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Yellow Cake Heads for London Listing to Bet on Uranium ‘Mispricing’

A new company planning to make a big bet on the price of nuclear fuel uranium has announced plans to float on the London Stock Exchange. Named after the raw form of the commodity, Yellow Cake is seeking to raise between $150m and $200m from investors, according to people familiar with its plans, which it will use to buy 8.1m pounds of the radioactive material.

The company has already struck a deal with Kazatomprom, the world’s largest uranium producer which has also been studying a listing, to buy up to $170m of the metal at a 7.7 per cent discount to the current spot price. It also has an option to purchase a further $100m of uranium each year from the Kazakh miner for the next nine years. Uranium is one of the few commodities that failed to benefit from a broad-based rally in commodity prices even though several big producers, including Kazatomprom and Canada-based Cameco have announced plans to lower output in an attempt to bring the market back into balance.

Uranium has been in a state of near collapse since 2011 when the Fukushima disaster upended demand projections for the fuel as Japan and other countries such as Germany closed operations or cancelled new projects. Since then, the price has collapsed from more than $70 a pound to $22.75. By purchasing a quarter of Kazatomprom’s annual output, the equivalent of 5 per cent of global marketed production in 2016, Yellow Cake is hoping to tighten the market, which it claims is "structurally mispriced”. It also believes nuclear power will play a key part in the green energy revolution, which in turn will boost demand for the metal.

According to the World Nuclear Association, there are 57 nuclear reactors under construction and a further 154 planned. "Due to an exceptional confluence of events, uranium is one of the few commodities yet to recover from the recent commodities bear market. We believe that uranium is fundamentally and structurally mispriced in the current market, and on a historical basis,” said Andre Liebenberg, Yellow Cake chief executive.

"Yellow Cake will offer exposure to investors looking to capitalise on the expected resurgence in the uranium price, while avoiding direct exposure to exploration, development, mining and processing risk,” he added. Analysts say that the uranium market is likely to be in deficit this year but that global inventories remain high and that could cap any price appreciation. "We’ve had excess supply since 2009,” said Edward Sterck, BMO Securities analyst, adding that total inventories amounted to a little over three years’ demand. "The reality is that it is pretty difficult to gauge what impact Yellow Cake will have on the uranium price. But it won’t be negative,” Mr Sterck said.

Yellow Cake will be listed on the junior Aim market in London, with admission set for early next month. Its chairman is Lord St John of Bletso and one its non-executive directors is Alexander Downer, Australia’s high commissioner to the UK. The company was founded by Peter Bacchus, a former natural resources investment banker. His management company 308 Services will be the buying agent for Yellow Cake. It will also manage and store its uranium and, in return, will receive a fee. Numis Securities and Berenberg are joint bookrunners to the flotation.

(Financial Times 06/06/2018)

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