power stations, was "fundamentally and structurally mispriced in the current market" and that a looming supply crunch would push up prices.
The company takes its name from the industry term for concentrated uranium, which is stored in barrels in a yellow powder form. It is backed by Bacchus Capital Advisers, a finance house set up by several senior investment bankers led by Peter Bacchus, a former Jefferies and Morgan Stanley banker known for working on City megadeals.
Yellow Cake's initial public offering on the junior Alternative Investment Market will offer investors direct exposure to the price through the purchase of a sizeable slice of global production. Uranium was trading at more than $70 a pound before the Fukushima nuclear disaster in Japan in 2011, which resulted in some countries turning their back on nuclear power and a collapse in forecast uranium demand. It is trading now at about $23, with 75 per cent of global production thought to be loss-making. This has stifled investment in new mining operations. However, countries such as China are increasing investment in nuclear power, prompting forecasters to predict an increase in demand for uranium.
Yellow Cake has agreed to buy 8.1 million pounds of physical uranium from Kazatomprom , the Kazakh company that is the world's largest producer, at a 7.7 per cent discount to the market price. The volume equates to about 5 per cent of global production, based on 2016 data. It plans to store a stockpile of about 10,000 drums in Canada and has a long-term supply contract enabling it to buy an additional $100 million of uranium a year for nine years. Andre Liebenberg, chief executive, said:
"Yellow Cake will offer exposure to investors looking to capitalise on the expected resurgence in the uranium price, while avoiding direct exposure to exploration, development, mining and processing risk." The company said it would "generate value through the ownership of physical uranium together with a range of activities and opportunities ... such as the trading of uranium, optimisation of logistics associated with the trading of uranium, generating revenue from the lending of physical uranium and uranium-based financing initiatives such as commodity streaming and royalties".
Shares in Yellow Cake are expected to be admitted to trading next month. Link to Yellow Cake’s website