Amid the transition away from coal-fired electricity generation to power produced by less carbon-intensive methods, there’s a problem: consistent baseload energy.
Wind and solar farms offer green energy, and capacity is rapidly expanding, but there are times when the sun isn’t shining or the wind isn’t blowing.
One of the solutions is to use more natural gas, a fossil fuel that produces fewer emissions than burning coal. Another solution is nuclear energy, which doesn’t release any carbon dioxide during the electricity-making process.
Due to some high-profile accidents at nuclear plants over the years, many people were leery of nuclear power, but popular opinion has softened somewhat in recent years because of its low carbon footprint and ability to keep the lights on. According to Pew Research, a majority of Americans favor adding new nuclear power plants to the grid.
Modern nuclear facilities have a relatively good safety track record. The World Nuclear Association says there have been only two major accidents in more than 18,500 cumulative reactor-years of commercial nuclear power operation in 36 countries, referring to the Chernobyl and the Fukushima nuclear disasters.
After the Fukushima accident in Japan, governments around the world turned away from nuclear power, uranium prices collapsed, and mining companies lowered their spending, crimping uranium production.
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Fast forward to 2024, and governments have once again embraced nuclear energy in the face of climate change. Dozens of reactors are under construction around the world. Plus, advanced reactors and an emerging technology called small modular reactors are in the works.
“Investors are once again focusing on uranium, causing talk of a uranium renaissance,” says Stephen Akin, founder and investment advisor at Akin Investments.
Quite literally, at the core of all this nuclear expansion is uranium, a radioactive element that is mined and then enriched into the U-235 isotope used by most of the 440 or so commercial nuclear power reactors operating or under construction.
Uranium prices have risen from their post-Fukushima nadir of about $18 per pound in 2016 to current levels of about $80. Prices are supported by increasing demand expectations and the lack of mining investment. Higher prices are spurring development among uranium miners, but the ramp-ups can take years.
Production hiccups have also supported uranium prices, as has the Biden administration’s ban on low-enriched uranium — the type needed for reactors — from Russia, aiming to deprive the Kremlin of money for its war effort in Ukraine. However, that ban won’t take full effect until 2028 to give utilities time to adjust.
But this week, Russian President Vladimir Putin floated the idea of restricting exports of uranium and other commodities in response to Western sanctions.
“With Putin expressing his intentions to impose sanctions on Russian uranium sales to the West in response to the earlier U.S. ban on the energy metal from his country, we may see new supply chain sensitivities and a corresponding positive spot price movement,” says Duane Parnham, CEO of Madison Metals Inc. (ticker: OTC: MMTLF), a uranium mining company.
With all that in mind, here are some ways investors can add a glow to their portfolios with uranium:
— Uranium stocks.
— Uranium ETFs.
— Uranium futures.
— Physical uranium and royalties.
Uranium Stocks
Stocks of uranium mining companies offer one of the most straightforward ways to invest.
During times of rising uranium prices, miners can outperform the metal because of how those companies use operating leverage to increase profits.
Their shares can also benefit from company-specific developments such as new mine discoveries and technological advancements.
The premier uranium mining company in the West is Canada’s Cameco Corp. (CCJ), which says it controls the world’s biggest high-grade reserves. It also has interests across the nuclear fuel cycle.
Other uranium miners include Energy Fuels Inc. (UUUU), Denison Mines Corp. (DNN), Uranium Energy Corp. (UEC) 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.
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Investing in mining companies also comes with company-specific risks, such as cost overruns, labor disputes, permitting uncertainties, bad management decisions, political issues or security concerns.
“Given today’s geopolitical uncertainties, it is essential to develop uranium projects in jurisdictions that pose minimal operational risk,” said Parnham, who says his company does business in Namibia because of production prospects and political stability.
Uranium ETFs
For uranium stock investors, company-specific risks can be offset by bundling lots of different mining companies under one ticker symbol, as exchange-traded funds, or ETFs, do.
The largest uranium ETFs trading on U.S. exchanges are the Global X Uranium ETF (URA), with $2.9 billion in assets under management, and the Sprott Uranium Miners Fund (URNM), with $1.4 billion.
The Global X offering invests in companies involved in uranium mining and nuclear industry component production. The fund has an expense ratio of 0.69%, or $69 per year for every $10,000 invested.
Meanwhile, the Sprott fund 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. It has an expense ratio of 0.75%.
Uranium Futures
Much of the 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.
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, meaning you can’t take physical delivery of the highly regulated metal.
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.
Even though futures allow for direct price exposure, are useful for hedging price movements and can offer significant returns, they can also be complex and highly volatile. Plus, you’ll have to get special permission from your broker to trade futures.
“In my view, ETFs are better than futures as they offer lower risk and allow more flexibility to preserve capital during market downturns,” Parnham says.
Physical Uranium and Royalties
Investors can also get financial exposure to uranium through vehicles that invest in physical uranium, 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.
Units of the Sprott Physical Uranium Trust (OTC: SRUUF) 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 Kazakhstan-based miner JSC National Atomic Company Kazatomprom (OTC: NATKY) 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 09/13/24: This story was previously published at an earlier date and has been updated with new information.
