Precious metals specialist Sprott Asset Management LP is wading into the uranium industry by taking over the management of Uranium Participation Corp. , betting the out-of-favour commodity will benefit from a broader societal push toward lower carbon emissions.
Founded in 2005, Toronto-based UPC is one of the few companies in the world that stockpiles physical uranium. Still, over the past few years, with uranium in a protracted bear market, the Toronto Stock Exchange-listed company has struggled to attract investor interest and maintain large trading volumes.
Sprott Asset Management on Wednesday said it will pay about $14.5-million to reorganize UPC from a corporation into a trust. Sprott hopes to broaden the investor appeal of the uranium holding company by adding an additional stock listing on the New York Stock Exchange. Denison Mines Corp. , the current manager of Uranium Participation, will be replaced by Sprott and WMC Energy, a global commodities merchant with expertise in the nuclear industry. Hoping to benefit from its well-established brand name in the money management business, Sprott plans to rename the entity as the Sprott Physical Uranium Trust.
Founded by billionaire mining investor Eric Sprott in 2001, Sprott Asset Management is a subsidiary of publicly traded Sprott Inc. Apart from managing physical metals trusts, Sprott’s other businesses include exchange-traded funds, actively managed funds, a wealth management unit, and a mining lending business.
Peter Grosskopf, chief executive officer of Sprott Inc., said in an interview that the company had been mulling a move into the physical specialty energy commodities market for a while, and apart from uranium had also considered battery metals. Sprott ultimately zeroed in on uranium, in part because of the challenges of storing battery metals, which can degrade over time, but also because the company is a big believer in nuclear power.
“It’s a very important area for energy production,” he said. “It’s going to get more of a tailwind going forward because the economics of uranium and nuclear generation are so much more compelling than other forms of green energy.”
Alongside solar and wind power, nuclear is becoming part of the conversation around the efforts of countries to address climate change commitments under the 2015 Paris Agreement to reduce carbon emissions. While the mining of uranium and construction of power plants generate large amounts of carbon dioxide, nuclear power itself produces no emissions.
Despite its favourable emissions profile, nuclear power still has many skeptics, owing both to the challenges of storing radioactive waste and also fears over the potential for more accidents at power plants. After the Fukushima Daiichi power plant disaster in Japan more than a decade ago, the uranium market went into a deep slump, and it still hasn’t recovered. In 2018, Cameco Corp. , one of the world’s biggest uranium producers, made idle its McArthur River mine, a large uranium mine in Saskatchewan, amid persistent weakness in uranium prices. Uranium currently trades at US$28.65 a pound, down more than 75 per cent from its peak.
Shares in Uranium Participation rose by 6.8 per cent on the TSX on Wednesday to close at $5.33 apiece. Sprott shares rose by 1.8 per cent on the TSX to $55.11.
Gary Ho, analyst with Desjardins Securities Inc., said in a note to clients that Sprott’s foray into uranium “aligns well with management’s previous message on bolt-on acquisitions to leverage its scale, brand and distribution expertise in physical trust products.”
While Sprott has done very well over the past year, as gold and silver prices have outperformed, it is still trading about 45 per cent below its 2008 initial public offering price.
Mr. Sprott stepped away from the company in 2017, but has still maintained an active role in the precious metals markets in Canada, taking personal stakes in junior miners and, on occasion, in large companies. One of his most successful trades in recent years was an exquisitely timed move into Kirkland Lake Gold Ltd.
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