INTERVIEW: Sprott CEO says utility restocking, low supply sparking record-high uranium prices

Low uranium availability, growing demand and utility purchasing are behind the climb in the material's spot price to 15-year highs, Sprott Asset Management CEO John Ciampaglia says.

Sprott Asset Management operates the Sprott Physical Uranium Trust, known as SPUT, a publicly traded fund that holds uranium and seeks to be a vehicle for investors to gain exposure to the material. SAM said Nov. 21 that the assets of its trust has reached $5 billion, up from $630 million in mid-2021, driven by price increases for uranium.

Platts assessed the U3O8 current-month spot price at $78.50/lb Nov. 20, which is the highest price since it began assessing spot uranium in 2018. Uranium prices were last higher on Jan. 25, 2008, based on the midpoint of a now-discontinued Platts uranium indicator. Uranium spot prices have seen a rapid rise over the past several months and the current month price is up 62% from Dec. 30 when it was assessed at $48.60/lb. Platts is part of S&P Global Commodity Insights.

"I think it is important to note that a lot of the price move that we've seen this year is really being driven by utilities who, for the most part, are finally starting to restock inventories" Ciampaglia said in a recent interview. "That is our long-term thesis, that a 10-year period of destocking is behind us, and we are now going to enter a multiyear period where utilities are going to contract at a replacement rate if not restock a little bit."

US utilities held 104 million lb of U3O8 equivalent at end 2022, compared to a high of 128 million lb in 2016, the US Energy Information Association said in its 2022 annual report.

"There have been a lot of RFPs [requests for proposals to sell uranium] and utility activity in the last couple of months," Ciampaglia said. "We think it will continue. When market participants see the number of RFPs coming to market. People get bullish, people tighten up on their pricing. They are a little bit more reluctant to let pounds go into the market if they think the prices are going up."

SPUT has not been as active in the market in 2023 as in past years, Ciampaglia said, "and the price just keeps going up. That tells us that the end users are the ones primarily driving that demand and sucking up the supply that is available."

SPUT buys and holds physical uranium and can sell new shares to investors only when its stock price is higher than the underlying value of uranium and other assets it holds. It uses money from share sales to buy uranium in the form of U3O8.

The trust has made 21 purchases totaling just over 3 million lb so far in 2023, compared with 69 purchases in 2022 totaling 18 million lb, according to S&P Global calculations.

Because of lower share prices this year, the trust has not been able to sell as much equity throughout the year, thus it has not had much cash on hand to buy uranium. There has been a shift in the past few weeks and the trust closed at a premium to the net asset value per share from Nov. 13 to Nov. 16, issued 2.6 million shares and purchased 150,000 lb U3O8.

"We've been a little bit more cautious in terms of issuing new units and being able to deploy the money," Ciampaglia said. "[There is] no point in issuing units in the market and not having a reasonable line of sight on material and pricing of that material."

Unpredictable spot supply

Ciampaglia said that utility purchasing paired with a lack of existing supply has been a major factor causing rising spot prices.

"There is not as much material available, or it is going to feed long-term utility contracts or producer needs," he said. "The availability in the spot market of material is lumpy — it always has been. Some days it is there, some days it is not — it is very unpredictable."

"People don't have any inventory to sell," Ciampaglia said. "Some days that is because people are waiting to find out if they are part of a winning bid for an RFP, until they have clarity that the material they have is going to that contract -- they hold the material until they get that outcome."

Sprott operates multiple exchange-traded funds including physical gold, silver, platinum and palladium along with uranium, which launched in July 2021. Sprott's uranium trust has grown significantly in size since its launch and is even nearing the size of the fund's largest, gold, which has a net asset value of $6.24 billion. The uranium fund's net asset value reached $5.05 billion Nov. 20, making it Sprott's second-largest fund.

"I wouldn't be surprised if [uranium] becomes our largest fund in the next 18 to 24 months," Ciampaglia said. "There is just more room for the uranium price to run. It's been incredibly resilient against a backdrop of very soft commodity prices and very soft asset class prices across most markets around the globe."