SPUT's (Slight) New Approach

The past few weeks have been nothing if not exciting when it comes to uranium.

Uranium has experienced price fluctuations from $50.80/lb in mid-September to $39.00/lb at the beginning of October.

Various factors drive these fluctuations:

  • The Sprott Physical Uranium Trust
  • The change in perception of nuclear power in Europe
  • Excitement about the future of small modular reactors (SMRs)

Today we discuss these market influencing factors by chatting with Brandon Munro. Industry expert market commentator, and CEO and MD of Bannerman Energy.

The Energy Show: SPUT's (Slight) New Approach

Sprott Physical Uranium Trust

The Sprott Physical Uranium Trust is currently the world’s largest physical uranium fund.

SPUT raises cash through the issue of new units and invests those funds entirely into U3O8, or yellowcake, which is then stored in Canada, the US or France.

As we've seen, SPUT can have a tremendous effect on the uranium market, although it appears that a recent change in approach may lead to more consistent purchases.

SPUT launched an at-the-market raising facility in August and, for the first several weeks, would deploy most of the funds raised on a given day directly into purchasing uranium from the spot market.  

This resulted in quite lumpy acquisitions – as much as 1.45 million pounds in a single day – but also meant a pull back on the days that SPUT’s unit price did not offer a sufficient premium to tap the ATM.

SPUT appears to have evolved somewhat, by maintaining a larger cash balance of circa $50M and smoothing its purchases.  In recent weeks SPUT has bought uranium at a median of 300,000lbs to 400,00lbs per day.

This new approach leads to a more consistent foot on the accelerator. Munro supports this new “slow and steady” tactic describing it as a “much better model” that will serve Sprott and the market better.

Munro insists that the primary mission of SPUT is still to grow their uranium trust as large as possible in the coming years. The fund is several months away from being listed in the US.

Even so, Munro believes that should SPUT continue their consistent trend, they can enter the US market as a much larger fund than what they are now.

We asked Munro what his opinion is regarding the claims that SPUT is intentionally creating volatility in the uranium market to profit. He responded by saying,

“I don’t think they need to create volatility through SPUT. It’ll happen anyway, as we’ve just seen. The idea that it’s intentional, I just don’t see any evidence of that, and I don’t see why they would take the risk. The volatility is there anyway.

Munro believes that the greatest advantage of a fund like SPUT is the part it plays in the market.

“SPUT is bridging a gap between the unsustainable and the beginning of what’s sustainable, and then the market will determine what lies beyond. Is it $70 that’s the sustainable incentive price, is it $80, is it $100, is it something above that? SPUT won’t determine that number, primary supply and demand factors will.”

As a bridge, SPUT will force price discovery to enable the role of market fundamentals such as growing demand and supply scarcity.

With the effect of SPUT on the stabilization of the uranium market, the next impacting factor is the shift in perception of nuclear power we are seeing in Europe.

Europe warming up to nuclear

Munro believes that we are witnessing in Europe a fundamental turnaround in its perception of nuclear power. The moving away from past fears to an embracing optimism of its applications to decarbonisation.

However, Munro does not believe that this means a sudden surge in the number of large nuclear power plants.

Instead, Munro expects that the EU taxonomy will include nuclear as a green finance energy source. Green finance labelling enables development projects to access sustainable finance, such as green bonds, on more competitive terms.

The knock on effects within Europe may extend to countries such as Belgium and Spain reconsidering their current nuclear phase out policies, namely the phasing out of all nuclear power plants by 2025 in Belgium and Spain reducing its nuclear power generation to zero by 2035.

Munro believes that the importance of all this movement in the nuclear power generation sector rests in its timing with the 26th UN Climate Change Conference, also known as COP26 occurring from 31 Oct to 12 Nov 2021.

“..., it’s all happening in the context of an energy crisis. Politicians and bureaucrats throughout Europe are realizing that it’s the comments and the statements that they make now that they’ll be hung for if they have a really bad winter,”

Munro believes that nuclear energy has always been held back by negative public perception that has been manipulated by anti-nuclear groups for their own ends.

But the impending energy crisis looming over and unfolding in various parts of the world may be the watershed moment. The fear of an energy crisis this coming winter may be enough to shift public concern from misgivings about nuclear to the terror of electricity and heating shortages.

“In countries such as Germany, Austria, Belgium, Spain, Ireland, and Italy, the alternative fear, which was climate change,.  just wasn’t acute enough over the last few years - and they hadn’t yet had their day of reckoning from the shortcomings of renewables-only policy.”

Munro’s statement emphasizes that the public’s previous fear of climate change is small in comparison with the immediate consequences of an electrical blackout during a cold snap.

With the demands of decarbonisation extending beyond electrification to district heating, remote applications, industrial heating and hard-to-abate industry, alternative nuclear technologies such as small modular reactors (SMRs) will be a key growth sector.

The nuclear renaissance and SMRs

Munro firmly believes that we are on the cusp of a huge opportunity for small modular reactors.

One of the greatest benefits of SMRs is their expected ease of factory construction and resultant speed to deployment, relative to conventional reactors that take between 5-8 years from construction start.  

Munro expects a surge in demand for nuclear fuel once SMR orders start rolling in, around the end of the decade.  For some SMR technologies, this demand will be exacerbated by the long fuelling cycles and large first fills.  

Think of a first fill as throwing gas in your brand-new car and the timespan until you need to refill the tank. In some SMRs, this first fill can last up to 12 years.

Coupling the first fill lasting time with the amount of potential SMRs that can be built, the large number of new SMR use cases across multiple technologies will most likely lead to a new source of continuous and long-term demand for uranium.

Wrapping it up

SPUT, changing perceptions in Europe and SMRs are all poised to influence the uranium market.

At the end of the day, the uranium sector is an ever changing conglomerate of possibilities and risks.

Next week we will have the honour of once again chatting with Brandon Munro, picking his brain and gaining new insights into all things uranium.

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