Why the uranium bulls are finally right

The uranium bulls are up and about. The spot uranium price is up almost 10% since the start of August and is now up 27% so far in 2023. If you have been investing a while, you might be experiencing déjà vu. It’s not the first time in the past decade we have been bombarded with charts showing the case for uranium and an imminent supply shortfall. Plagued by setbacks including the Fukushima disaster in Japan, investors have mostly been disappointed.

This time, though, we think they are right.

Our Forager International Shares Fund has been invested in the Canadian-listed Sprott Physical Uranium Trust (TSX:U.UN) for two years and we think the case remains compelling.

After 15 years of next to no investment in uranium mining assets, our view is that the price needs to rise further to encourage enough mining to meet the world’s growing needs. Even then, it will take many years before the supply and demand balance can be brought back into equilibrium. And the setbacks have only exacerbated the problem.

Nuclear power is controversial. But it’s likely an important piece of the decarbonisation puzzle. Wind, solar and other intermittent renewable sources of energy will only get us so far. Environmentally-conscious Germany, which recently decommissioned its last nuclear plant, is now burning more coal instead. In contrast, California has pushed back its plan to shutter the Diablo Canyon reactors for at least a decade. Additional reactor life extensions are being granted across the US, UK and Japan. Political support for nuclear power has also turned a corner since 2022, with the US and EU now classifying it as a clean/green energy source.

But this story isn’t really centred on the West. After 20 years of almost no new nuclear reactors being built across the world, 40 are set to be completed between 2024 and 2027 (largely driven by India and China, where nuclear power has become core to their emissions reduction and pollution control strategies). Further out, there are an additional 19 reactors under construction and 425 new reactors planned or proposed across 31 countries. 

Even without these new reactors, current demand sits well above existing uranium production (the gap being met by stockpile depletion and secondary supply from nuclear disarmament programmes which are coming to an end). Some of the world's largest uranium producers, such as Kazatomprom (KAS:KZAP) and Cameco (TSX:CCO) have missed production targets and downgraded guidance. There is also additional buying pressure from various physical uranium investment trusts launched over the past few years, including Sprott, Yellow Cake Plc (AIM:YCA) and ANU Energy.

An investment in Sprott Physical Uranium Trust (a closed-ended trust that owns physical uranium) gives Forager’s International Shares Fund direct exposure to the uranium price without the risks associated with miners themselves. If we’re right about a significantly higher uranium price, there will undoubtedly be miners and mining explorers that prove to be wonderful investments. In our experience, there will also be plenty that end up losing money whether the uranium price rises or not. It is our preference to keep it simple, and Sprott is as simple as it gets. 

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