TIDMYCA
RNS Number : 1625H
Yellow Cake PLC
02 August 2021
2 August 2021
Yellow Cake plc ("Yellow Cake" or the "Company")
QUARTERLY OPERATING UPDATE
Yellow Cake, a specialist company operating in the uranium
sector with a view to holding physical uranium for the long term,
is pleased to report its performance for the quarter ended 30 June
2021 (the "Quarter").
Highlights
-- Successful completion of an oversubscribed share placing and
retail offer in June 2021, raising gross proceeds of approximately
GBP62.5 million (US$86.9 million) (the "June Placing"). This
follows the completion of an upsized share placing and retail offer
in March 2021, raising gross proceeds of approximately GBP99.3
million (US$140 million) (the "March Placing"). The proceeds of the
March Placing and the June Placing are being applied to the
purchase of uranium and to fund related expenses and working
capital:
o Proceeds of the March Placing were partly applied to the
completion of the purchase of a net 4.0 million lb of U(3) O(8)
during the Quarter at an average price of US$28.83/lb for an
aggregate cash consideration of US$115.0 million, including 3.45
million lb of U(3) O(8) acquired through the full exercise of the
Company's option under the Kazatomprom Contract for 2021 at a price
of US$28.95/lb for an aggregate cash consideration of US$100.0
million.
o Proceeds of the June Placing are mainly being applied to
purchase a further 2.0 million lb of U(3) O(8) at a price of
US$32.23/lb for a total consideration of US$64.5 million. The
Company expects to conclude an agreement with Kazatomprom for this
purchase, pursuant to their offer of 12 June 2021. In addition,
proceeds from the June Placing are partly being applied to acquire
a further 550,000 lb of U(3) O(8) in the spot market at an average
price of US$32.35/lb for a total consideration of US$17.8 million
for delivery between July and August 2021.
-- Increase in the Company's holdings during the Quarter from
9.86 million lb of U(3) O(8) to 13.31 million lb of U(3) O(8)
(35.0% increase).
-- Increase in value of U(3) O(8) held by Yellow Cake over the
Quarter from US$302.1 million (1) as at 31 March 2021 to US$427.1
million (2) as at 30 June 2021 (41.4% increase).
-- Increase in value of U(3) O(8) held by Yellow Cake of 33% to
US$427.1 million (2) as at 30 June 2021, relative to the average
acquisition cost of US$320.0 million (US$24.05/lb).
-- Estimated net asset value on 30 June 2021 was GBP2.49 per
share (3) or US$528.8 million, comprising 13.31 million lb of U(3)
O(8) valued at a spot price of US$32.10/lb (4) , a uranium
derivative liability of US$3.4 million as at 31 March 2021, and
cash and other current assets and liabilities of US$105.1 million
as at 30 June 2021.
-- Yellow Cake's estimated net asset value on 30 July 2021 was
GBP2.50 per share based on 13.66 million lb of U(3) O(8) held on
that date (5) .
Andre Liebenberg, CEO of Yellow Cake, said:
" I am pleased to report we have begun the year with
considerable momentum, having just completed a second
oversubscribed share placing in three months, and then
significantly increasing our uranium holdings in line with our
strategy, by over a third to 13.3 million pounds, during the
period. We expect this to exceed 16 million pounds by the end of
2021. The value of the uranium we now hold is $427 million,
acquired for $320 million. The strong progress of Yellow Cake
mirrors the continued momentum in the uranium market, which once
again reaffirms the confidence we have in our model and investment
case. We believe that the recent launch of a large uranium ETF
combined with growing utility interest in the term market, will
drive new demand for physical uranium, while supply remains
severely constrained. With governments across the world committing
to new ambitious emissions targets, nuclear energy represents a
vital element of the future energy mix, where even the maximum roll
out of renewable technology may not be sufficient to meet demand.
"
Uranium M arket Developments and Outlook
Uranium Market Developments
During the quarter to 30 June 2021, the UxC U(3) O(8) Price
(spot) (6 ) traded within a narrow range of US$28.65/lb up to
US$32.10/lb, reaching US$32.30/lb in the week of 21 June.
Transactional spot volumes were modest in April reporting a total
of 2.4 million lb, but increasing to 6.6 million lb in May (7 ) .
