TIDMYCA
RNS Number : 3960R
Yellow Cake PLC
29 October 2019
29 October 2019
Yellow Cake plc ("Yellow Cake" or the "Company")
QUARTERLY OPERATING UPDATE
Yellow Cake, a specialist company operating in the uranium
sector with a view to holding physical uranium for the long term,
is pleased to report its performance for the quarter ended 30
September 2019.
Highlights
-- Estimated net asset value at 30 September 2019 of GBP2.32 per
share ([1]) or US$252.2 million, comprising 9.62 million lbs of
physical uranium (U(3) O(8) ) valued at a spot price of US$25.65/
lb ([2]) and other net assets.
-- Value of U(3) O(8) held by Yellow Cake increased over the
quarter from US$237.5 million ([3]) to US$246.7 million ([4]) .
-- Total U(3) O(8) holdings of 9.62 million lbs acquired at an average cost of US$21.68/ lb.
-- Total increase in value of U(3) O(8) held by Yellow Cake of
18.3% to US$246.7 million ([4]) relative to the aggregate
acquisition cost of US$208.5 million.
-- The Section 232 investigation into uranium imports into the
US concluded during the quarter, with a decision by the US
President not to implement new trade restrictions on imports. As
part of this, a Nuclear Fuels Working Group was established to
review the nuclear fuel supply chain, with their recommendations
expected in mid-November 2019.
-- The Company notes that Yellow Cake shares are currently
trading at a significant discount to net asset value. Should this
significant discount persist, it is the intention of the Yellow
Cake board to consider implementing a share buyback program as a
means of cost effectively acquiring additional exposure to
uranium.
Andre Liebenberg, CEO of Yellow Cake, said:
"Trading activity in the uranium market remains subdued as we
await the findings of the US Nuclear Fuels Working Group. Though
this uncertainty continues to weigh on the uranium price in the
near term, we are positive about the medium and long term outlook
for uranium.
We expect activity to increase in due course as buyers re-enter
the market and we see a return to more normal levels of term
contracting, in particular from US utilities who have been holding
off making purchase decisions. We believe the longer term supply
characteristics of uranium make the commodity a compelling
investment opportunity, further emphasised by the recent decision
by the world's largest producer Kazatomprom to extend production
caps. This will remove nearly 15 million pounds of uranium from the
market in 2021, a material 10% of estimated future global supply.
We remain confident in our strategy and investment proposition.
With our share price trading well below NAV, this presents an
opportunity for us to acquire additional exposure to uranium at a
discount to the spot price, through a share buyback programme. The
Board will consider this if the significant discount persists."
Uranium Market Developments and Outlook
Uranium Market Developments
During the quarter, Kazatomprom announced that its plan to
reduce uranium production by 20% (from previously planned levels)
would be extended through 2021 due to persistent low market prices.
That decision will remove nearly 15 million lbs U(3) O(8) from
anticipated global primary supply in 2021.
On 12 July 2019, following the Section 232 investigation
initiated by the US Department of Commerce (DOC) into uranium, the
President of the United States announced his decision not to impose
new trade restrictions on uranium imports into the country. While
the Secretary of Commerce found that uranium was being imported
into the United States in such quantities as to threaten national
security, the President did not concur with the DOC's finding.
However, the White House agreed that the DOC's report raised
significant concerns regarding the impact of uranium imports on
national security and domestic uranium mining and that a more
comprehensive analysis of national security considerations with
respect to the entire domestic nuclear fuel cycle was therefore
necessary.
In order to evaluate the nuclear fuel cycle, the President
established a Nuclear Fuel Working Group (NFWG) comprised of
thirteen federal government agencies/departments which was to
report back to the White House within 90 days (i.e. on 10 October),
advising of the group's findings and making recommendations to
further enable domestic nuclear fuel production, if required. The
White House granted the NFWG a 30-day extension to mid-November in
order to complete the inter-agency review of the group's
recommendations
Market uncertainties associated with the Section 232
investigation and the subsequent formation of the NFWG contributed
to a significant reduction in spot uranium volumes during the third
quarter when a total of 12.9 million lbs U(3) O(8) were transacted
([5]) compared to 34.9 million lbs U(3) O(8) during the third
quarter of 2018. According to UxC LLC, aggregate spot market
volumes for the nine months to 30 September 2019 approximated 42.5
million lbs U(3) O(8) , a decline of almost 65% compared to the
same period in 2018 ([6]) .
