Nuclear power is enjoying a resurgence in popular sentiment, as policy makers pivot toward energy sources that are clean and secure. Will its moment in the sun translate into long-lasting gains for investors betting on uranium?
The rising interest is being driven by long-simmering concerns that have grown significantly more urgent this year.
Catastrophic floods, alarming droughts and dramatic heat waves have underscored the need to develop cleaner sources of reliable energy. As well, Russia’s invasion of Ukraine has destabilized energy markets since February, particularly in Western Europe, bolstering the need for energy sources that aren’t dependent on Russian imports.
Reactors slated to be retired in California and Germany are staying online for longer. Japan is restarting idled reactors more than a decade after the Fukushima Daiichi disaster in 2011 tarnished the reputation of the energy source globally and depressed the uranium market.
“There has been an enormous shift,” John Gorman, chief executive officer at the Canadian Nuclear Association, said in an interview.
“Three years ago, I was at pains to find a federal cabinet minister who would say the word ‘nuclear’ behind a microphone. And today, in the latest budget, there is a complete section on small modular reactors,” Mr. Gorman said, adding a similar shift is occurring worldwide as well.
The International Energy Agency estimates that global nuclear power output will double by 2050. Most of this growth will come from developing economies, but the United States, Britain, France and Canada will also expand their nuclear footprints.
For investors, these growth projections raise an exciting opportunity. But it comes with a couple of caveats: Nuclear power faces competition from other sources of energy, including natural gas, wind and solar. And, the stock market isn’t oblivious to the rising interest in nuclear.
The share price of Cameco Corp. CCO-T, the Saskatoon-based producer of uranium – the fuel used for nuclear fission – has rallied 43 per cent this year. The stock is up about 240 per cent since the start of 2020.
The Sprott Physical Uranium Trust U-UN-T, which holds the element, has jumped nearly 40 per cent since mid-June.
The broad VanEck Uranium + Nuclear Energy exchange-traded fund NLR-A, a U.S. ETF that holds shares in Cameco and public utilities that operate reactors, is no slouch either: The fund has outperformed the S&P 500 by 20 percentage points this year.
Still, the bullish case rests on the belief that nuclear energy is in the early stages of wider acceptance, as political leaders confront public anger over the availability of cheap and reliable energy.
“People are going to say: Either you provide us with power, or we’re voting you out,” Gordon Johnson, founder of GLJ Research, a New York-based research boutique that covers Cameco, said in an interview.
“If one is going to view climate change as an existential threat, which is what many governments believe, the real answer is nuclear. We have had this view for some time, but it’s all coming to a head now,” Mr. Johnson said.
Cameco, whose shares trade on the Toronto Stock Exchange, offers one of the most direct approaches to betting on the resurgence of nuclear power.
In the second quarter, ended June 30, revenue surged 55 per cent over last year. The company reported a profit of $84-million, up from a loss of $37-million over the same period of time. The key driver here: The average realized price of delivered uranium during the quarter rose 41 per cent, year-over-year.
Analysts are generally optimistic that the price of uranium will continue to rise.
Bryce Adams, an analyst at CIBC World Markets, noted that uranium tends to follow natural gas. As gas prices rise, nuclear utilities improve their competitive advantage and gain considerable pricing power. This year, of course, gas prices have soared as Russian imports have proved unreliable, which bodes well for uranium.
“Sentiment surrounding uranium in Europe continues to improve, and with elevated natural gas prices and difficulty in realigning global trade flows of natural gas due to infrastructure issues, we see this as a positive for the outlook on uranium prices,” Mr. Adams said in a note last month.
He estimates that Cameco’s share price can rise to $45 within the next 12 months, implying a gain of 15 per cent from the current level. And Mr. Johnson expects that wider recognition of the need for more nuclear power could underpin “big moves” in the stock.
There is a lot of expectation built into the share price already, which is risky. But investing in a fuel that offers a solution to global energy needs isn’t exactly a pot stock.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.
David Berman