Uranium dipped in price this past week after hitting its highest level in 16 years. Is it about to get lithium-ed?
Lithium, the lightest metal, multiplied more than five times in price in less than a year after CME Group launched a futures contract in 2021. Then it collapsed, and now it’s lower than it started.
Uranium, one of the heaviest metals, doubled in price since summer to a recent $106 per pound before dipping to just below $100. Two niche exchange-traded funds,
Global X Uranium
and
Sprott Uranium Miners,
together took in more than $1 billion in fresh investor cash over the past year, as assets under management swelled to a combined $5 billion.
Along the way, meme traders on Reddit took an interest. One typical post from last fall featured a photo of three posh young women in a convertible with the caption, “Get in losers, we’re cornering a market.” That one requires a working knowledge of the 2004 film Mean Girls, but the post’s title was less subtle: “Uranium to Uranus,” with a rocket ship emoji.
In fact, uranium was discovered in 1789, eight years after the planet for which it’s named. That’s right: If you enjoy tangential fun facts, strap in.
Bulls say the uranium market will be undersupplied for decades to come. Bears, well, there aren’t many of them.
Cameco,
a big, publicly traded uranium producer in Canada, is covered by 13 analysts, according to FactSet. Eleven say to buy, and the remaining two say to hold. The Kazakhstan-based industry giant,
National Atomic Company Kazatomprom,
has five buys and one hold, which, percentage wise, makes it slightly more popular than
Alphabet.
Uranium’s superpower is that it can produce lots of energy for its size—20,000 times as much as coal. It’s also 500 times as plentiful as gold. More than 99% of naturally occurring uranium is U-238, which doesn’t have much oomph. It’s what’s known as fissionable, not fissile—you can split atoms to release energy, but you won’t typically get a chain reaction. For that you need U-235, which is three neutrons short of U-238. But it makes up just 0.72% of natural uranium.
No problem: Just turn the metal into a gas, spin it, and harvest higher concentrations of the lighter isotope. Less than 5% U-235 “enrichment,” as it’s called, will do for electricity generation. Higher levels are for nuclear submarines, or nuclear weapons, or nuclear submarines with nuclear weapons. Also, I should point out that Canada with its Candu reactors can create chain reactions with regular U-238, holding down fuel costs, but those use something called heavy water as a moderator, which is pricier than the regular water used by typical reactors.
Two key events have whipsawed uranium prices. In March 2011, a tsunami struck a nuclear plant in Fukushima, Japan, disabling the fuel cooling system. The resulting radiation release is estimated at a tenth that of 1986’s Chernobyl disaster, with no deaths and minimal health effects. But the public soured on nuclear power and called for early plant retirements. Uranium fell from over $60 a pound to under $20 from 2011 to 2016.
“Almost no mine in the world could operate profitably,” says John Ciampaglia, CEO of
Sprott
Asset Management. “Mines were put on care and maintenance. When that happens, you basically live off of inventories.” As recently as 2021, before the U.S. reported unusual Russian troop movements near Ukraine, uranium sold for $30 a pound. Then, Russia invaded and turned its role as energy supplier into a weapon. “We all learned in 2022 what happens when your natural gas gets cut off,” says Ciampaglia. “You either have no gas or you pay 10 times for it.”
The result: a nuclear power revival. “We are seeing life extensions, reactor refurbishments, and the call for new builds,” Cameco CEO Timothy Gitzel told investors during a Thursday earnings call. “And we have a technological evolution on the horizon as well, with SMRs.” That stands for small modular reactors. There are 434 operating nuclear power reactors worldwide, with 59 being built, including 23 in China. These will be traditional large-scale facilities. In markets like the U.S., where the bill is footed by private payers and new construction has stalled, companies are experimenting with small reactors using factory components.
There is more than just a warming up to nuclear power at work here. Kazakhstan is running desperately low on the sulfuric acid used to leach uranium from underground deposits. Kazatomprom says it will increase production only modestly this year, despite high selling prices. On the other hand, Cameco, which this past week reported a doubling of earnings, says it will produce 36 million pounds of uranium at two key facilities this year, up from 28.6 million last year. Its shares gave up 7% on earnings day. Last year, Cameco and
Brookfiel
d Asset Management
bought Westinghouse Electric, which makes components for nuclear plants.
Then there are the investment buyers. In 2018,
Yellow Cake,
whose main business is holding uranium, went public. In 2021, Sprott bought an investment vehicle called Uranium Participation Corp. Today, it goes by
Sprott Physical Uranium Trust
and is the largest holding in the company’s miners ETF. Last fall, TD Securities estimated that the two companies had together acquired 63 million pounds of uranium since Yellow Cake’s initial public offering, significantly tightening the market.
Uranium’s demand outlook might warrant the rocket emojis and Mean Girls memes, but before jumping in, consider again lithium’s example. Its superpower is its light weight—it would float, if not for the fact that it reacts violently with water. That gives it the lowest charge-to-weight ratio of any battery metal and a secure spot in the long-term shift from gasoline to battery-powered vehicles, and maybe to utility-scale battery storage of solar power. But the
Sprott Lithium Miners
ETF, which launched a year ago at $20, is now a little over $9. This past week, J.P. Morgan wrote that the lithium market looks likely to remain oversupplied through 2028.
Write to Jack Hough at [email protected]
Read the full article here
