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Energy insecurity boosts the Sprott Uranium Miners ETF

The Sprott Uranium Miners ETF has performed relatively well in the last few months, despite uncertainty in the wider market. Energy insecurity triggered by Russia’s invasion of Ukraine has led several countries to reboot their nuclear power ambitions, brightening the outlook for the uranium mining companies held within the fund. 

- The uranium industry has outperformed key market benchmarks in the last year

- Energy insecurity fears have led countries to reconsider nuclear energy ambitions

- The US Department of Energy has asked to purchase a considerable amount of uranium to safeguard the country from future energy shocks 

The Sprott Uranium Miners ETF [URNM] has performed relatively well in the last few months on the back of a brightening outlook for the uranium industry, as energy uncertainty concerns reignite the conversation around nuclear energy. The fund, which invests in uranium miners and other companies within the space, has risen in value by 21.1% in the last six months.

The Sprott Uranium Miners ETF aims to invest at least 80% of total holdings in the North Shore Global Uranium Mining Index (URNMX), which tracks the performance of companies with a minimum 50% of total assets committed to uranium mining operations. As of 13 January, the fund consists of 36 different holdings, 56% of which operate within Canada, while 15% are from Kazakhstan and 13.5% from Australia. The rest of the holdings are split between the US, the UK and Hong Kong.

Last year, the fund fell by a modest 3.6%, but has gone up 10.3% so far in 2023.

Strong performance from major holdings Cameco and NexGen

Cameco [CCJ] is the world’s largest publicly traded uranium company and the fund’s second-largest holding, making up 14.18% of assets under management (AUM). The Cameco share price performance has been a boon to the Sprott fund, rising 12.4% over the past year and 13.5% so far in 2023.

Last October, Cameco shares rallied when the group entered into a partnership with private equity giant Brookfield Renewable Partners to buy US nuclear power company Westinghouse Electric for $7.9bn. Not only did the acquisition signal a positive outlook for Cameco’s business, it also highlighted a newfound optimism within the wider uranium market.

NexGen Energy [NXE], another major Canadian uranium holding, has also logged some good results over the last few months, helping to drive up the performance of the wider fund. The company is its fourth-largest holding, and makes up 5.42% of AUM. In 2022, NextGen received regulatory approval for its Rook I Project, which is 100% owned by the company itself. It expects the front-end engineering design (FEED) required for the project to be completed early this year. NextGen’s share price has risen 1.5% over the past year and 5.6% so far in 2023; the analyst consensus at Tipranks is that its shares are a ‘strong buy’.

Energy insecurity stimulates nuclear revival

The uranium mining industry has been held back of late, with prices for the commodity remaining relatively low throughout the last decade. After the 2011 Fukushima nuclear disaster, countries decided to roll back their nuclear ambitions, leading to a surplus of uranium supply and a dramatic drop in demand. However, there is potential for an increase in demand as countries look to reduce their carbon emissions and meet their climate goals.

Alongside this, a rise in energy insecurity over the past year has reignited the conversation surrounding nuclear power. At the end of August last year, Japan announced plans to accelerate the restart of reactors, and even explore the construction of new plants for the first time since Fukushima. In the following weeks, California and Germany announced they would postpone the decommissioning of active plants, and in December, the US Department of Energy issued a request to purchase an estimated 1m pounds of uranium fuel. The reserve is intended to act as a back-up source for the country’s nuclear power plants in the event of a significant disruption to the energy supply. Most recently, on 3 January Sweden announced that it will be building new nuclear power plants.

 

Disclaimer Past performance is not a reliable indicator of future results.

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