How a fund less than six months old rocked the nuclear fuel market

(Bloomberg) – Six months ago, the Sprott Physical Uranium Trust did not exist. Today, it holds nearly a third of the world’s annual supply – and it’s getting bigger and bigger.

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The fund’s arrival and explosive growth are sending waves to the nuclear fuel market and helped spur uranium to a 50% rebound this year. Sprott reports its assets topped $ 1.9 billion, forcing the product to nearly double its funding limit two weeks ago to $ 3.5 billion – the second time it has had to increase it in half. month.

Behind the wave lies a race to bet on a nuclear future, with everyone from hedge funds to day traders joining them. The Canada-listed trust, which launched in July, is the only publicly traded fund in North America that invests in physical uranium.

“I don’t know how many ordinary people would even know how to make a uranium coin,” said Eric Balchunas of Bloomberg Intelligence. “It kind of democratizes commerce.

The world is increasingly aware that nuclear power may need to play a bigger role as governments strive to limit global warming. While the use of uranium has drawn opposition from environmentalists, who are concerned about reactor meltdowns and the dangers of radioactive waste, supporters say the carbon-free electric power provided by nuclear power is outweighs these concerns.

Sprott, betting on the future of nuclear, has recovered about 41 million pounds of uranium since the summer, which is about 30% of annual production.

Traders say the fund is reshaping the uranium market and allowing more transparent pricing.

Historically, the spot uranium market lacked daily price discovery, as a large number of buyers – electric utilities – bought the raw material under long-term purchase agreements.

“The Sprott vehicle allows speculators’ prices to be discovered on a consistent basis. And it is this consistency of having a willing potential buyer of uranium that flushes out the real price, ”of uranium, said Michael Alkin, chief investment officer and founder of Sachem Cove Partners.

Prices jump 50%

When the Sprott Trust was launched in July, the price of uranium was around $ 30. Today, the radioactive metal has jumped 50% to $ 45, according to data from UxC LLC, a leading nuclear fuel market research company.

“They weren’t the only buyers during this time, but their business was the main aspect of the market movement,” said Jonathan Hinze, president of UxC LLC.

It remains to be seen whether Sprott’s latest funding limit will be able to push uranium prices even higher. The trust’s discount to net asset value is sensitive to uranium prices and increases when uranium prices fall.

As long as Sprott continues to raise funds in the capital markets, it will be a persistent buyer of uranium, Hinze said. And he said the trust’s announcement that it would increase its funding limit to $ 3.5 billion indicates that there is an appetite for uranium in the financial world.

“Another billion would have been more than we expected. Going to $ 3.5 billion – over $ 2 billion more – so quickly, it was a bit of a surprise, ”he said.

The trust is a closed-end fund. If it were an exchange-traded fund, it would be in the top 5% of Canadian ETFs in terms of asset value, according to BI’s Balchunas.

He predicts that a physical uranium fund will eventually be launched in the United States given the growth of Sprott and the rise of uranium stock ETFs listed in the United States, such as the Global X Uranium ETF (URA ticker). and the NorthShore Global Uranium Mining ETF (URNM) in 2021..

“What has been a big market in terms of asset inflows may be exponentially bigger,” Balchunas said.

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