Sprott Uranium Trust Raises $25.55M at NAV

Sprott Uranium Trust (SPUT) announced on Monday, May 12^th that they had raised $25.55M in a non-brokered private placement. The proceeds are expected to be used to cover general operating expenses of the Trust for the next year.

The capital was raised at NAV (net asset value) even though SPUT was trading ~7-8% discount when the deal was being deliberated. It is very unusual for a Trust to raise capital at NAV, when it is trading at a discount on the open market.

So, what’s going on here?

For some time, there has been a view, especially from hedge funds who are bearish uranium and utilities, that SPUT will one day need to start selling uranium back to the market. Recently, due to the persistent discount to NAV and a slow bleed of cash reserves, the narrative began to accelerate that SPUT would have no choice but to sell uranium to fund operating expenses.

Below is a chart of the historical Premium or Discount to NAV:

Source: Sprott Uranium Trust

Just before the deal was announced, SPUT’s cash level was running near ~$6M. Effectively, a group of investors decided to place new capital into the Trust at NAV, taking an immediate loss (~7-8%) in order to help fund the operating expenses of the Trust and in turn, kill any narrative from hedge funds and/or utilities that SPUT would be selling soon.

From our vantage point, this has three implications:

• The investors who participated in the deal have extreme conviction that prices will move higher in the foreseeable future and erase any immediate loss they took by funding the deal

• Utilities (and hedge funds who are bearish uranium) need to re-assess the number of pounds that they believe could exit the Trust

• Equity traders who play the NAV discount should tread lightly as we do not think they ever believed the Trust could raise capital at a discount to NAV. We hold the view that there are funds who sell short SPUT when it is approaching NAV thereby not allowing the Trust to issue new units at a premium. With this new wrinkle, funds might need to be a bit more careful engaging in this particular trade, especially if new capital is raised in a placement to fund uranium purchases immediately if the fund is close to NAV.

At the end of the day, SPUT is now sitting on ~$31.1M of cash which is enough runway to fund operating expenses for close to a year if they are unable to raise more capital the more traditional way, which is to issue units at a premium to NAV.

“We launched SPUT with the objective of providing investors with the most liquid and efficient way to invest in physical uranium,” said John Ciampaglia, CEO of Sprott Asset Management. “Since the Trust was launched in 2021, it has purchased approximately 48 million pounds of U3O8 and not sold or loaned out a single pound. I would like to take this opportunity to strongly reiterate that SPUT has the tools, including this private placement, to deliver on its intention not to sell any of the physical uranium that SPUT holds on behalf of thousands of investors. Sprott Asset Management participated in this placement alongside the subscribers and we thank all our unitholders for their continued support of SPUT.”

We do not recall so much noise around a simple capital raise in a long time. We believe the entire point of the raise was to simply kill a bearish narrative that was forming in the market and stop any uranium sales from SPUT.

The capital raise comes at a time when spot uranium prices have rebounded quickly from ~$63.00/lb and has crossed back into the low $70s/lb, depending on the converter location. At the time of this publication, SPUT was trading at a 5.12% discount to NAV.