In last week’s Interim Update, we noted the speculation in uranium-related equities and listed seven reasons to expect a sufficient increase in the demand for uranium over the years ahead to cause the price of this commodity to move much higher. We then concluded:
“Due to [these reasons] and that it would take several years to develop new sources of uranium supply, we don’t think it is unreasonable to expect the uranium price to double or even triple within the next three years. However, there’s a limit to how much higher the prices of uranium equities will be able to move without the support of an upward-trending uranium price. At the moment, what’s needed is a move above the May-2025 high (near US$73) to underpin the speculation.”
Well, thanks to a 9% surge in the uranium price on Monday, 16th June, the move above the May-2025 high has happened. Refer to the following daily chart for details.
The Uranium price is determined by the supply of and the demand for the physical commodity, so daily price moves such as the one that occurred on Monday of this week are rare. Monday’s unusual price increase was the result of this news:
The Sprott Physical Uranium Trust (U.U.TO), a daily chart of which is displayed below, announced on Monday 16th June that it is raising US$200M (initially the amount was $100M, but the financing was upsized to $200M due to strong investor demand) by issuing new trust units.
Also, it announced that the “net proceeds per Unit to be received by the Trust will be not less than 100% of the most recently calculated net asset value of the Trust per Unit prior to the determination of the pricing of the Offering.”
This news was bullish for the uranium price, because the proceeds of the offering will be used to purchase physical uranium, thus reducing the supply of uranium available to meet the requirements of the nuclear power industry.
U.U is in a unique position in that the more new units it issues the higher its own net asset value (NAV) is likely to become, given that the money it raises is used to take uranium out of the market. However, it only makes sense for the Fund to issue new units when its market value is close to or above its NAV. At one point in early-April it was trading at a discount to NAV of around 20%, but the subsequent elimination of this discount opened the door to the current offering.
What happened on Monday of this week possibly will occur again and again, because every time U.U’s market price rises to its NAV or above it will make sense for the Fund to issue more units to buy more uranium, thus driving its own NAV upward.