Focus: Goldman, hedge funds step up activity in physical uranium as prices spike

Sprott

20/02/2024 06:30

* 
      Physical uranium buying by investors was 26% of spot mkt
in 2023
    

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      Goldman writing options on uranium
    

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      Boosting trading book - industry sources 
    

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      Some hedge funds buying physical uranium, others cautious
    

  
    By Eric Onstad and Nell Mackenzie
       LONDON, Feb 20 (Reuters) - Investment banks Goldman
Sachs  GS.N  and Macquarie  MQG.AX  as well as some hedge funds
are positioning themselves to reap the benefits of a newly
buoyant uranium sector as prices of the nuclear fuel ingredient
spike. 
    While many other investment banks are still avoiding
uranium, Goldman and Macquarie are boosting trading in physical
uranium and in Goldman's case trading its options as well, five
industry and hedge fund sources with knowledge of the deals
said.
    The heightened activity comes as utilities seek new supplies
amid shortfalls that have lifted prices to 16-year highs.
    A few hedge funds are also stepping up involvement in both
equities and physical uranium, a sign that the metal is starting
to broaden its appeal to financial institutions after a decade
in the doldrums following the Fukushima nuclear disaster.
    "With the headlines and positive momentum in nuclear more
generally, hedge funds and other commodity investors are back in
the (uranium) sector. A lot of it is done via physical funds,
the easiest way to get exposure to uranium prices,” said Bram
Vanderelst at trading firm Curzon Uranium.
    The metal has captured investors' attention after prices
 UXXc1  doubled over the past year to $102 a pound as top
producers Kazatomprom  KZAP.KZ  and Cameco  CCO.TO  cut
production guidance because reopened mines that had been
mothballed struggled to ramp up production to meet renewed
demand.
    It also comes with the revival of nuclear energy to help
countries cut their carbon emissions, which was highlighted in
the December 2023 Group of Seven most industrialised nations'
statement that envisioned tripling nuclear energy capacity from
2020 to 2050.
    Goldman Sachs has started writing options on physical
uranium for hedge funds, the first time it has created a
derivative for the metal. 
    "Goldman has been increasing their visibility, they've been
increasing their book steadily," a source who dealt with the
bank said, declining to give details of the transactions because
they are confidential.
    Goldman is largely dealing with financial clients like hedge
funds while Macquarie's main focus is boosting trading and
marketing output from miners, another source who dealt with both
banks said, also declining to elaborate because the data is
confidential. 
    All five sources Reuters spoke to declined to be named
because they did not want to discuss publicly private trading
details.
    Both banks declined to comment.
    
    
    NUFCOR'S URANIUM INVENTORIES
    Goldman has been involved in the uranium market since 2009,
when it bought Nufcor, a London-based nuclear fuel trader.
    Five years later, however, in the wake of Japan's Fukushima
nuclear plant disaster in 2011 when uranium prices plummeted,
Goldman aimed to offload Nufcor, but was unable to find a buyer
and said it planned to wind down the business.
    The business never closed and Nufcor held $356 million worth
of uranium inventories at the end of 2022, the most recent
regulatory filings showed.
    That is enough uranium to fuel 17 large nuclear reactors for
a year, based on Reuters calculations and data from the World
Nuclear Association. 
    Investor buying of physical uranium by publicly-traded funds
and hedge funds represented nearly 15 million pounds of uranium
oxide concentrate (U3O8), or about 26% of the total traded on
the spot market in 2023, according to consultancy UxC. 
    This was down from 22 million pounds of investor buying in
2022 as higher prices in 2023 meant each dollar bought fewer
pounds of uranium. 
    "We’ve especially seen large volumes purchased by investors
in 2021-2023," said Jonathan Hinze, president of UxC. 
See factbox.  
    U3O8 or yellowcake is a fine powder packaged in steel drums 
that is produced when uranium ore is chemically processed.
    While the biggest amount of investor-held physical uranium 
is by exchange-listed funds, a few hedge funds have been
investing in shares of uranium miners and other nuclear-related
firms for several years and are also now investing in physical
uranium.
    Sachem Cove Partners, a uranium-focused investment strategy
with about $250 million in assets under management, started
investing in the sector in 2018 with equities and proxies for
physical uranium, like the Sprott Physical Uranium Trust
 U_u.TO .
    It began buying physical uranium last year. 
    "It gives us a look into both markets, the physical market
itself and the equity markets," said Mike Alkin, chief
investment officer. 

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Uranium spot price surges after mine output problems    https://tmsnrt.rs/3UN93aN
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 (Additional reporting by Melanie Burton in Melbourne; Editing
by Emelia Sithole-Matarise)
 ((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO;
 Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))