Investors are betting that global support for a transition to cleaner energy will benefit nuclear power and its fuel uranium.
A Solactive index tracking shares in uranium miners has rallied 35 per cent in 2021 on a total return basis, reaching its highest level in more than six years.
The move is being driven by hopes that nuclear energy will play a role in helping countries shift away from fossil fuels as they target net zero emissions by mid-century. Nuclear energy provides a low-carbon source of power that is not intermittent, unlike wind and solar.
“Electrification and clean energy is at the heart of the Asian rollout of nuclear capacity led by China,” Rob Crayfourd, a portfolio manager at the New City Investment Managers’ Geiger Counter fund, said. “In tandem with that, Biden and the EU's policies are very much keen to incorporate nuclear as part of the energy mix.”
China has pledged to increase nuclear power generation to 70 Gigawatts by 2025, from 50GW currently, as part of President Xi Jinping’s plans to move away from coal.
At the same time, President Joe Biden’s US administration has said that nuclear will be included in its “clean energy standard” that would mandate utilities to produce power that is carbon-free by 2035.
In addition, some smaller countries are switching to nuclear power. This week the United Arab Emirates started its first nuclear power plant, the first Arab state to do so.
Analysts at Morgan Stanley expect nuclear power capacity to increase by 8GW this year, and grow at a 1.7 per cent compound annual rate until 2026.
A number of companies have bought supplies of physical uranium this year, which has helped bolster the price. Prices for uranium have risen by 11 per cent since the beginning of March to $31 a pound.
This month, Canadian uranium miner Denison Mines said it had spent $74m buying 2.5m pounds of uranium concentrates. In total, companies have bought 11m pounds of uranium in the market, according to analysts at Canaccord.
The demand has added to shortage in supply because of Covid-19. In December Canada’s Cameco, the world’s second-largest producer of uranium, said it had suspended production at its Cigar Lake mine because of the virus, and would buy supply for its customers in the market.
“We anticipate further upward pressure on prices as these players secure pounds and spot market activity increases with additional spot purchases from producers such as Cameco,” Katie Lachapelle, an analyst at Canaccord, added.
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Still, uranium prices have defied multiple predictions of a rally and have failed to regain a peak of more than $137 a pound in 2007. Investors previously hoped the election of Donald Trump as president would rekindle US nuclear power, but that failed to substantially move uranium prices, which have hovered below $35 a pound since 2015.
Analysts at RBC cautioned that uranium equities “have run ahead of fundamentals” and a recovery in uranium prices will be “gradual and over the long term.”
The sector was delivered a blow in 2011 when the Fukushima disaster in Japan caused the government to pledge to phase out nuclear power.
But Crayfourd said nuclear power generation is now above pre- Fukushima levels despite Japan’s withdrawal of much of its fleet.
Power utilities are likely to re-enter the market this year to secure their uranium supply, he said, given the policy certainty over nuclear power.
“More and more people are saying that it is renewables plus nuclear — the resistance [to nuclear] is weaker than it was in the past,” Andre Liebenberg, chief executive of London-listed Yellow Cake, a company that holds physical stocks of uranium, said.
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