Workers wearing protective clothing inspect a valve at the "C" tank farm on the Hanford Nuclear Reservation near Richland, Washington, to prevent uranium from leaching into the Columbia River, July 9, 2014. (AP Photo/Ted S. Warren, file)
Hedge fund managers are pouring money into stocks of uranium, a naturally radioactive element that powers nuclear reactors and atomic bombs, after the nuclear fuel saw a 37-percent rally in prices.
Uranium is one of the cleanest ways to produce electricity and is mainly used in nuclear power plants. Demand is rising for the metal. At least 16 African countries have or produce uranium, with 18 percent of the global supply coming from Namibia, Niger and South Africa. China and India are investing in uranium to meet increasing electricity demand while addressing air pollution. In 2020, Kazakhstan produced the largest share of uranium from mines (41 percent of world supply), followed by Australia (13 percent) and Canada (8 percent).
Uranium prices have been largely stagnant since Japan’s Fukushima power plant disaster in 2011, when an earthquake set off a tsunami and a 46-foot wave swept over the plant’s seawall, flooding the reactors. More than 18,000 people died in the Japan tsunami. Emergency generators failed at Fukushima and circulating pumps lost power. Three nuclear reactors melted down resulting in three hydrogen explosions and the release of radioactive contamination in Japan. Germany and Japan shut down reactors over safety concerns.
The uranium price rally has brought investors back to the sector. Ben Melkman’s New York-based Light Sky Macro, Anchorage Capital and Tribeca Investment Partners have remained positive, arguing that CO2-free nuclear power will become essential to fighting climate change as nuclear power helps the world transition away from fossil fuels.
“That’s something that’s just recent, and you’re seeing this from the Biden administration acknowledging and providing support for nuclear,” said John Ciampaglia, CEO of Sprott Asset Management, in a Bloomberg interview. “And the European Union clearly identifies nuclear as part of the taxonomy.”
Here are three things to know about why hedge fund managers are pouring money into uranium stocks.
While it is widely believed that nuclear energy should play an integral role in the clean energy transition, the high costs have made it uncompetitive compared with other energy sources. But a sharp rise in fossil-fuel-sourced energy prices this year has improved nuclear competitiveness and attracted demand. There is also increased commitment to new nuclear power stations in China and elsewhere.
Japanese Prime Minister Fumio Kishida wants to restart nuclear power plants in the country that were shut down following the Fukushima disaster, which led to power loss in the Fukushima Daiichi plant.
Demand for uranium is anticipated to rise from around 162 million pounds this year to 206 million pounds in 2030, and 292 million pounds in 2040, according to the World Nuclear Association, although the supply could fall by 50 percent by 2030 because of lack of investment in new mines.
The price of uranium hit an eight-year high of $50 a pound last month, according to the price tracker UxC LLC. The surge followed the recent launch of an exchange-traded fund by Sprott Asset Management LP, a Toronto-based global investment manager specializing in precious metals and real assets investing.
Sprott bought large stockpiles of uranium after raising money from shareholders.
Sprott bought a 25-million-pound stockpile of uranium this year, equal to about 14 percent of the annual consumption in the world’s nuclear reactors. Sprott launched the Physical Uranium trust, where investors can get direct exposure to the metal without having to buy or store it. The fund invests and holds substantially all its assets in uranium, which is stored in highly secured facilities in Canada, France and the U.S.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
