A former investment banker is leading the flotation of a new company that plans to buy up and store huge quantities of uranium in anticipation of a jump in its value.
Peter Bacchus, previously of Jefferies and Morgan Stanley, is masterminding the initial public offering of Yellow Cake, which is seeking to raise between $160m (£120m) and $200m that it will use to buy 8.1m pounds of the radioactive metal, used in nuclear reactors.
It is understood that Yellow Cake – so named for the yellowy tint of powdered uranium – has struck a supply deal with Kazatomprom, the world’s largest producer of uranium, to buy around $170m worth of the metal at a 7pc discount to the current spot price of around $22 a pound.
The deal means that Yellow Cake will snap up almost a quarter of Kazatomprom’s annual output in one swoop, taking an estimated 5pc of global supply off the market. Mr Bacchus’s pitch to investors is that uranium is “structurally mispriced” and set for a huge rebound in value once big nuclear power plants realise they need to secure new supply.
Yellow Cake will store its Kazakhstan-bought uranium in facilities in Canada operated by listed giant Cameco.
It plans to sit on the material until such time as the price recovers enough to justify a sale of its stockpile, or even seek a buyer for the whole business. The company is likely to announce a float on London’s Aim later this week.
It could be one of the largest fundraising on the junior market in years, and is expected to have a free float of 99pc, with management holding the balance, giving it a market cap of up to £250m.
Mr Bacchus is best known in the industry for helping Rio Tinto defend against a takeover approach by BHP Billiton a decade ago. He set up Bacchus Capital, an advisory firm, a year ago, and will become a director on the Yellow Cake board.
It is understood that Lord St John of Bletso is lined up to be chairman of the venture while Alexander Downer, former foreign secretary of Australia, will be a non-executive director. Uranium prices slumped after the Fukushima disaster in Japan in 2011 and have remained in the doldrums ever since despite a recent push by China to commission more nuclear power stations. Prices on the open market are so low that it is thought that around 50pc of global uranium production is loss-making.
As a result, many uranium producers are closing mines, leading to a tightening of supply. But while most industry observers expect the price to rebound, opinion differs over the timing of any recovery. Although Yellow Cake’s business model is a new one to London investors, Toronto-listed UPC has a similar strategy, offering shareholders the chance to benefit from a rise in the uranium price.
Bacchus Capital declined to comment.
Source: The Telegraph