The aggregate quantity for June was 6.4 million lb, resulting in a
total spot market volume of 15.4 million lb for the quarter, above
the ten year average for the June quarter of 11 million lb. (8
)
UxC released its 2020 U(3) O(8) Production Review (9 ) ,
reporting 2020 global U(3) O(8) production of 125 million lb U(3)
O(8) in aggregate, a significant decline from the 2019 figure of
141 million lb U(3) O(8) (down 17 million lb U(3) O(8) , 12%
year-on-year), principally driven by reductions in operations due
to the COVID-19 pandemic. Kazakhstan experienced the largest annual
decline in total output (down 8 million lb U(3) O(8) , 15%
year-on-year) closely followed by Canada (down 8 million lb U(3)
O(8) , 44% year-on-year). Australian production declined by less
than 1 million lb U(3) O(8) compared to 2019, with 2020 production
reported at 16 million lb U(3) O(8) while uranium output in Namibia
and Russia remained relatively stable. Uranium production in the
Republic of Niger rose from its 2019 level of 7.8 million lb U(3)
O(8) , reaching 9.5 million lb U(3) O(8) in 2020, a 23%
year-on-year increase.
Cameco Corporation announced the planned restart of the Cigar
Lake Uranium Mine (9 April 2021) (10 ) which had initially been
placed on care and maintenance effective 13 April 2020, in response
to the COVID-19 pandemic. The company reported total 2020 uranium
production of 5.0 million lb U(3) O(8) from the facility. Cameco
stated that "the timing of production restart and the production
rate at Cigar Lake will be dependent on how quickly we are able to
remobilize the workforce."
In its 2021 First Quarter Report MD&A (11 ) , Cameco advised
that planned 2021 market purchases of uranium to meet existing
delivery commitments and maintain working inventory were being
increased from the previous estimate of between 8 million and 10
million lb up to between 11 million and 13 million lb. As of the
end of March, the company had purchased 1.5 million lb U(3) O(8)
for the year. In its 2021 First Quarter results presentation,
Cameco reported that subsequent to the implementation of the
corporation's term contracting initiative, close to 60 million lb
of future delivery commitments have been added to its contract
portfolio with virtually all of that volume being captured in
"off-market" negotiations. Underscoring the issue of uranium supply
uncertainty, Cameco noted that the results of the UxC Q1 2021
Uranium Market Outlook showed a 2021-2035 cumulative global uranium
supply deficit of 300 million lb. Cameco management also observed
that "Due to persistently low prices, we've seen planned supply
curtailments, lack of investment, the end of reserve life for some
mines and shrinking secondary supplies, all of which have been
amplified more recently by unplanned supply disruptions due to the
COVID-19 pandemic."
First quarter 2021 (12 ) operating results for Kazakhstan showed
total output fell by 6% compared to the previous year (12.8 million
lb U(3) O(8) versus 13.6 million lb U(3) O(8) in 2020). COVID-19
driven reductions in well-field installation/operations resulted in
2020 aggregate uranium output in Kazakhstan declining to 50.6
million lb from the 2019 level of 59.3 million lb. Current 2021
guidance foresees total production in the range of 58.5 - 59.3
million lb U(3) O(8) with the caveat that "the duration and full
impact of the COVID-19 pandemic is not yet known. Annual production
volumes could therefore vary from our expectations."
In its announcement of 2 July 2021 (13 ) , Kazatomprom advised
that uranium production during 2023 would remain at the planned
2022 level of 22,500-23,000 tU (58.5-59.8 million lb) which is
approximately 20% below the expected production rate under the
Subsoil Use Contracts (27,500-28,00 tU; 71.5-72.8 million lb). Full
implementation of the production restraint plan would remove 5000
tU (13.0 million lb) from the previously anticipated global primary
supply in 2023. Kazatomprom's CEO, Galymzhan Pirmatov, stated that,
"the Company does not expect to return to full Subsoil Use Contract
production levels until a sustained market recovery is evident,
supply and demand conditions signal a need for more uranium, and
the Company's pipeline of mid-to-long-term contract negotiations
implies that there is a low risk of produced volumes further
delaying the recovery."
In mid-April (14 ) , China approved the construction of five
nuclear power plants including four large-scale reactors and a
demonstration small modular reactor (SMR). The decision follows the
most recent Five-Year Plan (2021-2025) calling for 70 GWe of
operating nuclear capacity by 2025. China Nuclear Energy
Association (CNEA) reports that China expects to have installed or
under construction a total of 200 GWe by 2035.
S&P Global reported 23 April 2021 (15 ) that Japan's
Ministry of Economy, Trade and Industry (METI) stated that the
national government's most recent greenhouse gas emissions
reduction target (46% CO2 emissions reduction), will necessitate
expedited restarts of idled nuclear reactors. METI is reviewing its
current strategic energy plan which calls for nuclear to provide
20-22% of Japan's electricity generation by 2030-2031.
