Uranium’s New Era of High Prices, Geopolitical Rivalry

Uranium’s New Era of High Prices, Geopolitical Rivalry

Policy as well as technology shifts offer opportunities for ETF investors.

Sean-Daly310x310
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Reviewed by: Lisa Barr
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Edited by: Daria Solovieva

Worries about an impending recession may have suppressed energy commodity prices this year, but uranium has not had that problem.  

Years of underinvestment and a general reevaluation of nuclear power’s place in the clean energy transition suggests the recent rally will continue. Bank of America’s Global Research projects uranium spot prices to increase by 34% by the end of 2025. 

The European Union’s abrupt policy shift, a massive reactor buildout in Asia, and the fast-tracking of safer small modular reactor designs by the Biden administration all suggest a new era.  

New trading instruments are arriving in the space to capitalize on this. The recent launch of the Zuri-Invest Actively Managed Certificates (Uranium AMC) is emblematic of a secular change that could last a decade.  

ETF Exposure 

Since utilities depend on long-term contracts and new reactors can take five to 10 years to complete, this is a “long ball” investment theme. And that’s why exchange-traded funds are so well-suited for this market.  

The Sprott Uranium Miners Fund (URNM), the VanEck Uranium+Nuclear Energy ETF (NLR), the Global X Uranium ETF (URA)and the Sprott Junior Uranium Miners ETF (URNJ) all offer exposure to companies involved in uranium mining and nuclear energy.  

 

Nuclear_ETF_Components

 

URNMtracks the North Shore Global Uranium Mining Index, an index that is rebalanced semiannually and includes companies focused on the mining, exploration, development and production of uranium, or holding physical uranium or owning of uranium royalties.  

Cameco and Kazatomprom are the two biggest miners in the space, taking the top two slots and nearly 30% of the ETF’s total holdings. The third holding, the Sprott Physical Uranium Trust, is a Toronto-based financial vehicle that offers direct exposure to physical uranium ownership and the spot price.  

NLR, on the other hand, is not a pure-play. It has a 40% exposure to the utilities that at least partially use nuclear power: PG&E, Constellation and others. This gives it great balance during uranium bear markets, but these firms are hurt by today’s rising uranium prices.  

With $1.57 billion in AUM, the Global X Uranium ETF (URA) is the largest fund in the sector. It tracks the Solactive Global Uranium & Nuclear Components Total Return Index, focusing on the exploration, extraction, refining of uranium and the manufacturing of equipment for nuclear industry.  

URA is very concentrated—its top four picks account for more than 50% of total holdings, and it leans into Canadian firms. NexGen, its third largest holding, is a Saskatchewan miner focused on the southwest corner of the Athabasca Basin, a very rich source of uranium.  

 

Top_Uranium_Holdings_July_6_2023

 

Its proposed Rook 1 mine has the potential to be the lowest-cost supplier of uranium in the world within the decade.  

For investors looking for similar “blue sky” opportunities, URNJ is a good speculative bet. In addition to NexGen, it counts Aussie firm Paladin Energy, which owns a majority stake in the Langer Heinrich Uranium mine in Namibia, and Uranium Energy Corp, in its top three. These junior miners are most correlated to the opportunities of higher uranium spot prices than mega-miner Cameco, which is more deeply bound by long-term contracts.  

Both have mines that will be coming online as uranium likely hits $60-plus in the coming year when a supply shock might be most imminent.

16-Year Cycles 

Uranium appears to operate according to 16-year cycles. The last time uranium spiked was 16 years ago, when the monthly USD/lb spot price went from $10 in 2003 to around $136 in early 2007, before dropping down to $40 in 2010.  

 

Uranium_Bubble_July_6_2023

 

The Uranium spike of 2007 occurred when higher oil prices and growing demand from China’s nuclear program coincided with a supply puncture, specifically the flooding of the Cigar Lake Mine, a major extraction site in Canada.  

Today’s market is different. Demand is growing in Europe and the U.S., not just the developing world, and there is a new geopolitical impetus for resources from friendly nations. In fact, this friend-shoring or near-shoring element might be the most enduring structural change to the market.  

The G7 is seeking to push Russia, a major supplier, out of the nuclear energy supply chain entirely. In May, a bill to ban imports of Russian uranium moved further through the U.S. House of Representatives. The Prohibiting Russian Uranium Imports Act is not law, but if enacted this fall, it would technically halt all purchases of Russian uranium within 90 days, with long-term contracts left to unwind.  

More broadly, Russian partial ownership of—and proximity to—Kazakhstan’s mission-critical uranium resources is a liability. Russia sent 3,000 paratroopers into the nation in early 2022 to help quell unrest.  

Existing long-term contracts by Kazatomprom will assuredly be kept with the West, but Astana’s fabled multivector foreign policy might be coming to an end this decade, the pull of China, Russia, and other SCO and EAEU neighbors being too great. Today’s AI chip and commodity embargos could easily be the first skirmish in a hegemonic struggle that lasts a century.  

Big-Picture View 

Three Mile Island, Chernobyl and Fukushima are disasters that point to the inherent dangers of nuclear fission. They rightfully tarnished the industry. But the rise of far safer, SMR design could vanquish those risks to history, the relic of a distant era, like steamship boiler explosions.  

A modern lithium-ion battery has an energy density of 0.5 megajoules per kilogram, a decided step backward, and wind and solar have intermittency issues, low capacity and low conversion efficiency. A species of iPhone-toting, MacBook-carrying, AI-enabled and AC-chilled digiterati will require enormous, uninterrupted electrical power in the coming century.  

Long-term investors with a speculative eye on future trends might find a small position in the nuclear ETFs advisable.  

Note: Corrects Sprott Physical Uranium Trust's location as Toronto in eighth paragraph.

Sean Daly writes on ETFs, biotech and wealth management. He was educated at Columbia University and has taught international finance, computing and financial risk management at Pace, Tulane and Princeton. Follow him on Twitter (X) via @Sean_Daly_.