Uranium

OVERVIEW

The Fukushima accident in 2011 was a big blow to the popularity of nuclear power plants. After that incident, the willingness to invest in nuclear power plants waned gradually. This coincided with a higher appetite for investment in green energy, which included investment in both technology and actual power-generating facilities. In 2021 only, we saw the highest number of closures of nuclear power plants in a decade, according to WNISR. See below the chart for closures and startups.

Source: World Nuclear Industry Status Report

Recently, the energy shortage has become a real issue and sometimes turned into a crisis. Although some might blame geopolitical tensions as a reason, the reality is that those are just catalysts and cause short-term disturbances. It is now evident that we are dealing with a long-lasting energy issue. Many experts believe that the reason is the decade-long underinvestment in fossil fuels as well as the unresolved issues with green energy sources and their inability to compensate for the shortcomings.

A point to bear in mind is that the move toward renewable energy is still ongoing, with increasing interest from policymakers and investors alike. Although this is a positive move in the long run, in the short run, it will result in even more energy consumption because the making of the equipment that is needed for green energy requires a lot of energy (mostly hydrocarbon).

In face of the problems mentioned above, in recent months, specific attention is being paid to nuclear energy. Consequently, some of the plants that were going to be shut down have extended their operations for a few more years. In addition, there have been technological advances that allow for the building of smaller nuclear reactors, making them more affordable and faster to build. These all will result in higher adoption of nuclear energy.

Given the expected increased demand for nuclear energy, uranium prices have risen in recent years. See below the chart for the price of uranium.

Source: TradingEconomics

More about uranium:

Source: US Energy Information Administration

“Uranium is the fuel most widely used by nuclear power plants for nuclear fission. Uranium is a common metal found in rocks all over the world. Uranium occurs in combination with small amounts of other elements. There are economically recoverable uranium deposits in the western United States, Australia, Canada, Central Asia, Africa, and South America.

Owners and operators of U.S. nuclear power reactors purchased the equivalent of about 46.74 million pounds of uranium in 2021.”

Sources and percentage shares of total US purchases of uranium in 2021 were:
35% Kazakhstan
15% Canada
14% Australia
14% Russia
7% Namibia
5% United States
10% Other

New and future uranium contracts

In 2021, Civilian Owners/Operators (“COO”) signed 27 new purchase contracts with delivers in 2021 or 3.6 million pounds at a weighted average price of $32.53. At the end of 2021, the max uranium deliveries for 2022 through 2031 under existing purchase contracts for COO totalled 180 million pounds. The unfilled uranium market requirement at the end of 2021 was 182 million pounds. The sum of the two (362 million pounds) is the maximum anticipated market requirement.

How to invest in uranium?

Unlike other commodities, uranium is not traded on public future exchanges and the contracts are negotiated privately and are usually long-term. So the only way to invest in uranium is through ownership of the companies that mine and process uranium or the companies that hold royalty rights. Of course, ETFs provide exposure to a basket of stocks with diversification benefits.
Below is the list of stocks and ETFs. Our choice is at the end.

Stocks

Cameco Corp (TXS: CCO, NYSE: CCJ) Cameco is an integrated uranium supplier, offering refining, conversion and fuel manufacturing services. The company has two segments: uranium and fuel services. The company sells its uranium and fuel services to nuclear utilities in the Americas, Europe, and Asia. Cameco Corporation was incorporated in 1987 and is headquartered in Saskatoon, Canada. As of September 2022, the Company has beat the estimates for three consecutive quarters, with analyst ratings of ‘buy’ and a target price of $43.72 (price on September 19, 2022 was at $37.51).

Uranium Energy Corp (NYSE: UEC): headquartered in Texas, USA, UEC engages in the exploration, pre-extraction, and processing of uranium and titanium concentrated in the US, Canada, and Paraguay. The Company’s performance has been mixed in the past four quarters (met, met, miss, beat). The company still operates at loss.

Denison Mines Corp (TSX: DML, NYSE: DNN): headquartered in Toronto, Canada, DML engages in the acquisition, development, extraction, selling of, and investing in uranium properties in Canada.

Energy Fuels Inc. (TSX: EFR, NYSE: UUUU): headquartered in Lakewood, CO, USA, EFR engages in the extraction, recovery, exploration, and sale of conventional and in situ uranium recovery in the United States.

Centrus Energy Corp (NYSE: LEU): Centrus Energy Corp. supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, Belgium, and internationally. The company operates through two segments, Low-Enriched Uranium (LEU) and Technical Solutions.
We like LEU because it also provides engineering and technical solutions to power plants. With the renewed focus on nuclear energy and postponing the closure of some of the nuclear power plants around the world, we believe that the engineering segment of the company will be more profitable.

Uranium Royalty Corp (NASDAQ: UROY): Uranium Royalty Corp. operates as a pure-play uranium royalty company. It acquires, accumulates, and manages a portfolio of geographically diversified uranium interests. The company has royalty interests in multiple mining operations. The company was incorporated in 2017 and is headquartered in Vancouver, Canada.

ETFs

URNM (Sprott Uranium Miners ETF)
Holdings:
Cameco Corp (CCO.TO) [18.08%]
National Atomic Co Kazatomprom KSC (KAP) [12.94%]
Sprott Physical Uranium Trust Units (U.U.TO) [9.24%]
Yellow Cake PLC Ordinary Shares (YCA.L) [6.40%]
Energy Fuels Inc. (EFR) [5.54%]
NexGen Energy Ltd
Denison Mines Corp
Uranium Energy Corp
Paladin Energy Ltd

URA (Global X Uranium ETF)
Holdings:
Cameco Corp (CCO.TO) [23.43%]
National Atomic Co Kazatomprom KSC (KAP) [22.81%]
NexGen Energy Ltd [5.36%]
Denison Mines Corp [3.50%]
Energy Fuels Inc. [3.19%]

OUR CHOICE: CCO (Cameco Corporation)
Note that Cameco is listed on both Canadian and US stock exchanges. Given the strength of the US dollar, if you’re a long-term investor, you might be better off if you bought in the Canadian market. This is based on the fact that we believe in five to ten years, the US dollar will lose its strength and the investors will gain on both the value appreciation and foreign exchange.
One of the reasons that we favor only investing in Cameco is that the price of shares of these companies is tied to the value of the underlying commodity (i.e. uranium). Therefore, they will all go up or down based on the price fluctuations. In addition, there is no centralized exchange for uranium futures and it’s done privately between the parties. As such, having reliable and large operations will give the providers an upper hand in negotiation. Lastly, Cameco has better operational efficiencies.
Therefore, we believe that there is no reason for paying fees for diversification provided by the ETFs as it only takes away from the good aspects of Cameco.