Interim Financial Report

RNS Number : 1446I

Yellow Cake PLC

10 December 2020

 

10 December 2020

Yellow Cake plc ("Yellow Cake" or the "Company")

Interim Financial Report for the six month period ended 30 September 2020

Yellow Cake, a specialist company operating in the uranium sector with a view to holding physical uranium for the long term, is pleased to announce its interim financial report for the period ended 30 September 2020.

Highlights

·   Estimated net asset value at 30 September 2020 of GBP 2.56 per share ^[1] or USD 279.9 million, comprising 9.32 million lb of physical uranium (U₃O₈) valued at a spot price of USD 29.75 /lb ^[2] and other net assets.

·   Increase in the value of the Company's uranium holding from USD 263.5 million in March 2020 to USD 277.2 million ^[3] at 30 September 2020. This compares to an acquisition cost of USD 202.3 million representing an increase in value of 37%.

· Total comprehensive income after tax of USD 21.7 million for the six month period ended 30 September 2020.

· Acquisition to date of a total of 4,156,385 of the Company's shares under a share buyback programme (the "Programme") initiated in January 2020, for a total consideration of USD 11.4 million (GBP 8.8 million) at a volume weighted average price of GBP 2.13 per share and volume weighted average discount to net asset value of 21%.

·   As at 30 September 2020, the Company had acquired 3,753,385 of the Company's shares at a volume weighted average price of GBP 2.14 per share, for a total cost of USD 10.4 million (GBP 8.0 million) and at a volume weighted average discount to net asset value of 20%.

·   At the Programme's inception, the Company's shares were trading at a material discount to its underlying net asset value. The Yellow Cake Board therefore took the decision to implement a share buyback programme as a means of effectively acquiring exposure to uranium at a discount to the commodity spot price and delivering value to its shareholders. The buyback programme was largely financed by the disposal of 300,000 lb of U₃O₈ at a price of USD 33.20 /lb compared to the acquisition cost of USD 21.01 /lb, realising a gain of USD 3.7 million ^[4]. The disposal completed on 30 June 2020 and raised net proceeds of USD 9.9 million which were received on 7 July 2020.

· The remaining total U₃O₈ holdings of 9.32 million lb were acquired at an average cost of USD  21.71 /lb.

· On 24 July 2020, Yellow Cake concluded a location swap agreement under which it exchanged 500,000 lb of U₃O₈ located at Cameco's storage facility in Canada for an equal volume of U₃O₈ located at Orano's storage facility in France. In consideration, Yellow Cake received proceeds of USD 1.0 million on 11 August 2020, net of costs and commissions. The location swap will be reversed in May 2021, at which time Yellow Cake will again receive the same volume of uranium in Canada in exchange for uranium held in France and will receive an additional swap fee of USD 90,000, net of costs and commissions. The Company will continue to pursue attractive uranium related transaction opportunities as they arise, including location swaps.

· Yellow Cake's estimated net asset value as at 9 December 2020 was GBP 2.46 per share ^[5]. As at close on 9 December 2020, the Company's share price was GBP 2.24 per share, which represents a 9% discount to the above estimated net asset value of GBP 2.46 per share.

Andre Liebenberg, CEO of Yellow Cake, said:

"There is a growing recognition that nuclear energy is a reliable base load source of electricity and is increasingly seen as a contributing technology to a low-carbon future. Notably, the UK Government's recent Ten Point Plan for a Green Industrial Revolution highlighted the role that nuclear energy will play in meeting the UK's future energy needs. We see a similar vision around the world, where investment in nuclear, a proven, reliable source of clean baseload energy, is increasing alongside the roll-out of renewable technologies. China, for example, is expected to more than double nuclear power capacity by 2030   ^[6] , while India has plans for a further 21 reactors by 2031   ^[7] . A sustained period of low prices has resulted in supply cuts, exacerbated by the onset of COVID-19, with little investment going into future new uranium production. Global demand is currently outstripping supply and we expect utilities to re-enter the long term contracting market in 2021 in order to secure future commitments of uranium supply. As a result, we remain very confident in the outlook for uranium."

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) no 596/2014.

ENQUIRIES: 

Yellow Cake plc
Andre Liebenberg, CEO	Carole Whittall, CFO
Tel: [phone]
Nominated Adviser and Joint Broker: Canaccord Genuity Limited
Henry Fitzgerald-O'Connor	James Asensio
Georgina McCooke Tel: [phone]
Joint Broker: Berenberg
Matthew Armitt	Jennifer Wyllie
Detlir Elezi
Tel: [phone]
Financial Adviser: Bacchus Capital Advisers
Peter Bacchus	Richard Allan
Tel: [phone]
Investor Relations: Powerscourt
Peter Ogden	Linda Gu
Tel: [phone]

ABOUT YELLOW CAKE

Yellow Cake is a London-listed company, headquartered in Jersey, which offers exposure to the uranium spot price. This is achieved through its strategy of buying and holding physical triuranium octoxide ("U₃O₈"). It may also seek to add value through the acquisition of uranium royalties and streams or other uranium related activities. Yellow Cake seeks to generate returns for shareholders through the appreciation of the value of its holding of U₃O₈ and its other uranium related activities in a rising uranium price environment. The business is differentiated from its peers by its ten-year Framework Agreement for the supply of U₃O₈ with Kazatomprom, the world's largest uranium producer. Yellow Cake currently holds 9.32 million pounds of U₃O₈, all of which is held in storage in Canada and France. 

 

FORWARD LOOKING STATEMENTS

Certain statements contained herein are forward looking statements and are based on current expectations, estimates and projections about the potential returns of the Company and the industry and markets in which the Company will operate, the Directors' beliefs and assumptions made by the Directors. Words such as "expects", "anticipates", "should", "intends", "plans", "believes", "seeks", "estimates", "projects", "pipeline", "aims", "may", "targets", "would", "could" and variations of such words and similar expressions are intended to identify such forward looking statements and expectations. These statements are not guarantees of future performance or the ability to identify and consummate investments and involve certain risks, uncertainties and assumptions that are difficult to predict, qualify or quantify. Therefore, actual outcomes and results may differ materially from what is expressed in such forward looking statements or expectations. Among the factors that could cause actual results to differ materially are: uranium price volatility, difficulty in sourcing opportunities to buy or sell U₃O₈, foreign exchange rates, changes in political and economic conditions, competition from other energy sources, nuclear accident, loss of key personnel or termination of the services agreement with 308 Services Limited, changes in the legal or regulatory environment, insolvency of counterparties to the Company's material contracts or breach of such material contracts by such counterparties. These forward-looking statements speak only as at the date of this announcement. The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward looking statements contained herein to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based unless required to do so by applicable law or the AIM Rules.

 

Chief Executive's Statement

Overview

The uranium industry is characterised by a very concentrated supply side and a very distributed demand side. Four countries account for 76% of global production ^[8], while the 442 operable reactors across 31 countries [9] supply approximately 10% of global electricity generation. Whilst the COVID-19 pandemic has had a major impact on economic activity and hence electricity consumption, the impact on the supply side was much more dramatic as COVID-19 restrictions impacted production in three of the four major producing regions. As a consequence, some 35% of global production capacity has been impacted. Primary production in 2020 is now expected to be c. 15% lower than previously forecast at c. 120 million lb U₃O_8,compared to consumption of 170 million lb U₃O₈[10]. In contrast, the pandemic's impact on nuclear power generation in 2020 is expected to be far more limited, with a year-on-year reduction of 4.5% ^[11].

