The uranium market is in a nuclear upswing, with prices soaring by over 30% to a staggering 12-year high of $72 per pound.1 But, the heat's just getting started.
This remarkable upturn in prices can be attributed to a carefully orchestrated series of events, starting with a dwindling uranium supply and an ever-mounting global demand for cleaner energy sources.
But, at the heart of this spectacle is Sprott Physical Uranium Trust (TSX:U.UN) (OTC:SRUUF), which is buying up supply at a record pace. In the last two years, SPUT, the world's largest and only publicly-listed physical uranium fund, has more than doubled its uranium supply to nearly 62 million pounds.
SPUTs buying spree is expected to continue indefinitely after the recent announcement of its at-the-market equity program,2 which will see the firm issue up to US$125 million in trust units to acquire even more physical uranium.
According to Sprott CEO John Ciampaglia, the current dynamics of the uranium market seem to be more influenced by supply factors than demand. He sees the current uranium bull market rolling on for several more years, especially considering that historical uranium cycles last six to eight years due to the significant capital requirements.
Adding fuel to this uranium price boom are newcomers like ANU Energy from Kazakhstan, jumping into the fray and intensifying the buying activity. With every purchase, the squeeze on supply tightens even more.
Meanwhile, as more reactors are slated to come online worldwide, including the promising small modular reactors (SMRs) in the US, the hunger for uranium grows. But here's the challenge: new uranium mines can take years to bring online, which means the supply will struggle to catch up with the demand for some time.
The influx of capital into the sector has led to expanded production and the reactivation of dormant uranium mines. The keen interest from investors in financing new uranium mines serves as a testament to their confidence in the long-term potential of the sector.
Analysts are now projecting that uranium prices could reach $80 per pound by the end of the year, with further increases anticipated over the next 10 to 20 years. These price projections are a reflection of the expectation of sustained demand for large-scale, uninterrupted, low-carbon power until a viable alternative emerges.
Canaccord analyst Katie Lachapelle expects total nuclear capacity to grow at an annual growth rate of 3.6% through 2030, marking a significant 30% increase in annual uranium demand through 2030. Of course, it could be much more as the forecast doesnt include small modular reactors, which are under construction or in the licensing stage in the US, Canada, China, Russia, South Korea and Argentina.
The Run on the Uranium Bank: Focusing on Royalties, Payments and Mine Interests
With prices on a meteoric rise, uranium ETFs and stocks have become the talk of the town, capturing attention like never before. However, fresh insights from Katusa Research reveal one standout player that could outshine them all.
For those who are unfamiliar, Katusa Research is a highly reputable investment research firm founded by the illustrious Marin Katusa.
Katusa Research just released a report on Uranium Royalty Corp. (NASDAQ:UROY) (TSX:URC), a trailblazer in the uranium sector with interests in the world's top uranium mines.
Founded by the leaders of Uranium Energy Corp. (NYSE-A:UEC), one of the most well-known uranium companies worldwide, Uranium Royalty went public in 2019 and has since secured multiple deals with major global uranium players, including Cameco Corporation (NYSE:CCJ), Orano, and Paladin Energy Limited (ASX:PDN).
In 2021, Uranium Royalty became the top-performing royalty company in the resource sector, reaching almost C$7.00 per share. However, despite its outstanding performance, UROY remains at half its 2022 peak even as uranium prices continue to rise.
The company is led by CEO Scott Melbye, a veteran with 40 years in the uranium industry with extensive experience including leadership roles at Cameco, Uranium Energy Corp., and advisory positions with global uranium companies.
Under Melbye's leadership, Uranium Royalty Corp. (NASDAQ:UROY) (TSX:URC) strategically invested over $65 million in physical uranium when prices were favorable, resulting in substantial capital gains. This strategic move provides the company with holdings that can be liquidated when needed, but its primary focus remains on aggressive investments in new royalties and streams.
Uranium Royalty's royalty model offers a unique advantage. It allows them to receive cash from mines they invest in for a lifetime, sharing in the success of profitable mines. As uranium prices rise, the sector will inevitably attract more players. However, Uranium Royalty already boasts a six-year advantage over potential competitors.
The companys strategy is straightforward: finance mine development or expansion and, in return, receive a percentage of the revenue. This approach, distinct from taking on high-interest debt or diluting equity through stock sales, positions Uranium Royalty as a valuable partner to mine founders, who retain their equity.
Uranium Royalty Corp. (NASDAQ:UROY) (TSX:URC) has smartly diversified with 18 royalty interests, mirroring the success blueprint of gold-sector giants like Franco-Nevada. Its interests include the world's top uranium mines, McArthur River, and Cigar Lake, giving the company a significant presence in the Athabasca Basin. McArthur River, the world's top uranium mine, boasts exceptionally high ore grades and licensed capacity. Cigar Lake, the second-highest grade mine globally, produced 14% of the world's uranium in 2022. Uranium Royalty's interests in these mines promise substantial cash flows as uranium prices rise.
When you consider the companys business model and the masterminds behind it, its no surprise to see large funds like Global X Uranium ETF and Sprott Uranium Miners investing in UROY.
As the world increasingly embraces nuclear power, Uranium Royalty is uniquely positioned as the only uranium royalty company globally and is poised to benefit from the booming uranium market.
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