Nuclear power holds a unique spot in the transition from fossil fuels to sustainable energy.
On the one hand, its main fuel, uranium, has to be mined, raising all sorts of environmental and social concerns if done irresponsibly. Radioactivity is also terrible for the environment in the event of an accident, and nobody wants spent fuel in their backyard.
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On the other hand, nuclear energy can provide baseload power without the emissions of coal or natural gas and without being susceptible to the on-and-off nature of solar and wind energy.
Can investing in uranium through uranium stocks, funds and futures offer a chance to take advantage of this dynamic and valuable metal?
Even as some countries are winding down their nuclear programs, the United States has set aside billions in the recently passed infrastructure bill to support the next generation of nuclear reactors. The European Commission is working on a draft text that would include nuclear power “as a means to facilitate the transition towards a predominantly renewable-based future.” On the supply side, recent turmoil in Kazakhstan, the world’s largest producer of the radioactive metal, has also contributed to rising prices.
“The fundamentals of uranium continue to improve, with demand for uranium now exceeding pre-Fukushima levels and global mine production expected to lag global consumption,” says Global X analyst Rohan Reddy. “A deficit is expected to persist for the next couple years as utilities begin re-contracting, but mining supply remains tapered.”
With that backdrop, uranium futures prices are up about 40% over the past year, and investors may want to consider the following ways to get exposure to potential further price increases:
— Uranium stocks
— Exchange-traded funds
— Futures
— A physical fund
— Royalties
Risks of Investing in Uranium
Before jumping in, though, investors should consider the risks to investing in uranium.
Matthew Tuttle, CEO of Tuttle Capital Management, cautions that the uranium market is “extremely volatile.” Any commodities-related investments can be particularly volatile, as most are closely tied to boom-or-bust economic cycles. Unique to uranium, there is also the public fear of radioactive pollution punctuated by rare but highly publicized disasters such as the Fukushima nuclear power plant disaster after an earthquake and tsunami in Japan in 2011.
“The price of uranium is highly exposed to legislative risk and public policy risk,” says Jeff Burrow, lead advisor with Sierra Ocean. “Should the citizens of a country turn away from its desire to use nuclear reactors, then the demand could drop and cause prices to soften substantially.”
Uranium Stocks
If you decide to take on the risk in hopes of the potential reward, one way to invest in uranium is to buy uranium-focused mining stocks such as Cameco Corp. (ticker: CCJ) and Kazatomprom (KAP). Smaller uranium producers include Energy Fuels Inc. (UUUU) and Ur-Energy Inc. (URG). Diversified miners that also extract substantial quantities of uranium are BHP Group (BHP) and Rio Tinto Group (RIO).
“Our favorite name to play in this space is CCJ,” says Tuttle. “It looks like it is trying to find a bottom on its daily and weekly chart.”
Investing in diversified miners does give some exposure to uranium while at the same time providing a cushion if prices for that commodity fall. But putting money into smaller companies focused on the radioactive metal can provide more reward if uranium prices rise.
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And there are risks that come with individual mining stocks — such as political risk, increasing production costs, declining ore grades, balance sheet risk and the risks of potentially poor management decisions.
Uranium ETFs
Those who want exposure to the mining sector — as well as other players in the nuclear energy industry — without having to pick individual uranium stocks can go the route of exchange-traded funds, which invest in baskets of stocks but trade under a single ticker symbol on an exchange.
North Shore Global Uranium Mining ETF (URNM) buys shares in companies involved in mining, exploration, development and production of uranium and those that hold physical uranium, uranium royalties or other non-mining assets. VanEck Vectors Uranium+Nuclear Energy ETF (NLR) invests in miners, nuclear utilities, nuclear power plant builders and businesses that supply the nuclear power industry. Global X Uranium ETF (URA) invests in companies involved in uranium mining and nuclear-industry component production.
Adding nuclear utilities into the mix can offer some cushion to volatile uranium prices. When the metal’s price goes down, that benefits the utilities that have to buy the stuff. Also, utilities in general are considered defensive plays in an economic downturn because people are going to need electricity regardless of what the economy does. Meanwhile, in an economic downturn demand for uranium might wane because manufacturers wouldn’t need as much electricity.
Uranium Futures
You can also trade uranium futures, but you probably won’t want to unless you’re a true pro. CME Group Inc. (CME) offers monthly contracts for trading uranium, which is priced in U.S. dollars per pound. Each contract unit is 250 pounds, but because they are financially settled you can’t take delivery of that and end up with a pile of fissionable material on your lawn.
“Using futures contracts to invest in uranium is an extremely risky endeavor,” Burrow says. “All futures contracts are volatile, but the illiquidity of the backing asset causes this form of uranium investment to not be advised unless you are truly wanting to speculate/gamble with the price movement.”
Physical Uranium Fund
Another way to get financial exposure to the underlying commodity is with Sprott Physical Uranium Trust (U.U), the only publicly listed physical uranium fund on the market. Units can be bought or sold just like stocks and each one represents a physical amount of uranium held by Sprott.
As of Jan. 7, the Sprott trust had amassed 42.7 million pounds of uranium, up from 18.1 million pounds when the fund launched in July.
Royalties
Another alternative investment vehicle is Uranium Royalty Corp. (UROY), which invests in uranium companies in exchange for royalties or other interests. It also makes physical uranium purchases.
“The company is well positioned as a capital provider to an industry needing massive investments in global productive capacity to meet the growing need for uranium as fuel for carbon-free nuclear energy,” Uranium Royalty states.
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Uranium Stocks and ETFs: 5 Ways to Invest in Uranium originally appeared on usnews.com
