Yellow Cake heads for London listing to bet on uranium 'mispricing'

June 5, 2018

A vehicle planning to make a big bet on the price of nuclear fuel uranium has announced plans to float on the London Stock Exchange.

Named after the raw form of the commodity, Yellow Cake is seeking to raise between $150m to $200m from investors, which it will use to buy 8.1m pounds of the radioactive material, according to people familiar with its plans.

The vehicle has already struck a deal with Kazatomprom, the world’s largest uranium producer, to buy up to $170m of the metal at a 7.7 per cent discount to the current spot price.

In addition, it has an option to purchase a further $100m of uranium each year from the company for the next nine years.

Uranium is one of the few commodities that failed to benefit from a broad-based rally in the sector even though several big producers, including Kazatomprom have announced plans to lower output in an attempt to bring the market back into balance.

The Fukushima nuclear disaster in 2011 slashed projections for demand for the fuel. That caused uranium prices to fall by almost 60 per cent from a record high of more than $70 a pound. Today the metal is trading at $22.75.

By purchasing a quarter of Kazatomprom’s annual output — or 5 per cent of global marketed production — Yellow Cake is hoping to tighten the market, which it claims is “structurally mispriced”. It also believes nuclear power will play a key part in the green energy revolution.

“Due to an exceptional confluence of events, uranium is one of the few commodities yet to recover from the recent commodities bear market. We believe that uranium is fundamentally and structurally mispriced in the current market, and on a historical basis,” said Yellow Cake chief executive Andre Liebenberg.

“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,” he added.

Analysts say the uranium market is set to see a stock draw this year but warn that global inventories remain high and that could continue to weigh on the price.

“Kazakh energy minister Kanat Bozumbayev has noted that the country would be willing to cut uranium output further if needed to support industry prices, following on from output cuts over the past couple of years. However, the minister also noted that current pricing was not an issue for low cost Kazakh production, suggesting further cuts would need lower prices,” said Colin Hamilton of BMO Capital Markets.

Yellowcake will be listed on the junior Aim market in London with admission slated for early next month. Yellow Cake’s chairman is Lord St John of Bletso and one its non-executive directors is Alexander Downer, Australia’s High Commissioner to the UK.

Yellow Cake was founded by Peter Bacchus, a former natural resources investment banker. His management company 308 Services will be the buying agent for Yellow Cake. It will also manage and store its uranium and in return will receive a fee.

Numis Securities and Berenberg are joint bookrunners to the flotation.

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