Investing in the uranium marketadmin - February 1, 2022
In 2021, the international world-market price for uranium rose with approximately 40% which naturally attracted the attention of many investors. But how to go about if you want to gain exposure to the uranium price? Buying a lump of uranium and storing it in your wardrobe is not recommended, but there are several other methods available and we will look at some of them in this blog post.
As the world is combating climate change and rising temperatures, many governments worldwide are looking to nuclear power as a way of reducing green-gas emissions without having to implement drastic quality-of-life reductions. The main fuel for contemporary nuclear power-plants is uranium, so demand can be expected to continue to increase.
Notably, in a recently passed infrastructure bill, the United States has set aside billions of dollars to support the next generation of nuclear reactors. Meanwhile, the European Commission is reportedly working on a draft that would define nuclear power as a means to facilitate the transition towards a lower reliance on fossil fuels.
Of course, for the investor, there is always the risk that a nuclear disaster, such as the one in Chernobyl in 1986 or Fukushima in 2011, moves popular opinion regarding nuclear power, and that politicians eager for votes may move their standpoint accordingly.
As always, the dynamics of supply and demand impacts the market price of uranium. If we look at the supply side, political turmoil in Kazakhstan has been linked to the increased price of uranium in 2021. Kazakhstan is currently the world´s largest supplier or uranium, with a wide margin to Canada who comes in second.
The main uranium supplying countries in 2019:
- Kazakhstan – 22,808 tons
- Canada – 6,936 tons
- Australia – 6,613 tons
- Namibia – 5,476 tons
- Niger – 2,983 tons
- Russia – 2,911 tons
- Uzbekistan – 2,404 tons
- China – 1,885 tons
- Ukraine – 801 tons
- South Africa – 346 tons
As you can see, over two-thirds of the world´s total production came from Kazakhstan, Canada and Australia, making the market price heavily dependant on the situation in those three countries.
Generally speaking, the uranium market is considered highly volatile, and highly influenced by boom-or-bust economic cycles and political risk. Other examples of risks that should be considered are increased production costs and declining ore grades.
Gaining exposure to the uranium price
If you want to gain exposure to the uranium price, there are several ways to do it, each with their own pros and cons. Here are a few of the most commonly used methods:
- Investing in stock companies where profits and stock valuation is tied to the market price of uranium.
- Investing in mutual funds or exchange-traded funds with heavy uranium exposure.
- Using uranium futures
Examples of uranium-focused mining stocks:
- Cameco Corp. (Ticker: NYSE: CCJ)
- Kazatomprom (FRA: 0ZQ)
- Energy Fuels Inc. (TSE: EFR)
- Ur-Energy Inc. (TSE: URG)
Instead of going for a very high uranium price exposure, some investors prefer to invest in more diversified mining companies or funds, as a way of spreading risk. On the other hand, diversification can also mean that a boost in uranium prices are counterweighted by losses on other raw materials. Examples of diversified miners with some uranium production are BHP and Rio Tinto. BHP (formerly BHP Billiton) is the trading entity of BHP Group Limited and BHP Group plc, an Anglo-Australian multinational mining, metals and petroleum company. Rio Tinto Group is another Anglo-Australian multinational, and the world´s second-largest metals and mining corporation (behind BHP).
For some investors, combining uranium supply (e.g. mining companies) investments with investments in nuclear power companies provide an appealing risk-balance, since a lower uranium price benefits the nuclear power company that needs to buy uranium and vice versa.
Exchange-traded funds are easy to buy and sell fund-shares in, since they are listed on exchanges. If you don´t want to invest in individual companies, an ETF can be an appealing alternative. The fund invests in a basket of assets, such as securities. You do not own any of these assets outright; you only own shares in the fund.
One example of an ETF that gives you exposure to the uranium price is the North Shore Global Uranium Mining ETF (URNM). It owns shares in companies involved in mining, exploration, development, and production of uranium, and also in some companies that hold physical uranium, uranium royalties or other non-mining assets.
Another option is the Global X Uranium ETF (URA), which invests in companies involved in uranium mining and nuclear-industry component production. Learn more about Exchange-traded funds on investing.co.uk.
A fund that owns uranium
Finding a fund that actually owns physical uranium is difficult, as most funds prefer to buy and sell securities and similar assets. One notable exception is the Sprott Physical Uranium Trust (U.U.). By early January 2022, this fund owned well over 42 million pounds of uranium – a sharp increase from the 18.1 million pound of uranium owned by the fun when it was launched in July 2021. The Sprott Physical Uranium Trust is publicly listed.
CME Group Inc. (CME) offers monthly contracts for trading uranium. They are priced in USD per pound, and are financially settled.
Uranium futures speculation is only recommended for seasoned traders looking to add substantial risk to their overall portfolio.
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