While the disruption caused by COVID-19 has impacted short-term global energy demand, nuclear power's important role in global energy supply is expected to remain intact as a means of generating reliable baseload energy at a low operating cost. As a low-carbon energy source, nuclear energy is likely to form an integral part of future energy plans as countries seek to meet their carbon emission reduction commitments and limit global warming.

This was clearly illustrated by the UK Government's recently published Ten Point Plan for a Green Industrial Revolution (Building back better, supporting green jobs, and accelerating our path to net zero)(18 November 2020), which identified nuclear as a core component of its clean energy programme, across both large scale nuclear and developing the next generation of small and advanced reactors. In addition to providing development funding for large-scale new nuclear projects, the policy paper calls for the establishment of an Advanced Nuclear Fund (up to GBP 385 million) which would unlock up to GBP 300 million of private sector match-funding.  The Advanced Nuclear Fund would enable investment of up to GBP 215 million in Small Modular Reactors (SMR) and a further GBP170 million for a research and development programme on Advanced Modular Reactors.  A comprehensive Energy White Paper is expected prior to calendar year end.

In its recent policy statement, the presumptive Biden-Harris Administration clearly supports nuclear power as a crucial component of its climate and energy plans. It appears likely that the new Administration will support the continued operation of the US commercial reactor fleet while funding research and development for Small Modular Reactors (SMR).

Uranium demand is growing, driven by the global nuclear build programme. There are currently 442 operable reactors worldwide and a further 52 reactors under construction ^[12]. China, for example, is expected to more than double nuclear power capacity by 2030 ^[13], while India has plans for a further 21 reactors by 2031 ^[14]. 

While the medium- and longer term fundamentals for uranium remain compelling, in the recent period to 30 September 2020, we have seen the uranium price level off following a marked increase in the price during the April-May period. In the Company's view, this levelling off of the price after the initial COVID-19 price spike, is in large part attributable to the lack of term contracting by utilities, particularly in the US. Term contracting by US utilities is currently at an unprecedented low level following a period of regulatory uncertainty in the US combined with other operational priorities in the face of the pandemic.

During the first three quarters of 2020, the uranium market continued to be affected by uncertainty resulting from the US Department of Commerce Section 232 investigation and the establishment of the US Nuclear Fuel Working Group ("NFWG"), followed by the negotiation of the Russian Suspension Agreement ("RSA") which would limit the volume of Russian uranium imports by the United States. The release of the NFWG's report in April 2020 and the conclusion of the RSA in October 2020 have removed these uncertainties. We therefore expect to see a return to more normal levels of term contracting, particularly from US utilities.

As a company, Yellow Cake remains unaffected by COVID-19, both operationally (given that it has no physical operations and the executive team is already home-based) and financially. We have a strong capital position and no debt or hedges on our balance sheet. However, the uncertainty created by the pandemic more broadly in the market has weighed on the Company's share price, which traded at a significant discount to net asset value throughout 2020. In response, the Company implemented a share buyback programme as a means of effectively acquiring exposure to uranium at a discount to the spot price and delivering value to its shareholders. While the discount to net asset value has reduced since the launch of the Company's enlarged share buyback programme in July this year, it continues to persist and remains a key focus area for the Yellow Cake Board.

We believe the medium- and longer term supply and demand characteristics of uranium make the commodity a compelling investment and support Yellow Cake's strategy of buying and holding physical uranium. We remain confident in our business model and the investment case.

Uranium Market Developments

The uranium spot price reached USD 27.40 /lb U₃O₈ at the end of March, having risen by almost 10% since the end of 2019 (USD 25.00 /lb U₃O₈), driven by a then record-level monthly transactional volume of 11.2 million lb U₃O₈. Prices rose to USD 32.75 /lb U₃O₈ at the end of April before increasing further to USD 34.00 /lb U₃O₈ at the end of May, an increase of 36% for the year.  The spot price began to moderate somewhat during June settling back to USD 32.60 /lb U₃O₈ by the end of the June quarter.

During the September quarter, the U₃O₈ spot price declined from USD 32.60 /lb (June month-end price) to USD 29.75 /lb at the end of September.  The Company believes that the principal contributing factor to the price decline was the reduction in spot market transaction volumes which had averaged 12.7 million lb U₃O₈ per month over the April-June period, but fell to less than half of that aggregate (6.3 million lb U₃O₈ per month) during the third quarter. UxC reported total spot market volumes of 5.0 million lb U₃O₈ for the month of September, well below the 2020 monthly average of 8.5 million lb U₃O₈. 

Aggregate spot market volumes for 2020 year to date now exceed 84 million lb U₃O₈, more than 75% higher than for the comparable period in 2019. However, excluding the exceptional volumes traded in the March-April time frame (36 million lb U₃O₈ for the two months), the 2020 monthly average sits at 6.1 million lb U₃O₈, generally in-line with historical spot market volume averages.

The uranium term contracting market remained relatively subdued during the COVID-19 pandemic as utility nuclear fuel managers addressed higher priority activities, including fuel deliveries associated with reactor refuelling outages and related scheduling issues. UxC reports^[15] that in the year to date, term contracts were concluded for an estimated 46.1 million lb U₃O₈ for future delivery, while more than 71.0 million lb U₃O₈ had been contracted at this time in 2019 (total 2019 term contracting volumes reached 95.8 million lb). UxC recently observed that "Overall term activity has been moderate, and additional demand continues to quietly emerge" ^[16].

In 2020 year to date, reductions in primary uranium production underpinned spot market trends in both price and volume.  The world's largest uranium producer, Kazatomprom, instituted an initial three month cut-back in operations commencing in early April, removing 10.4 million lb U₃O₈ from planned 2020 output. On 6 July 2020, Kazatomprom announced a one-month extension to the operational reductions and anticipated that mine staff levels would gradually begin to increase in early August. In its announcement of 19 August 2020, Kazatomprom reiterated that manpower levels at its operations would return to normal within two to three weeks, but advised that, "production levels for the second half of the year are expected to be severely impacted by the four month shutdown." Production guidance for 2020 was provided at 49.4-50.7 million lb U₃O₈, compared to 2019 production which totalled 59.3 million lb U₃O₈.

On 23 March 2020, the world's second largest uranium producer, Cameco Corporation ("Cameco"), announced the temporary suspension of operations at its Cigar Lake uranium mine in the Athabasca Basin of Northern Saskatchewan, which produces approximately 18 million lb U₃O₈/ year. On 13 April 2020, Cameco announced an extension of that shut-down for an indeterminate period, which necessitated ongoing spot market procurement by Cameco in order to satisfy existing contractual deliveries. In its 2020 Second Quarter Report (29 July 2020), Cameco announced that "providing it is safe to do so, we also plan to restart the Cigar Lake mine at the beginning of September.  We expect it will take approximately two weeks to achieve initial production and we will not make up the production lost during the shutdown. Therefore, we are targeting our share of 2020 production to be up to 5.3 million lb in total (previously 9 million lb)."  On 4 November 2020, Cameco released its results for the quarter ending 30 September, announcing the successful restart of the Cigar Lake mine which produced 0.4 million lb U₃O₈ for the quarter. Cameco's aggregate production was 68% lower than in 2019 for the first nine months of 2020.

