Why uranium stocks were heading for the sky today


What happened

The actions of uranium miners exploded today. As soon as the market closes on Wednesday, Uranium energy (NYSEMKT: UEC), Energy fuels (NYSEMKT: UUUU), and Ur-Energy (NYSEMKT: URG) increased by 6.1%, 9.5% and 8.2%, respectively.

As if the emergence of the world’s first exchange-traded fund (ETF) that invests in physical uranium weren’t enough to spark frenzied purchases of uranium stocks, the big nuclear news from Japan this morning have fueled enthusiasm.

So what

The profitability of miners depends a lot on the price of uranium. After a lull that lasted for years, spot uranium prices topped $ 30 a pound in 2020, relinquishing some gains in early 2021. Prices have since rebounded by double digits, leaving hope for better days. for uranium miners.

The enthusiasm reached a whole new level when the Sprott Physical Uranium Trust Fund began trading on the Toronto Stock Exchange on July 19. The prospects for an actively traded fund that invests in physical uranium with over $ 600 million in assets under management cannot be understated, especially since this is the first ETF on the uranium in the world and that it includes a large pool of capital and expertise in metals trading.

The ETF generated a lot of interest among investors from day one and bought 100,000 pounds of the metal. Uranium bulls think this may be just the start, with mining giant Cameco (NYSE: CCJ) even mentioning in its latest earnings call how the entry of such a large active uranium fund could not only raise uranium prices, but also create transparency in the spot market. Cameco’s point of view is important because it is one of the largest producers in the world and is working to raise uranium prices.

Unsurprisingly, uranium stocks are skyrocketing. It is important to note that even junior miners should benefit from any uranium price hike thanks to recent actions taken by miners. . The best example is uranium energy.

Image source: Getty Images.

Uranium Energy has not generated any uranium revenue since 2015, but it has started buying physical uranium aggressively this year to take advantage of low uranium prices. As of May 20, it had accumulated nearly 2.3 million pounds of uranium in storage at an average price of around $ 30 a pound. Management hopes to be able to secure supply contracts now that they have uranium stocks, and also to sell uranium as prices appreciate, using the proceeds to increase production. and strengthen its balance sheet.

Ur-Energy already has a producing mine, Lost Creek, and recently received a permit to begin construction at Shirley Basin (both are in Wyoming). Importantly, the company had approximately 285,000 pounds of uranium ready for sale in June.

Energy Fuels shares have outperformed their peers so far this year, in part because the company has entered the rare earth market as well. Even so, Energy Fuels’ only uranium-producing mine, White Mesa, has a licensed capacity to produce nearly 8 million pounds per year, meaning it can quickly ramp up production when markets drop. uranium will recover.

Now what

There are four major triggers for uranium prices: the buying activity of the Sprott Physical Uranium Trust, the potential investments in clean energy under the Biden administration, the reduction in production of the largest producers of uranium. uranium from the world like Cameco and Kazatomprom, and an increase in global investment in nuclear energy. While the first three are self-explanatory, the last point deserves attention.

Japan has revived dormant nuclear reactors in preparation for the Summer Olympics, and now has nine operating reactors – the highest number since the Fukushima Daiichi disaster in 2011.

And the country is reportedly considering doubling the share of renewables in its electricity grid over the next decade. This includes aggressive investments to restart its dormant capacity, according to a the Wall Street newspaper report today.

Considering that Japan is a nuclear power plant, and nuclear power is the key to uranium’s survival and growth, you can see why this is such big news for the industry. Add to that the potential of the Sprott fund to boost the uranium market, and it’s clear why uranium stocks were heading skyward today.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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