Is uranium the new gold?

– The price of uranium on world markets is going parabolic. The rush to a global green economy is causing inflation in material prices for wind turbines. That rush is also creating political friction as communities say “no” to industrial-size solar farms.

Now, the quest for a global carbon-neutral economy is creating a supply-demand imbalance for uranium. Supply is limited. Demand is soaring. Is uranium the new gold?

Demand for uranium has surged as countries from China to India pursue nuclear energy to balance the needs of increasing energy for economic growth while reducing carbon emissions. The price of uranium is trading at the highest levels since the Fukushima nuclear meltdown in 2011. On that point, it is noteworthy that Japan is again embracing nuclear power plants.

The commodity’s price has jumped almost 50% year to date to about $70 per pound. Traders are targeting $80 per pound as the next price target, the price level required for new uranium investment. By contrast, gold is up only 13% this year.
The trend is clear. Globally, there are about 60 nuclear reactors under construction. And this is just the start of a renaissance for the nuclear power industry. Planning is underway in China for an additional 228 nuclear power plants. Moreover, emerging nuclear power technologies such as molten salt reactors, breeder reactors, and small nuclear reactors will increase demand for uranium.

Yes, upfront capital costs to build a nuclear reactor are significant. Still, nuclear power plants have several advantages over green energy power generation. Nuclear power provides the base load for the energy requirements of a growing economy. It is a 24/7 power source. The sun does not have to shine and the wind does not have to blow . The footprint of nuclear power plants is small. The useful life of a nuclear plant is over 80 years. Go nuclear, then, and a country need not worry about energy geopolitics. Very importantly, the cost of fuel for a nuclear reactor is very small relative to the cost of building a nuclear reactor.

North America has substantial uranium reserves. The uranium market is anticipated to be in deficit within the next five years. It is difficult to predict the prices for commodities, but it is not hard to imagine that uranium will spike much higher than $80 if speculators become interested in the market. Investing in uranium and uranium stocks is not for the fainthearted. But over the last five years the Global X Uranium exchange-traded fund ETF is up 50%. Selecting individual uranium equities is more risky than buying a basket of uranium stocks through an ETF, but a few uranium stocks could be interesting for a sophisticated, risk-tolerant investor.

Cameco, a Canadian company capitalized at $14 billion, is a 50% owner of the Saskatchewan-based uranium mine Cigar Lake, which is the world’s most prolific uranium deposit. Over the past five years, CCJ is up 250%. NexGen Energy is another Canadian uranium company capitalized at $2 billion. Over the past five years, NXE is up 188%. Finally, Uranium Energy is a U.S. company with facilities in Texas and Wyoming. Over the past five years, UEC is up almost 200%. To repeat, investing in uranium and uranium stocks is high risk.

But for some, the prospective rewards just might be worth it.



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