Unlike the third quarter of 2018 when record-setting spot market
volumes led to a price rise from US$22.55/ lb U(3) O(8) to
US$27.35/ lb U(3) O(8) , the comparable three month period in 2019
saw a more modest spot price increase from US$24.70/ lb U(3) O(8)
to US$25.65/ lb U(3) O(8) at the end of September.
During 2018, the United States implemented further economic
sanctions against the Republic of Iran. At that time, sanction
waivers were granted which allowed the continuation of several
nuclear non-proliferation projects within Iran being carried out by
Russian, Chinese and European entities. These waivers must be
renewed on a periodic basis (currently 90-days) with the current
waivers expiring at the end of October. In the event that these
waivers are not renewed, international trade in nuclear fuel could
be significantly impacted, especially the importation of
Russian-sourced nuclear fuel into the United States where nuclear
utilities rely upon Russian-sourced enrichment services for
approximately 20% of reactor requirements. Non-Russian-origin
nuclear fuel components could then be expected to gain additional
value.
On 5 September, the World Nuclear Association released the 2019
edition of the bi-annual market study, "The Nuclear Fuel Report -
Global Scenarios for Demand and Supply Availability 2019-2040."
Significant changes from the previous edition included the three
uranium demand scenarios all showing varying but positive growth
rates through 2040, so-called secondary supplies declining through
the next decade, as well as a clear acknowledgement that the global
uranium market is heading into a period of supply uncertainty where
as yet-to-be identified supply sources ("unspecified") will be
required in order to balance demand and supply.
Several new reactors have entered commercial operation thus far
in 2019. Shin Kori-4 was connected to the South Korean grid in
April with Shin Hanual-1 expected before the end of the year. In
Russia, Novovoronezh II (second unit) entered operation in May. In
April, approval was granted in Egypt to commence construction of
four VVER-1200 reactors at the planned El Dabaa site. Duke Energy
announced that it would be filing for additional 20-year operating
license extensions for its fleet of eleven reactors.
Market Outlook
Submission of the NFWG report findings and recommendations
originally scheduled for 10 October was expected to clarify the US
Administration's policy regarding the domestic nuclear fuel cycle,
thus reducing market uncertainty attributable to that policy review
process. The 30-day extension has delayed that process until
mid-November.
Failure to extend the current waivers of nuclear-related
economic sanctions applied by the US on Iran could lead to
significant market disruption and incrementally higher values for
non-Russian-sourced nuclear fuel components.
There remains a general expectation that market activity will
likely increase as utilities, producers and financial buyers
re-enter the market. Furthermore, term contracting, especially by
US nuclear utilities is expected to increase in order to address
future uncovered uranium requirements.
Net Asset Value
Yellow Cake's estimated net asset value at 30 September 2019 was
GBP2.32 per share ([7]) or US$252.2 million, consisting of
9,616,385 lbs of U(3) O(8) valued at a spot price of US$25.65/ lb
([8]) , a derivative financial liability of US$2.7 million ([9])
and other net assets of US$8.2 million ([10]) .