The US Department of Energy, Energy Information Administration
released its "2020 Uranium Marketing Annual Report," (16 ) which
documents nuclear fuel activities by US nuclear utilities as well
as providing data for the 2021-2030 time period. US nuclear
utilities took delivery of 48.9 million lb U(3) O(8) (equivalent)
during the year at a weighted-average price of US$33.27/lb. While
the aggregate volume closely tracked the total 2019 purchases of
48.3 million lb, the weighted-average price paid declined from
US$35.59/lb. By the end of 2020, uranium inventory owned by US
utilities declined to 107.2 million lb. Those inventories had been
as high as 128 million lb as recently as 2016. The USDOE/EIA
reported that maximum anticipated uranium market requirements
totalled 381.2 million lb (2021-2030) while almost 50% (187.5
million lb) were yet to be filled by the utilities. As a percentage
of maximum market requirements, unfilled needs are 28% in 2023,
reaching 45% by 2025 and aggregate over 88% in 2030.
The EURATOM Supply Agency (ESA) released its "Annual Report -
2020" (17 ) which, similar to the USDOE/EIA annual uranium
marketing report documents, nuclear fuel activities by the
commercial nuclear power industry within the European Union and the
United Kingdom. Gross uranium requirements totalled 41.1 million lb
in 2020 with the utilities purchasing 32.7 million lb (97% under
multi-year/term uranium agreements). The five principal uranium
suppliers included Niger, Russia, Kazakhstan, Canada and Australia
which in the aggregate provided 91.3% of the total uranium acquired
during the year. Uranium inventories fell slightly from the 2019
level to 110.2 million lb, down considerably from the 2016
inventory level totalled 133.9 million lb. Forward uranium coverage
ranges from 116% in 2024 declining to 57% by 2029.
On 28 April 2021 (18 ) , Uranium Participation Corporation (UPC)
announced an agreement with Sprott Asset Management to "modernize
business structure and pursue US listing." The proposed plan of
arrangement would transform Uranium Participation Corporation into
a closed end investment trust managed by Sprott Asset Management
(SAM), with UPC becoming a subsidiary of the Sprott Physical
Uranium Trust ("SPUT"). The existing Management Services Agreement
with Denison Mines Inc. will be terminated. Sprott has retained the
services of WMC Energy to assist with "all matters involving
physical uranium."
Subsequent to the announced restructuring, on 26 May 2021 (19 )
, UPC announced the completion of a C$80.5 million (US$ 66.0
million) bought deal financing the net proceeds of which will be
used "to fund future purchases of U(3) O(8) and/or UF(6) and for
general corporate purposes." The proposed plan of arrangement
received resounding support from UPC shareholders in a 7 July 2021
vote with 99.9% of the votes cast supported the plan. Sprott
announced on 19 July 2021 that the proposed transaction has been
completed and SPUT began trading on the Toronto Stock Exchange.
Uranium Market Outlook
Activity in the term market has incrementally increased but the
majority of the transactions involve deliveries in the mid-term
market time horizon rather than the more traditional long-term
uranium market.
Historically, the summer months in the northern hemisphere have
seen reduced market activity due to the vacation period. Spot
prices experienced a minor uplift in early July reaching
US$32.70/lb but have since declined slightly.
In the Company's view, spot market transactions in the
US$31.00-33.00/lb. trading range would not be unexpected. However,
the successful implementation of the SPUT could provide an upward
market price stimulus if the newly-created entity pursues an
aggressive spot market purchase programme.
June Placing and Use of Proceeds
On 21 June 2021, the Company issued 25 million new ordinary
shares at a price of GBP2.50 per share, raising net proceeds of
GBP60.6 million (US$ equivalent: 84.0 million net of costs of
US$2.9 million).
The Company intends to apply the proceeds to the following
transactions:
-- In July 2021, the Company concluded agreements to purchase a
further 550,000 lb of U(3) O(8) in the spot market at an average
price of US$32.35/lb for a total consideration of US$17.8 million.
Pursuant to these agreements, the Company has taken delivery of
350,000 lb of U(3) O(8) and will take delivery of 200,000 lb of
U(3) O(8) in August 2021.
-- The Company expects to conclude an agreement with Kazatomprom
to purchase a further 2.0 million lb of U(3) O(8) at a price of
US$32.23/lb for a total consideration of US$64.5 million for
delivery between October and December 2021, pursuant to
Kazatomprom's offer of 12 June 2021.
If all these transactions are completed, the Company's total
holdings will increase to 15.86 million lb of U(3) O(8) .
