Why Investors Are Flocking to Uranium | Chief Investment Officer

Nuclear energy has long been a bête noire of environmentalists fretting about the generating plants’ safety and radioactive waste disposal problems. But now the price of uranium, the fuel for the nukes, is swelling.

Oddly, the chief reason for uranium’s newfound popularity is that nuclear plants give out zero carbon emissions, which are the greens’ main worry. It’s not that environmentalists are embracing atomic power. But enough other people are, chiefly outside the West, which for years has been spooked by the industry—since the 1979 accident at Pennsylvania’s Three Mile Island and the 1986 catastrophe at Chernobyl in Ukraine, then a part of the Soviet Union. Not to mention the 2011 Fukushima disaster in Japan.

Once again, new nukes are coming online. Today, about 50 reactors are under construction in 19 countries, according to the World Nuclear Association trade group. That’s a big increase for the industry, which now has some 445 reactors operating in 32 countries. In a 2019 report, the group forecast a 26% increase in uranium demand from 2020 to 2030.

The new reactors mostly are in Asia, predominantly in China, India, and the United Arab Emirates. The nuclear base has shrunk in the US, which now has 94 reactors, down by 10 from its peak in 2012, says the US Energy Information Administration (EIA). A few US units are being added, though: The most recent was in 2016, for the Tennessee Valley Authority.

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The result of all this demand is a steady increase in uranium’s price. That marks a turnaround from the slide that started in 2011 in the wake of the Fukushima meltdown. The price tumbled by some 90% over the next six years before starting to edge up. This year, uranium has risen by a third, with the October uranium contract settling at just over $41 per pound, CME Group data show.

A buying frenzy for uranium is underway. “You’ve got end users that are trying to buy materials, and you’ve got speculators and financial intermediaries in the market as well,” said John Ciampaglia, chief executive officer of Sprott Asset Management, the world’s only physical uranium fund. He told Bloomberg that family offices and hedge funds in particular were driving up the cost of the radioactive mineral.

Meanwhile, the Global X Uranium exchange-traded fund (ETF) has advanced 81% this year. The ETF tracks companies that run or supply the nukes. Uranium miners have seen their shares leap, as well: Cameco is up 85% in 2021 and Denison Mines 175%.

Spurring investor sentiment is that nations worldwide are announcing targets to cut carbon emissions. “There is an unequivocal consensus that nuclear energy is required to meet ambitious climate change targets,” Bank of America said in a recent client note, although it did acknowledge that the industry continues to face opposition over safety worries.

What’s more, uranium has become a meme play, akin to GameStop and the like. RBC said social media excitement about the ore has expanded for several months and remains elevated. “We believe increased social media attention on uranium may be playing a part in this year’s rise in uranium equity valuations and should be taken into consideration by investors evaluating the sector,” the firm wrote in a recent note.

Perhaps helping further the investor excitement near-term are qualms about energy shortages this winter. US propane prices have risen to the highest since 2014. Memories are raw in Texas about the power outages stemming from a deep freeze there last winter. Blackouts are a possibility in the UK, after a fire knocked out a cable carrying electricity from France; the conduit likely won’t be restored until March. Europe endured a freeze in early 2021 that shrank its natural gas stockpiles, so gas prices are vaulting.