Unearthing the Uranium Opportunity

By Steve Schoffstall, Director, ETF Product Management, Sprott Asset Management

After decades of underinvestment, the nuclear industry is undergoing a global renaissance. As nations grapple with aggressive decarbonization goals and energy security considerations, the reliable, safe and clean energy produced by nuclear reactors is ready to play a prominent role in meeting growing global electricity demands and increasing energy consumption.

A Changing Energy Landscape

Changing demographics are contributing to an expected 76% increase in global demand for electricity by 2050, relative to 2021.¹ In the developed world, much of the demand is likely to come from technological innovation, such as a growing preference for electric vehicles and greater usage of electronics. In the developing world, higher incomes, population growth and the rise of the middle class could translate to increased demand for new technologies.

While societal and technological advancements are increasing the demand for energy, the energy transition is fueling a move away from conventional energy to renewable energy sources. Globally, the share of renewables in power generation is expected to increase from 29% in 2022 to 35% in 2025.² While wind, solar and hydro are the poster children for renewable energy, adverse weather events can impact their ability to provide reliable electricity at all times. To keep economies running, more dependable sources of energy, such as natural gas and nuclear, are needed to provide reliable baseload power.

Geopolitics and Energy Security Considerations

As the world moves toward renewables, energy security is becoming an increasingly important consideration. The ongoing war in Ukraine has highlighted the need for Western nations to consider energy security in their decarbonization plans, which has forced countries like Germany and Belgium to reexamine past policy decisions to phase out nuclear energy.

Europe is particularly susceptible to supply disruptions. Europe’s quest for energy security took another potential blow in August 2023 as the Niger coup put the Trans-Saharan gas pipeline construction at risk,³ and the new regime allegedly threatened to suspend uranium exports to France,⁴ a leading producer of nuclear energy.

Investment in Nuclear Energy Supportive of Uranium Bull Market

Because much of the recent growth in the nuclear industry has taken place overseas, the investment opportunity in the sector often gets overlooked by U.S. investors. There are currently 434 nuclear reactors operating around the globe, with an additional 170 either planned or already under construction.⁵ The United States is getting on the nuclear train as well, as the first newly constructed nuclear unit in the U.S. in over 30 years, Georgia Power’s Vogtle Unit 3, became commercially operational on July 31, 2023. Another unit serving the state of Georgia is expected to be completed in early 2024.⁶ While developed nations have nearly 70% of the global nuclear capacity, Asia is leading the growth in new construction. The announced energy plans for the UK, France, China, Poland and India include substantial reliance on nuclear power, while the U.S. is increasing investment in advanced reactor designs.⁷

To increase energy security, the U.S. continues to pass legislation aimed at reshoring the nuclear fuel supply chain. The bipartisan Nuclear Fuel Security Act (NFSA) overwhelmingly cleared the U.S. Senate and directed the U.S. Department of Energy to increase domestic nuclear fuel production to ensure limitations in uranium supply will not affect the operation of current and future nuclear reactors.⁸ The NFSA follows the ADVANCE Act, which is intended to cut Russia out of the nuclear fuel supply chain.

Opportunity for Uranium Miners

This growing reliance on nuclear energy is increasing demand for uranium, and we believe this is providing attractive investment opportunities in uranium miners. After decades of overproducing, uranium miners are no longer able to meet the demand of existing nuclear reactors,⁹ and the uranium production/demand imbalance may widen well into the next decade.¹⁰

Concern about future uranium supplies has utilities purchasing uranium in quantities not seen for a decade. Cameco, the world’s largest publicly traded uranium miner, has contracted to sell 118 million pounds of uranium so far this year, which compares to 125 million pounds for all of 2022. Uranium spot prices have increased more than 19%, YTD¹¹ and are beginning to present an incentive for certain miners to expand their uranium production. In the emerging uranium bull market, spot prices are beginning to approach incentive ranges that make the development of greenfield projects (new exploration on unmined terrain) economically viable. Uranium miners may be poised to generate higher revenues and potential profits, if and when mining production ramps up.

[1] IEA World Energy Outlook 2022 Stated Policies

2 IEA Electricity Market Report 2023

3 Bloomberg, “Niger Coup Puts Trans-Saharan Gas Pipeline at Risk,” 8/8/2023

4 The Washington Post, “The Coup in Niger Puts Spotlight on Nation’s Uranium,” 8/1/2023

5 World Nuclear Association as of 8/1/2023.

6 Georgia Power, Press Release, “Vogtle Unite 3 Goes into Operation,” July 31, 2023

7 IEA Nuclear Power and Secure Energy Transitions

8 Senate Committee on Energy and Natural Resources, “Barrasso’s Nuclear Fuel Amendment Overwhelmingly Passes Senate,” 7/27/2023

9 OECD-NEA/IAEA, World Nuclear Association as of 12/31/2022

1⁰ UxC LLC. Data as of Q2 2021

1¹ Bloomberg, as of 8/16/2023

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