Uranium Bull Market
“Nuclear power is the largest source of low emissions electricity in the EU.” – The IEA
In March 2022, the International Energy Agency (IEA) published a 10-point plan to reduce Europe’s consumption of natural gas in response to Russia’s invasion of Ukraine. Implementation of that plan will change Europe’s energy landscape for decades to come.
Action No. 5 is key – many nuclear facilities are now comfortable setting up long-term supply contracts.
According to Sprott, a major investment bank, these utilities are now focusing on replenishing uranium supplies to ensure access to the fuel.
It’s important to note that uranium demand isn’t as price sensitive as oil or coal.
A ton of uranium fuel can produce the same energy as 91,000 tons of coal, more than 1.5 million cubic feet of natural gas, or more than 322,000 barrels of oil.
That’s why nuclear power makes so much sense today. You can tack a zero onto its current price and it will still be far more economic than coal or oil.
Action No. 10 is a little more subtle. While most people would read that and think of renewables, there are headwinds for those projects. Solar and wind power need storage to replace “base load” power that we currently get from coal and oil. Base load is the term for the constant electricity demand. If we only had solar and wind power, there would be times when there was no electricity. And in today’s society, that doesn’t work. Our hospitals need to have power all the time. Not just when the sun shines and the wind blows.
And at our current technological level, nuclear power is the only option for carbon-free base-load power.
And according to the World Nuclear Association, the public arm of the uranium industry, worldwide capacity is increasing. About 60 new reactors are under construction in 15 countries.
And according to the IEA’s World Energy Outlook, projects with nuclear capacity will grow more than 26% from 2020 to 2050. That may not seem like much, but that’s a global number. It will take global capacity from 390 gigawatts to 525 gigawatts.
Nuclear power is on the rise around the world. And that’s why we believe uranium is about to repeat its historic bull market.
Here’s what that means for us…
Why We Want to Own Uranium Now
The set up for uranium is perfect. It spent the decade from 2011 to 2021 in a dismal bear market. Sentiment tanked to record lows. Nuclear power plant closures in that period led to nuclear’s lowest contribution to electric power supply in 40 years.
That’s starting to change now. And it looks similar to the last time the uranium price soared.
It started with a historic bottom…
On January 1, 2004, an Australian uranium exploration company, Paladin Energy (PDNX.AU), traded for 5 cents per share.
Uranium miners were losing money doing business. It cost the industry $15 to produce a pound of the stuff… and they were losing $4 on every pound they sold. That was unsustainable. Something had to give. A few expert resource investors figured out that prices would have to rise soon.
Uranium prices were already in an uptrend. They had risen from $7 per pound in 2001 to over $11 per pound in 2004. By 2005, the uranium price had jumped to $20 per pound, and then it climbed another 75% to $35 per pound by the end of the year.
Investors got excited about uranium, too. They piled into anything related to uranium.
By January 2005, Paladin Energy was up to 47 cents. That’s a 460% jump. But by the end of 2006, it had hit $6.85 per share. That’s a 1,357% gain in just two years. But it was a 2,000% gain in 36 months.
Giant uranium producer Cameco (CCJ) had a similar run.
From $3.20 per share in early 2003 to over $45 per share in 2007 – that’s a 1,300% gain in just over four years.
Those are just two examples of what the industry did the last time it saw a bull market… and of what we could see in the next three to four years.
We are on the cusp of a brand-new bull market. The world is moving back into nuclear energy right now. Plants that were slated for shutdown are staying open. And money is pouring into new reactors and innovative technologies.
We aren’t going to play this trend with individual companies yet. For now, we want to buy a basket to get exposure to the whole sector.
And we are going to do that with Sprott Uranium Miners Fund (NYSE: URNM).
Buying a Pre-Selected Basket of Uranium Companies
The truth is that there are few uranium funds available to us.
We could buy several stocks ourselves. However, that would require us to trade on foreign exchanges. And then we’d have to actively manage them, and the cost would become a burden.
It is easier to buy a well-managed exchange-traded fund (ETF). The benefit of these funds is that we limit individual company risk. In theory, you can rely on a percentage of these companies’ shares falling, even in a bull market. We all make mistakes.
But by spreading our investments out over 30 or 40 companies, we reduce the impact of a single company’s mistake. And in a bull market, all the stocks should trend higher.
Here is what we need to know about the fund, according to its website:
Sprott Uranium Miners Fund (NYSE Arca: URNM) seeks to invest at least 80% of its total assets in securities of the North Shore Global Uranium Mining Index (URNMX). The Index is designed to track the performance of companies that devote at least 50% of their assets to the uranium mining industry, which may include mining, exploration, development, and production of uranium, or holding physical uranium, owning uranium royalties, or engaging in other, non-mining activities that support the uranium mining industry.
The uranium bull market is in place. This should be a long-term trend. That is why we recommend getting into URNM in the short term. The volatility of the fund’s shares means we can set a limit order around $30 or $32 per share and easily build a position
You may see the stock exchange listed as “NYSE Arca.” That’s a digital stock trading platform created in 2006 when NYSE merged with Archipelago. The Arca has the highest ETF trading volumes of any exchange. You can trade on it with no problem.
As long-time readers know, I know the Sprott team well. I trust them to do a great job managing this fund, just like they have with others.
Action to Take: Buy Sprott Uranium Miners Fund (NYSE: URNM). Patient investors can use a limit order to build a position under $32 per share.
We see the uranium bull market as an important natural resource trend over the next 18 to 24 months. We will look for opportunities in individual companies. But in the meantime, a position in URNM gives us the exposure we want while limiting our risk.
Sincerely,
Matt Badiali
