Sprott Physical Uranium Trust (U.UN-T) top pick from Jason Mann on BNN.ca Market Call Friday Nov 26th @ 1200ET
This pick is more of a special situation, as SPUT as its now known is a pure-play on the uranium physical market. It’s not an ETF though, rather it’s a closed-end fund, and its sole purpose is to issue units to buy and sequester physical uranium “yellowcake”.
Uranium spot market has been dead money since Fukushima back in 2011, as the world turned away from nuclear despite having some of the most obvious “green” characteristics versus alternatives.
New reactor technology is materially different and much less risky vs. historical, and we think it’s obvious that the world needs to come around to nuclear as one of the best alternative energy sources. We’re seeing this globally now – extensions to existing power plant lives, China committing massively to new reactors, and former opposition to nuclear turning quickly in Europe.
SPUT has up-ended the spot market for uranium, they use an “ATM” to issue units in the market when trading at a premium to net asset value, and then buy spot in the market and can continue to issue as long as there are buyers. They’ve acquired 21mm pounds already, with spot prices doubling off their lows as a result.
What’s key is that these pounds are sequestered essentially forever. There is no mechanism for these pounds to be sold back into the market.
Spot market is believed to be getting thin, and this buying pressure could really squeeze the market higher. Primary producers don’t make money until about $60/lb, so new supply is constrained. Uranium traded north of $140/lb back in 2007, would mean a tripling of price for U.UN if we saw that again. Uranium is a small part of the operating costs of a reactor, and there are no replacements, so there is a fair bit of price insensitivity. We really like the risk-reward here in a recovering uranium market. A lower risk, and direct way to play versus primary producers with operating and mine risk. |