Net Asset Value
Yellow Cake's estimated net asset value on 30 June 2021 was
GBP2.49 per share or US$528.8 million, consisting of 13.31 million
lb of U(3) O(8) valued at a spot price of US$32.10/ lb(20) , a
uranium derivative liability of US$3.4 million (21) , cash and
other current assets and liabilities of US$105.1 million (22) .
Yellow Cake Estimated Net Asset Value as at 30 June 2021
---------------------------------------------------------------------------------
Units
Investment in Uranium
Uranium oxide in concentrates
("U(3) O(8) ") (A) lb 13,305,601
U(3) O(8) fair value per pound(20) (B) US$/lb 32.10
(A) x (B)
U(3) O(8) fair value = (C) US$ m 427.1
------------
Uranium derivative liability(21) (D) US$ m (3.4)
Cash and other net current
assets/(liabilities)(22) (E) US$ m 105.1
(C) + (D)
Net asset value in US$ m + (E) = (F) US$ m 528.8
------------
Exchange Rate(22) (G) USD/GBP 1.3819
(F) / (G)
Net asset value in GBP m = (H) GBP m 382.7
Number of shares in issue
less shares held in treasury
(24) (I) 153,584,345
Net asset value per share (H) / (I) GBP/share 2.49
Yellow Cake's estimated net asset value on 30 July 2021 was
US$532.8 million, consisting of 13,655,601 lb of U(3) O(8) valued
at the Broker Average Price of US$32.40/ lb published by UxC LLC on
30 July 2021, a uranium derivative liability of US$3.4 million (21)
, cash and other current assets and liabilities of US$105.1 million
(22) less a cash consideration of US$11.3 million paid for the
purchase of 350,000 lb of U(3) O(8) in July 2021.
Yellow Cake's estimated net asset value per share on 30 July
2021 was GBP2.50 per share (25) . At market close on that date, the
Company's share price was GBP2.81 per share, which represents a 13%
premium to the estimated net asset value per share.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) no 596/2014 which is part of UK law
by virtue of the European Union (Withdrawal) Act 2018.
ENQUIRIES:
Yellow Cake plc
Andre Liebenberg, CEO Carole Whittall, CFO
Tel: +44 (0) 153 488 5200
Nominated Adviser and Joint Broker: Canaccord Genuity Limited
Henry Fitzgerald-O'Connor James Asensio
Georgina McCooke
Tel: +44 (0) 207 523 8000
Joint Broker: Berenberg
Matthew Armitt Jennifer Wyllie
Varun Talwar Detlir Elezi
Tel: +44 (0) 203 207 7800
Financial Adviser: Bacchus Capital Advisers
Peter Bacchus Richard Allan
Tel: +44 (0) 203 848 1640
Investor Relations: Powerscourt
Peter Ogden Linda Gu
Tel: +44 (0) 7793 858 211
ABOUT YELLOW CAKE
Yellow Cake is a London-quoted company, headquartered in Jersey,
which offers exposure to the uranium spot price. This is achieved
through its strategy of buying and holding physical triuranium
octoxide ("U(3) O(8) "). It may also seek to add value through the
acquisition of uranium royalties and streams or other uranium
related activities. Yellow Cake seeks to generate returns for
shareholders through the appreciation of the value of its holding
of U(3) O(8) and its other uranium related activities in a rising
uranium price environment. The business is differentiated from its
peers by its ten-year Framework Agreement for the supply of U(3)
O(8) with Kazatomprom, the world's largest uranium producer. Yellow
Cake currently holds 13.66 million pounds of U(3) O(8) , all of
which is held in storage in Canada and France.
FORWARD LOOKING STATEMENTS
Certain statements contained herein are forward looking
statements and are based on current expectations, estimates and
projections about the potential returns of the Company and the
industry and markets in which the Company will operate, the
Directors' beliefs and assumptions made by the Directors. Words
such as "expects", "anticipates", "should", "intends", "plans",
"believes", "seeks", "estimates", "projects", "pipeline", "aims",
"may", "targets", "would", "could" and variations of such words and
similar expressions are intended to identify such forward looking
statements and expectations. These statements are not guarantees of
future performance or the ability to identify and consummate
investments and involve certain risks, uncertainties and
assumptions that are difficult to predict, qualify or quantify.