Based on announced reductions in operations by Kazatomprom and Cameco, as well as other primary uranium producers worldwide, global uranium production during 2020 which had been forecast to approximate 140 million lb U₃O₈, appears likely to decline by approximately 15% to 120 to 122 million lb U₃O₈. This is absent any further reductions during the remainder of 2020.

In the United States, the long-awaited report of the Nuclear Fuel Working Group was released on 23 April 2020. Entitled "Restoring America's Competitive Nuclear Energy Advantage - A strategy to assure US national security," amongst a broad spectrum of proposed strategies/programmes to revive the domestic nuclear power industry, the report calls for the establishment of a national Uranium Reserve created through the direct purchase of domestically-produced uranium. A total of USD 150 million was included in the proposed President's Budget for FY2021 (commencing 1 October 2020) with a similar budgetary item for a ten year forward timeline.  An estimated 17 to 19 million lb U₃O₈ could be procured under the proposed programme. 

On 11 September 2020, officials of the US Department of Commerce and the Russian State Atomic Energy Corporation, Rosatom, initialled a draft amendment to the Agreement Suspending the Antidumping Investigation on Uranium from the Russian Federation.  The so-called Russian Suspension Agreement had been scheduled to expire on 31 December 2020, thus removing the current 20% annual limit to Russian sales of enriched uranium product (EUP) to the US nuclear fuel market. The newly negotiated amendment entered into effect on 6 October 2020 and provides for increasingly restrictive limits on Russian sales until 2040. While, in the near term, the amendment allows for incrementally higher imports from Russia due to previous utility contracting, the uranium component declines markedly from current levels (more than 9 million lb U₃O₈ / year under the previous amendment) to no more than 5% of US uranium requirements (an estimated 2.4 million lb U₃O₈,/ year) beginning in 2026.

On 10 November 2020, the US Senate Appropriations Committee released drafts of FY 2021 funding measures and subcommittee allocations, which included the USD150 million for the creation of the Uranium Reserve.  The bipartisan bill, if passed into law, will provide full funding for the US Department of Energy to implement a programme for the Uranium Reserve. The bill will now go forward to the next step of Senate and House conferencing.

On 17 November 2020, a bipartisan bill the "American Nuclear Infrastructure Act of 2020", was introduced aimed at revitalizing US nuclear infrastructure.

Updated data was made available by both the US Energy Information Administration ("2019 Uranium Marketing Annual Report" - May 2020) as well as the Euratom Supply Agency ("Euratom Supply Agency Annual Report 2019" - 30 June 2020) for their respective commercial nuclear power fleets' fuel procurement and future requirements.  These reports indicate that forward uranium coverage remains high in the EU exceeding 100% until 2022 before declining to around 90% for 2023 and 2024 and falling to around 50% from 2026. However, the need to contract for future uranium deliveries remains high in the US with coverage at 65% or greater until 2023 but then declining rapidly to 47% in 2024 and 38% in 2025. Overall, US nuclear utilities are expected to commit for more than 205 million lb U₃O₈, to meet anticipated needs until 2029.

On 4 May 2020, the Euratom Supply Agency (ESA) released a report (update of 2015 assessment) entitled "Analysis of Nuclear Fuel Availability at EU Level from a Security of Supply Perspective." Developed by the ESA Advisory Committee Working Group on Prices and Security of Supply, the analysis identifies the threats and restrictions which could potentially jeopardise the availability of nuclear fuel (including uranium) and the provision of electricity at affordable prices to all EU consumers.  While current fuel supply and inventories were considered to be sufficient to ensure stable operations of all EU nuclear power plants, several risks potentially threaten fuel supply including: temporary suspension of production, or shortages in uranium mines; permanent reduction of production, and withdrawal from uranium mining exploration; lack of investment in mines; uncertain availability of secondary supplies of uranium; and increased demand for uranium in emerging markets leading to reduced supply in Europe. Specific recommendations to the EU utilities include diversification of supply sources, maintenance of an appropriate inventory and maintaining long-term and flexible contracts.

Uranium Market Outlook

Demand Outlook

As might be expected, impacts on global nuclear electricity generation from the COVID-19 pandemic have been varied. Some countries such as France have reported relatively marked declines in nuclear generation (France depends on nuclear power for more than 70% of its total installed capacity) while others such as China reported increased nuclear generation since early 2020 as economic activity rapidly recovered and newly-commissioned reactors entered commercial operations.

The global forecast for 2020 released by the International Energy Agency in October anticipated lower electricity demand and some construction delays would decrease nuclear generation by 4.5% compared to 2019 (although allowing for more rapidly economic recovery which would decrease that impact). The most recent Short-Term Energy Outlook (STEO) released by the US Energy Information Administration (October 2020) forecasts 2.2% less electricity consumption in the US in 2020 compared to 2019 as increased residential sales off-set anticipated reductions in retail and industrial electricity usage.  The EIA "expects 3% declines in nuclear generation in both 2020 and 2021, reflecting recent and planned retirements of nuclear generating capacity."  However, the nuclear share of US generation remains close to 20%.

Global energy demand in the medium- to longer term continues to increase as the economies of non-OECD countries develop and electricity consumption increases in developed markets as a result of trends such as the increased use of electric vehicles. Nuclear power is likely to remain a key contributor to global power supply and the US Energy Information Administration reference case forecasts a 29% increase in nuclear power globally by 2030 ^[17].

The latest World Nuclear Association's bi-annual nuclear fuel market report ^[18] reflects increasing uranium requirements over the next 20 years under all scenarios. The Reference Scenario envisions 2019 reactor consumption (175.8 million pounds U₃O₈) growing by a compound average growth rate (CAGR) of 1.9% per annum, reaching 220.6 million lb U₃O₈ by 2030 and 260 million lb U₃O₈ by 2040 while the Upper Scenario forecasts a CAGR of 3.4% per annum resulting in 2030 requirements of 269.1 million lb U₃O₈ rising to 357.8 million lb U₃O₈ by 2040.  Even the Lower Scenario shows a CAGR of 0.1% per annum.

Supply Outlook

The global uranium market continues to readjust to the announcement by Cameco regarding the restart of Cigar Lake and Kazatomprom's decision to reinitiate full ISR operations. While spot market supply volumes will not increase due to these operational decisions, increased availability of supply from these two major producers will incrementally reduce anticipated spot market purchases by these two companies.

Market volumes during the fourth quarter of 2020 could prove to be relatively modest as utilities evaluate nuclear fuel procurement strategies and programmes now that market-related issues, in particular the Nuclear Fuel Working Group's review as well as the amendment to the Russian Suspension Agreement have been clarified.

In a recent editorial, entitled "Is a Supply Pinch Developing?," UxC concluded that "while uranium prices have recently retreated slightly from earlier gains tied to the immediate effects of the COVID-19 pandemic, potential buyers should refrain from becoming too comfortable as market fundamentals indicate that a real supply pinch could emerge sooner than expected."

Andre Liebenberg - Chief Executive Officer

 

Chief Financial Officer's Report

I am pleased to present the unaudited condensed financial statements for the 6 month period ended 30 September 2020 ("half-year").

Highlights for the half-year

•Increase in the value of the Company's uranium holding from USD 263.5 million to USD 277.2 million during the half-year.

• Disposal of 300,000 lb of U₃O₈, realising a gain of USD 3.7 million.

·Total remaining holding of 9.32 million lb U₃O₈ acquired at an average cost of USD 21.71 /lb.

·Total increase in value of U₃O₈ held by Yellow Cake of 37% to USD 277.2 million relative to the aggregate acquisition cost of USD 202.3 million.

