Can invest in uranium stocks, ETFs, and futures provide an opportunity to profit from this dynamic and valuable metal?
While several countries are slowing down their nuclear programs, the US just passed an infrastructure plan that includes billions of dollars to support the next generation of nuclear reactors. An EU draft text is now being worked on to help ease the transition to a future powered mainly through renewable energy sources. On the supply side, the recent unrest in Kazakhstan, the world's largest producer of radioactive metal, has exacerbated price increases.
Uranium's fundamentals continue to improve, with demand exceeding pre-Fukushima levels and worldwide mining production anticipated to fall short of global consumption. A shortage is projected to persist for the next few years as utilities attempt to restructure their contracts and mining supply remains constrained.
In 1789, uranium was discovered. It is a metallic chemical element that occurs naturally in large amounts in soil, rock, and water. Uranium offered potential as an energy source in the mid-20th century.
Today, uranium's principal industrial application is in the power generation of commercial nuclear reactors. Additionally, uranium is utilized to create isotopes for medical, industrial, and defense purposes.
In 2020, the world's total uranium production from mines was 47,731 metric tons, and this is compared to the 54,752 metric tons produced globally in 2019.
Kazakhstan is the world's largest uranium producer, with a 2020 production capacity of 19,477 metric tons. This decreased from the previous year's total of about 22,808 metric tons.
In comparison, the United States generates extremely little uranium. According to Statista, the United States produced just six metric tons of uranium in 2020. In 2010, the United States had 1,660 metric tons of uranium.
However, the United States is the largest consumer of uranium due to its widespread usage of nuclear energy. The United States utilized over 19,000 metric tons of uranium in 2018, more than double the amount consumed by the next most significant customer. France and China are the second and third major uranium consumers, respectively.
Uranium, unlike other commodities, does not trade on an open market. Rather than that, buyers and sellers negotiate contracts on a personal basis. Independent market consultants publish prices, and recent publications indicate that the cost of uranium is approximately $42/pound.
Uranium's price has roughly doubled in the last five years, indicating a compelling investment case for uranium equities.
Indeed, there is no doubt about the growing potential of uranium equities. To begin, nearly a third of the world's population lives in "energy poverty," defined as a lack of consistent electricity. Following that, the globe is confronted with the threat of climate change, which has elevated thermal replacement to a strategic priority for many developed nations. Electrifying numerous sectors that previously relied on coal for energy is significant.
Not unexpectedly, worldwide energy demand is anticipated to increase by 75% between 2020 and 2050, according to the IEA's 2021 World Energy Outlook.
Risks Associated with Investing in Uranium Stocks
However, before investing, investors should examine the hazards associated with uranium.
The uranium market is "very volatile." Any commodity-related investment can be highly volatile, given that the majority are positively correlated with boom-bust economic cycles. In addition to the dread of radioactive pollution, which is unique to uranium, there is also the fear of rare but highly publicized disasters such as the Fukushima nuclear power plant disaster in Japan in 2011 following an earthquake and tsunami.
Uranium's price is very susceptible to legislative and public policy risk. If a country's inhabitants abandon their ambition to use nuclear reactors, demand could fall significantly, causing prices to soften significantly.
If you want to take a risk in exchange for a potential gain, one method to invest in uranium is to purchase uranium mining stocks such as Cameco Corp. Energy Fuels Inc. is a smaller uranium producer, and BHP Group is a diversified mining company that extracts significant uranium amounts.
Investing in diversified miners provides exposure to uranium while also offering a safety net if the commodity's price falls. However, investing in smaller uranium-focused businesses may yield a greater return if the radioactive metal's price rises.
Additionally, there are risks associated with specific mining equities, including political risk, rising production costs, diminishing ore grades, balance sheet risk, and the possibility of poor management decisions.
Why are Uranium Stocks a Good Investment?
Uranium prices have risen sharply since Russia invaded Ukraine in late February, disrupting an already unbalanced fossil resource market and driving up already-high oil and natural gas costs. This new rally in fossil fuels was so robust and swift that it prompted several countries to rethink their energy policy. Many are now redoubling their efforts to transition to other energy sources. And for some, this will imply a significant role for nuclear energy generated by uranium-fueled reactors.
Uranium prices soared to $61.60 per pound, breaking an 11-year high last month.
The commodity is presently trading at its highest level since the Fukushima Daiichi nuclear disaster in 2011 when the uranium industry's fortunes were turned upside down and expansion was stifled.
The United States derives over 20% of its electricity from nuclear reactors and relies heavily on cheap uranium imports from Russia and its allies Kazakhstan and Uzbekistan to power them. President Joe Biden has not yet imposed penalties or restrictions on uranium imports from Russia, despite intensive lobbying in Washington by the American nuclear industry. However, bills to prohibit uranium imports from Russia have been introduced in the House and Senate in recent weeks. If such statements or White House action result in penalties or a ban, further crimps already-scarce uranium supplies. Meanwhile, Russia is allegedly considering imposing its restriction on uranium exports to the United States.
