After a decade-long bear market, uranium has staged a comeback as governments increasingly believe nuclear power remains essential.
Uranium prices were on the rise even before Russia’s February invasion of Ukraine sent energy prices soaring. Ambitious international climate goals have highlighted that energy transition to low-emission sources such as wind and solar can’t be met without the inclusion of nuclear power, which uniquely provides dependable supply with no emissions.
Uranium’s backers contend that the rally in the heavy metal will continue given strong market fundamentals. These include annual consumption that currently exceeds production and the fact that the stockpile of excess uranium that has tided users over has been depleted. Also, power-strapped countries are restarting mothballed nuclear plants or extending the life of existing ones and many countries, led by China and India, are planning the construction of a fleet of new plants.
Uranium and nuclear power have got a recent boost with Japan declaring that it wants to reactivate many of its idled reactors, and California legislating it will extend the life of its sole remaining nuclear power plant beyond its slated 2025 shutdown.
“This is an area that is going to see a lot of interest,” says Neena Mishra, director of ETF research with Zacks Investment Research in Chicago.
“We will see increased investments in alternative energy and I think that nuclear is one of the best forms of green energy with no emissions, and currently nuclear accounts for just 10 per cent of the world’s energy production.”
While it’s the critical fuel to run the world’s 440-odd nuclear reactors, the uranium market is relatively small, opaque and more volatile than other commodities, influenced by supply disruptions and geopolitical concerns.
Uranium tends not to rise and fall in lockstep with other commodities and, in the last two years, has been one of the top performers, more than doubling in price from US$30 per pound in January 2021 to a high of US$64. Uranium futures are currently trading around US$52 per pound.
“Uranium and some of the other energy commodities are one of the few things that produced positive returns this year, so that is getting some investor interest,” says John Ciampaglia, chief executive officer of Sprott Asset Management LP in Toronto.
He notes that existing reactors consume 180 million pounds of uranium each year but just 130 million pounds were mined in 2021. Spare uranium from countries such as Japan and Russia has filled that gap in recent years, but that excess is disappearing.
Given uranium’s niche role in the commodity sphere and its out-of-favour status since the 2011 Fukushima disaster in Japan, there are limited options for ETF investors to play the expected nuclear renaissance.
The Horizons Global Uranium ETF (HURA-T), with an MER of 0.86 per cent and $62-million in assets, provides direct exposure to the global uranium companies. The sole Canadian uranium-focused ETF has returned 9 per cent so far this year, followed by a 71-per-cent return in 2021. (All data is total return from Morningstar as of Sep. 7 market close).
HURA invests in uranium miners with three (Cameco Corp, Yellow Cake PLC and National Atomic Co. Kazatomprom) accounting for more than 61 per cent of its holdings.
Japan’s nuclear restart news and California’s reactor extension have put renewed focus on the uranium story, say Nick Piquard, vice-president and portfolio manager with Horizons ETFs.
“It seems that the time has come for the sector to be bright again,” Mr. Piquard says.
Soaring prices for liquid natural gas as a result of the Ukraine war have created a new urgency for countries such as Japan and China to ramp up their nuclear power programs, he adds.
Investors also have two U.S. ETF options: The Global X Uranium ETF (URA-A), which was created in 2010 and has an MER of 0.69 per cent and US$1.7-billion in assets. Heavily weighted to uranium miners, it has returned 1.12 per cent year to date after returns of nearly 58 per cent in 2021.
The Sprott Uranium Miners ETF (URNM-A), which has an MER of 0.85 per cent and US$1-billion in assets, has a year-to-date return of 6.8 per cent and returns of nearly 79 per cent in 2021.
What distinguishes the two U.S. ETFs from HURA is their holdings in physical uranium through Sprott Physical Uranium Trust units. The Sprott units comprise 8.7 per cent of URA’s portfolio and 10.6 per cent of URNM’s holdings.
One other option for uranium-minded investors to consider is Sprott’s Physical Uranium Trust (U-UN-T), which trades on the Toronto Stock Exchange in both U.S. and Canadian dollars. The fund, which started trading just over a year ago, is the largest and only publicly listed physical uranium fund currently operating. It has an MER of 0.96 per cent, US$3-billion in assets and has returned nearly 19 per cent year-to-date return more than 16 per cent over the past year.
Mr. Ciampaglia says the majority of Sprott’s investors are institutions and hedge funds that believe uranium will play a growing role in future power generation.
“A lot of our institutional investors… have a belief that the price of uranium has to increase over time to different incent levels that will either encourage the restart of existing mines that have been on long-term care and maintenance – in many cases for four or five years – as well as to provide necessary funding for new projects to be developed,” Mr. Ciampaglia says.