• Total uranium related profit of USD 23.5 million.

· Total comprehensive income after tax of USD 21.7 million.

•      Cash of USD 6.4 million at 30 September 2020.

Financial performance

Yellow Cake made a total uranium related profit of USD 23.5 million during the half-year. This comprised an increase in the fair value of the Company's uranium investment of USD 23.5 million, a premium to the prevailing spot price on the disposal of 300,000 lb U₃O₈ of USD 0.2 million and USD 1.1 million in location swap fees, of which USD 0.4 million was recognised during the period. These gains were partially offset by an increase in the fair value of a uranium derivative liability related to the Kazatomprom repurchase option of USD 0.6 million (detailed in note 5 of this report). 

Of the 9.62 million lb U₃O₈ held at the beginning of the period, 300,000 lb U₃O₈ was sold at the end of June 2020 at a price of USD 33.20 /lb and at a premium of USD 0.60 above the carrying value of USD 32.60 /lb ^[19] on the date of disposal, being the prevailing market price at the time. Following the disposal, the Company's uranium investment comprises 9.32 million lb U₃O_8.

The increase in the fair value of the Company's uranium investment of USD 23.5 million during the half-year was attributable to an increase of USD 5.20 /lb in the carrying value of the 300,000 lb U₃O₈ sold at the end of June 2020 and an increase of USD 2.35 /lb in the carrying value of the Company's remaining 9.32 million lb U₃O₈ uranium investment, as the underlying price of U₃O₈ increased from USD 27.40 /lb to USD 29.75 /lb over the period.

Operating expenses of an ongoing nature during the half-year amounted to USD 1.6 million (30 September 2019: USD 1.4 million) and comprised:

• Procurement and market consultancy fees (holding fees and storage incentive fees) paid to 308 Services Limited of USD 0.6 million (30 September 2019: USD 0.5 million); and

• Other operating expenses of USD 1.0 million (30 September 2019: USD 0.9 million).

Additional operating expenses relating to uranium transactions during the half-year amounted to USD 0.1 million (30 September 2019: USD 0.2 million).

Yellow Cake recorded total comprehensive income after tax of USD 21.7 million for the half-year (30 September 2019: (USD 3.1 million)).

The Company does not propose to declare a dividend for the half-year.

Balance sheet and cash flow

The value of Yellow Cake's investment in U₃O₈ increased from USD 263.5 million to USD 277.2 million during the half-year. Partially offsetting the increase in the Company's uranium investment, the value of the uranium derivative liability in favour of Kazatomprom increased by USD 0.6 million to USD3.1 million.

During the half-year, Yellow Cake received cash proceeds of USD 10.0 million from the sale of 300,000 lb U₃O_8, and applied USD 9.7 million to the purchase of the Company's shares.

As at 30 September 2020, Yellow Cake had cash and cash equivalents of USD 6.4 million (30 September 2019: USD 8.8 million).

Share Buyback Programme

On 22 January 2020, the Company initiated a share buyback programme (the "Programme") to purchase up to USD 2 million of the Company's ordinary shares during an initial period of three months, which was subsequently extended to 21 July 2020.

At the Programme's inception, the Company's shares were trading at a material discount to its underlying net asset value. The Yellow Cake Board therefore took the decision to implement a share buyback programme as a means of effectively acquiring exposure to uranium at a discount to the commodity spot price and delivering value to its shareholders.

On 8 July 2020, the Company announced an enlargement of the Programme to purchase up to USD 10 million over a period of three months which was subsequently extended to 30 October 2020, given that the Company's shares continued to trade at a significant discount to net asset value during this period.

Upon completion of the Programme on 30 October 2020, the Company had purchased 4,156,385 shares (held in treasury) for a total consideration of GBP 8.8 million (USD 11.4 million) at a volume weighted average price of GBP 2.13 per share and volume weighted average discount to net asset value of 21%.

 

Net Asset Value

Yellow Cake's estimated net asset value on 30 September 2020 was GBP 2.56 per share or USD 279.9 million ^[22], consisting of 9,316,385 lb of U₃O₈ valued at a spot price of USD 29.75 /lb ^[20], a derivative liability of USD 3.1 million ^[21] and other net current assets of USD5.9 million ^[22].

	Yellow Cake Net Asset Value as at 30 September 2020
			Units
	Investment in Uranium
	Uranium oxide in concentrates ("U3O8")	(A)	lb	9,316,385
	U3O8 fair value per pound (20)	(B)	USD/lb	29.75
	U3O8 fair value	(A) x (B) = (C)	USD m	277.2
	Uranium derivative liability (21)	(D)	USD m	(3.1)
	Cash and other net current assets/(liabilities) (22)	(E)	USD m	5.9
	Net asset value in USD m	(C) + (D) + (E) = (F)	USD m	279.9
	Exchange rate [23]	(G)	USD/GBP	1.2924
	Net asset value in GBP m	(F) / (G) = (H)	GBP m	216.6
	Number of shares in issue less shares held in treasury[24]	(I)		84,462,331
	Net asset value per share	(H) / (I)	USD/share	2.56

Yellow Cake's estimated net asset value as at 9 December 2020 was GBP 2.46 per share or USD 276.5 million, consisting of 9,316,385 lb of U₃O₈ valued at the weekly price of USD 29.50 /lb published by UxC LLC on 7 December 2020, a derivative liability of USD 3.1 million and other net current assets of USD 5.9 million as at 30 September 2020, less USD 1.0 million incurred on the buyback programme between 30 September 2020 and 30 October 2020 when the buyback programme concluded. Net asset value per share on 9 December 2020 is calculated based on a USD/ GBP exchange rate of 1.3380 assuming 88,215,716 ordinary shares in issue less 4,156,385 shares held in treasury on that date.

As at close on 9 December 2020, the Company's share price was GBP 2.24 per share, which represents a 9% discount to the above estimated net asset value of GBP 2.46 per share.

Carole Whittall - Chief Financial Officer
 

Independent Review Report to Yellow Cake Plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 which comprises the Condensed Statement of Financial Position, the Condensed Statement of Comprehensive Income, the Condensed Statement of Changes in Equity, the Condensed Statement of Cash Flows and the related explanatory notes. We have read the other information contained in the half-yearly report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' Responsibilities

The half-yearly financial report, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing and presenting the half-yearly financial report in accordance with the AIM Rules of the London Stock Exchange.

As disclosed in note 2, the annual financial statements of the Company are prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 September 2020 is not prepared, in all material respects, in accordance with International Accounting Standard 34, "Interim Financial Reporting" as adopted by the European Union, and the AIM Rules of the London Stock Exchange.

Use of our report

This report is made solely to the Company in accordance with International Standard on Review Engagements (UK and Ireland) 2410 "Review of Interim Financial Information performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. Our review work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed.

