The uranium investment theme topped our leaderboard on 4 April, as it was reported uranium prices are on the rise. According to The Motley Fool, the price of U308 (triuranium octoxide, also known as “yellowcake”) "last week surged past $30 per pound for the first time this year, approaching its highs of last year". Morgan Stanley analysts predict it could hit $50 per pound by 2024.
As an investment theme, uranium has gained circa 6.65% in the past month and circa 107% over the past year (as of 9 April’s close). A resurgence in nuclear energy production, which had fallen after the 2011 Fukushima disaster, has powered this demand as more countries use the power source in their energy mix.
Returns of the uranium theme over the past year
Emerging markets have been the biggest growth sector for nuclear, led by China, which aims to be carbon neutral by 2060 — an ambition that could double global uranium demand. However, demand in the west is also increasing. Political mandates such as the European Union’s decision to be carbon-neutral by 2050 are moving energy production away from fossil fuels. According to the World Nuclear Association, there are 440 reactors in operation globally, with another 50 in production.
However, while demand has been growing, uranium supplies have been diminishing.
COVID-19 has caused Kazatomprom to reduce uranium production by 20% last year, while Cameco Corp [CCJ] temporarily suspended production at the world’s largest uranium mine in March 2020. Both actions constrained supply, pushing up the price of uranium. For investors looking to back this growing investment theme, one option is through an exchange-traded fund [ETF].
Uranium ETFs to watch
Global X Uranium ETF
The Global X Uranium ETF [URA] has seen returns grow circa 46% so far this year, and 6.68% in the past month.
URA provides investors with exposure to companies involved with the mining and production of nuclear components. The fund tracks the Solactive Global Uranium & Nuclear Total Retire Index. For the majority of last year, the index held around the 20 points level, before entering a sustained upward trend at the start of December. It is now trading around its all-time high of 35 points.
Top holding is NAC Kazatomprom JSC-GDR [KAP LI], which represents 23.15% (as of 9 April’s close) of the fund’s weighting. Twelve months ago, uranium miner Kazatomprom’s share price was trading around the $13 level but, as demand for the commodity has increased, so has the share price. As of 9 April, Kazatomprom was trading at €23.20, having hit an all-time high of €24.40 on 6 April.
Returns of the Global X Uranium ETF so far in 2021
Second spot is Canadian operation Cameco Corp, with a 22.22% weighting. Like Kazatomprom, the stock has had a stellar 12 months, gaining 86.46% to trade at $17.21 as of 9 April’s close. As reported by MarketWatch, Cameco beat Wall Street expectations in fourth-quarter results, however, it was dealt a downgrade from Bank of America analyst Lawson Winder, who lowered his rating from buy to neutral and put a $17.50 price target on the stock.
According to Winder, Cameco is "by far the largest, most liquid Western uranium producer at a time when uranium fundamentals are improving." However, Winder thinks prices over $50/lb are "unlikely” in the near future.
Third spot is NexGen Energy Ltd [NXE], which appointed Harpreet Dhaliwal as CFO last week. NexGen Energy’s share price has rocketed from circa CAD$1.28 last year to over CA$5 in April, experiencing a sharp acceleration in buying at the start of December.
The North Shore Global Uranium Mining ETF
The North Shore Global Uranium Mining ETF [URNM] has seen its returns grow circa 41.95% so far this year, and 7.46% in the past month (to 9 April’s close).
URNM is made up of companies involved in the mining and development of uranium, along with companies that hold uranium or derive royalties from the commodity.
Returns of the North Shore Global Uranium Mining ETF so far in 2021
In the fund’s first annual report, covering December 3, 2019 through August 31, 2020, J. Garrett Stevens, CEO at Exchange Traded Concepts wrote:
“The Fund had positive performance during the Reporting Period. The market price for URNM increased 35.16% and the NAV increased 33.48%, while the S&P 500 Index, a broad market index, gained 14.79% over the same period. The Fund’s Index returned positive 34.83%.”
Like URA, its two biggest holdings are Kazatomprom and Cameco, although these two make up 15.93% and 14.43% of net assets respectively (as of 9 April). Rounding out the top five is Uranium Participation Corp [U], Yellow Cake [YCA] and NexGen Energy [NXE], each representing between 5% and 8% of URNM’s holdings. All of these have seen strong gains over the past year.
As the world moves away from fossil fuels, greater dependency will be placed on nuclear power and renewables to meet the world’s energy demands. That makes uranium an investment theme that could continue to provide opportunity for investors.
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