Investors are betting that global support for a cleaner energy transition will benefit nuclear power and its fuel, uranium.
A Solactive index that tracks the stocks of uranium miners rose 35% in 2021 on a total return basis, reaching its highest level in more than six years.
The move is driven by the hope that nuclear power will play a role in helping countries move away from fossil fuels as they aim for net zero emissions by mid-century. Nuclear power provides a low-carbon energy source that is not intermittent, unlike wind and solar.
“Electrification and clean energy are at the heart of China’s nuclear capacity deployment in Asia,” said Rob Crayfourd, portfolio manager at New City Investment Managers’ Geiger Counter fund. “At the same time, Biden and EU politicians are very keen to integrate nuclear into the energy mix.”
China has pledged to increase nuclear power production to 70 gigawatts by 2025, from the current 50 GW, as part of President Xi Jinping’s plans to move away from coal.
At the same time, the US administration of President Joe Biden has said nuclear will be included in its “clean energy standard” that would require utilities to produce carbon-free electricity by 2035.
In addition, some small countries are turning to nuclear power. This week, the UAE launched its first nuclear power plant, the first Arab state to do so.
Morgan Stanley analysts expect nuclear capacity to increase by 8 GW this year and grow at a compound annual rate of 1.7% through 2026.
A number of companies have purchased supplies of physical uranium this year, which has helped drive up the price. Uranium prices have risen 11% since the start of March to reach $ 31 a pound.
This month, Canadian uranium miner Denison Mines said it spent $ 74 million to purchase 2.5 million pounds of uranium concentrates. In total, the companies bought 11 million pounds of uranium from the market, analysts at Canaccord said.
Demand has added to the shortage of supply due to Covid-19. In December, Canada Cameco, the world’s second-largest uranium producer, said it had suspended production at its Cigar Lake mine because of the virus and would buy supplies from its customers in the market.
“We anticipate further upward pressure on prices as these players secure books and cash market activity increases with additional cash purchases from producers like Cameco,” added Katie Lachapelle, analyst at Canaccord. .
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Still, uranium prices defied several rally predictions and failed to regain a high of over $ 137 a pound in 2007. Investors previously hoped that Donald Trump’s election as president would revive US nuclear power, but that did not significantly displace the uranium. prices, which have been below $ 35 per pound since 2015.
RBC analysts have warned that uranium stocks “are above fundamentals” and that a recovery in uranium prices will be “gradual and long term.”
The industry was dealt a blow in 2011 when the Fukushima disaster in Japan prompted the government to commit to phasing out nuclear power.
But Crayfourd said nuclear power production is now above pre-Fukushima levels despite Japan withdrawing much of its fleet.
Power companies are expected to re-enter the market this year to secure their uranium supply, he said, given political certainty over nuclear power.
“More and more people are saying it’s renewables plus nuclear – the resistance [to nuclear] is lower than in the past, ”said Andre Liebenberg, managing director of Yellow Cake, a London-listed company which holds physical stocks of uranium.
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