RSM UK Audit LLP

Chartered Accountants

25 Farringdon Street

London

EC4A 4AB

Date: 9 December 2020

Condensed Statement of Financial Position

		As at	As at
		30 September 2020	31 March 2020
		(unaudited)	(audited)
	Notes	USD '000	USD '000
ASSETS:
Non-current assets
Investment in uranium	3	277,162	263,489
Total non-current assets		277,162	263,489
Current assets
Trade and other receivables		170	89
Cash and cash equivalents	4	6,407	6,481
Total current assets		6,577	6,570
Total assets		283,739	270,059
LIABILITIES:
Non-current liabilities
Uranium derivative liability	5	(3,148)	(2,587)
Total non-current liabilities		(3,148)	(2,587)
Current liabilities
Trade and other payables		(703)	(392)
Deferred contract income	3	(736)	-
Total current liabilities		(1,439)	(392)
Total liabilities		(4,587)	(2,979)
NET ASSETS		279,152	267,080
Equity
Attributable to the equity owners of the company
Share capital	6	1,164	1,164
Share premium	6	224,437	224,437
Share based payment reserve	7	48	2
Treasury shares	8	(10,424)	(726)
Retained earnings		63,927	42,203
TOTAL EQUITY		279,152	267,080

 

Condensed Statement of Comprehensive Income

		1 April 2020	1 April 2019
		to	to
		30 September 2020	30 September 2019
		(unaudited)	(unaudited)
	Notes	USD '000	USD '000
Uranium related profit/(loss)
Fair value movement of investment in uranium	3	23,453	(1,115)
Uranium swap income	3	409	-
Premium to spot price on disposal of uranium	3	180	-
Fair value movement of uranium derivative liability	5	(561)	108
Total uranium related profit/(loss)		23,481	(1,007)
Expenses
Share based payments	7	(46)	-
Commission on uranium transactions	9	(132)	(152)
Procurement and market consultancy fees	9	(597)	(499)
Other operating expenses		(940)	(918)
Equity offering expenses		-	(547)
Total expenses		(1,715)	(2,116)
Bank interest income		-	93
Loss on foreign exchange		(42)	(45)
Profit/(loss) before tax attributable to the equity owners of the company		21,724	(3,075)
Tax expense		-	-
Total comprehensive income for the period after tax attributable to the equity owners of the company		21,724	(3,075)
Basic and diluted earnings/(loss) per shareattributable to the equity owners of the company (USD)	11	0.25	(0.04)

Condensed Statement of Changes in Equity

Attributable to the equity owners of the company   

		Share capital	Share premium	Share based payment reserve	Treasury Shares	Retained earnings	Total equity
	Notes	USD '000	USD '000	USD'000	USD'000	USD '000	USD'000
As at 31 March 2019 (audited)		1,007	192,248	-	-	29,694	222,949
Total comprehensive loss after tax for the year		-	-	-	-	(3,705)	(3,075)
Transactions with owners:
Shares issued	6	157	33,609	-	-	-	33,765
Share issue costs	6	-	(1,419)	-	-	-	(1,419)
As at 30 September 2019 (unaudited)		1,164	224,438	-	-	26,619	252,221
As at 31 March 2020 (audited)		1,164	224,437	2	(726)	42,203	267,080
Total comprehensive income after tax for the period		-	-	-	-	21,724	21,724
Transactions with owners:
Share based payments	7	-	-	46	-	-	46
Purchase of own shares	8	-	-	-	(9,698)	-	(9,698)
As at 30 September 2020 (unaudited)		1,164	224,437	48	(10,424)	63,927	279,152

 

Condensed Statement of Cash Flows

		1 April 2020	1 April 2019
		to	to
		30 September 2020	30 September 2019
		(unaudited)	(unaudited)
	Notes	USD '000	USD '000
Cash flows from operating activities
Profit/(loss) for the financial period		21,724	(3,075)
Adjustments for:
Change in fair value of investment in uranium	3	(23,453)	1,115
Change in fair value of uranium derivative liability	5	561	(108)
Premium to spot price on disposal of uranium	3	(180)	-
Change in fair value of share based payments	7	46	-
Loss on foreign exchange		42	45
Interest income		-	(93)
Cash used in operating activities before changes in working capital		(1,260)	(2,116)
Changes in working capital:
Increase in trade and other receivables		(81)	(27)
Increase in trade and other payables		304	215
Deferred contract income	3	736	-
Cash generated from/(used in) operating activities		960	(1,928)
Interest received		-	93
Net cash flow used in operating activities		(300)	(1,835)
Cash flows from investing activities
Acquisition of uranium	3	-	(30,409)
Proceeds of sale of uranium during the period	3	9,960	-
Net cash generated from/(used in) investing activities		9,960	(30,409)
Cash flows from financing activities
Proceeds from issue of shares	6	-	33,766
Issue costs paid	6	-	(1,419)
Share buyback programme	8	(9,698)	-
Net cash (used in)/generated from financing activities		(9,698)	32,347
Net (decrease)/increase in cash and cash equivalents during the period		(39)	103
Cash and cash equivalents at the beginning of the period		6,481	8,750
Effect of exchange rate changes		(35)	(51)
Cash and cash equivalents at the end of the period		6,407	8,802

 

Notes to the Condensed Interim Financial Statements

For the period from 1 April 2020 to 30 September 2020

1. General information

Yellow Cake plc (the "Company") was incorporated in Jersey, Channel Islands on 18 January 2018. The address of the registered office is Liberation House, Castle Street, St Helier, Jersey, JE1 2LH.

The Company operates in the uranium sector and was created to purchase and hold U₃O₈. The strategy of the Company is to invest in long-term holdings of U₃O₈and not to actively speculate with regards to short-term changes in the price of U₃O₈.

The Company was admitted to list on the London Stock Exchange AIM market ("AIM") on 5 July 2018, raising approximately GBP 151 million (c. USD 200 million) before expenses through an oversubscribed placing and subscription of 76,166,630 ordinary shares.

On 12 April 2019, the Company placed 12,000,000 new ordinary shares with existing and new institutional investors and certain of the Company's directors subscribed for 39,086 new ordinary shares, raising approximately GBP 25.9 million before expenses (c. USD 33.8 million).

2. Summary of significant accounting policies

Basis of preparation

The unaudited condensed interim financial statements for the six months ended 30 September 2020 have been prepared in accordance with International Accounting Standard 34 "Interim Financial Reporting." This report should be read in conjunction with the Company's annual financial statements for the period ended 31 March 2020, available on the Company's website (www.yellowcakeplc.com), which were prepared in accordance with International Financial Reporting Standards and International Financial Reporting Interpretations Committee pronouncements as adopted by the European Union. The audited financial information for the year ended 31 March 2020 is based on the statutory accounts for the financial year ended 31 March 2020. The auditors reported on those accounts: their report was unqualified and did not contain statements where the auditor is required to report by exception.

The accounting policies adopted and methods of computation followed in the condensed interim financial statements are consistent with those applied in the preparation of the Company's annual financial statements for the year ended 31 March 2020, with the addition of the policies below in respect of the sale and location swap of uranium and are expected to be applied to the Company's annual financial statements for the year ending 31 March 2021.

The unaudited condensed interim financial statements do not constitute statutory accounts within the meaning of Section 105 of the Companies (Jersey) Law 1991.

Accounting policy for sale of uranium and uranium swaps

The income in respect of disposals of uranium is recognised at the point when the significant risks and rewards of ownership have been transferred to the buyer. At the point of disposal the carrying value of the uranium, being the spot price, is derecognised from the balance sheet.

The gain or loss on disposal of uranium is calculated as the difference between the sales price and the carrying value, being the spot price, at the point of sale. This gain or loss is reflected as a premium or discount to the spot price on a separate line in the statement of comprehensive income during the period in which the disposal occurs.

The Company has entered into certain uranium location swap agreements under which it has agreed to exchange, by way of book transfer, an equal quantity of uranium between specified storage facilities. In certain instances, the location swap is temporary and the uranium will be swapped back to the original location at the end of an agreed term. Where the swap is temporary and for a fixed term, the income which the Company is entitled to receive in consideration for the swap is recognised over the term of the swap, in line with the substance of the transaction and delivery of the related performance obligations.

