The Global X Uranium ETF [URA] is expected to glow brightly once more in 2021.
The ETF ended 2020 at $15.33 before rising 0.9% to $15.47 on 19 January. On the same date last year, it stood at $10.71, sliding to $6.94 on 18 March as the coronavirus pandemic battered markets.
The fund reported cumulative year-to-date performance gains of 41.44 to the end of December 2020, while its net assets currently stand at $272.34m.
Valuation of the Global X Uranium ETF's net assets
This compares with both the VanEck Vectors Uranium & Nuclear Energy ETF [NLR], which has $18.09m total assets and had a year-to-date total daily return of 3.5% on 31 December 2020, and the North Shore Global Uranium Mining ETF [URNM], with $47.71m of assets and a YTD total daily return of 7.66%.
The Global X Uranium ETF was launched on 4 November 2010 and provides investors access to a broad range of companies involved in uranium mining and the production of nuclear components. This includes those in extraction, refining, exploration, or manufacturing of equipment for the uranium and nuclear industries.
It has 29 holdings in total — on 19 January, the greatest net asset was NAC Kazatomprom JSC-GDR [KAP.L], the world’s largest uranium producer, with 21.67%. Second was uranium and nuclear fuels products producer Cameco Corp [CCO], with 20.65%, while uranium exploration and development firm NexGen Energy [NXE] had 5.48%, and Denison Mines Corp [DML] had 3.54%.
NAC Kazatomprom JSC-GDR's size of its holding in the Global X Uranium fund
Kazatomprom’s share price has risen 1.9% so far this year to 19 January. Despite falling production, it reported a 23% rise in group sales volumes in the nine months to 30 September, helped by demand from the United Arab Emirates and China to fuel their nuclear power plants.
Cameco’s share price has dropped 3.5% since the start of 2021, but is up 42.8% for the 12 months to 19 January at CA$16.46. NexGen Energy slipped just short of 6% to 19 January and Denison Mines is up 14.8% since the start of the year.
According to the World Nuclear Association, nuclear power capacity worldwide is “increasing steadily”, with significant further capacity being created by lifetime extension programmes, particularly in the USA. The International Energy Agency forecast nuclear capacity growth of over 15% between 2019 and 2040.
Forecasted nuclear capacity growth between 2019 and 2040
Demand is expected to continue, boosted by governments, particularly those in Asia, looking towards nuclear power as a cleaner energy alternative to fossil fuels.
There are around 50 nuclear reactors currently being constructed around the globe, with China building 16, two planned in Russia and six in India.
The sector was lifted further last December when the US Senate Committee on Environment and Public Works approved the American Nuclear Infrastructure Act, including the establishment of a US national strategic reserve of uranium. The Committee said it would “revitalise the US uranium industry”.
New US president Joe Biden’s more stringent commitment to tackling climate change is also likely to bring more positive momentum for and investment in cleaner energy.
However, the sector has had its challenges in recent years. Its appeal was hit by the nuclear power reactor disaster in Fukushima Daiichi, Japan, in 2011 and its operating costs are high compared to wind and solar.
During the coronavirus pandemic, there has been further disruption in the sector, with mines being shut down because of virus outbreaks, resulting in higher costs and lower volumes.
“The impact of the actions taken by the world's uranium producers is expected to result in a 2020 primary supply reduction of up to 14% compared to 2019, pushing supply-demand into an annual deficit” - statement from Kazatomprom
Indeed, according to Kazatomprom in its third-quarter results announcement: “The impact of the actions taken by the world's uranium producers is expected to result in a 2020 primary supply reduction of up to 14% compared to 2019, pushing supply-demand into an annual deficit.”
Analysts at Canaccord Genuity expects this deficit to continue as demand grows, driven by a rise in electric vehicles, a growing push for decarbonisation as “many nations now target COVID-19 recovery infrastructure funds that include carbon-free sources of energy”, and emerging markets growth.
This supply/demand imbalance could lead to higher uranium prices. At present, uranium sits at $30.05 per lb, with analysts at Raymond James forecasting that it will average $42.50 per lb in 2021 and $45 in 2022.
“I am looking for a turn of the year trade in uranium, if not sooner. We need to see some utility to ink a relatively good-sized contract to get things moving” - Larry McDonald, founder of the Bear Traps Report
“The space is so small, and it makes so much sense,” says Larry McDonald, founder of the Bear Traps Report. “I am looking for a turn of the year trade in uranium, if not sooner. We need to see some utility to ink a relatively good-sized contract to get things moving.”
Nuclear power may have its detractors but, as the world increasingly looks to green infrastructure as it recovers from the pandemic, it remains a crucial option.