With descriptors like “enormous growth” and “tremendous impact”, Sprott Asset Management’s chief executive officer sounds like he’s talking about the Incredible Hulk when describing his massive bet on uranium in 2021.
The Toronto-based firm’s Physical Uranium Trust (U-UN.TO), the only publicly-listed fund in North America that invests in physical uranium, has grown its assets from US$630 million when it launched in late July, to just under US$1.9 billion today.
“It has completely exceeded our expectations,” John Ciampaglia told Yahoo Finance Canada in an interview. “We’re quite bullish on 2022. The uranium market has clearly come back to life after a long slumber.”
The spot price for the radioactive metal was around US$30 per pound when the fund’s units first hit the market. Since then, Sprott has more than doubled its initial 18.1 million pound stockpile, making its biggest buys over the summer and fall to amass a total of 41.3 million pounds. Meanwhile, prices climbed to nearly US$46 in November, before dipping to US$42.75 as of Dec. 20, according to nuclear fuel market research firm UxC.
2021 has been a year of Hulk-like returns for more than just Sprott. Shares of Saskatchewan-based uranium producer Cameco (CCO.TO)(CCJ) have increased 67 per cent year-to-date. The Global X Uranium ETF (URA) and NorthShore Global Uranium Mining ETF (URNM) have also rallied 58 per cent and 81 per cent, respectively, over the same period.
Critical mass acceptance
More than a decade after the deadly Fukushima disaster cast a shadow on the future of nuclear power, Sprott’s CEO sees growing acceptance. Ciampaglia notes governments in the United States, France, and the Netherlands have expressed support for building additional capacity. The European Union is considering nuclear’s green status for rules to label climate-friendly investments.
In the U.S., Bill Gates and Warren Buffett have made headlines with plans to build a US$1 billion next-generation reactor on the site of a Wyoming coal plant. Earlier this month, U.S. Secretary of Energy Jennifer Granholm, a Democrat, toured a nuclear plant in Illinois.
“When was the last time you saw that? Nuclear has always been a very Republican stance. Not so much on the Democrat side,” Ciampaglia said.
“The fact that the Biden administration has included nuclear in its infrastructure bill, and the support of the energy secretary, it’s clearly messaging that nuclear is part of the [clean energy] solution. I think that’s a signal people should be focused on.”
He also points to the energy crisis unfolding in Europe as evidence that more reliable, zero-emissions power is needed on the continent to support the use of renewables. Germany, in particular, whose government decided to phase out nuclear post-Fukushima, is facing skyrocketing energy prices this winter.
On top of that, there’s the growing chorus of net-zero pledges from governments and corporations.
“[Nuclear is] the only way some countries have a chance of hitting their greenhouse gas emission targets,” Ciampaglia said. “I think a lot of governments, and scientists for that matter, are making that acknowledgement public.”
Gordon Johnson, CEO of New York-based GLJ Research, says uranium went from “a four-letter word” to “being very advantageous” in 2021, as investors increasingly associate nuclear power with clean energy needs.
He sees more upside for spot uranium prices in the near term, with utilities looking to lock in long-term supply as funds like Sprott’s remove pounds from the open market. He notes nuclear fuel contracts in China are particularly long in the tooth these days.
“What the Sprotts of the world are doing is they are trying to force those renewals of contracts by basically sucking up all the spot availability and pushing prices higher,” Johnson said in an interview. “Once the contracted prices start to move, which they have, that’s when things get very interesting.”
Ciampaglia concedes his fund has had a “tremendous impact” on the spot market. However, he also notes the cost of uranium is only about four to five per cent of a plant’s operating expenses.
“So they’re not overly price-sensitive,” he said. “But you don’t run a power plant on a just-in-time inventory model. We think [contract renewals are] a really important factor for the next 12 to 36 months.”
How to invest in uranium in 2022
Ciampaglia says institutional investors and family wealth offices are asking him if 2021’s strong performance is a flash-in-the-pan, as was the case in the early 2000s, when the price of uranium shot up to a record high near US$140.
At the time, strong demand signals from China as the country began to attempt to phase out coal, and concerns of “peak oil”, were among the factors giving rise to uranium prices.
Today, the bullish forecasts are on the supply-side as well. Ciampaglia says 10 years of low uranium prices post-Fukushima have weakened supply, and caused Cameco and Kazatomprom (0ZQ.F), the world’s top producer, to shut in production.
“All of a sudden, we need to bring that supply back online. Many of these projects have not been touched in 10 years. And the time to bring new mines online at a greenfield level is 10 to 15 years,” he said, adding that bringing back Cameco and Kazatomprom’s halted production would take one to two years.
For Johnson, who initiated coverage on Cameco in August, owning shares of the low-cost uranium producers (Cameco or Kazatomprom) is the best way to invest in uranium next year. He says NexGen Energy (NXE.TO)(NXE) is another option that carries more risk.
Matt Manara, partner and portfolio manager at Toronto-based Avenue Investment Management, is taking a cautious view on his firm’s position in Cameco, after a strong 2021.
“Cameco already trades at a valuation that would suggest uranium is at US$80, and it’s not anywhere near there yet,” he said. “We’ve drawn a line under the stock. As soon as it breaks that trend line, we’re out of it.”
Of course, critics of nuclear energy say new capacity is too costly and time-consuming to build in order to meaningfully rival wind and solar in adding clean power to grids.
Tom Rand, managing partner at ArcTern Ventures, says the small, modular reactors aimed at solving these issues are decades away from deployment at a scale to meaningfully move the needle on emissions.