New and revised standards

At the date of approval of these condensed interim financial statements there are no new or revised standards that are in issue but not yet effective and are relevant to the financial statements of the Company.

Going concern

The Directors, having considered the Company's objectives and available resources along with its projected income and expenditure for at least 12 months from the date of approval of the condensed interim financial statements, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors have adopted the going concern basis in preparing these condensed interim financial statements.

The COVID-19 pandemic has had a material impact on the general economy and a number of the Company's counterparties. The Company's operations however remain currently unaffected by COVID-19, given that it has no physical operations and the executive team is already home-based. Yellow Cake's key service providers have put in place effective business continuity plans that have enabled them to continue with the provision of all key support services that were provided to the Company prior to the pandemic outbreak.

Yellow Cake has sufficient working capital to meet approximately 18 months of operating expenses before it would need to raise additional funds. The Company has no debt or hedge liabilities on its balance sheet. In the absence of other sources of capital, the Company can reasonably be expected to realise a portion of its investment in uranium to raise working capital if required.

Critical accounting judgements and estimation uncertainty

The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The resulting accounting estimates will, by definition, seldom equate to the related actual results.

Accounting estimates

The key accounting estimates in the period are the assumptions made in valuing the uranium derivative liability. These assumptions are set out in note 5 and the value of the derivative liability is USD 3,148,000 as at 30 September 2020.

Judgements

The Directors have considered the tax implications of the Company's operations and have reached judgement that no tax liability has arisen during the period which is consistent with the external advice received.

3. Investment in uranium

				Fair Value
				USD '000
As at 31 March 2019				217,366
Acquisition of U3O8				30,409
Change in fair value				15,714
As at 31 March 2020				263,489
Change in fair value				23,453
Sale of U3O8				(9,780)
As at 30 September 2020				277,162

The value of the Company's investment in U₃O₈ is based on the month end spot price for U₃O₈ of USD 29.75 /lb as published by UxC LLC on 30 September 2020 (31 March 2020: USD 27.40 /lb).

Acquisition of uranium

The Company has purchased a total of 9,616,385 lb of U₃O₈ at an average price of USD 21.69 /lb. The total cash consideration for the purchases was USD 208,564,000 made up as follows:

o  Purchase of 8,091,385 lb U₃O₈ from JSC Kazatomprom ("Kazatomprom") at IPO on 5 July 2018 for a cash consideration of USD 170,000,000 under a 10-year Framework Agreement (the "Initial Purchase").

o  A second purchase of 350,000 lb from Kazatomprom for a cash consideration of USD 8,155,000. 

o  A third purchase of 1,175,000 lb from Kazatomprom on 31 May 2019 under the Framework Agreement for a cash consideration of USD 30,409,000.

Location swaps

Since May 2018, Yellow Cake has held an account with Cameco Corporation ("Cameco") for the storage of uranium owned by the Company at Cameco's facilities at Blind River and Port Hope, Ontario in Canada.

On 15 November 2019, the Company entered into an agreement with Orano Cycle ("Orano") to open a holding account for the storage of uranium owned by the Company at Orano's conversion facility at the Malvesi and Tricastin sites in France.

During the period, the Company entered into the following two location swap transactions:

1)  On 3 April 2020, a location swap agreement was entered into to exchange 100,000 lb of U₃O₈, earning an exchange fee of USD 20,000.  On 20 April 2020, the Company transferred 100,000 lb of U₃O₈from the Cameco facility to the Orano facility in satisfaction of its obligations under this location swap agreement.

2)  On 24 July 2020, a series of location swap agreements were entered into to exchange 500,000 lb U₃O₈located at Cameco's storage facility in Canada for an equal volume of U₃O₈located at Orano's storage facility in France for a period of six months. At the end of the term, the U₃O₈ will be swapped back to its original location. In consideration, Yellow Cake received proceeds of USD 1.0 million, net of costs and commissions (gross proceeds of USD 1,125,000). As a consequence of the swap reversal transaction, the income is being recognised over the 6 month life of the location swap agreement. As at 30 September 2020, USD 735,811 was recognised as deferred contract income and USD 389,189 was recognised in the condensed statement of comprehensive income. 

Following period end, the date of the reverse location swap date was extended by four months. This location swap will be reversed in May 2021 when the Company will again receive the same volume of uranium in Canada in exchange for uranium held in France. In consideration for the extension of the reverse swap transaction, the Company will receive an additional fee of USD 90,000 net of costs and commissions, which will be recognised post period end.

Sale of uranium

On 26 June 2020, the Company sold 200,000 lb of U₃O₈ to Cameco at a price of USD 33.20 /lb for a total cash consideration of USD 6,640,000.

On 29 June 2020, the company sold a further 100,000 lb of U₃O₈ to Cameco at a price of USD 33.20 /lb for a total cash consideration of USD 3,320,000.

In respect of the above two disposals, a premium of USD 0.60 /lb to the prevailing June 2020 month-end spot price of USD 32.60 /lb (as published by UxC, LLC), or USD 180,000, has been recognised in the condensed statement of comprehensive income. This premium represents the cumulative disposal proceeds of USD 9,960,000 less the carrying value at the respective dates of disposal of USD 9,780,000, being the premium on spot price (and therefore carrying value) that was realised on disposal.

For illustrative purposes, this sale of uranium resulted in an effective "realised gain" of USD 3,657,000 since the U₃O₈ was originally purchased, being the sales proceeds USD 9,960,000 less the "acquisition cost" of USD 6,303,000, where the "acquisition cost" is estimated by applying a "first in first out" methodology to the cost of all uranium purchases made by the Company.

The following table provides an analysis of the Company's investment in U₃O₈ at 30 September 2020:

Location	Quantity lb	Fair Value USD '000
Canada	8,716,385	259,312
France	600,000	17,850
Total	9,316,385	277,162

4. Cash and cash equivalents

Cash and cash equivalents as at 30 September 2020 were banked with Citi Bank Europe plc in a variable interest account with full access. Balances at the end of the period were USD 5,410,485 and GBP 771,358, a total of USD 6,407,389 equivalent (31 March 2020: USD 6,480,964 equivalent).

5. Uranium derivative liability

As part of the Initial Purchase mentioned in note 3 above, the Company benefited from a purchase price which was 2.5% below the spot price, resulting in the Company receiving an aggregate discount of approximately USD 4.3 million. In exchange for this discount, the Company provided to Kazatomprom an option to repurchase up to 25% of the Initial Purchase volume of 8,091,385 lb U₃O₈ at the prevailing uranium spot price less an aggregate discount of approximately USD 6.5 million (the "Repurchase Option"). The Repurchase Option can only be exercised if the U₃O₈ spot price exceeds USD 37.50 /lb for a period of 14 consecutive days, starting three years from 5 July 2018 and expiring on 30 June 2027.

The Company has the option to purchase from Kazatomprom all or a portion of the volume repurchased by Kazatomprom under the Repurchase Option. The Company's option may be exercised in whole or in part and in one or more separate exercises during the period commencing on the delivery date for the Repurchase Option ending on 30 June 2027.

The fair value of the Repurchase Option granted to Kazatomprom has been determined at USD 3,148,000 as at 30 September 2020 (31 March 2020: USD 2,587,000) based on the expected option payoff using a Monte Carlo simulation.

