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Many have been waiting for the uranium price to increase and strengthen the market. As the trend toward clean energy continues, some believe that day is soon to come.
The uranium price has faced difficulties since the 2011 Fukushima nuclear disaster. A massive earthquake damaged several Japanese nuclear reactors, and they had to be taken offline. Fears over the radioactive risks posed by nuclear power reactors post-Fukushima, paired with excess supply, have weighed on the spot price in the years since then.
But recently rays of hope have returned to the uranium industry. High-profile supply cuts from major producers like Kazakhstan’s Kazatomprom and Canada’s Cameco (TSX:CCO,NYSE:CCJ) have raised expectations of higher prices, and optimistic market watchers are beginning to position themselves for a potential global uranium boom.
On the demand side, there are signals that nuclear power is expected to play an integral role in a clean energy future. “I think it’s very deliberate that the (US) federal government uses the term clean energy. I mean, that’s code for hydro and nuclear,” said Grant Isaac, senior vice president and CFO of Cameco, at a recent Red Cloud Securities uranium forum. “That’s why they don’t use the term renewable energy.”
But how do traders invest in uranium? Unlike gold, owning physical uranium is not possible, especially due to the metal’s radioactive characteristics. So where does that leave investors?
How to invest in uranium: Stocks
One of the three ways to invest in uranium is to purchase stocks. With the current price of uranium still relatively low, it’s possible to get good deals while companies are “on sale.”
When looking at stocks, beginners may want to start by considering some of the world’s largest uranium-mining companies. These include uranium producers like Cameco, Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) and BHP (NYSE:BHP,ASX:BHP,LSE:BHP).
Understanding where these companies’ uranium mines and production facilities are located can also investors make informed decisions. Those interested in uranium stocks may want to look at the countries that produce the most of the metal. Last year, the three top uranium-mining jurisdictions were Kazakhstan, Canada and Australia.
Of course, these large mining companies are not the last word in the market. In fact, there are quite a few mid-tier and junior uranium exploration companies that investors may want to discover. As a starting point, check out our list of the top-performing TSXV- and TSX-listed uranium stocks.
Finally, another interesting option for uranium investors is Uranium Participation (TSX:U,OTC Pink:URPTF). The company holds physical uranium inventories and its share price tracks the underlying price of uranium. In this way, it provides investors with exposure to physical uranium.
How to invest in uranium: ETFs
For investors who want exposure to the market, but crave the diversity of a basket of equities instead of single stocks, exchange-traded funds (ETFs) are generally the way to go. Unfortunately for uranium investors, the selection of uranium-focused ETFs isn’t very wide. There are only four options.
For starters, investors can look at Global X Funds (ARCA:URA), which tracks a basket of mining firms. The fund is made up of both American and international uranium miners and producers. An alternative to that ETF is the Van Eck Market Vectors Uranium + Nuclear Energy ETF (ARCA:NLR), which tracks a market cap-weighted index of companies in the uranium industry.
Another is the North Shore Global Uranium Mining ETF (ARCA:URNM). It’s an international uranium fund comprised of companies in Kazakhstan, Canada and the US. Using the North Shore Global Uranium Mining Index, the ETF tracks producers and explorers, as well as holders of physical uranium.
The latest uranium ETF features Canadian uranium miners and was launched by Horizons ETFs Management in mid-2019. Called the Horizons Global Uranium Index ETF (TSX:HURA), it is designed to give investors exposure to the rebounding uranium industry.
How to invest in uranium: Futures
As a third option, investors can look to the futures market while awaiting a rise in the uranium price. Futures are financial contracts that obligate the buyer to purchase (or seller to sell) an asset like a physical commodity or financial instrument at a predetermined future date and price.
In terms of uranium futures, investors once again have few options. CME Group (NASDAQ:CME) offers UxC uranium U3O8 futures. These contracts track U3O8, and each one represents 250 pounds of the nuclear fuel. The NYMEX also provides investors with a U3O8 futures trading option.
Futures are an important part of the market as there is currently no exchange-listed, transparent price instrument that consumers and suppliers can use to manage prices and risks. Furthermore, uranium futures provide investors with a marketplace for direct exposure to the price of uranium.
How to invest in uranium: Why pick uranium?
When it comes to uranium investing, the thesis is simple: Many investors believe that the market could be on the cusp of a renaissance.
Believers include Rick Rule of Sprott (TSX:SII,NYSE:SII), who said in early 2018 that he sees uranium as a “when” question, not an “if” question. He has reiterated his optimistic viewpoint several times since then.
Others have expressed a little more caution. For example, Mercenary Geologist Mickey Fulp has emphasized that uranium is a “boom and bust commodity,” meaning that every decade or so the price cycles higher, then subsequently falls. He believes the tide will eventually turn for uranium, but has said that it’s impossible to say when that will happen. “Not even insiders have an idea of when this is going to turn because the market is so opaque,” he has said.
Regardless, nuclear energy provides 10 percent of the world’s electricity, with new capacity growing annually for the last six years. There are also several dozen new nuclear power reactors being built globally, indicating a potentially bright future for the energy material.
As the need for clean energy grows and uranium oversupply diminishes, demand for the energy fuel is likely to grow. Investing while the spot price continues to show improvement could offer an opportunity.
This is an updated version of an article originally published by the Investing News Network in 2016.
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Securities Disclosure: I, Melissa Pistilli, hold no investment interest in any of the companies mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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