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The hottest commodity right now isn’t gold, silver, water, or data.
Not the stuff that Doc Brown stole from the Libyans in “Back to the Future.”
That was plutonium.
At 92, uranium is two numbers away from plutonium on the periodic table of elements. It’s the heaviest naturally occurring element and is vital to the future of global energy. You see, uranium helps to produce the nuclear fuel used to generate electricity in nuclear power stations.
Today, I want to walk you through why uranium is back in the news and why the price continues to break out to levels we haven’t seen since 2016.
Why Uranium is So Important
Uranium doesn’t appear to generate too much attention these days.
When investors think of energy, there is typically chatter around Big Oil companies such as Chevron or Exxon Mobil. Speculators focus on natural gas producers in the Appalachian Valley or oil prospectors in the Permian Basin of Texas. Renewable energy gets a wealth of attention because of President Biden and the growing green movement. As a result, there have been big stock price swings in the world of electric vehicles, solar panels, wind generation, and even geothermal energy.
Yet somehow, nuclear energy doesn’t generate a lot of interest or headlines. That’s a bit crazy given that nuclear power represented about 10% of global electricity generation in 2019, according to the Energy Information Administration.
Uranium is the primary fuel behind nuclear power. I’ll spare you the science lesson, but I do want to talk about the advantages and disadvantages of nuclear energy.
On the downside, uranium is not considered a renewable source of energy because it cannot regenerate itself. The sun shines. The wind blows. And the energy produced by both can be stored, used, and restored in batteries. Nuclear fuel doesn’t have this advantage, and nuclear waste is a danger (I’ll discuss this more in a moment).
In addition, nuclear energy is very capital intensive up front. So it’s not cheap to build reactors.
But nuclear energy itself is extremely clean; it doesn’t require much land or noise to generate electricity. Wind farms and solar farms are massive. Nuclear energy plants can provide an incredible amount of energy to regions with a relatively small footprint.
Yet despite those benefits, nuclear power isn’t getting the attention it rightfully deserves.
Well, here’s a simple opinion.
Nuclear power has two possible stains on it — first, the loose association with nuclear weapons. A movement out of the 1960s against nuclear weapons eventually found itself opposing atomic energy. These two things have a word in their name in common.
But the related science is very, very different.
Nuclear energy centers around the ability to generate energy from the decay of naturally occurring elements such as uranium. It is a slow, controlled reaction.
Nuclear weapons, on the other hand, involve the fusing of two atoms in a violent, uncontrolled explosion.
This association has frustrated many proponents of nuclear energy, who recognize the benefits of this energy source to reach the mandated goals for reducing carbon emissions while still fueling a robust economy.
The second stain on nuclear power is obvious.
The meltdown at Chernobyl, the partial meltdown at Three Mile Island, and the earthquake that destroyed the Fukushima nuclear power plant remain burned in the minds of anyone who has followed the news since the 1980s.
People opposed to nuclear power warn about the possibility of additional meltdowns and the dangers to the human race.
But the data suggests otherwise. Take a look at this chart from the Paul Scherrer Institute. It shows that traditional energy sources such as oil and gas are far more lethal.
Even renewable sources in wind and solar are more dangerous on the macro level than nuclear power.
Nuclear Power Is Needed
The Biden administration and the Department of Energy reported this week that solar power will be able to fuel 40% of the national energy grid by 2035. Of course, this requires dramatic improvements in solar efficiency, widespread infrastructure deployment, and a number of other factors to go our way.
The sentiment that renewable energy sources will somehow support a growing economy requires a lot of crossed fingers, heel-clicking, and wish fulfillment. Given that the Paris Climate Agreement has aggressive carbon emissions targets, nations will need to decarbonize at a breakneck pace by 2030.
But what happens if the sun doesn’t shine? Or there’s a trade war between the U.S. and China that dramatically reduces access to solar panels and the rare earth metals required to make all of these new battery storage technologies? A wish is not good policy.
There is one group of people that thinks renewable sources are the pathway to complete decarbonization. There’s another group that believes we can just keep using oil and gas forever, and that this should be our energy policy. Both are wrong.
And it’s not good policy to ignore the fact that we already have a robust, deployable energy source in nuclear power.
So, forward-thinking investors have recognized that eventually, governments are going to have to admit that any economy based on alternative energy sources must turn to nuclear power. And it appears that one investor has started the party for a possibly dramatic run in uranium prices in the future.
Sprott Makes a Move on Spot Uranium
Here’s where the story gets interesting. Sprott Inc. is a North American asset manager that specializes in metals investment and other real assets. If you’ve followed their gurus or attended any event where their executives have spoken, you know they have a long-term bull case for uranium.
Uranium prices have hit their highest level since 2014 because of action Sprott took in this commodity market in August. This year, Sprott launched the “Physical Uranium Trust” and started purchasing massive amounts of the commodity on a daily basis.
So far, according to Bloomberg, the fund has purchased 24 million pounds of uranium. By taking the physical product off the market, Sprott is reducing the supply and fueling a run in prices. This week, uranium increased in price to $40.25 per pound for the first time since early 2014.
As Bloomberg notes, the uranium purchases come at a time when demand is expected to rise. An uptick in prices would help spur an increase in production to meet expected demand after 2023. And with power plants that use natural gas and coal paying more for these commodities to generate energy, electricity costs continue to rise for consumers.
Thanks to the ongoing rise in uranium prices, producers have seen a nice pop in their stock. And this could start a rally in the industry well into 2022. At the center is Cameco Corp. (CCJ), a Canadian company that is one of the world’s largest uranium suppliers.
According to TradeSmith Finance, CCJ is in the Green Zone and has been in upward momentum for 2021. If you’re looking for a way to potentially play the long-term fundamentals behind nuclear power, this could be the most reliable way to do so.
Justice will be back for Monday’s Daily to round out his thoughts on El Salvador’s Bitcoin experiment and its potential impacts on the broad crypto market. Look for my insights again early next week.