A valuation date price of USD 29.75 /lb, annual volatility of 22.0% and one-year US risk-free rate of 0.12% were used to simulate spot price as at 4 July 2021, after which monthly volatility of 6.0% and monthly US risk-free rate of 0.010% were assumed to simulate monthly prices to 30 June 2027. The uranium derivative liability is classified within level 2 of the fair value hierarchy as at 30 September 2020.

6. Share capital

Authorised:
10,000,000,000 ordinary shares of GBP 0.01
Issued and fully paid:
Ordinary shares
	Number	GBP '000	USD '000
Share premium as at 31 March 2019	76,176,630	762	1,007
Issued 12 April 2019	12,039,086	120	157
Share capital as at 31 March 2020	88,215,716	882	1,164
Share capital as at 30 September 2020	88,215,716	882	1,164

Share premium
		GBP '000	USD '000
Share premium as at 31 March 2019		145,384	192,248
Proceeds of issue of shares		25,764	33,609
Share issue costs		(1,192)	(1,419)
Share premium as at 31 March 2020		169,956	224,437
Proceeds of issue of shares		-	-
Share issue costs		-	-
Share premium as at 30 September 2020		169,956	224,437

The Company has one class of shares which carry no right to fixed income.

7. Share-based payments

The Company implemented an equity-settled share-based compensation plan in 2019 which provides for the award of long-term incentives and an annual bonus to management personnel. 

Annual bonus

The annual bonus award in relation to a financial year is usually granted following publication of the Company's audited annual results for that financial year. The 2019 annual bonus award was based on commercial targets and was reduced from the 100% maximum award to 35% primarily due to the uncertainties arising from the COVID-19 pandemic and the resulting impact on the global economy. The bonus awards are in the form of nil-cost options, which will vest and become exercisable not earlier than one year after grant.

Set out below is the summary of the annual bonus awards granted on 8 July 2020 in relation to the year ended 31 March 2020:

Grant date	Exercise date	Exercise price		Opening balance		Granted		Exercise		Expired/forfeited/other	Closing balance
08/07/2020	08/07/2021	GBP 0.01		-		49,305		-		-	49,305

A Black‐Scholes option pricing model was used to determine the fair value the bonus awards. The valuation model inputs used to determine the fair value at the grant date are as follows:

Grant date	Exercise date	Start price at grant date	Exercise price	Expected volatility	Risk-free interest rate	Fair value at grant date	Fair value at grant date
08/07/2020	08/07/2021	GBP 2.26	GBP 0.01	30%	(0.01%)	GBP 110,690	USD 143,056

Long-term incentive

The long-term incentive is in the form of options granted to acquire shares in the Company that will become exercisable not earlier than three years after grant (save in certain circumstances including a change of control of the Company) and will expire 10 years after the date of grant. The option exercise price has been determined to be the net asset value per share at the grant date of the shares placed under option. The options are subject to a post-vesting holding period of not less than two years (although sufficient shares may be sold on exercise in order to meet tax liabilities arising at vesting). The face value of shares subject to the grants may be up to 125% of salary. Each option gives the right to acquire one share in the Company. The long-term incentive award relating to a financial year is usually granted at the beginning of that financial year. The exercise of each of the long-term incentive option is conditional upon the share price as at the exercise date being equal to or greater than the net asset value per share of the Company as at the date of grant.

The exercise of each of the long-term incentive option is conditional upon the share price as at the exercise date being equal to or greater than the net asset value per share of the Company as at the date of grant. Set out below is the summary of the long-term incentive options awarded on 24 February 2020 in relation to the year ended 31 March 2020 and on 8 July 2020 in relation to the 2021 financial year:

Grant date	Exercise date	Exercise price	Opening balance	Granted	Exercise	Expired/forfeited/other	Closing Balance
24/02/2020	24/02/2023	GBP 2.13	152,064	-	-	-	152,064
08/07/2020	08/07/2023	GBP 2.88	-	140,871	-	-	140,871

Subsequent to the grant of the 2020 and 2021 long term incentive awards, the plan was amended such that the exercise price per share represents the estimated net asset value per share on the grant date.

This has resulted in the exercise price of the options granted on 24 February 2020 being increased from GBP 1.97 per share (being the average of the mid-market closing price of the ordinary shares of the Company on AIM over the five consecutive dealing days immediately preceding the grant date) to GBP 2.13 per share (being the estimated net asset value per share of the Company on 24 February 2020). The exercise price of the long-term incentive options granted on 8 July 2020 have also been increased from GBP 2.18 per share (being the average of the mid-market closing price of the ordinary shares of the Company on AIM over the five consecutive dealing days immediately preceding the grant date) to GBP 2.88 per share (being the estimated net asset value per share of the Company on 8 July 2020). 

The exercise price for the long-term incentive options granted on 24 February 2020 was amended after the grant date such that the fair value of these options was reduced, as measured immediately before and after this modification. In accordance with IFRS 2, this reduction in fair value is not taken into account and the Company will continue to measure the amount recognised for services received as consideration for the incentive options, based on the grant date fair value.

A Black-Scholes option pricing model was used to determine the fair value of the long-term incentive options. The valuation model inputs used to determine the fair value at the grant date are as follows:

Grant date	Exercise date	Start price at grant date	Exercise price	Expected volatility	Risk-free interest rate	Fair value at grant date GBP	Fair value at grant date USD
24/02/2020	24/02/2023	GBP 1.95	GBP 1.97	25%	0.40%	GBP 46,075	USD 59,547
08/07/2020	08/07/2023	GBP 2.26	GBP 2.88	30%	(0.08%)	GBP 33,950	USD 43,877

 

8. Treasury shares

	Number	GBP '000	USD '000
Treasury shares as at 31 March 2019	-	-	-
Purchased in the year	309,788	565	726
Treasury shares as 31 March 2020	309,788	565	726
Purchased in the period	3,443,597	7,504	9,698
Treasury shares as at 30 September 2020	3,753,385	8,069	10,424

On 22 January 2020, the Company initiated a share buyback programme to purchase up to USD 2 million of the Company's ordinary shares (the "Programme") during an initial period of three months.

At the Programme's inception, the Company's shares were trading at a material discount to its underlying net asset value. The Yellow Cake Board therefore took the decision to implement a share buyback programme as a means of effectively acquiring exposure to uranium at a discount to the commodity spot price and delivering value to its shareholders.

On 30 April 2020, the Company extended the Programme to the earlier of 21 July 2020 or the date on which USD 2 million had been incurred in the purchase of the Company's shares.

On 8 July 2020, the Company announced an enlargement of the Programme to purchase shares of up to USD 10 million in aggregate value over three months, given that the Company's shares continued to trade at a significant discount to net asset value. The duration of the Programme was subsequently extended to 30 October 2020 and completed on that date.

As at 30 September 2020, the Company had acquired 3,753,385 shares (held in treasury) at a volume weighted average price of GBP 2.14 per share, for a total cost of USD 10,424,139 (including USD 31,526 in transactional costs) and at a weighted average discount to net asset value of 20%.

The share buyback programme concluded on 30 October 2020, with a total of 4,156,385 shares acquired at an average price of GBP 2.13 per share, for a total cost of USD 11.4 million (GBP 8.8 million) and a weighted average discount to net asset value of 21%. All the shares repurchased are held in treasury.

