Uranium ETFs Beating Broader Market

Uranium mining ETFs’ returns have trounced the broader market in recent months as the spot price of the metal has reached the highest level in over a decade. 

The largest uranium exchange-traded fund, the Global X Uranium ETF (URA), returned 19% over the past three months and has gained in $50 million in inflows year to date. Flows into smaller ETFs have been even stronger with the Sprott Junior Uranium Miners ETF (URNJ), Sprott Uranium Miners ETF (URNM) and the Van Eck Uranium and Nuclear Energy ETF (NLR), pulling in $87 million, $70 million and $28 million, respectively.  

These ETFs hold stock in companies that mine uranium ore and in companies that refine and enrich uranium into nuclear fuel. NLR also holds stock of utilities that use nuclear power such as Constellation Energy, while URA and URNM supplement their equity holdings with the Sprott Physical Uranium Trust, a physically backed commodity mutual fund. 

SPY Down in Past Three Months 

For reference, the broader market as measured by the SPDR S&P 500 ETF Trust (SPY) is up 13.6% this year, but down 2% in the past three months. The global mining industry, as measured by the iShares MSCI Global Metals & Mining Producers ETF (PICK), is down 3.5% year-to-date and 3.7% in the past month. 

The supply of uranium has dropped this year, compounding a yearslong gap between supply and demand. This gap has drained power plant inventories, which regularly keep years of fuel on hand pushing the price of uranium to $69 a pound, a 44% increase year-to-date and up 24% in just the past three months.

The price of uranium over the past few weeks has been the highest level since 2011, just before the nuclear power plant accident in Fukushima, Japan, according to Jonathan Hinze, president of UxC, a nuclear energy market research and analysis firm. 

“I think this big run-up is going to keep going. Both Europe and the U.S. have large unfilled requirements for uranium,” Jacob White, senior analyst at Sprott Asset Management, said in an interview. 

 
Short-Term Catalysts for Uranium  

Geopolitical events have pushed up uranium prices this year. According to White, a coup in Niger, which provides about 5% of the world’s uranium supply has been one catalyst. The fallout from the Russia invasion of Ukraine has been another. Russia has roughly 40% of world uranium enrichment capacity, the process that turns uranium ore into fuel for nuclear power plants.  

“The costs of conversion and enrichment services skyrocketed after Russia invaded Ukraine,” White said in a recent report. 

White also said since the beginning of the war, uncertainty about whether sanctions on Russia will be extended to uranium has provoked uncertainty in markets, further boosting prices. 

The shorter-term effects of headlines have helped amplify longer-term trends. 

Cameco, a Canadian uranium producer, is URA’s largest holding, making up 22% of the fund. Cameco CEO Tim Gitzel said in the company’s most recent earnings report that it expects uranium contracts will be higher in 2023 than any year in the past decade. 

“We believe this is a good indication that a new long-term contracting cycle is underway,” Gitzel said. 

“Nuclear Energy Renaissance” 

The World Nuclear Association, a trade group, predicts that global uranium demand will roughly double between 2023 and 2040. 

The WNA points to the need to cut carbon-dioxide emissions as one phenomena driving longer-term interest in nuclear energy. White says that nuclear energy will be an important supplement to sources of renewable energy because of its capacity factor.  

Capacity factor is how much energy a power plant generates over a period of time, as a percentage of its total generation capability. According to the U.S. Department of Energy, nuclear plants have a capacity factor of 93%, compared with 54.4% for natural gas, 35% for wind and 25% for solar.  

The increase in demand means that mines which were unprofitable at lower uranium prices, can be reopened and smaller mines can be expended. That’s reflected in the ETF flows. The $156 million URNJ, which invests in smaller uranium miners, has received more flows in the past month as URNM, which has over $1 billion in assets.  

“I think people are really starting to understand that uranium juniors are needed,” White said.  
 
Contact Gabe Alpert at [email protected]