West Virginia, a state heavily dependent on coal-mining revenues and the electricity produced from the fossil fuel, passed a bill earlier this year that did away with the state’s ban on nuclear power plants. It’s a stark reminder that the nation’s energy mix is changing as the world seeks to wean itself off of fossil fuels — and uranium-fueled power plants are likely to be key to that transition.
Across the pond, while some nations have opted to move away from nuclear power after the Fukushima nuclear disaster in Japan in 2011, others that were opposed to that type of power generation have taken a U-turn on the matter.
Meanwhile, the European Union is eyeing nuclear power as a way to not only help transition to renewables but to help free itself from dependence on Russian-produced natural gas or expensive imports from elsewhere amid the war in Ukraine. The U.S. has set aside billions of dollars to support the next generation of nuclear reactors, although the domestic outlook is clouded by lengthy permitting requirements.
“There are many signs that uranium prices will be moving upward as demand for uranium worldwide is projected to grow rapidly,” says John Ryan, CEO of Gold Express Mines, which is involved with gold, uranium and other metals. “This is because many countries are adopting or considering again nuclear power in response to global efforts at CO2 emission reductions.”
With the strong demand backdrop, which Ryan says will be led by China, investors may want to consider several ways to get exposure to the radioactive metal:
— Uranium stocks
— Uranium ETFs
— Uranium futures
— Physical uranium investments
— Uranium royalties
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Uranium Stocks
There are only about 70 publicly traded uranium companies, says Justin Huhn, publisher of the Uranium Insider newsletter.
The small pool of companies can work to investors’ advantage. With the whole uranium sector having a market capitalization under $40 billion, generalist investing interest can cause prices to spike, says Fabi Lara, mining investor and creator of “The Next Big Rush” investing channel on YouTube.
Although miners’ costs are rising even as their mineral reserves are being used up, there isn’t yet enough financial incentive to meaningfully increase production, she says, pointing out that the current uranium price around $50 is well below the inflation-adjusted high of more than $200 that the market reached during the contracting cycle in 2007.
Even when miners are incentivized to boost production, new mines take 5 to 10 years to get into production, says Huhn.
“This deficit will be sustained for years, creating conditions for exceptional returns for investors in the uranium sector,” Huhn says.
Despite attractive uranium market fundamentals, there are still risks to investing in uranium miners.
“All of the positive vibes on nuclear power and uranium mining could be erased with one serious accident somewhere in the world,” Ryan says.
Additionally, shares of smaller companies can be illiquid, which can raise investor angst in periods of volatility.
“It’s not for the faint of heart, nor for the impatient,” Lara says.
Plus, most commercial uranium pricing activity happens in long-term contracts, making pricing less visible than in other markets governed by more active spot and futures pricing.
Risks with individual mining stocks include political risk, increasing production costs, declining ore grades, balance sheet risk and the risks of poor management decisions.
When picking individual mining stocks, investors must be conscious of the different risk profiles of the jurisdictions in which they operate.
U.S.-focused miners are likely to be frustrated with slow mine and processing facility permitting, Ryan says. That dynamic favors companies with projects that are already permitted.
Outside of the U.S., companies operating in Canada, Namibia, Kazakhstan and Uzbekistan will provide most of the eventual growth in production, with the latter two countries focused on supplying China, Ryan says.
Energy Fuels Inc. (ticker: UUUU) and enCore Energy Corp. (ENCUF) have good U.S. exposure and have legacy permits, Ryan says. Meanwhile, Cameco Corp. (CCJ), Denison Mines Corp. (DNN), NexGen Energy Ltd. (NXE) and Fission Uranium Corp. (FCUUF) have Canadian exposure, he says.
Kazatomprom JSC (KAP) is a large uranium producer, while diversified miners that also extract substantial quantities of uranium are BHP Group Ltd. (BHP) and Rio Tinto Group (RIO).
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.
“Larger miners, which have global holdings, offer less risk than those operating only in a single jurisdiction, as uranium’s volatility can be directly tied to geopolitical upheaval in mining countries such as Kazakhstan,” says Richard Gardner, CEO of Modulus Global.
[READ: Will the Stock Market Crash in 2023? 7 Risk Factors]
Uranium ETFs
Those who want exposure to the mining sector without having to pick individual uranium stocks can go the route of exchange-traded funds, or ETFs, which invest in baskets of stocks but trade under a single ticker symbol on an exchange.
These investment vehicles not only provide diversification between different mining stocks but also between different parts of the uranium industry.
Gardner points to the VanEck Vectors Uranium+Nuclear Energy ETF (NLR) as a solid entry point to the uranium market because it includes investments in utilities.
“Such an inclusion does two things,” Gardner says. “First, utilities are usually a decent bet during economic upheaval. Second, utilities provide a buffer from the volatility of uranium, while still receiving uranium exposure in the ETF package.”
In addition to miners and nuclear utilities, the VanEck fund also invests in nuclear power plant builders and businesses that supply the nuclear power industry, giving investors exposure to a broad swath of the industry.
There are other uranium ETF options, too. Sprott Uranium Miners ETF (URNM) buys shares in companies involved in mining, exploration, development and production of uranium and those that hold physical uranium, uranium royalties or engage in other non-mining activities that support the uranium mining industry. Global X Uranium ETF (URA) invests in companies involved in uranium mining and nuclear-industry component production. Horizons Global Uranium Index ETF (HURA) holds a range of larger- and smaller-cap miners, with up to 25% of the portfolio providing exposure to the price of uranium.
“The uranium sector ETFs offer diversification and liquidity, though individual company investments can offer far greater returns,” says Huhn.
[SEE: 7 High-Yield ETFs for Income Investors]
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 priced in U.S. dollars per pound. Each contract unit is 250 pounds, and contracts are financially settled.
But these futures contracts have little trading volume compared with oil or gold futures, meaning investors who want to sell their holdings might have to wait longer than they’d like, which can be frustrating if prices are falling and you want to limit losses or if prices are rising and you want to take profits.
“Regarding the futures market in uranium, it is very thin compared to other liquid markets,” Huhn says.
Physical Uranium Investments
Other ways to get financial exposure to the underlying commodity are with Sprott Physical Uranium Trust (U.U) or newcomer Yellow Cake PLC (YLLXF).
Sprott trust units can be bought or sold just like stocks, and each one represents a physical amount of uranium held by the trust, which, according to Lara, “has been a welcome addition to both institutions and retail investors as a direct way of participating in the uranium thesis.”
Yellow Cake is a company that holds physical uranium oxide and doesn’t have the exploration, development, mining or processing risks that miners do. It has a long-term agreement with Kazatomprom that enables it to buy uranium at favorable prices.
When these investment vehicles buy uranium, they’re helping keep supplies tight and putting upward pressure on uranium prices.
Uranium Royalties
Another 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, Plus 3 Other Ways to Invest in Uranium originally appeared on usnews.com
Update 12/06/22: This story was previously published at an earlier date and has been updated with new information.
