Yellow Cake predicts long-term rise in uranium prices


  • Physical uranium trader tagged with nickname of the radioactive metal

  • Owns around 9.62mln pounds of uranium

  • Contract to buy up to an additional US$100mln of U3O8 each year for the next nine years from Kazatomprom

What Yellow Cake does:

Yellow Cake PLC (LON:YCA) is a physical uranium trader with a moniker that is a nickname for the radioactive metal, U3O8.

The group floated on AIM in July 2018 after raising US$200mln (GBP151mln) from the sale of 76mln new shares at 200p apiece in an initial public offering.

The firm is backed by Bacchus Capital, the corporate finance boutique set up in 2016 by a group of senior bankers led by Peter Bacchus.

The cash raised was used to buy 8.1mln pounds of uranium from Kazakstan’s state-owned firm, NAC Kazatomprom JSC, one of the world’s largest uranium producers. Yellow Cake paid US$21.01/lb (per pound), a discount of about 8% to the then spot price.

A uranium pile of that size, which cost around US$170mln, was equal to one quarter of Kazatomprom’s annual production and approximately 5% of 2016 global marketed production.

In addition, the Kazatomprom contract allows Yellow Cake to buy up to an additional US$100mln of U3O8 each year for the next nine years.

Inflexion points

  • In July, the company reported a net asset value (NAV) of 218p per share as of 30 June 2019, derived primarily from its uranium holdings which were worth US$24.70 per pound at prevailing spot prices, but acquired at an average price of US$21.8 per pound. The total portfolio valuation rang in at US$243.7mln
  • For the period from January 2018 to March 2019, the company booked a profit of US$29.7mln
  • In a note on 8 August, analysts at Berenberg pegged the firm with a ‘buy’ recommendation and target price of 280p, a 41% premium to its share price of 199p

What the broker says

Berenberg’s analysts said the current discount of Yellow Cake’s stock in relation to their 280p target price represented “an attractive buying opportunity”, adding that the firm could work to close the discount through a share buyback.

“This is not yet planned or announced, but feels logical and is within the company’s mandate of optimising its uranium/share ratio”, the broker added.

CEO Interview – Andre Liebenberg

Blue Sky

Following a decision by US President Donald Trump not to impose any new trade restrictions on uranium imports into the US, Yellow Cake’s chief executive Andre Liebenberg said the uranium market was likely to return to “more normal levels of activity” following the uncertainty.

“We therefore expect a more measured return to market activity in the near term and remain highly confident in the long-term price outlook for uranium, and therefore in the Yellow Cake investment model”, he added.

In the group’s final results in June, Liebenberg said they believed that the market was also “structurally mis-priced” and that prices would “continue to rise in the long-term”.

“Despite some continued volatility, market activity has justified our investment proposition… We continue to offer investors exposure to the uranium spot price without the operating risks associated with exploration, development and mining, and the market dynamics underpinning our thesis remain robust”, the CEO said.

With a share price of 199p, Yellow Cake has a market cap of around GBP174.7mln.

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