Demand for uranium remains strong, despite headwinds in the foreign exchange market and the spot price of the metal falling in recent months. The need for the metal is set to grow in 2023 and beyond as energy producers and utilities turn to nuclear to produce clean energy.
- Approximately 25% of the world’s low carbon electricity comes from nuclear technologies
- Nuclear power-generating capacity is expected to more than double by 2050
- The Global X Uranium ETF offers exposure to Cameco, Paladin Energy and Yellow Cake
Nuclear power provides a quarter of the world’s low carbon electricity, according to the International Atomic Energy Agency (IAEA).
Fighting around the Zaporizhzhia plant in Ukraine, the largest in Europe, raised concerns about nuclear safety last September. Nevertheless, this week at the COP27 in Sharm El Sheikh, Egypt, the IAEA director general Rafael Mariano Grossi emphasised that nuclear power is both safe and cost-efficient.
“We all know that the challenges posed by climate change are very, very difficult… This is why nuclear is here, because nuclear has a place at the table. Nuclear is part of the solution towards a decarbonised energy mix in the world,” Grossi said.
Shares in both Cameco and Paladin have been in an uptrend this past month, with both share prices up 16.2% and 9.7% respectively (through 15 November). And while the Yellow Cake share price has dropped a slight 0.1% in the past month, it has gained 22% year-to-date.
Rising demand boosts revenue and assets
Although the uranium price has fallen since the early weeks of the war in Ukraine, uranium companies have benefited from rising demand.
Cameco’s uranium revenue was up 16% in the three months to the end of September, accounting for the bulk of the company’s total third-quarter revenue of $389m. Uranium revenue was up 41% year-over-year in the first nine months of 2022.
Western Australia miner Paladin last reported in August, with revenue up 57% year-over-year to $4.7m in the 12 months to the end of June. Net loss narrowed by 25% from $58.3m in fiscal 2021 to $43.9m.
Unlike Cameco and Paladin, Yellow Cake is essentially a uranium fund that offers direct exposure to the spot price without exploring or mining directly. As of 28 October, its net asset value was $1bn or 471p per share, up from $964.5m or 434p per share at the end of June.
Energy producers look to secure supplies
With demand for uranium rising, Andre Liebenberg, Yellow Cake CEO, is bullish on the metal’s prospects.
“Under [the IAEA’s] high-case scenario, world nuclear power generating capacity is forecast to more than double by 2050. The world is already consuming more uranium than it produces. Yellow Cake is well positioned to continue to drive shareholder value for the long term,” Liebenberg said in a statement in the company’s recent Quarterly Operating Update.
Paladin is planning to restart its Heinrich-Langer mine in Namibia in early 2023 because of “strong uranium market fundamentals”, according to its Twitter page. Low uranium prices had halted production back in 2018.
Cameco had added 50 million pounds of uranium to its long-term contract portfolio year-to-date at the end of September with a further 27 million pounds currently in contracting discussions. Concerns about energy security are pushing energy producers and utilities into securing long-term supplies of uranium for nuclear power.
Funds in focus: Global X Uranium ETF
All three companies are held by the main ETFs offering exposure to the uranium theme.Cameco is the biggest holding in the Global X Uranium ETF [URA], with a sizeable weighting of 21.2% as of 14 November. Paladin is the fifth-biggest and Yellow Cake the ninth-biggest, with weightings of 4.92% and 2.72% respectively. The fund is down 4.6% year-to-date through 16 November, but up 15.3% in the past month.
Cameco has been allocated 13.74% of the Sprott Uranium Miners ETF [URNM] and is the second-biggest holding in the portfolio as of 15 November. Paladin and Yellow Cake are seventh and tenth, with weightings of 4.91% and 4.21% respectively. The fund is down 2.7% year-to-date, but up 11.5% in the past month.
All three companies count among the 25 held by the VanEck Uranium and Nuclear Energy ETF [NLR]. Cameco accounts for 4.64% of the fund as of 14 November, while Paladin and Yellow Cake have been allocated weightings of 2.54% and 1.35% respectively. The fund is up 1.8% year-to-date and 11.9% in the past month.