9. Commission, procurement and consultancy fees

308 Services Limited ("308 Services") provides procurement services to the Company relating to the sourcing of U₃O₈ and other uranium transactions and in securing competitively priced converter storage services.

In terms of the agreement entered into between the Company and 308 Services on 30 May 2018, 308 Services is entitled to receive (i) a Holding Fee comprised of a Fixed Fee of USD 275,000 per calendar year plus a Variable Fee equal to 0.275% per annum of the amount by which the value of the Company's holdings of U₃O₈ exceeds USD 100 million and (ii) an Annual Storage Incentive Fee equal to 33% of the difference between the amount obtained by multiplying the Target Storage Cost (initially set at USD 0.12 /lb per year) by the volume of U₃O₈ (in pounds) owned by the Company on 31 December of each respective year and the total converter storage fees paid by the Company in the preceding calendar year. 

The Company considers Holding Fees and Storage Incentive Fees to be costs of an ongoing nature. During the period the Company paid Holding Fees and Storage Incentive Fees of USD 597,158 (30 September 2019: USD 499,284) to 308 Services.

308 Services is also entitled to receive a commission equivalent to between 0.5% to 1.0% of the transaction value in respect of uranium sale and purchase transactions. During the period, the Company paid a commission of 0.5% of the value of uranium transacted in respect of the sale and swap of U₃O₈ amounting to USD 132,050 (31 September 2019: 0.5% purchase commission of USD 152,045).

10. Related party transactions

During the period, the Company incurred USD 91,040 (30 September 2019: USD 77,568) of administration fees payable to Langham Hall Fund Management (Jersey) Limited ("Langham Hall"). Alexandra Nethercott-Parkes is an employee of Langham Hall and has served as a Non-Executive Director of the Company since 18 July 2019 for which she has received no Directors' fees. As at 30 September 2020 there were no amounts payable to Langham Hall (31 March 2020: USD nil).

The key management personnel are the Directors (there are no other employees) and their aggregate remuneration during the period was USD 278,500 (30 September 2019: USD 278,500.) The following Directors own ordinary shares in the Company:

Name	Number of ordinary shares	% of share capital
The Lord St John of Bletso*	26,302	0.03%
Sofia Bianchi	18,838	0.02%
The Hon Alexander Downer	29,925	0.03%
Alexandra Nethercott-Parkes	-	0.00%
Alan Rule	18,837	0.02%
Andre Liebenberg	73,207	0.08%
Carole Whittall	11,302	0.01%
Total	178,411	0.20%

* The Lord St John of Bletso's shares are held through African Business Solutions Limited, in which he holds 100% of the Ordinary Shares.

While the Non‐Executive Directors hold shares in the Company, the holdings are considered sufficiently small so as not to impinge on their independence.

11. Earnings/(loss) per share

	1 April 2020	1 April 2019
	to	to
	30 September 2020	30 September 2019
	(unaudited)	(unaudited)
	USD '000	USD '000
Profit/(loss) for the period (USD '000)	21,724	(3,075)
Weighted average number of shares*	86,855,567	87,492,055
Earnings/(loss) per share attributable to the equity owners of the Company (USD):
Basic and diluted	0.25	(0.04)

*The weighted average number of shares excludes treasury shares.

The Company's share options are not dilutive at the reporting date.

12. Events after the period end

On 27 October 2020, the location swap agreement of 24 July 2020 was amended to defer the reverse swap transaction from January 2021 to May 2021. In consideration, the Company will receive an additional fee of USD 90,000 net of costs and commissions.

On 31 October 2020, the Company's share buyback programme concluded with an additional 403,000 shares being acquired post period end for an aggregate consideration of GBP 794,219 (USD 1,029,725).

 

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[1]     Net asset value per share on 30 September 2020 is calculated assuming 88,215,716 ordinary shares in issue less 3,753,385 shares held in treasury, the Bank of England's daily USD/ GBP exchange rate of 1.2924 on 30 September 2020 and the month-end spot price published by UxC LLC on 28 September 2020.

[2]     Month end spot price of USD 29.75 /lb published by UxC LLC on 28 September 2020.

[3]     Based on the month end spot price of US 29.75 /lb published by UxC LLC on 28 September 2020.

[4]    For illustrative purposes, this sale of uranium resulted in an effective "realised gain" of USD 3,657,000 since the U₃O₈ was originally purchased, being the sales proceeds USD 9,960,000 less the "acquisition cost" of USD 6,303,000, where the "acquisition cost" is estimated by applying a "first in first out" methodology to the cost of all uranium purchases made by the Company.

[5]    Yellow Cake's estimated net asset value on 9 December 2020 was USD 276.5 million, consisting of 9,316,385 lb of U₃O₈ valued at the weekly price of USD 29.50 /lb published by UxC LLC on 7 December 2020, a derivative liability of USD 3.1 million and other net current assets of USD 5.9 million as at 30 September 2020 less USD 1.0 million incurred on the buyback programme between 30 September 2020 and 30 October 2020 when the buyback programme concluded. The estimated net asset value per share as at 9 December 2020 is calculated assuming 88,215,716 ordinary shares in issue less 4,156,385 shares held in treasury on that date and a USD / GBP exchange rate of 1.3380.

[6]   World Nuclear Association: The Nuclear Fuel Report, Global Scenarios for Demand and Supply Availability 2019-2040; September 2019.

[7]    "India Plans Expansion of Nuclear Fleet, says DEA Chairman," World Nuclear News (World Nuclear Association), 21 October 2019.

[8]    World Nuclear Association. "Uranium Production Figures, 2010-2019,"November 2020.

[9]    World Nuclear Association, "World Nuclear Power Reactors & Uranium Requirements", November 2020

[10]  UxC LLC 2020 Second Quarter 2020 Market Update, June 2020.

[11]   International Energy Agency, "World Energy Outlook 2020", October 2020, www.iea.org.

[12]   World Nuclear Association, World Nuclear Power Reactors & Uranium Requirements (November 2020).

[13]  "India Plans Expansion of Nuclear Fleet, says DEA Chairman," World Nuclear News (World Nuclear Association), 21 October 2019.

[14]   World Nuclear Association: The Nuclear Fuel Report, Global Scenarios for Demand and Supply Availability 2019-2040; September 2019.

[15]   UxC LLC 2020, Ux Weekly, 2 November 2020.

[16]  UxC LLC 2020, Ux Weekly, 12 October 2020.

[17]   US Energy Information Administration 2019 Uranium Marketing Annual Report (May 2020).

[18] World Nuclear Association: The Nuclear Fuel Report, Global Scenarios for Demand and Supply Availability 2019-2040; September 2019. 

[19]  Month-end spot price published by UxC LLC on 29 June 2020.

[20]   Month-end spot price published by UxC LLC on 28 September 2020.

[21]  Estimated current value of the Kazatomprom repurchase option under the framework agreement, which is a potential liability of USD 6.5 mm and may only be exercised if the spot U₃O₈ price exceeds USD 37.50 /lb for a period of 14 days during the period between 4 July 2021 and 30 June 2027.

[22]  As at 30 September 2020. Includes cash and cash equivalents of USD 6.4 million. Assumes USD 1.1 million in location swap income is recognised in the six months to 30 September 2020.

[23]   Bank of England's daily USD/ GBP exchange rate of 1.2924 on 30 September 2020.

[24]   Net asset value per share on 30 September 2020 is calculated assuming 88,215,716 ordinary shares in issue less 3,753,385 shares held in treasury on that date.

 

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