The Bear Market for Uranium is Over
May 10, 2021: Sprott Asset Management CEO John Ciampaglia joins BNN Bloomberg Commodities Host Andrew Bell, to discuss Sprott's takeover of Uranium Participation Corporation (UPC) and why he believes the climate for this kind of transaction is most appropriate now.
ANDREW BELL: Sprott Asset Management plans to take over and revamp Uranium Participation Corporation (UPC), which has long been around, listed on the TSX as a way of providing investors with a play on the uranium price. Now, Sprott thinks we could see a boom in prices for this commodity. We're joined by John Ciampaglia. He's CEO at Sprott Asset Management. John, thanks very much for coming on the show.
John, why did Sprott want to do this? UPC has been around for a long time, and its trading volume is sometimes low and at a discount. It has been at a premium to the uranium price more recently.
JOHN CIAMPAGLIA: We think it's a natural fit and extension for Sprott to take over the management of UPC. As you mentioned, UPC has been around for a very long time. It was the first vehicle in the world to give investors a way to get exposure to the spot uranium price. UPC has a long track record, and the current manager, Denison Mines, along with the board, has done an excellent job of managing it.
We believe it's the right time in the uranium cycle to transition responsibilities over to Sprott for several reasons. I think our experience managing physical commodity funds brings many benefits to our shareholders. Right now, Sprott's managing about $12 billion U.S. in physical metals funds that are duly listed on both Toronto and the New York Stock Exchanges.
In those Trusts, we've got about 200,000 investors globally. What we have found is actually a high degree of overlap of interest between investors in precious metals and investors interested in uranium. If you look at the shareholder base of not only our parent company, Sprott Inc., but our physical bullion trusts, a lot of the same names are in Uranium Participation Corporation right now.
BELL: How will this work? Because one of Sprott's core beliefs is that these funds should hold the physical material. Is the planet to have the Sprott fund actually hold barrels of uranium in a warehouse somewhere?
CIAMPAGLIA: Yes, that is exactly what UPC does today. Its primary investment objective will not change. What we're trying to do is modernize the structure. UPC was created many years ago as a corporate entity, and we plan to basically simplify and modernize the structure into a more traditional investment fund trust. That will allow us to do several things, including applying to the New York Stock Exchange to list the trust there, which we have a lot of experience with.
We think it's important to have the new trust listed on the New York Stock Exchange because of the huge number of investors and the depth of the capital pool in the United States. The investment trust structure will pave the way for us to make this application for dual listing. That's important. The current structure of UPC as a corporation doesn't allow it to pursue that. This was a key consideration for the management team and the board to move forward with this transaction.
Not only that, but Sprott has significant experience raising capital in commodity-type funds through different avenues. One of the avenues that has worked very well for us has been through at-the-market (ATM) offerings. You may be aware that last fall the Toronto Stock Exchange made ATM offerings a bit more shareholder-friendly. We've been able to take advantage of that with our Physical Bullion Trusts. For some perspective, with our own precious metals trusts, we've raised about $4 billion U.S. over the past six months through this kind of mechanism.
Why that's important is that, in our experience, greater liquidity and scale begets greater liquidity and attracts a lot more institutional investors over time. It's important to scale these funds to improve their liquidity, lower their overall costs and attract larger investors.
BELL: It's interesting that Canaccord Genuity says that the participation in the existing Fund has been rather quiet over the past few months because we've seen some uranium companies, including Denison, buying up a whole bunch of uranium. But UPC decided not to do that.
CIAMPAGLIA: There were some considerations given that we were in the final stages of this transaction. But you're right. There's been a lot of renewed interest in uranium and we think that the timing for this transaction is perfect. We're seeing more and more interest. Uranium, obviously, as you mentioned, was in a long bear market. We believe that this bear market is over and that a new bull market is now underway. We think the timing is right to really put all of Sprott's additional marketing resources and global reach to work for UPC shareholders.
BELL: Looking at UPC's history of the discount premium to NAV from 2018 through 2020, UPC tended to trade at a big discount to NAV. It has gone to a premium of about 10% more recently. When you list the new fund, will you have a mechanism to stop it from going to a big premium or discount?
CIAMPAGLIA: You raise a good point. The reality is that the interest in the category will have a huge impact in terms of how an investment fund will trade relative to its net asset value; that has been our experience. We would hope that over time that the dispersion of discounts and premiums will compress. There are a number of ways to manage that. And we've had a positive experience with our physical metal funds trying to manage that so that there aren't huge deviations.
Institutions don't like large premiums and investors sometimes get unsettled when there are large discounts, etc. It's one of the key reasons why ETFs have been so successful because they've done a very good job keeping market prices and net asset values more closely tethered.
BELL: Will the idea be to track the uranium spot price or the longer-term contract price, which has tended to be higher?
CIAMPAGLIA: Our goal, and I think UPC’s goal since day one, has always been to track that spot price. The Fund will continue to hold material that we will value in a similar fashion, which is using spot prices. We're not going to be going out on the curve and doing things on a forward basis. We want to track the uranium spot price, which is the most liquid and current price investors are looking at.
This video and transcript is posted with permission from BNN Bloomberg
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