Therefore, actual outcomes and results may differ materially from
what is expressed in such forward looking statements or
expectations. Among the factors that could cause actual results to
differ materially are: uranium price volatility, difficulty in
sourcing opportunities to buy or sell U(3) O(8) , foreign exchange
rates, changes in political and economic conditions, competition
from other energy sources, nuclear accident, loss of key personnel
or termination of the services agreement with 308 Services Limited,
changes in the legal or regulatory environment, insolvency of
counterparties to the Company's material contracts or breach of
such material contracts by such counterparties. These
forward-looking statements speak only as at the date of this
announcement. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward
looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements are based
unless required to do so by applicable law or the AIM Rules.
(1) Based on the month end spot price of US$30.65/ lb published
by UxC LLC on 29 March 2021 and 9.86 lb U O held by the company as
at 31 March 2021 .
(2) Based on the month end spot price of US$32.10/ lb published
by UxC LLC on 28 June 2021 and 13,305,601 lb U O held by the
company as at 30 June 2021 .
( 3 ) Estimated net asset value per share on 30 June 2021 is
calculated assuming 157 ,740,730 ordinary shares in issue less
4,156,385 shares held in treasury, the Bank of England's daily USD/
GBP exchange rate of 1.3819 on 30 June 2021 and the month-end spot
price published by UxC LLC on 28 June 2021.
( 4 ) Month-end spot price published by UxC LLC on 28 June 2021.
(5) Yellow Cake's estimated net asset value on 30 July 2021 was
US$532.8 million, consisting of 13,655,601 lb of U(3) O(8) valued
at the Broker Average Price of US$32.40/ lb published by UxC LLC on
30 July 2021, a derivative liability of US$3.4 million as at 31
March 2021, and cash and other current assets and liabilities of
US$105.1 million as at 30 June 2021, less a cash consideration of
US$11.3 million paid for the purchase of 350,000 lb of U(3) O(8) in
July 2021 . The estimated net asset value per share as at 30 July
2021 is calculated assuming 157 ,740,730 ordinary shares in issue
less 4, 069,498 shares held in treasury and a USD/ GBP exchange
rate of 1.3891.
(6) Weekly price published by UxC LLC.
(7) UxC Weekly, 26 July 2021
(8) UxC Weekly, 26 July 2021
(9) UxC Weekly "2020 U(3) O(8) Production Review, 26 April 2021
(10) Cameco Press Release, "Cameco Restarting Cigar Lake Mine in
April", 9 April 2021 ( www.cameco.com )
(11) Cameco Quarterly Report- 2021 -Q1 (www.cameco.com)
(12) Kazatomprom Press Release, "Kazatomprom Announces 1Q21
Operations and Trading Update.", 4 May 2021 (kazatomprom.com).
(13) Kazatomprom Press Release, "Kazatomprom Announces 2023
Production Plans, Ortalyk Transaction Update.", 2 July 2021
(kazatomprom.com).
( 14 ) Reuters article, "China Gives Green Light to Nuclear
Units to Cut Carbon, Sources Say.", 15 April 2021.
(reuters.com).
( 15 ) S&P Global-Platt's "Japan's New Climate Pledge to
Boost Renewable, Nuclear Share in 2030 Energy Mix.", 23 April 2021
(spglobal.com).
( 16 ) US Energy Information Administration 2020 Uranium Marketing Annual Report (May 2021).
( 17 ) Euratom Supply Agency Annual Report 2020.
(18) Uranium Participation Corporation Press Release, "Uranium
Participation Corporation Announces Agreement with Sprott Asset
Management to Modernize Business Structure and Pursue U.S.
Listing." 28 April 2021 (uraniumparticipation.com.
(19) Uranium Participation Corporation Press Release. "Uranium
Participation Corporation Completes $80.5 Million Bought Deal
Financing." 26 May 2021 (uraniumparticipation.com).
( 20 ) Month-end spot price published by UxC LLC on 28 June 2021.
( 21 ) Estimated current value, as at 31 March 2021, of the
Kazatomprom repurchase option under the framework agreement, which
is a potential liability of US$6.5 mm and may only be exercised if
the spot U3O8 price exceeds US$37.50/ lb for a period of 14 days
during the period between 4 July 2021 and 30 June 2027.
( 22 ) Cash and cash equivalents and other net current assets
and liabilities as at 30 June 2021.
(23) Bank of England's daily USD/ GBP exchange rate of 1.3819 on 30 June 2021.
( 24 ) Net asset value per share on 30 June 2021 is calculated
assuming 157,740,730 ordinary shares in issue less 4,156,385 shares
held in treasury.
(25) Net asset value per share on 30 July 2021 is calculated
based on a USD/ GBP exchange rate of 1.3891 assuming 157,740,730
ordinary shares in issue less 4,069,498 shares held in
treasury.
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