Now that the U3O8 spot price has edged above US$30 per pound, investors are looking for ways to get uranium exposure and benefit from its positive price trend.
After holding in bear market territory for the bulk of the last five years, uranium surged ahead in 2020 as one of the year’s top-performing commodities.
Now that the U3O8 spot price has edged above US$30 per pound, these market participants are looking for ways to get uranium exposure so they can benefit from its positive price trend.
Purchasing shares of miners is one of the most common ways to gain entry to the market. Those with a longer-term outlook may want to look beyond miners to explorers and developers, which offer opportunities to profit from the future uranium market and the growing clean energy push.
But what about investors who want to go beyond typical uranium stocks? Physical exposure, as well as exchange-traded funds (ETFs) and utility companies, are other options for broad sector or commodity-only exposure to uranium. Read on to learn about these alternate uranium investment strategies and how they can fit into a portfolio.
Uranium investment options: Physical trusts
The latest way to get involved in the uranium space is via Sprott’s (TSX:SII,NYSE:SII) new trust.
The firm, known for its US$12 billion in assets under management, recently turned its attention to the uranium market. Through a definitive agreement, Uranium Participation (UPC) (TSX:U,OTC Pink:URPTF) shareholders will see their holdings converted to units of the Sprott Physical Uranium Trust.
UPC holds physical uranium in two forms: uranium oxide in concentrate, also known as U3O8, and uranium hexafluoride (UF6). In an April announcement, Sprott calls UPC, “the world’s largest publicly traded investment vehicle providing investors an opportunity to gain exposure to the price of uranium, outside of a traditional mining company.”
As of March 31, 2021, UPC’s reported holdings included 16,269,658 pounds of U3O8 and 300,000 kilograms of uranium as UF6; the market value at the time was approximately C$665 million.
“We believe our global brand, fund marketing experience, and client base of more than 200,000 investors will improve trading liquidity and grow UPC’s asset base during what we believe is the start of a bull market for physical uranium,” said John Ciampaglia, CEO of Sprott Asset Management.
The trust has an estimated launch date of late Q2 or early Q3 of this year. At that time, Sprott will seek to have the entity dually listed on the TSX and NYSEARCA, like its other physical trusts.
Uranium investment options: ETFs
ETFs allow investors to access the uranium market broadly. With exposure to a basket of companies, they often include top-tier miners and explorers, as well as royalty and holding companies.
One of the top-performing uranium ETFs following the 2020 market downturn is the North Shore Global Uranium Mining ETF (ARCA:URNM). After slipping to US$16.71 in mid-March of last year, the ETF has rocketed up by more than 300 percent. Shares were valued at US$69.68 as of June 2.
The ETF provides exposure to 10 uranium-focused companies with operations around the globe, including Cameco (TSX:CCO,NYSE:CCJ), Energy Fuels (TSX:EFR,NYSEAMERICAN:UUUU), NexGen Energy (TSX:NXE,NYSEAMERICAN:NXE), Paladin Energy (ASX:PDN,OTCQX:PALAF) and UPC.
Tim Rotolo, CEO of North Shore, credits two factors for the ETF’s positive share performance.
“The institutional appreciation for nuclear’s role in decarbonization of the global economy has become much more widely appreciated,” he told the Investing News Network.
“As a result, the uranium-mining equities as a proxy to play have become much more popular. We’ve seen very positive inflows — performance this year has been exceptional.”
Launched in 2017, the North Shore ETF has added 60 percent to its value in 2021. The growth was largely driven off the success the commodity experienced in 2020. However, as the CEO and founder noted, last year was a tipping point for issues that had been growing in the sector over the last decade.
“You have a situation where COVID accelerated the appreciation for just how significant the supply deficit is,” he said. “But it comes down to economics 101, there’s not enough supply at today’s price.”
Rotolo cited the advancement of small modular reactors — a priority topic for US President Joe Biden — as well as new reactor capacity and life extension for current reactor fleets, as mounting factors that current production levels cannot meet.
Aside from that, there are more than 50 nuclear reactors under various stages of construction around the world, with start dates slated over the next five years. Once operational, the global fleet will consist of roughly 490 reactors in 32 countries by 2027.
Uranium investment options: Utility companies
Investing in utility companies that produce electricity through nuclear energy is another alternative entry point to the market. The relationship between utilities and uranium producers is often cited as the reason the sector is so opaque. Responsible for the vast majority of U3O8 purchases, utilities sign contracts to procure the energy fuel years in advance.
For the last three years, there has been speculation that these companies will soon be entering new purchase agreements. These movements would likely translate to price upside due to tightening supply.
So far that utilities action has yet to materialize, although with the U3O8 spot price holding in the US$28 range and rising, deals may be near. “I think we’re closer now than we were before,” said Rotolo. “It’s one of the most vexing questions out there.”
He went on to note that utility companies are not “incentivized buyers” like hedge funds, for example. Positive price trends are a catalyst for hedge fund managers to purchase uranium, while utilities have to consider the totality of the fuel cycle.
“I think there’s a number of data points that point to us being certainly much closer today than we have been in the last several years,” he continued. “We’ve seen work that says that contracts are rolling off, and there’s a ton of uncovered demand out there. But I think directionally we have a good sense that there is a real need to come to market over the next 12 to 24 months.”
With the US Section 232 petition in the rear view, geopolitical tensions easing and Russian suspension deals finalized, many factors that were believed to be keeping utilities away have been addressed.
Another potential motivator is the amount of spot purchasing that producers are doing to cover current contracts. As output disruptions in 2020 depressed production tallies, several majors have turned to the spot market to make up the difference.
As Rotolo explained, all these dynamics have been further emboldened by the Sprott announcement.
“I think this Sprott thing has the potential to really move the needle,” he said, noting that several uranium majors and royalty companies have made spot market purchases. “If Sprott comes in and they’re in the market every day, I have to imagine that these utilities are going to feel a little bit of pressure.”
This is an updated version of an article first published by the Investing News Network in 2013.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Energy Fuels is a client of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy of the information reported in the interviews it conducts. The opinions expressed do not reflect the opinions of the Investing News Network. All readers are encouraged to perform their own due diligence.