The uranium spot market may be on the verge of a fundamental shift after the takeover of Uranium Participation Corp. by Sprott Asset Management LP, according to Canadian uranium producer Cameco Corp.

Sprott Asset Management, a subsidiary of Sprott Inc., entered into an agreement with Uranium Participation, a uranium asset investment manager, in late April to form the Sprott Physical Uranium Trust, removing Denison Mines Corp. as head of the entity. Managers of the new trust plan to pursue a listing on the New York Stock Exchange, potentially resulting in an increase of trading liquidity and access to capital for future uranium purchases, according to corporate filings.

Executives for Cameco, the operator of the largest uranium-producing mine in the world, said during a May 7 earnings call that the deal could create broad investment in uranium mining and the purchase of uranium on the spot market. The market could enter a phase where intermediary fuel traders no longer dominate the space, which could "really create transparency in the spot price," Cameco Senior Vice President and CFO Grant Isaac said.

"I think there's real potential upside there," Isaac said. "Because if you see very active management from a fund — not a passive fund but an actively managed fund — we could get into a situation very quickly where the spot market isn't five traders offering against one person with a bid to buy. We could see some balance there where the amount of bids equal the number of offers."

Potential buying activity from the trust will likely differ from that of junior uranium miners recently buying up material to get strategic leverage in the event of upward price movement, Isaac said. Those purchases failed to actualize in price momentum because the entities selling the uranium were "very willing sellers," Isaac said.

"I think the buying showed what we are saying, and that is that the spot market, the true spot market [comprising] the material that's available in the can or in the canister today, is very thin," Isaac said, noting that the miners had to purchase uncommitted primary production along the production curve because of how little supply has been mined recently.

"On the other hand, I wonder if there's a bit of regret, though, on a missed opportunity. And the missed opportunity is, if that 10.5 million pounds stayed dedicated to true price formation, in defining what really is a spot market, we'd be in a much different price formation right now. There'd be a much different spot price if folks were holding out for what's available today," Isaac said.

Companies increasing physical uranium inventory in recent months included Denison Mines, Uranium Energy Corp. and Yellow Cake PLC.

Cameco President, CEO and director Timothy Gitzel said formation of the trust has yet to change the company's decision-making. "We'll watch what they're doing and what happens, but I don't think it will influence our behavior," Gitzel said.

Isaac added that the trust's activity would benefit Cameco even if the price goes up, given the contracting strategy the company has employed. "We do think it could be a game changer with lots of upside," Isaac said.

Cameco reported a first-quarter net loss of C$5 million, improving year over year from a loss of C$19 million. The company attributed the quarterly result to expected variations in contracting while noting an additional C$33 million in care and maintenance costs tied to the four-month suspension of the Cigar Lake uranium mine in Saskatchewan due to the coronavirus pandemic.

However, the company exited the quarter with optimism, and not only because Cigar Lake operations restarted in April. Cameco also finalized a number of sales contracts, adding 9 million pounds to its long-term contract portfolio, Gitzel said during the call.

"We continue to have a large pipeline of uranium business under negotiation. In fact, we continue to see off-market interest growing, and historically, it has been the leading indicator of broader demand for long-term contracting," Gitzel said.

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