Sprott currently manages four different commodity stockpiling funds, with more than $12 billion in assets, including: the Sprott Physical Gold Trust (PHYS), one of the world's largest physical gold vehicles; and the Sprott Physical Silver Trust (PSLV), the fastest-growing silver bullion fund.
These physical-metal strategies are listed on both the Toronto and New York stock exchanges and boast a global client base of more than 200,000 investors. Now, Sprott is creating the Sprott Physical Uranium Trust (SPUT), an entity that has agreed to a transaction with Uranium Participation Corporation (UPC), the world's first and largest publicly-traded physical uranium investment vehicle.
UPC has a diverse shareholder base ranging from individual investors to institutions, hedge funds and family offices.
The company holds its uranium at licensed storage locations in Canada, the US and Europe, and at the end of May 2021 held 19.3 million pounds of U3O8 and other products with a net asset value of more than C$730 million.
"We were watching the multi-year bear market in uranium and felt something had to give, that the market needed to reset itself. A couple of years ago uranium producers couldn't make any money at US$20 per pound for U3O8, yet we saw the fundamentals looking very good for uranium," Sprott Asset Management CEO John Ciampaglia told Mining Journal.
"There is a growing narrative that nuclear power has to be part of the overall strategy to reduce greenhouse gas (GHG) emissions, while providing reliable baseload electricity to an increasingly electrified world. We see more and more governments committing to climate targets and acknowledge that solar and renewable alone won't help them meet those objectives."
Sprott's proposed transaction with UPC will reorganise UPC into an investment-fund listed on the Toronto Stock Exchange and includes a post-transaction requirement to pursue a listing on the New York Stock Exchange‘s ARCA exchange.
If successful, the new Sprott Trust would be the first physical uranium fund listed in the US, which would provide access to an extremely large capital pool.
"Exchange-traded investment fund structures have become one of the most popular in the world, with over $5 trillion in assets" said Ciampaglia.
Sprott is working with WMC Energy as technical advisor to support management of the SPUT. WMC, which includes former employees from Canadian uranium producer Cameco, who will be a key source of advice as the market expects to enter a new cycle of long-term contracting by nuclear utilities.
Industry commentators have suggested that Sprott's market participation has the potential to transform uranium from a sleepy commodity whose consumers dip into an opaque spot market to supplement their long-term contracts, to a more liquid, transparent and easily investable sector for investors who want exposure to a commodity expected to face increasing demand.
Recent months have seen uranium juniors raise funds to purchase physical uranium at low market prices for varied motives. Sprott's SPUT is expected to provide a more constant source of buying demand and, with its aim to provide daily reporting rather than the monthly reporting UPC maintained, it hopes to provide greater price transparency to the uranium market. Ciampaglia believes this step is necessary for U3O8 to become of greater interest to the investment community.
"We hope to enhance price discovery in the uranium market and this vehicle has the potential to act as a de-facto pricing reference for industry participants and investors. This is absolutely critical as a market will not develop and attract new participants unless the participants understand the marketplace and pricing," said Ciampaglia.
Ciampaglia is loathe to pronounce on what the impact the entrance of SPUT will have on uranium pricing, although he notes that it has increased about $2/lb since the company announced the UPC deal earlier this year, with the caveat that uranium companies have also been buying in the spot market.
Sprott has successfully harnessed the at-the-market (ATM) financing mechanism in its other currently listed commodity ETFs as a cost effective way to raise capital to meet demand in the marketplace in real time.
"We have been able to raise over $4 billion in our precious metals funds with ATM offerings over the past 18 months. I am not suggesting uranium is the same size market, but it illustrates the power of using ATM's when an investment theme comes into favour," said Ciampaglia.
"We find investors in precious metals are often interested in uranium and so we hope to similarly bring this new uranium trust to our global client base.
‘A market will not develop and attract new participants unless the participants understand the marketplace and pricing'
- JOHN CIAMPAGLIA
An ATM mechanism would allow SPUT to continuously raise funds without telegraphing a future uranium purchase, as has happened with some of the bought deal financings undertaken by uranium juniors.
"We think an ATM would be a cost effective way to raise capital on a smaller, yet more frequent basis. This isn't about us buying all the material and crowding out the market, but having a more liquid vehicle that fosters a more active spot market to provide fresher pricing to the marketplace," said Ciampaglia.
Sprott actively and continuously markets its physical commodities ETFs, which is likely to generate a continual level of demand for uranium, which may result in the price nudging up. With 200,000 active investors in its products, the market knows what it will be getting with a Sprott vehicle and a certain level of trust in how its investments will be managed.
"We undertake a steady cadence of marketing. We market all the time in both bull and bear markets, constantly producing content and educating the marketplace. We stay focused and engaged with our investor base," said Ciampaglia.
Important information and disclosures about the Sprott Physical Uranium Trust and Sprott Physical Bullion Trusts can be found at www.Sprott.com