Investing in Uranium, Critical Materials

Investing in Uranium, Critical Materials

Sprott's URNM won Best New Thematic ETF at the 2024 etf.com Awards.

When looking for diversification ideas or growth opportunities, investors and advisors may not immediately think of uranium or other critical materials like copper, lithium, and nickel.

The 2024 etf.com Awards winner for Best New Thematic ETF, the Sprott Uranium Miners ETF (URNM), may have exchange-traded fund investors thinking differently.

Learn more about investing in critical materials and how Sprott ETFs offer long-term opportunities as an evolved way of looking at energy sector allocations.  

What Are Critical Materials?

Critical materials are minerals and elements considered essential for modern technologies, clean energy production, and national security. These materials are often irreplaceable in their applications and face supply chain challenges due to geopolitical issues, limited geographic availability, and environmental considerations.

Here are some of the most commonly identified critical materials:

Copper: A highly conductive metal used in electrical wiring, electronics, and renewable energy technologies.

Lithium: A key element in Lithium-ion batteries used in electric vehicles, consumer electronics, and grid storage for renewable energy.

  • Nickel: A critical material for stainless steel production and increasingly used in electric vehicle batteries.
  • Cobalt: Another vital component in Lithium-ion batteries, also used in magnets and aerospace applications.
  • Graphite: Essential for anodes in Lithium-ion batteries, used in lubricants and fire retardants.
  • Uranium: While it's not currently on the U.S. critical materials list due to its fuel source classification, uranium is commonly recognized as a critical material due to its role in clean energy production through its use in nuclear power.

Investing in Critical Materials

Investing in critical materials can be a way to gain exposure to the growing demand for these elements driven by trends like:

  • Electrification: The shift towards electric vehicles and renewable energy sources like solar and wind power is a major driver for critical materials like lithium, cobalt, nickel, and rare earth elements.
  • Technological advancements: Critical materials are becoming increasingly important for various new technologies, including AI and its data centers, advanced electronics, energy storage solutions, and national security applications.
  • Supply chain concerns: Geopolitical tensions and limited geographic availability of some critical materials can create supply chain vulnerabilities, potentially driving up prices.

Critical materials may be a suitable investment for those with a long-term perspective, as the demand for these elements is expected to grow over time. Investors should also keep in mind that the critical materials sector can be volatile and influenced by factors like commodity price fluctuations, geopolitical risks, and changes in government policies.

Investing in Uranium With an ETF

At the 2024 etf.com Awards, the Best Thematic ETF of the Year award went to Sprott’s URNM. One of the few funds offering exposure to uranium, the Sprott Uranium Miners ETF outperformed 99% of its natural resources category peers and more than doubled the return of the S&P 500 index in 2023.

According to the World Nuclear Association, the uranium market is experiencing increased demand, driven by its integral role in clean energy generation through its use in nuclear power. With countries around the world working toward aggressive net-zero clean energy goals while emerging economies are increasing the demand for electricity, nuclear power’s role is becoming more and more essential.

How uranium can offer potential for long-term growth:  

  • 434 nuclear reactors are operational globally, with 170 more planned or under construction
  • At the COP28 conference in December 2023, more than 20 countries pledged to triple the world’s nuclear energy capacity by 2050.  
  • Although uranium is relatively abundant, a supply shortage is looming.
  • Recent U.S. legislation to ban Russian uranium could raise uranium spot prices and the prices of related equities.
  • The existing uranium supply gap is expected to deepen through 2040.

The primary use of uranium is as fuel for nuclear power plants. Nuclear fission of uranium atoms releases tremendous amounts of heat, which is used to generate electricity. Nuclear energy has the lowest carbon footprint, uses less land, and has been shown to be safer than most other energy sources. The highly enriched uranium associated with nuclear weapons is not required for nuclear power generation.  

Bottom Line on Investing in Critical Materials

Including critical materials ETFs as part of a diversified portfolio can be a way to potentially benefit from this growing sector while mitigating risks.

Remember, as with any other ETF, investors should do their own research to determine if uranium or other critical materials are suitable for their risk tolerance and investment objectives. 

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