Will Nuclear Demand Fuel a Uranium Bull Market?

The need for alternative energy sources is leading to a resurgence in nuclear power. More reactors are being constructed, but there could be a supply gap between decommissioned reactors coming offline and new ones coming online. This may fuel a uranium bull market.

• Cameco raises full-year outlook as the uranium spot price hits highest level since January 2011.
• Uranium demand to be fuelled by nuclear reactor investment in China and India.
• How to invest in uranium: the Sprott Uranium Miners ETF is up 45% in the past six months.

The uranium spot price is on a charge. It hit $70 at the end of September, the commodity’s highest level since it peaked at nearly $73 in January 2011, before declining in the wake of the Fukushima nuclear disaster in March of that year.

A September report from the World Nuclear Association (WNA) estimated that 130,000 tonnes of elemental uranium will be required to power all reactors globally by 2040, up from approximately 65,650 tonnes in 2023. In the most bullish scenario, demand could peak at 184,300 tonnes by 2030, but even the conservative lower forecast of 87,000 tonnes implies a moderate rise from this year’s demand level.

Interest in nuclear energy has been ramped up by the war in Ukraine, and the growing need for countries to secure their energy sovereignty, noted the WNA.

“The same instability has had significant implications for the globalised market for nuclear fuel cycle services with utilities, suppliers and governments in North America and Europe pursuing opportunities to diversify supplies,” wrote the industry body.

The resurgence of nuclear energy has put uranium stocks in the spotlight. According to the Opto screener, the theme is up 27.8% year-to-date and up 35.9% in the past six months.

Cameco Raises Outlook as Demand Heats Up

With demand increasing, Canada’s Cameco [CCJ], one of the world’s largest publicly traded uranium companies, increased its revenue outlook for the year in August, to $2.4–2.5bn, from a previously guided range of $2.2–2.4bn.

“The significant momentum seen in the nuclear energy industry and the heightened supply risk caused by geopolitical developments are translating into increased opportunities,” said Cameco President and CEO Tim Gitzel in a statement.

In a bid to capitalise on the momentum, last week Yellow Cake [YCA.L] announced it was planning to raise $125m in proceeds from new shares. The move will enable the company — which offers direct exposure to uranium without the risk of exploring, development or mining — to purchase 1.5 million pounds of physical uranium.

An agreement with the world’s biggest uranium producer, Kazatomprom [0ZQ.F], negotiated before Yellow Cake’s IPO back in 2018, means the company can purchase up to $100m of uranium annually until 2027.

“The supply demand fundamentals influencing the uranium price have strengthened even further, with rising production costs and utilities re-stocking representing additional drivers to the investment case,” said Yellow Cake CEO Andre Liebenberg in a regulatory release dated 27 September.

In a deal “built for the current uranium market”, IsoEnergy [ISO.V] and Consolidated Uranium [CUR.V] announced last week that they will be merging to form a top-10 publicly traded, uranium-focused company.

China Reactor Activity to Drive Growth

Growth in the nuclear industry will be driven by demand from China, where 22 nuclear reactors are currently under construction, according to the International Atomic Energy Agency, which will have a combined potential capacity of 22.72 GW.

These numbers dwarf the UK and US. The UK has two reactors under construction, which will have potential capacity of 3.26 GW, while the US has just one reactor under construction, with potential capacity of 1.12 GW.

While China leads the way when it comes to constructing new reactors (India is second, with eight), some countries will meet demand by extending the operational life of existing reactors.

“On the demand side, an unprecedented number of announcements for nuclear power plant restarts, life extensions and new builds are likely to create incremental demand for uranium,” wrote Jacob White, ETF Product Manager at Sprott Asset Management, last month.

Small Modular Reactors Could Power Microsoft’s AI Ambitions

A crucial technology that could help countries to meet their future nuclear energy needs is that of small modular reactors (SMRs). The US announced last week that it plans to deploy Europe's first American-made SMR in Romania by the end of the decade.

SMRs are seen as cleaner, more reliable and more affordable than standard nuclear reactors. Interest in them is growing: for example, Microsoft [MSFT] appears to be

planning to use SMRs to power its AI ambitions. According to a job advert for a nuclear technology programme manager, posted 25 September, the hire will be “responsible for maturing and implementing a global SMR and microreactor energy strategy.”

Low Nuclear Fuel Stock Could Sustain Uranium Bull Market

In the medium term, natural resource investment firm Goehring & Rozencwajg has warned that nuclear fuel stock from reactors that are being retired is running low. The firm expects the global uranium market to have tightened by the end of the decade as a result.

Utilities are “dramatically under-contracted post-2025”, and as more buyers look to cover themselves by scrambling to secure supplies, this could push uranium “into a sustained and frenetic bull market”, noted Goehring & Rozencwajg in its second quarter 2023 commentary.

“Uranium has likely reached a pivotal inflection point that could force the price higher by as much as three- to four-fold over the next several years,” the firm added.

How to Invest in Uranium

ETFs, or exchange-traded funds, offer an economical and diversified way to invest in a variety of stocks within a particular theme.

Funds in Focus: the Global X Uranium ETF

The Global X Uranium ETF [URA], which currently holds Cameco and Yellow Cake, had allocated 59.6% of its portfolio to the energy sector as of 30 September, followed by 20.1% to industrials and 18.5% to materials. Information technology and financials have marginal weightings of 1.1% and 0.8% respectively. The fund is up 26.8% in the past year and up 30.4% in the past six months.

The Sprott Uranium Miners ETF [URNM], which also holds both stocks, is a pure-play on the theme and is designed to offer “exposure to uranium miners and physical uranium essential to nuclear power”. The fund is up 35% in the past year and up 45.4% in the past six months.

The Horizons Global Uranium Index ETF [HURA.TO] is another pure-play, which seeks to track the performance of the Solactive Global Uranium Pure-Play Index. The fund is up 41.5% in the past year and up 50.3% in the past six months.