A boom in uranium stocks in the last 12 months – driven by shrinking supply and increased interest from Western governments – has triggered a flood of capital raising from ASX uranium developers this year.
Given the strong demand, Deep Yellow’s own capital raise in March issued shares at around $1.225 apiece, more than 20¢ below the stock’s close on Monday. In a recent note to investors, MMCap noted its stake in the raise had performed well for the fund.
“A financing in Australian listed Deep Yellow has performed well trading up 9 per cent from the financing price during March,” the fund said.
But while the capital raise may have attracted the fund into the stock, another potential market event is keeping them there.
“Deep Yellow is a candidate for inclusion in the ASX 200 in the upcoming June rebalance that has the potential to create material index demand and drive continued strong relative performance,” the fund said.
MMCap’s hope that Deep Yellow’s inclusion in Australia’s benchmark index will see funds flow into the uranium stock. It’s also in contrast to the flood of short sellers that have also piled into the company in recent months.
Short positions in Deep Yellow ratcheted up earlier this year peaking at around 10 per cent of the float in January as traders bet the stock would fall when it was forced to raise capital.
Even after the capital raising completed, there is still around 6 per cent of shareholders – amounting to about $75 million – that are betting the stock will fall.
A growing presence
Deep Yellow is the latest investment by MMCap into the uranium sector. The fund has also been rapidly increasing its stake in fellow ASX hopeful Aura Energy.
The Melbourne-based miner is set to benefit if Sweden overturns its six-year ban on uranium mining, unlocking its Haggan tenement, which contains an estimated 800 million pounds (362 million kilograms) of uranium – one the largest known reserves globally.
The company also recently raised a further $16 million to bring its flagship Tiris uranium project in Mauritania to fruition.
After a flurry of share purchases over the last year, MMCap now owns around 16 per cent of Aura’s float, making it the stock’s largest shareholder, behind Lind, a New York fund manager and venture capitalist firm, which boasts Australian mining heir John Hancock on its advisory board.
Mr Hancock, son of Australia’s richest person Gina Rinehart, also holds a stake in Aura Energy.
MMCap’s holding in Aura comes after it also quickly established an 8 per cent position in fellow ASX uranium play Bannerman Energy last year. Rather than holding the stocks outright, however, MMCap’s investments are held as so-called cash settled equity swap positions through Macquarie Bank.
This isn’t the first time MMCap has followed retail investors into a booming stock sector, however.
Filing from the late 2010s show MMCap was highly active in Canada’s fast-growing listed cannabis industry. According to some reports, the fund used the high investor demand to quickly turn around cheap company financing into profitable trades.
Filings with the US SEC show the fund retained a sizeable 697,000-share stake in MedMen, a Canadian cannabis dispensary chain that fell into receivership earlier this month.
MMCap did not respond to a request for comment.
