Uranium "Cornering" Accelerates: Sprott Massively Upsizes Physical Buying Program To $3.5 Billion Amid Relentless Demand

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by Tyler Durden
Tuesday, Nov 23, 2021 - 02:51 PM

While most markets - and certainly tech stocks - are having another miserable day, the same can not be said for uranium stocks which have rebounded strongly after recent losses.

The driver behind today's surge is the second consecutive upsizing of the Sprott Physical Uranium Trust, which as discussed here two months ago, had sharply repriced the entire uranium sector, and which after amending its at-the-market program so it can raise up to $1.3 billion (from just $300 million previously), has again upsized it, this time to $3.5 billion in what appears to be ravenous demand for physical uranium - according to the prospectus, SPUT now holds approximately 40 million pounds of physical uranium - in a move that increasingly appears like an attempt to corner the market. 

As explained here, the striking recent increase in uranium prices started after the Sprott Physical Uranium Trust began buying uranium in the spot market when it launched its previous at-the-market equity program to raise $300 million on Aug 17.

Barely three weeks later, the Trust had already issued 24.7 million units for gross proceeds of approximately US$244.7 million. With demand rising, and supply about to run out, and also seeing the profound impact this modest ATM buying has had on the sector, Sprott decided to upsize the buying program dramatically and in September upsized the trust so it can issue up to $1.3 billion of units of the Trust in Canada, more than 4x more than the original proposed amount. As we said tat the time, "once there is sufficient investor demand to fill the $1.3 billion offering, we expect another upsizing, and then another."

That's exactly what happened, because fast forwarding to today we read that the Trust has "filed and obtained a receipt from securities regulatory authorities" for an amended and restated shelf prospectus allowing the Trust "to issue up to US$3.5 billion of units of the Trust (“Units”) in Canada during the 25-month period that commenced on August 10, 2021."

The Trust has also updated its at-the-market equity program (the “ATM Program”) to issue up to an additional US$1.20 billion of Units pursuant to a prospectus supplement dated November 22, 2021 (the “Prospectus Supplement”, and together with the Second Amended and Restated Shelf Prospectus, the “Offering Documents”) to the Second Amended and Restated Shelf Prospectus. Copies of the Offering Documents are available at Distributions will no longer be made under previous ATM Program prospectus supplements, including the prospectus supplement dated September 13, 2021.

“We continue to experience strong investor demand for units of the Sprott Physical Uranium Trust on growing recognition that nuclear power generates reliable baseload energy while helping to meet de-carbonization goals,” said John Ciampaglia, CEO of Sprott Asset Management.

“Since launching the At-the Market offering, SPUT has issued 87 million Units for gross proceeds of approximately US$987 million, which has resulted in the purchase of 21.5 million pounds of U3O8. SPUT now holds approximately 40 million pounds of physical uranium on behalf of our clients.”

Translation: similar to the Hunts cornering silver in 1980 but only using their own, in-house capital, Sprott is doing the same in uranium right now, only instead of using the firm's limited funds, Sprott has opened up the cornering attempt to anyone and everyone who wishes to participate in this perfectly legal scheme, thus effectively giving the fund unlimited buying power if enough people decide to participate.

Finally, for those who missed the original uranium thesis, here are the highlights (full discussion here).

Sprott Physical Uranium Trust commonly known as SPUT (SRUUF– Canada), is the entity that has upended the uranium market. Since launching its ATM 13 days ago, it has acquired 2.7 million pounds of uranium. This is an average daily rate in excess of 200,000 pounds or roughly a third of global production on an annual basis. If GBTC is the roadmap to follow, as the price of uranium begins to appreciate, the inflows into the trust should accelerate. Interestingly, there are plenty of other entities also purchasing physical uranium, uranium that utilities were counting on for their future needs. The squeeze is on.

As expected, the utilities are blissfully unaware. Surprised?? I’m not. Utilities are quasi-governmental agencies, managed by the types of fukwits who’d work at your local DMV, except they enjoy stock options. The fact that they’ve ignored the coming squeeze shouldn’t be surprising. Inevitably, they’ll demand rate increases to buy back this uranium–it’s not their money anyway. This is your bid at some point in the future.

Commodities are determined by supply and demand. Uranium is a small market at roughly $6.3 billion in annual consumption (180 million pounds at $35/lb). SPUT has raised approximately $85 million in the 13 days since the ATM went live. It’s hoovering up supply and is already struggling to procure pounds, as shown by their increasing cash balance—cash that they’re legally forced to spend. Something is going to give here, and I suspect it’s the price of uranium.

Since then, the price of uranium has indeed given, and the sector continues to surge higher in what may be one of the best risk-return trades available today.