Last week, the Sprott Physical Uranium Trust (SPUT) started buying up physical uranium, taking it out of market circulation.

Sprott is selling new shares and use the proceeds to buy physical uranium, scooping up about 900,000 pounds in all.

A gigawatt-class reactor uses around 450,000 pounds per year, so this is no small amount, says 808s Online, a blog run by a US nuclear professional.

The news sparked a 10% gain in the uranium spot price to  one-year highs.

“Along with other recent raises, Sprott (and its direct predecessor, the Uranium Participation Corporation) has in 2021 bought up more than 1% of the annual mined supply of the commodity, taking it out of circulation and into long-term storage,” he says.

“It would be the uranium story of 2021 even if there was no more story to tell, but there are still four months left in the year and a lot of rope left on that initial ATM [at the market] prospectus.”

Let’s be clear – this uranium will not be on-sold for a quick profit.

Instead, pounds bought from the market by this vehicle will be sequestered for the long term and, crucially, each pound bought by SPUT will be one less pound available for end-users during the next cycle.

Sprott isn’t the only one taking physical uranium out of circulation.

Two other companies have already declared their intent to build ATM offering programs and “I doubt they will be the last to do so”, 808s says.

“Others will see opportunity in the arbitrage, front running Sprott or seeking other vehicles for a similar play (and there are other vehicles),” he says.

Uranium bulls are convinced continued tightness in the market and the emergence of these new yellowcake buying public trusts will see prices for the nuclear fuel finally take off.

The folk at Morgan Stanley are bullish as well; so bullish it ranks alongside aluminium and met coal as its most attractive asset class.

“Further price upside near term as commercial inventories are drawn down, investment demand continues, and mine supply remains below 2019 level,” it writes.

“Longer term, demand growth continues to push price higher.”


What happens next?

Namibia focussed Bannerman Energy (ASX:BMN) is one advanced project developer with a close eye on uranium prices.

A recently released PFS on the Etango-8 project envisages a 3.5 million pounds per annum operation with an initial life of 15 years.

The project’s $US274m development cost would take 3.8 years to pay back at a projected uranium price of $US65/lb.

SPUT will act as a spark for a uranium market stuffed with dry tinder – and at this rate SPUT looks more like a can of kerosene than a box of matches, Bannerman chief exec Brandon Munro says.

“Supply and demand fundamentals are the big logs that will burn into the longer term: demand growth, mine depletion and underinvestment in new supply,” he told Stockhead.

“The uranium sector needs to rebase at prices that make current production sustainable and, in time, at the marginal incentive price required to meet demand growth and depletion of existing supply.

“At the very least, SPUT will accelerate this rebasing.”