8th September 2022
The 2022 Russian invasion of Ukraine marks a new epoch in global energy consumption. The greatest fallout of the conflict for countries like Germany and the UK has been a sharp rise in energy prices, amid a backdrop of underinvestment by successive governments.
European nations have scrambled to address the supply shock, and in the short term have resorted to burning more fossil fuels – even coal – to keep the lights on across the continent.
Nuclear power, with its luke warm reputation since the Fukushima disaster, it is starting to assert itself as the practical compromise between the still-prophetic green energy mix, and our much maligned fossil reserves.
Enter Nuclear
At the time of writing there are over 400 nuclear reactors operational in 30 countries. Combined these reactors use 200 million lbs of Uranium annualy.
In recent months a swath of new nuclear energy projects have been announced. By far the biggest of these comes from China, which has announced plans to build 150 new reactors at a staggering cost of $440bn.
In Europe outgoing Boris Johnson announced Britain’s plan to ‘go large’ with a £700m funding promise to the Sizewell reactor. Meanwhile EDF has announced their intention to restart all of their nuclear reactors in the winter of 2022, half of which are not operational. Smaller countries across the world, from Hungary to the Phillipines have also unveiled nuclear investment commitments stretching decades into the future.
In total, over 400 new reactors are proposed worldwide.
A perfect storm
At the very same time a supply defecit appears to be hitting the uranium sector. The closure of several large mines, compounded by forced coronavirus shutdowns, has brought about a uranium shortage in the region of 20-50 million lbs.
Furthermore, utility companies stopped stockpiling uranium since the Fukushima disaster in 2011. Many of the long term contracts utilities signed with miners are expiring, and there is a reticence to renew these contracts on the basis that uranium is still extremely cheap. With recurrent revenue diminished, several large uranium miners have paused operations.
As a consequence more uranium is being purchased via spot, rather than through long term contracts, and this is causing global uranium stockpiles to be consumed at a rapid rate.
In order to meet current demand alone, prices have to rise to $50/lb, or else nations who rely on nuclear as part of their energy mix will face power shortages.
With renewed interest in nuclear across the world, a perfect storm of war, sentiment shift and hard economics, may stand to precipitate a bull run the likes of which we haven’t seen since 2007.
Capitalising on the opportunity
Exposure to Uranium the commodity can be had via Sprott Physical Uranium Trust (OTCPK:SRUUF) which holds physical U3O8 reserves.
Uranium equities fall into 3 categories: miners, developers and explorers. The majority of these companies operate in one or more of the following regions: Kazakhstan, Canada, Australia and Africa.
The categories of miners, developers and explorers have very different risk profiles, with miners having the lowest risk/reward ratio, and explorers having the highest. It stands to reason that miners’ revenues are quite predictable, versus a small uranium explorer who may hit jackpot and discover a vast untapped deposit, or may find nothing, and gradually turn insolvent. Developers are somewhere in the middle, plumbing infrastructure for high newly discovered sites, but exposed to the financial and operational risk attendant to any complex and drawn out infrastructure project.
For easy exposure to a blend of all 3, roughly apportioned by market cap, URNM is widely considered the best Uranium ETF. In the UK most brokerages do not list it, with the notable exception of IG. Not financial advice.