Its stock may benefit from another tailwind peculiar to the company right now: Its most recent regulatory filing revealed significant uranium discoveries at its core assets acquired in December when it acquired Uranium One. Uranium Energy may be the closest of the class of young uranium miners to producing and selling the commodity, so investor interest in the company appears to be constantly increasing.
Are Uranium and Nuclear Energy Safe Going Forward?
We must glance back to see where we are going. Additionally, it is beneficial to gauge the market mood. Nuclear energy has a poor public image.
When individuals are asked about nuclear power, they frequently mention Three Mile Island, Chornobyl, or Fukushima Daiichi. People's memories of these events have remained etched in their minds. There has been a great deal of negative coverage, which has undoubtedly resulted in fewer individuals investing in uranium equities. However, attitudes are shifting as more people take a step back and consider the facts.
To begin with, nuclear disasters are pretty rare. Chornobyl, in 1986, was the most significant nuclear disaster on record. A 600-page report on the incident was produced by the World Health Organization (WHO). It concluded that the total number of radiation-related deaths is likely to be approximately 4,000, based on the work of hundreds of scientists, economists, and health specialists.
That is a sobering statistic. However, let us compare it to the deaths caused by today's primary energy source – fossil fuels.
Each year, the WHO estimates that millions of people die due to air pollution caused by fossil fuels. Long-term consequences for our environment may be far more severe. We are neither nuclear proponents nor coal opponents. Rather than that, I'm putting up these statistics to demonstrate how frequently these truths are overlooked. Nuclear energy is also more environmentally friendly and safer than many people believe.
More individuals and governments are becoming aware of this. The tide is turning, and I'll discuss nuclear energy's promise below.
1. Blue Sky Uranium (TSXV: BSK)
Blue Sky Uranium is focused on uranium and vanadium exploration in Argentina and is developing its portfolio to prefeasibility. The company's flagship asset is the Amarillo Grande project in the Rio Negro province; a preliminary economic study indicates that Amarillo Grande contains Argentina's most excellent uranium deposit. Three deposits are located on the land, including the Ivana uranium-vanadium deposit.
Blue Sky's share price fell at the start of the year, but when uranium prices increased, so did the company's. Additionally, the company has produced several press items about exploration at the Ivana deposit this year. The company said that it had finished a portion of a reverse-circulation drilling program and continued exploration in the Ivana Central and Ivana North zones. The business announced the results of that exploration in early April, with highlights including a five-meter interval averaging 1,566 parts per million U3O8 and 243 parts per million vanadium pentoxide.
2. NextGen Energy (NXE)
NexGen Energy Ltd. is a junior exploration and development company focused on acquiring, exploring, evaluating, and developing uranium resources in Canada. The company was founded in 2011 and had a market capitalization of $2.2 billion.
As is the case with most uranium equities, NextGen is very speculative. The company does not generate income because it is in the exploration and development stage (and typically reports operating losses each year). To that goal, as of the end of the third quarter of 2021, NextGen had built a C$317 million deficit.
Therefore, investing in NextGen is a wager on the company's assets. Specifically, the corporation owns high-grade uranium assets, and a significant example is the company's Rook I Project, Canada's largest uranium development stage project.
As of the conclusion of the third quarter of 2021, the company had a relatively healthy financial sheet, with cash of C$227 million and total liabilities of C$94 million.
Investors seeking safety or stability should avoid purchasing the stock. Only the most risk-averse investors seeking exposure to uranium stocks should be considered NextGen.
3. Skyharbour Resources (TSXV: SYH)
Skyharbour Resources is based in Saskatchewan, Canada's Athabasca Basin, where nine of its fourteen projects, including its flagship Moore uranium project, are drill-ready. Additionally, the business has joint ventures with Orano Canada on the Preston project and with Azincourt Energy (TSXV: AAZ, OTCQB: AZURF) on the East Preston project. It also has various option partners on the Hook Lake project, including Valor Resources (ASX: VAL).
Skyharbour's share price increased significantly in the final week of February, coinciding with the significant increase in uranium prices. The firm has since published a slew of exploratory updates, and it began a diamond drill operation at its Moore project on March 1. Its most recent update at East Preston details the conclusion of a drill program that resulted in the drilling of 5,004 meters across 19 drill holes. Additionally, Basin Uranium reported that it had been granted drilling permits for Skyharbour's Mann Lake uranium project, in which Basin holds a 75% option.
4. Cameco Corp. (CCJ)
Cameco is one of the world's largest uranium producers. It is licensed to produce over 53 million pounds (on a 100% basis) of uranium concentrates per year and is backed by over 464 million pounds of proven and probable mineral reserves.
Additionally, it provides uranium refinement, conversion, and fuel manufacture services. Its landholdings, including exploration, total over 2 million acres, and Cameco holds a commanding position at the world's largest uranium mine, McArthur River.