Based on the spot price of US$24.00/ lb published by UxC LLP,
Yellow Cake's estimated net asset value as at 28 October 2019 was
GBP2.08 per share ([11]) . As at close on 28 October 2019, the
Company's share price was GBP1.90 per share, which represents a 9%
discount to the above estimated net asset value of GBP2.08 per
share.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) no 596/2014
ENQUIRIES:
Yellow Cake plc
Andre Liebenberg, CEO Carole Whittall, CFO
Tel: +44 (0) 153 488 5200
Nominated Adviser and Joint Broker: Numis Securities Limited
John Prior Paul Gillam
James Black
Tel: +44 (0) 207 260 1000
Joint Broker: Berenberg
Matthew Armitt Detlir Elezi
Tel: +44 (0) 203 207 7800
Financial Adviser: Bacchus Capital Advisers
Peter Bacchus Richard Allan
Tel: +44 (0) 203 848 1640
Investor Relations: Powerscourt
Peter Ogden
Tel: +44 (0) 779 3 85 8211
ABOUT YELLOW CAKE
Yellow Cake is a London-listed company, headquartered in Jersey,
which offers exposure to the uranium spot price. This is achieved
through its strategy of buying and holding physical triuranium
octoxide ("U(3) O(8) "). It may also seek to add value through the
acquisition of uranium royalties and streams or other uranium
related activities. Yellow Cake seeks to generate returns for
shareholders through the appreciation of the value of its holding
of U(3) O(8) and its other uranium related activities in a rising
uranium price environment. The business is differentiated from its
peers by its lower cost base and ten-year Framework Agreement for
the supply of U(3) O(8) with Kazatomprom, the world's largest
uranium producer. Yellow Cake currently holds 9.62 million lb of
U(3) O(8) , all of which is held in storage in North America.
FORWARD LOOKING STATEMENTS
Certain statements contained herein are forward looking
statements and are based on current expectations, estimates and
projections about the potential returns of the Company and the
industry and markets in which the Company will operate, the
Directors' beliefs and assumptions made by the Directors. Words
such as "expects", "anticipates", "should", "intends", "plans",
"believes", "seeks", "estimates", "projects", "pipeline", "aims",
"may", "targets", "would", "could" and variations of such words and
similar expressions are intended to identify such forward looking
statements and expectations. These statements are not guarantees of
future performance or the ability to identify and consummate
investments and involve certain risks, uncertainties and
assumptions that are difficult to predict, qualify or quantify.
Therefore, actual outcomes and results may differ materially from
what is expressed in such forward looking statements or
expectations. Among the factors that could cause actual results to
differ materially are: uranium price volatility, difficulty in
sourcing opportunities to buy or sell U(3) O(8) , foreign exchange
rates, changes in political and economic conditions, competition
from other energy sources, nuclear accident, loss of key personnel
or termination of the services agreement with 308 Services Limited,
changes in the legal or regulatory environment, insolvency of
counterparties to the Company's material contracts or breach of
such material contracts by such counterparties. These
forward-looking statements speak only as at the date of this
announcement. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward
looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statements are based
unless required to do so by applicable law or the AIM Rules.
[1] Net asset value per share on 30 September 2019 is calculated
assuming 88,215,716 ordinary shares in issue, the Bank of England's
daily exchange rate of 1.23200 on 30 September 2019 and the
month-end spot prices published by UxC LLC on 30 September
2019.
[2] Month-end spot price published by UxC LLC on 30 September 2019.
[3] Based on the month end spot price published by UxC LLC on 24 June 2019
[4] Based on the month end spot price published by UxC LLC on 30 September 2019.
[5] Ux Weekly; 30 September 2019; Vol 33, No 39 / Ux Weekly; 2
September 2019; Vol 33, No 35 Ux Weekly; 5 August 2019; Vol 33, No
31.
[6] Ux Weekly; 30 September 2019; Vol 33, No 39.
[7] Net asset value per share is calculated assuming 88,215,716
ordinary shares in issue, the Bank of England's daily exchange rate
of 1.23200 on 30 September 2019 and the month-end spot prices
published by UxC LLC on 30 September 2019.
[8] Based on the month-end spot prices published by UxC LLC on 30 September 2019.
[9] Estimated current value of the Kazatomprom repurchase option
under the framework agreement, which is a potential liability of
US$6.5 mm and may only be exercised if the spot U(3) O(8) price
exceeds US$37.50/ lb for a period of 14 days during the period
between 4 July 2021 and 30 June 2027.
[10] Includes cash and cash equivalents of US$8.8 million.
[11] Net asset value per share is calculated assuming 88,215,716
ordinary shares in issue, a GBP/USD exchange rate of 1.2863 and the
spot price published by UxC LLC on 28 October 2019.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
TSTUWAURKBARUUA
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October 29, 2019 03:00 ET (07:00 GMT)
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