In late January, Canadian uranium miner Denison Mines Corp. (ticker: DNN) and its joint venture partner, French nuclear fuels company Orano, announced that they will restart a uranium mine that has been idled since 2008.
Sixteen years ago, declining uranium prices meant the economics of the mine didn’t make sense. Now, with uranium prices having roughly doubled over the past year, they do.
The companies plan to use a new mining method that takes less time to ramp up, but even then they don’t expect commercial production to start until 2025, highlighting one of the bottlenecks to increasing supply even while demand increases.
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The nuclear fuel is being called upon to generate a greater amount of electricity as the globe tries to wean itself from fossil fuels. “Many countries have seen the upside to having nuclear generators and power plants,” says Glenn Tompkins, senior instructor for VectorVest, which specializes in stock analysis. “More countries have these in the works.”
Meanwhile, the U.S. is considering a ban on uranium imports from Russia, and the world’s biggest uranium miner, Kazakhstan-based Kazatomprom (OTC: NATKY), has said it won’t produce as much as expected because it can’t access all of the sulfuric acid it needs to extract the heavy metal.
The production crunch and demand expectations come after uranium miners for years didn’t focus on investing in new operations amid low prices following a major nuclear reactor disaster in Japan.
“Many mines reduced output or ceased operations when prices were low,” says Sankar Sharma, CEO of RiskRewardReturn.com. “Restarting them is a slow process.”
All of that bodes well for uranium prices. Here’s a broad look at how investors can get exposure to the nuclear fuel:
— Uranium stocks.
— Uranium exchange-traded funds.
— Uranium futures.
— Other uranium investments.
Uranium Stocks
While rising uranium prices are a boon to mining companies, Sharma says investors can also benefit from company-specific developments such as new mine discoveries and technological advancements. During times of rising uranium prices, miners can outperform the metal because of how those companies use operating leverage to increase profits.
One of the premier uranium mining companies in the West is Canada’s Cameco Corp. (CCJ). Other Canadian players besides Denison include NexGen Energy Ltd. (NXE) and Fission Uranium Corp. (OTC: FCUUF).
Diversified miners that also extract substantial quantities of uranium are BHP Group Ltd. (BHP) and Rio Tinto Group (RIO). Investing in companies like these offers some exposure to uranium while at the same time providing a cushion if prices for that commodity fall. At the same time, that cushion means these behemoths aren’t as likely to perform as well as smaller companies focused exclusively on the radioactive metal if uranium prices rise.
Investing in mining companies also comes with company-specific risks, such as cost overruns, labor disputes, permitting uncertainties or bad management decisions.
“Investors need to conduct thorough research to understand each company’s potential,” Sharma says.
Adding nuclear utilities into the mix can also 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.
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Uranium ETFs
For uranium stock investors, company-specific risks can be offset somewhat by bundling lots of different mining companies under one ticker symbol, as exchange-traded funds, or ETFs, do.
“If you want to have exposure to uranium stocks, I would always start off with ETFs,” Tompkins says. “These trade like an individual stock but track a whole industry. This creates a lot less risk in playing the space.”
Here are a few leaders among uranium ETFs:
VanEck Uranium+Nuclear Energy ETF (NLR)
The VanEck Uranium+Nuclear Energy ETF invests in miners, nuclear utilities, nuclear power plant builders and businesses that supply the nuclear power industry.
NLR has an expense ratio of 0.61% and a 12-month trailing yield of 4.3%. After underperforming in 2022, NLR returned 36.6% in 2023 and is off to a solid start in 2024, up 8.5% year to date as of Feb. 2.
Global X Uranium ETF (URA)
The Global X Uranium ETF invests in companies involved in uranium mining and nuclear industry component production. With $3 billion in total assets and a 12-month trailing yield of 5.5%, URA is doing well in its category in 2024 with a year-to-date gain of 13.8%. This follows a blistering annual performance in 2023, when URA returned 46%.
Top holdings in URA’s portfolio are Cameco, with a 23% portfolio weighting; units of Sprott Physical Uranium Trust (OTC: SRUUF), at 9%; and NexGen Energy, at 6%.
Sprott Uranium Miners ETF (URNM)
The Sprott Uranium Miners ETF 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. The fund usually invests 80% or more of its assets in the securities of the North Shore Global Uranium Mining Index, so its returns generally track those of the index.
URNM has over 75% of its assets in its top 10 holdings; the top three are Sprott Physical Uranium Trust units, Kazatomprom and Cameco, which get a roughly 14% weighting each. It also allocates about 4% to Denison Mines.
Horizons Global Uranium Index ETF (HURA.TO)
The Horizons Global Uranium Index ETF holds a range of larger- and smaller-cap miners, with up to 25% of the portfolio directly exposed to the price of uranium. This ETF has a 12-month trailing yield of about 1%, though it has a management expense ratio of roughly the same. This fund is on a tear and is up 18.8% so far in 2024 as of Feb. 2.
Uranium Futures
Most commercial uranium pricing activity happens in long-term contracts between companies, making pricing less visible than in other markets governed by more active spot and futures pricing.
That’s not to say there are no uranium futures available. Still, just because you can trade them doesn’t mean you should. Even though they allow for direct price exposure, are useful for hedging price movements and can offer significant returns, they can also be complex and highly volatile, Sharma says.
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.
Other Uranium Investments
Investors can get financial exposure to uranium in other ways as well, helping keep supplies tight and putting upward pressure on uranium prices to complement expected increases in demand from nuclear power plants as the energy transition gains steam. The aforementioned ETFs all have significant assets in one or more of these investments:
— Sprott Physical Uranium Trust units can be bought or sold just like stocks, and each one represents a physical amount of uranium held by the trust.
— Yellow Cake PLC (OTC: YLLXF) 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.
— Uranium Royalty Corp. (UROY) invests in uranium companies in exchange for royalties or other interests. It also makes physical uranium purchases.
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Uranium Stocks, ETFs and Other Ways to Invest in the Nuclear Fuel originally appeared on usnews.com
Update 02/05/24: This story was previously published at an earlier date and has been updated with new information.