In the fourth quarter, the company earned $11 million in net earnings and $23 million in adjusted net earnings. For 2021, the company reported a net loss of $103 million annually and a net loss on an adjusted basis of $98 million.
Cameco continues to be impacted by the coronavirus pandemic's effects on its business operations. By 2021, the company would have functioned at around 75% of its production capacity. By 2024, the business intends to operate at approximately 40% of its power.
Thus, while the near-term outlook for Cameco remains murky, the company could be a lucrative long-term growth play.
Cameco stock is dividend-paying. However, despite a proposed 50% dividend raise in 2022, shares currently yield less than 1%. As a result, Cameco stock is a better fit for dividend growth than for current income.
5. Baselode Energy (TSXV: FIND)
Baselode Energy is an Athabasca Basin uranium prospecting firm. It intends to use cutting-edge technology, well-understood geophysical approaches, and intelligent geological interpretations to map deep structural controls and locate shallow diamond drilling targets. Baselode is developing three projects in the Basin: Shadow, Hook, and Catharsis. Baselode has been concentrating its 2022 efforts at Hook since September when it discovered the ACKIO zone.
While Baselode's share price increased in lockstep with the uranium price, its most significant gains occurred in the week following its March 22 announcement that it had increased its ACKIO diamond drill program from 10,000 to 20,000 meters. And it obtained a new permit authorizing up to 50,000 meters of drilling at the zone. Later that month, on April 4, the business claimed that one of its drill holes had intersected the most prominent site of persistently increased radioactivity.
6. BHP Billiton plc (BHP)
Uranium stocks have a high level of risk and can be pretty volatile. As a result, BHP Billiton takes the top slot. While BHP is not the world's largest uranium producer, it does have the most scale and relative consistency, and BHP is a worldwide behemoth with a $175 billion market capitalization.
The headquarters of BHP is in Melbourne, Australia. The company's product line is diverse, and it discovers, produces, and processes a variety of commodities, including oil, iron ore, metallurgical coal, and copper. Iron Ore production accounts for about two-thirds of the company's yearly EBITDA, but the corporation is also interested in uranium.
In the most recent fiscal year ending June 30, 2021, BHP produced roughly 3.3 million metric tons of uranium. Although this represents a decline of 411 thousand metric tons from the previous year, BHP remains a significant uranium producer.
BHP gave an operational evaluation for the first quarter of fiscal 2022 (10/19/21) in mid-October (10/19/21). The company recorded a 4% fall in iron ore production and a 9% decline in copper production compared to last year, owing to maintenance activity and temporary workforce shortages caused by the epidemic.
However, it maintained its full-year production and unit cost guidance. BHP is the best uranium stock to buy from its scale and competitive advantages due to its highest dividend yield.
7. Forum Energy Metals (TSXV: FMC)
Forum Energy Metals is a uranium and energy metals exploration business focused on supplying metals such as uranium, nickel, copper, cobalt, platinum, and palladium to the green economy through its portfolio of projects. Its principal objective is uranium exploration, with most of its uranium properties located inside the Athabasca Basin. Forum purchased fresh deposits in February that Cameco previously owned.
The Forum began the year with a surge in share price on the announcement that it has optioned its Highrock uranium asset to Sassy Resources. Sassy will pay cash, deliver shares, and support exploration for exposure to the project on a staged basis each year until it has the option to acquire 100% of the project in 2025. The Forum commenced drilling at the project on March 1, with funding provided by Sassy.
This year, Forum has concentrated its attention on several sites and began drilling at its Wollaston uranium property on March 3. Additionally, it formed a technical team to aid in advancing its Nunavut uranium project. The group includes some former Cameco personnel.
8. CanAlaska Uranium (TSXV: CVV)
CanAlaska Uranium is a project generator focused on advancing the West McArthur and Cree East mines. West McArthur is a uranium project located near Cameco's McArthur River; it is a joint venture between CanAlaska and Cameco, in which CanAlaska owns 70%. CanAlaska owns 100% of Cree East, which possesses large uranium-bearing systems.
Shares fell when CanAlaska announced in mid-to-late January that it was providing options on two sites to Terra Uranium and Terra Uranium Canada and three properties to Basin Energy.
That dip was transitory, and CanAlaska has since risen momentarily in February and then signed in March, boosted by the uranium price and more news. The business reported on February 23 that it had staked additional claims in the Athabasca Basin, including the Chymko Lake uranium find. Then, in early March, CanAlaska began drilling at its Manibridge nickel property in Manitoba, a move that the CEO attributed to nickel's price movement. Most recently, the business announced the completion of a drilling program at the Waterbury South uranium project in 2022, extending the property's goals.
Bottom Line
Uranium stocks are risky investments, and investors should carefully consider the numerous risk considerations before purchasing them. Numerous uranium enterprises are small businesses with unclear futures, and there are very few uranium companies that pay dividends to stockholders.
However, the long-term potential may be lucrative for those prepared to take a chance. Uranium equities are expected to gain from the global nuclear energy industry. As a result, the best uranium stocks may generate attractive returns over time.
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