After languishing in a bear market for a decade, uranium has staged an impressive comeback as Russia’s war on Ukraine exacerbated the global energy crisis and sent Europe scrambling to replace Russian oil and gas. Uranium prices have more than doubled over the past two years from $30 per pound in January 2021 to a high of $64, thanks in large part to nuclear power now being viewed as being indispensable in the global decarbonization drive. Right now, Uranium futures are trading at around $52 per pound, and it’s a unique setup that doesn’t necessarily rise and fall in tandem with other commodities.
“We will see increased investments in alternative energy and I think that nuclear is one of the best forms of green energy with no emissions, and currently nuclear accounts for just 10 percent of the world’s energy production,” Neena Mishra, director of ETF research with Zacks Investment Research in Chicago, has told Globe and Mail.
Countries feeling the worst of the energy crisis have been restarting mothballed nuclear plants or extending the life of existing ones. For instance, France has promised to restart all its nuclear reactors to avoid a power crunch during winter while Germany is seriously considering doing a u-turn on its nuclear phaseout. Germany decided to stop using atomic energy in 2011, with the last remaining plants set to be closed in the current year.
Meanwhile, China has revealed ambitious plans to build 150 nuclear reactors at a staggering cost of $440B over the next 15 years as the country looks to become carbon neutral by 2060.
That number of reactors is more than what the entire planet has built in the past 35 years, representing a third of the current global fleet of 440 reactors. China is the biggest emitter of greenhouse gasses, but says its nuclear program will play a critical role in replacing its 2,990-coal fired generators alongside wind and solar energy. Indeed, Beijing says its nuclear plans could prevent about 1.5 billion tons in annual carbon emissions, more than the annual emissions of the U.K., Germany, France and Spain combined.
And, of course, it’s not just about carbon emissions. It never is. For China, nuclear energy is about cost efficiency.
About 70% of the cost of Chinese reactors are covered by loans from state-backed banks, meaning dramatically lower costs. In fact, Francois Morin, China director at the World Nuclear Association, says China can generate nuclear power at just $42 per megawatt-hour thanks to the low 1.4% interest rate on loans for infrastructure projects, making it far cheaper than coal and natural gas in many places.
At the high end of the spectrum, in developed economies, a 10% interest rate means the cost of nuclear power shoots up to $97 per megawatt-hour, more than double China’s tab but still cheaper than natural gas which is now trading around $210 per megawatt-hour. The World Nuclear Association estimates that China can build nuclear plants for about $2,500 to $3,000 per kilowatt, about one-third the cost of the latest nuclear projects in the U.S. and France.
Another bullish catalyst for uranium: strong market fundamentals. Annual consumption currently exceeds production while stockpiles of excess uranium are depleting.
Source: Financial Times
Playing The Uranium Rally
Macquarie Bank is long-term bullish on uranium, and has lifted its price forecast for yellowcake by 17 percent to $US55/lb for financial year 2024 and by 21 percent to $US60/lb for the following year based on increased contracting activity, a renewed focus on energy security and a forecast supply deficit for the nuclear fuel.
Macquarie likes Paladin Energy (OTCQX: PALAF) and Boss Energy (OTCQX:BQSSF) because they have all the necessary permits and they are operating in key uranium venues (Australia) with clear paths to a very optimistic market. Both companies develop, explore for, and operate uranium mines in Australia.
There are limited options for ETF investors to play the expected nuclear renaissance due to uranium’s prolonged out-of-favor status since the 2011 Fukushima disaster in Japan as well as its niche role in the commodity sphere.
Investors have two U.S. ETF options: the Global X Uranium ETF (NYSEARCA: URA) and the Sprott Uranium Miners ETF (OTCPK: URNM). URA has $1.76B in assets under management (AUM) with an expense ratio of 0.69% while URNM has $1B in assets and an expense ratio of 0.85%.
The Horizons Global Uranium ETF (TSX: HURA) is an exchange-traded fund launched and managed by Horizons ETFs Management (Canada) Inc. The fund mainly invests in stocks of uranium miners, with Cameco Corp. (NYSE: CCJ), Yellow Cake Plc. (OTCQX: YLLXF) and National Atomic Co. Kazatomprom accounting for more than 61% of its holdings.
A major distinction between the two U.S. ETFs from HURA are their holdings in physical uranium through Sprott Physical Uranium Trust units. The Sprott units comprise 8.7 percent of URA’s portfolio.
Investors could also check out Sprott’s Physical Uranium Trust (OTCPK: SRUUF), which trades on the Toronto Stock Exchange in both U.S. and Canadian dollars. The fund, which started trading just over a year ago, is the largest and only publicly listed physical uranium fund currently operating. SRUUF has $3-billion in assets and a 0.96% expense ratio.
By Alex Kimani for Oilprice.com
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